Chip Makers Feel Squeeze

SINGAPORE -- Rapidly declining demand for semiconductors because of the global economic slowdown is squeezing Asian chip makers already bruised by a supply glut and losses, forcing them to scramble to stay afloat.

Powerchip Semiconductor Corp., Taiwan's biggest maker of dynamic random access memory chips by revenue, said Friday it is studying a plan to ask the Taiwan government to buy a stake in Rexchip Electronics Corp., a joint venture with Japan's Elpida Memory Inc.

Elpida, Japan's sole maker of DRAM chips, widely used in personal computers, separately said Friday it is considering various options for raising new funds, including a new share issuance by Rexchip. This came after the company was forced to redeem its entire 50 billion yen ($549.2 million) convertible bond because of its weak share price.

These announcements came as Singapore chip maker Chartered Semiconductor Manufacturing Ltd. said Friday it expects a wider net loss and lower revenue in the current fourth quarter due to deteriorating market conditions, comments that further eroded confidence in an already battered industry.

"As the quarter is progressing, we are seeing some of our customers postponing their deliveries due to, what we believe are, weaker market conditions and their intent to keep inventories low," said Chartered Chief Financial Officer George Thomas.

In response, Chartered said it eliminated 273 contract positions and will shut down some of its operations during the Christmas holiday week. It has also instructed employees to clear their leave by the end of the year.

In November, Chartered registered with the U.S. Securities and Exchange Commission to issue and sell "from time to time" up to $955 million of ordinary shares, preference shares, debt securities and warrants.

The Semiconductor Industry Association said last month fourth-quarter global semiconductor sales will drop 5.9% from the previous quarter, while 2009 sales will decline by 5.6% to $246.7 billion.

With no clear indication on when the global economy will recover, major industry players such as Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp., Samsung Electronics Co. and Hynix Semiconductor Inc. have already announced measures to cut costs. Those include cutting production, future capital spending, executive pay and implementing hiring freezes.

Woori Investment & Securities Analyst Park Young Ju said some chip makers may receive support from their respective governments, given their importance to the economy in terms of output as well as employment.

Taiwan's ProMOS Technologies Inc. recently sought government assistance to extend the payment of loans, and Taiwan's Ministry of Economic Affairs Industrial Development Bureau Director General Chao-yih Chen said the government may consider buying stakes in DRAM makers.