Asia's chips issue rock-bottom report cards

By CNN's Kristie Lu Stout

SINGAPORE (CNN) -- Asia's major chipmakers are handing in their report cards this week as the sector slowly recovers from its worst slump yet.

Both Samsung Electronics and Chartered Semiconductor reported significant chip revenue fall-offs, fueled by a weak global demand in consumer electronics and personal computers.

But analysts are confident of a chip rebound in the second half of 2002.

"Twelve months out, conditions in the semiconductor sector will be better than at present," said Goldman Sach's regional tech analyst Jonathan Ross in an email report.

'Point of stabilization'

Singapore's Chartered Semiconductor on Tuesday posted a third-quarter net loss of $118 million, compared to a net profit of $71.6 million a year ago.

The number-three chip foundry said that it was nearing the trough of the global semiconductor sector slump, but added that a "point of stabilization" was imminent.

On Monday, Samsung Electronics reported a $325 million net profit in the third quarter -- a 75 percent drop from $1.3 billion a year ago.

The world's leading memory chipmaker has vowed to use its size to endure the downturn, saying it won't be cutting chip production despite heavy losses in its semiconductor division.

Already, weaker players have cut back. In July, Hynix Semiconductor suspended operations at its U.S. chip plant for six months.

Hynix, the world's third largest memory chip maker, on Friday posted a $1.25 billion loss in the third quarter after sales plunged 77 percent, its worst three-month performance on record.

Gartner estimates that the memory chip market will shrink this year by 67 percent.

Prices of DRAM chips, the least profitable semiconductor category, have fallen 90 percent over the last year.

Offsetting chip losses

Samsung Electronics may offset continued losses in its chip division by focusing on its handset business. The Korean electronics heavyweight is the world's fifth largest producer of cell phones.

Japanese chip making giants Fujitsu, NEC and Toshiba -- which will issue their earnings results later in the week -- are also expected to post slack semiconductor sales.

Like Samsung, the Japanese chipmakers are also makers of a diversified range of electronic products. Analysts say now is the time for the firms to back away from chips and focus on their more profitable businesses like home appliances, digital media and software solutions.

Strong forecasts in software spending might help reverse the fortunes of Japan's tech conglomerates.

According to the latest Tankan survey, investment in software services by large enterprises in Japan will grow 14.5 percent this fiscal year, a surge largely fueled by the sweeping restructuring efforts in Japan's corporate sector.

Japan's chipmakers have been striking alliances with major software names to better develop their expertise in the more promising software business.

Last week, Japanese news media reported that Fujitsu and IBM are in talks to jointly develop software for the corporate market.

NEC and Microsoft also announced plans to work together in developing services for Japanese corporate clients.

TSMC on the upswing

But among pure-play chipmakers, TSMC remains a ray of light in the otherwise dim chip sector.

The Taiwanese chip foundry, ready to report its results on Friday, has predicted a third quarter operating income that will be five times the $8.2 million it achieved the previous quarter.

Merrill Lynch semiconductor analyst Dan Heyler is increasingly sure that contract chipmaker is on the upswing, maintaining that " TSMC's valuation, utilization, and margins have bottomed."

Industry watchers attribute TSMC's success to the fact that it makes chips for a wide array of customers.

"When you are in the foundry business, you are managing a portfolio of customers," said Daiwa Research analyst Pranab Kumar Sarmah.

"Some do good, some do bad. When you have more customers, your volatility is a little lower."