CSM and STATSChP update
SINGAPORE (Dow Jones)–The growing popularity of gadgets like MP3 players and game consoles is helping change the fortunes of loss-making chip companies STATS ChipPAC Ltd. (S24.SG) and Chartered Semiconductor Manufacturing Ltd. (C27.SG)
For the three months ended Dec. 31, the two Singapore companies are expected to post their first profits after a string of quarterly losses.
Analysts say the recovery, underpinned by a healthy pipeline of customer orders, is likely to be sustained in 2006.
“The uptick in the sector has been mostly driven by strong demand for chips due to the growing popularity of new consumer electronic gadgets like MP3 players, flat panel screens, game consoles and mobile handsets,” said Macquarie Research analyst Patrick Yau.
The strong demand for these gadgets is expected to have pushed full year revenue for each of the companies past the US$1 billion mark, analysts say.
Results for STATS ChipPAC and Chartered Semi are due Thursday and Friday respectively.
Chip testing and packaging company STATS ChipPAC is projected to post a net profit of US$8.2 million for the fourth quarter, according to a Dow Jones Newswires poll of five analysts. Forecasts range from US$5.2 million to US$13 million.
This compares with losses of US$469 million in the year earlier period and US$1 million in the previous quarter.
STATS ChipPAC’s fourth-quarter loss for 2004 included a US$453 million goodwill writedown related to the merger of STATS and ChipPAC.
In October the Singapore-listed company, which also has American Depositary Shares traded on Nasdaq, said it expects to post its first profit in six quarters for the October-December period, thanks to continued sales growth especially in the consumer segment.
For the full year, analysts forecast the company will post a net loss of US$32.8 million, compared with a net loss of US$467.7 million in the previous year.
Revenue for the three months is forecast to rise about 32% from a year earlier to about US$351.1 million, while full-year revenue is expected to increase by 49.6% to US$1.15 billion, according to the Dow Jones Newswires poll.
Daiwa Institute of Research analyst Pranab Sarmah said STATS ChipPAC also likely benefited from higher average selling prices during the fourth quarter.
“In the second half of 2005, backend demand grew at a faster rate than capacity addition, resulting in companies like STATS being able to enjoy better margins due to higher average selling prices,” he said.
Rosy 2006 Outlook
Chartered Semi is also expected to swing into the black on the back of solid demand for Microsoft’s Xbox360 game consoles.
According to a Dow Jones Newswires poll of five analysts, Chartered Semi will report a fourth-quarter net profit of US$18.9 million, compared with net losses of US$34.5 million in the previous quarter and US$26.8 million a year earlier.
The company raised its fourth-quarter guidance in December due to strong demand for the chips used in the Xbox360 game console.
The world’s fourth-largest contract chipmaker expects net profit for the quarter at approximately US$16 million, compared with the previous midpoint guidance of US$10 million.
The forecast of higher profit and revenue for the three months ending Dec. 31 follows four consecutive quarters of losses, due to factors including seasonal weakness and startup expenses for a new plant called Fab 7.
The Singapore-based chip foundry raised revenue guidance for the quarter to about US$367 million from about US$359 million.
For the full year, analysts believe that the company will post a net loss of US$167.2 million, compared with a net profit of US$6.6 million in 2004.
Analysts also expect revenue growth driven by Xbox360 sales to spill over into the first half of 2006, helping to cement the chipmaker’s recovery.
Microsoft aims to sell 3 million units of Xbox360 within the first three months of its release and 10 million units by the end of the first year. The device was launched in the U.S. in late November.
According to the Dow Jones Newswires poll, fourth-quarter revenue is likely to have almost doubled from a year earlier to US$368.3 million, while full-year revenue is expected to rise 10.9% to US$1.03 billion.
In a recent report, Merrill Lynch research analyst Daniel Heyler said that Chartered Semi is “well positioned” to continue to gain market share in 2006 due to its entry into game console microprocessors, personal computer processors, and wireless baseband chips.
Heyler, who sees a 60% increase in revenue for 2006, also expects “a meaningful round of earnings revisions for 2006″ for Chartered Semi partly because fears of a slowdown in Xbox-related orders are unlikely to be realized.
Analysts now believe that wafer shipments related to Xbox360 should remain flat in the first quarter compared with initial fears of a sharp dip following a strong ramp up in the fourth quarter.
On top of that, Microsoft is preparing to launch the Xbox360 in 30 countries in March this year, according to Daiwa’s Sarmah.
Also, Daiwa forecasts the average selling price for Chartered Semi to have risen to US$1,127 per wafer in the fourth quarter from US$1,039 in the third quarter and US$944 in the second quarter.
Morgan Stanley expects STATS ChipPAC and Chartered Semi to gain market share and grow their revenue at a pace faster than the industry in their 2006 fiscal years.
The Semiconductor Industry Association in the U.S. forecasts global semiconductor sales to increase 7.9% to US$245.5 billion in 2006 and to reach US$309.2 billion in 2008.
Morgan Stanley forecasts STATS ChipPAC to post 2006 net profit of US$71 million on revenue of US$1.44 billion, while Chartered Semi is forecast to record a full-year net profit of US$146 million on US$1.6 billion in revenue.
