Market Analysts Issue Bleak Foundry Forecasts

Taipei, July 12, 2011 (CENS)--Both Daiwa Capital Markets and Barclays Capital Taiwan have issued bleak forecasts about the prospects for the silicon foundry industry in the third quarter.

Eric Chen, a senior analyst at Daiwa Capital Markets tracking the semiconductor industry, recently forecast silicon wafer shipments by Taiwan Semiconductor Manufacturing Co. (TSMC) in the third quarter to see zero growth, compared to an earlier-projected 5% increase over the second quarter. For the shipments by United Microelectronics Corp. (UMC) in the meantime, he projected a 8% drop.

Chen pointed out that capacity utilization rate of 300mm wafer factories have been dropping faster than that of 200mm factories. He estimated an average rate of 84% for TSMC's 300mm wafer fabs and 70% for UMC factories in the third quarter. He estimated TSMC's 300mm wafer fabs would see lower capacity utilization than its 200mm wafer fabs for the first time since the third quarter of 2009.

Chen attributed the low foundry utilization rate partly to lukewarm market for mobile phones, which are facing greater downward pressure on prices than consumer electronics and PCs. Among TSMC's primary customers are mobile-phone chip vendors, including MediaTek Inc. and Qualcomm International Inc.

Andrew Lu of Barclays Capital Taiwan has downgraded his rating for TSMC to “hold” from “outperforming”, estimating that global foundry would face a risk of 15% oversupply in 2012.

Lu based the downgrade rating on the lack of short-term and middle-term factors that can help shore up the company's share price, mounting skepticism on the company's 20% year-on-year increase goal for this year, and fears that the company's annual earnings growth would decline to negative rate from positive rate.

Estimating that global foundry supply would enjoy an annual growth rate of 30% whereas the demand would increase only half the rate, Lu warned a 15% oversupply would likely happen in the second half this year.

Chen and Lu are not alone in issuing downbeat forecast on foundry industry. Randy Abrams of Credit Suisse Group AG has cut down his target price for TSMC shares to NT$83 from NT$86 while Dan Heyler of Merrill Lynch has lowered his target price for UMC share to NT$11.9.