As I posted before, the presence of Glabalfoundries is a big threat to existing players in the market. (More details here http://mycroeconomics.blogspot.com/2009/07/if-you-are-shareholders-of-chartered.html)
In an investor conference call 30/July/2009, TSMC Chairman and CEO said that "We consider GF to be a formidable competitor. I really think that the battle will be a high casualty one. My job is to minimize the casualties on my side. Casualties will be represented by money."
Morris is a veteran in the industry, and I really respect him for his foresight, sharpness, openness to investors and readiness to fight the war.
Unfortunately here in Chartered, we see no such urgency. It is funny, considering that the most competitive, the strongest, and the healthest company in the industry is seeing danger. The company takes no effort to educate investors on imminent crisis. And the investors are probably still indulged in the recent bull run.
Time is not on your side.
Showing posts with label Chartered Semi. Show all posts
Showing posts with label Chartered Semi. Show all posts
Sunday, August 9, 2009
Friday, July 24, 2009
Chartered shareholders - watch out Globalfoundries!
If you are a shareholders of Chartered Semicon, I really think you should be concern of this development. Globalfoundries, a spin off of AMD, is going to announce its first non-AMD customer in a month time.
And it has huge implication.
Before Globalfoundries, the wafer foundry market is basically dominated by TSMC, with spill over to smaller wafer foundries, like UMC and Chartered. TSMC is leading at all aspects, it has the technology, and process capability, and is able to exercise customer selection. Strictly speaking it is very difficult for the remaining to survice. Luckily TSMC has not expanded too aggressively, and to some extents, large customers would not want to see a monopoly.
This will change with Globalfoundries. Well I believe TSMC will still be the number 1. However, Globalfoundries will clear preferred choice for the number 2 candidate. I would believe that the customers would like to see a worthy opponent for TSMC, and clearly UMC and Chartered have failed them in this aspect.
Specifically what does this mean to Chartered?
1) Lower ASP (average selling price) - With the announcement of Globalfoundries in a month time, you can expect many of Chartered customers would go to Chartered and threaten to move the business to Globalfoundries. I believe an erosion on ASP is unavoidable.
2) Higher cost of sales - With such a big competitor fighting for resources (raw material, equipment), the bargaining power of these suppliers will be enhanced significantly.
3) Lower utilization - Obviously when some of the business is pulled away, the utilization will be lower. And you must remember that Chartered is still struggling to meet their own goal of breakeven at 75% utilization.
4) Loss of good quality customers - The customers always like to have dual source. I cannot see any reason why they would not choose Globalfoundries. Yes, may not be immediate, but it is inevitable.
5) Harder to find technology partners with customers - When there is good solution out there, I suspect customers will be less likely to invest in technology partnership with Chartered.
In summary, shareholders please watch Globalfoundries with respect.
And it has huge implication.
Before Globalfoundries, the wafer foundry market is basically dominated by TSMC, with spill over to smaller wafer foundries, like UMC and Chartered. TSMC is leading at all aspects, it has the technology, and process capability, and is able to exercise customer selection. Strictly speaking it is very difficult for the remaining to survice. Luckily TSMC has not expanded too aggressively, and to some extents, large customers would not want to see a monopoly.
This will change with Globalfoundries. Well I believe TSMC will still be the number 1. However, Globalfoundries will clear preferred choice for the number 2 candidate. I would believe that the customers would like to see a worthy opponent for TSMC, and clearly UMC and Chartered have failed them in this aspect.
Specifically what does this mean to Chartered?
1) Lower ASP (average selling price) - With the announcement of Globalfoundries in a month time, you can expect many of Chartered customers would go to Chartered and threaten to move the business to Globalfoundries. I believe an erosion on ASP is unavoidable.
2) Higher cost of sales - With such a big competitor fighting for resources (raw material, equipment), the bargaining power of these suppliers will be enhanced significantly.
3) Lower utilization - Obviously when some of the business is pulled away, the utilization will be lower. And you must remember that Chartered is still struggling to meet their own goal of breakeven at 75% utilization.
4) Loss of good quality customers - The customers always like to have dual source. I cannot see any reason why they would not choose Globalfoundries. Yes, may not be immediate, but it is inevitable.
5) Harder to find technology partners with customers - When there is good solution out there, I suspect customers will be less likely to invest in technology partnership with Chartered.
In summary, shareholders please watch Globalfoundries with respect.
Chartered Semicon - a big cash outflow burden
Based on Chartered 2008 annual report, it has almost $3 billion contractual obligation over next 5 years.
Just how big is $3 billion? As a reference, GlobalFoundries is building a brand new 12" Fab in New York at a cost of $4.2 billion ($3.4 billion excluding construction cost), designed to ramp at 28nm and subsequently 22nm technology nodes, with a capacity of 35k 12" wafer per month.
Chartered total capacity per quarter is about 640k 8" equivalent wafer, or 213k per month, and that should equivalent to about 95k 12" equivalent wafer per month.
In other words, Chartered is carrying the cash outflow obligation equivalent to building 1/3 of its current capacity.
As of 30/June/09, Chartered has a current asset of about $1.25b, about $0.8b is cash or equivalent (remember the $0.3b cash call?). With the $800m obligation (see picture) and the latest $500 capex plan announced, it certainly seems very stretched for Chartered, even though it is expected to have positive operating cashflow.
We shall see how it resolves this ... very soon.
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