Less than a month and a half ago, local semiconductor companies had forecast revenues would decline faster this quarter, with demand during the gift shopping season falling short of expectations.
Now, with a sluggish economy aggravating weak demand, firms desperate to cut costs are forcing employees to take unpaid leave. And, analysts fear, if economies such as the US take long to recover, it could be just the start of more drastic measures.
Local chip companies, including the major competitors, have been opting to cut back workers’ hours in response to shrinking demand. That will remain a key cost-saving measure for companies struggling through a downturn with no recovery in sight.
“For companies that need a lot of capital spending, employee payrolls should not be the key component to their costs and expenses. But small savings can still have a life-saving impact,” said Kenneth Lee (李克揚), a semiconductor analyst with Taipei-based Primasia Securities Co (犇亞證券).
At a computer memory chipmaker, for example, staff salaries generally account for just 5 percent of the cost of its products. Cutting the payroll by 20 percent will only reduce production costs by 1 percent, Lee said.
“The No. 1 goal is to save cash,” Lee said.
Cash-strapped computer memory chipmakers began reducing employees’ working hours last month after cutting output by 15 percent last quarter. A bigger output cut is planned for this quarter to ease oversupply and alleviate huge losses.
Compared with computer memory chipmakers, companies making chips for handsets and consumer electronics are under less stress, but some are on the verge of losing money as demand weakens and could turn to cost-saving measures.
Fitch Ratings has a negative rating on the semiconductor industry as the weaker macroeconomic environment may result in lower revenues for all semiconductor markets. PCs and mobile phones, which represent nearly 60 percent of global semiconductor consumption, could be especially hurt, Fitch Ratings said.
The global semiconductor industry’s revenues may fall by a rate in the high single digits next year from this year, Fitch projected, without providing detailed figures.
The nation’s biggest handset chipmaker, MediaTek Inc (聯發科), was the latest to switch to a more conservative outlook, following the world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), and the world’s two-largest chip packagers, Advanced Semiconductor Engineering Inc (日月光半導體) and Siliconware Precision Industries Co (矽品).
“The global financial storm has started to impact on demand in the emerging markets. End demand for all products is lower than expected,” MediaTek said on Thursday.
Revenue may plunge by more than 30 percent this quarter from NT$28.05 billion in the third quarter, rather than a decrease of between 9 percent and 16 percent estimated in October, the Hsinchu-based chipmaker said.
Last week, TSMC said it had asked its employees in manufacturing departments to take five unpaid days of leave a month beginning this month. In October it said spending on new equipment could drop 20 percent next year.
“The company must do its utmost to lower costs. At the same time, we will also do all we can to protect employees’ jobs,” TSMC chief executive Rick Tsai (蔡力行) said in a video address to employees broadcast online.
“It looks as if this period of economic weakness will last for a fairly long time, and business will become more difficult,” Tsai said.
The day before, TSMC slashed its fourth-quarter revenues and margin forecast by more than 8 percent, bringing the decline to more than 30 percent rather than 26 percent as forecast in October.
MediaTek may not be the last company to lower its forecast for this quarter. United Microelectronics Corp (UMC, 聯電), the world’s second-largest contract chipmaker, could follow suit by revising its forecast, scheduled for release tomorrow, along with the release of its sales figures for last month.
UMC joined its peers in cutting employees’ working hours this month.
The first quarter is usually slacker than the fourth quarter, Lee said, adding that more “extreme measures can be taken to gain more cash if things get worse.”
Those measures include selling old equipment and reducing inventory, which can increase a company’s cash position, and calling cash back from investment subsidiaries, Lee said.
But “any action is possible and every action is difficult,” Lee said.
Amid the slump, investors were trying to identify safer sector leaders with strong net cash positions and small losses or expected to be profitable by next quarter, Citigroup Inc analyst Andrew Lu (陸行之) said in a report.
It seems Taiwan’s TSMC, Siliconware, MediaTek and South Korean Samsung Electronics Co fit this theme, Lu said.
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
Prices of gasoline and diesel products at domestic gas stations are to fall NT$0.2 and NT$0.1 per liter respectively this week, even though international crude oil prices rose last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices continued rising last week, as the US Energy Information Administration reported a larger-than-expected drop in US commercial crude oil inventories, CPC said in a statement. Based on the company’s floating oil price formula, the cost of crude oil rose 2.38 percent last week from a week earlier, it said. News that US President Donald Trump plans a “secondary
RSS