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Contract chip makers spared Intel's woes

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CIOL Bureau
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Jennifer Tan and Michael Kramer

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SINGAPORE/TAIPEI: The world's top contract chip makers are not yet feeling the slowdown in demand that led Intel Corp. to cut its third-quarter forecasts, but analysts say the relief may be just temporary.

Chartered Semiconductor Manufacturing Ltd., the world's third-largest supplier of custom-built microchips, re-affirmed its quarterly profit forecast on Friday, just hours after Intel lowered its revenue and profit margin guidance.

Chartered's bigger rivals, Taiwan's TSMC and UMC, report August sales next week that are expected to show an increase on record highs marked in July.

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"I think the peak will not come until September," said Warren Lau, semiconductor analyst at Macquarie Securities.

Souring consumer demand for electronics has not yet reached contract chip makers at the top of the supply chain, analysts said. It is the contract chip makers' customers like Nvidia Corp. and Texas Instruments Inc. that are feeling the heat for now.

Indeed, China's Semiconductor Manufacturing International Corp., the fifth-ranked contract chip maker, said it was not seeing the problems reported by Intel.

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"For the foundries (contract chip makers), most of the third quarter is already in the bag," said Lau. "But the question is going into the fourth quarter -- that is the biggest risk."

Intel, the world's largest chip maker, startled global markets with a big cut to its revenue and profit margin estimates, sparking a global sell-off in technology stocks.

Taiwan Semiconductor Manufacturing Co. (TSMC) lost 3.27 percent, while its smaller rival United Microelectronics Corp. (UMC) fell 4.42 percent.

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MIXED DEMAND

Singapore's Chartered said September quarter earnings would total $5.5 million to $13.5 million, against a year-ago loss, little changed from its previous forecast.

"Compared to second-quarter 2004, as we had expected, we are seeing strength in the computer sector offset by weakness in the communications and to a lesser extent, the consumer sector," Chartered's Chief Financial Officer, George Thomas said in a statement.

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Chartered's Singapore-traded shares ended 0.96 percent higher at S$1.05.

In July, Chartered disappointed investors when it forecast little change in revenues for the three months to Sept. 30.

The larger Taiwan firms gave more upbeat forecasts in July, with TSMC estimating a 4-5 percent quarter-on-quarter rise in shipments, and UMC seeing a 15-16 surge after acquiring a plant from a sister firm in the first half of the year.

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However, Intel said it reduced forecasts because orders for both its PC microprocessors and communications chips weakened beyond expectations and customers were working off excess inventories of unsold components.

"Intel's inventory problem bodes badly for Q4, and seems to indicate that year-end seasonal demand for the industry would be lower than historical trends," said Netresearch-Asia analyst, Russell Tan.

Lau said he expected TSMC and UMC's October-December revenues to decline about 1-2 percent from the third quarter, despite TSMC's assurance in July that sales would continue to grow in the fourth quarter.

In the past two weeks, TSMC shares have shed most of a nearly 15.6 percent rise recorded since its July forecast. Its shares have fallen 20.3 percent since the beginning of the year to trade at about 11.4 times forecast earnings.

UMC has suffered a similar fall, for a P/E ratio of 10.2, while Chartered trades at 20.3, according to Reuters Estimates.

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