SAN JOSE, Calif. An investment banking firm has cut its estimates for Taiwan's two leading foundries amid 65-nm migration delays and lackluster growth seen for the second half of 2007.
The Hongkong and Shanghai Banking Corp. Ltd. (HSBC) reduced its forecast for Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC). Recently, HSBC projected a quarterly loss for the industry's other major foundry, Chartered Semiconductor Manufacturing Pte. Ltd.
"Modest second-half semiconductor revenue growth and mixed inventory" concerns have dampened the overall foundry outlook, warned Steven Pelayo, an analyst with HSBC, in a report.
"In our previous foundry progress report, we noted that consensus expectations were for 2H '07 revenue growth of [about] 30 percent," Pelayo said. "While 1H '07 inventory work downs support 3Q '07 foundry revenue growth of [about] 14 percent, lack of customer revenue follow through means foundry revenue momentum likely stalls beginning 4Q '07."
There are several troubling signs. "Industry indicators suggest near term pause into 1H '08 given: 1) mixed year-over-year semiconductor revenue and inventory trends; 2) a slower technology migration impacting pace of new product cycles; 3) current low levels of foundry capital spending, suggesting large scale migration to 65-nm likely more than six months out."
As reported, sources indicated that it is taking longer than expected to ramp 65-nm designs in the market. Sluggish simulation rates, optical proximity correction (OPC) bottlenecks and other issues are impacting the general ramp of 65-nm designs, sources added
"As for the technology migration, we believe the majority of today's foundry 65-nm is for graphics chips and broadbased adoption is more likely in 2Q08 and beyond," according to Pelayo. "We can see further evidence supporting this as current foundry capital spending and order levels with equipment suppliers is near record lows; clearly foundries are not planning on a large near term ramp of 65-nm volume production."
There are some positive signs. Foundry customer inventory levels have come down from more than 80 days to about 73 days, according to the analyst. "While the improvement is good, the absolute level is still above previous cyclical troughs levels which are usually around 65 days," he said.
"The details show that inventory trends differ by end market with levels remaining high in consumer and wireless segment, at troughs in the wireline and PLD sectors," he said. "By company, the notables are Qualcomm and Mediatek [in] 2Q, where inventory levels inventories increased 14 percent and 65 percent quarter-over-quarter respectively, while Nvidia fell to levels not seen since 2002."
Accordingly, HSBC lowered its estimates for TSMC and UMC. TSMC is projected to see sequential sales growth of 1.1 percent and minus 5.4 percent in the fourth quarter of 2007 and the first quarter of 2008, respectively, according to the firm.
Previously, TSMC was projected to see sequential sales growth of 9.1 percent and minus 2.5 percent in the fourth quarter of 2007 and the first quarter of 2008, respectively, according to the firm.
UMC is projected to see sequential sales growth of 3 percent and minus 4.4 percent in the fourth quarter of 2007 and the first quarter of 2008, respectively, according to the firm.
Previously, UMC was projected to see sequential sales growth of 9.9 percent and minus 6.3 percent in the fourth quarter of 2007 and the first quarter of 2008, respectively, according to the firm.