Asian contract chip makers reel from downturn

The world's largest contract chip maker, Taiwan Semiconductor Manufacturing (TSMC) reported its worst monthly sales in years this week, while rival United Microelectronics (UMC) posted its biggest quarterly loss ever as the economic downturn continued to take its toll.

TSMC's consolidated sales for the month of January fell nearly 58 percent year on year to US$389.1 million. The figure is the lowest monthly sales report for TSMC since February of 2003, when the company was around half the size it is today.

TSMC's largest rival, UMC, turned in the second bit of bad news for the day with its NT$23.51 billion (US$696.7 million) fourth-quarter net loss. The company's sales in the quarter slumped 33 percent compared to a year earlier, to NT$18.54 billion. A large portion of the loss was related to bad investments.

"We've already seen weakness across all major applications, computer, consumer electronics and communications," said Sun Shih-wei, chief executive officer of UMC, at an investors' conference in Taipei.

He expressed hope the first quarter might be the bottom of the downturn, but said there is no clarity in the global economy to make safe predictions.

"This is more severe than the last recession in 2001, 2002," he said. "Last time was just the tech sector, but now it's every sector, housing , financial..."

The company expects its first-quarter chip shipments to drop another 40 percent or more and the amount of its production lines in use could drop to just 30 percent.

UMC's poor earnings report echoed those of many other rivals.

Last week China's largest contract chip maker, Semiconductor Manufacturing International (SMIC), reported a fourth-quarter net loss of US$124.5 million. That was narrower than the $622 million net loss it posted at the same time a year earlier, but its sales fell to $272.5 million from $395.3 million. SMIC is the fourth-biggest contract chip maker in the world behind TSMC, UMC and third-placed Chartered Semiconductor of Singapore.

Contract chip makers manufacture semiconductors based on designs provided by customers. Poor earnings at these companies can tell a lot about the global IT sector because chips go into all digital devices.

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