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Wednesday, May 25, 2005

Chartered @ 1.17 ( Semiconductors / Singapore ) 2 comments



(P.S: Sorry for any disturbances the advertisements above may have caused you)

Main issues

1.Dismal track record

2.Industry dynamics suggest limited growth tailwind and intensifying competition


Another of those bear traps for a counter that has had more fake turnarounds in recent times than Michael Jordan. It makes losses three years in a row from 2001-03, turns positive in 2004 amidst the upturn of the global semicon sector, then succumbs to the red-ink monster again in 1Q05. Now the tech bulls are again predicting the recovery of the semicon sector in 2H05. And so Chartered and its sister-in-arms STATS are recovering lost ground on the price charts.

The dismal earnings track record already suggests it has problems remaining viable in a secular tech bear cycle such as 2001-03. In the inevitable uptide in 2004 which lifted all boats, Chartered was only able to achieve marginal full-year profits. When the tide subsided, it was back to the red. Who wants to buy given this history of earnings vulnerability and shareholder value destruction?

A look at the macroeconomic prospects do not brighten the picture. On the demand side, it is hard to see strong demand growth in the headwind of a slowing global economy; at most it can be said that inventory levels are whittling down so that there is a need to replenish them (hence the predicted upturn for the semicon foundries in 2H). On the supply side, new upstarts like SMIC in China, together with the old Taiwanese rivals TSMC and UMC, are making strong investments in R&D and new capacity, and taking market share away (probably because of their more favourable locations to the "workshop of the world").

All this adds up to a bleak picture for Chartered's future. Don't hope that someone will buy them out. Blind hope is not a strategy in this case.

References:
(1) Semicon forecast 2Q05 by Gartner Group
(2) Chartered 1Q05 presentation - Look at Pg 16 for 2Q05 forecast

 

 

2 Comments:

Anonymous Fong said...

My sentiments exactly!!! Been feeling that since Day One of the millenium.

5/31/2005 3:13 PM  
Anonymous tankie said...

I fully agree with you. With all the losses, I wonder when they'll run out of funds again and need to do another rights issue or whether any banks will loan them new funds. They'll prob have to come out with junk bonds :)

I think CSM's greatest problem is that they have not been able to find their own niche in the market. In their efforts to catch up with the two market leaders, they end up only getting spill-over biz when the capacity of UMC and TSMC is full.

SMIC and other China Fabs had however targetted the older processes very successfully. They get their equipments cheaply and business is still abundant enough for them to move ahead of CSM even. This is a case of SMIC being successful in finding their own niche.

I think ultimately, CSM will be merged with another co., but not at the kind of price the market is expecting (and prob in the issuance of new shares). What is likely to happen, is a merger with SMIC (or another co.), with SMIC in control. The merged entity will continue to target the older process, with what is left of CSM focussing on 'developing' the next 'old' process for SMIC to continue to grow their businesses with their customers.

6/15/2005 11:11 AM  

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