Chartered @ 1.17 ( Semiconductors / Singapore ) 2 comments
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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.
(1) Semicon forecast 2Q05 by Gartner Group
(2) Chartered 1Q05 presentation - Look at Pg 16 for 2Q05 forecast