Slower growth at the leading edge
Although Chartered will benefit from seasonally stronger demand for Xbox
360 video game consoles, we are disappointed that production ramp for
leading edge 65nm technology node has lagged expectations in 2H07:
Halo 3 and price cut boost demand for Xbox 360. Halo 3, the final chapter
in the epic science fiction video game trilogy, was launched on 24 September
at more than 10,000 retailers across the US. The exclusive blockbuster game
raked in sales of more than US$300m in the first week after release.
According to Microsoft, weekly sales volume for video game consoles more
than doubled after launch of Halo 3. Microsoft has also cut estimated retail
price of Xbox 360 by US$50 starting 8 August. The standard Xbox 360 with a
20GB HDD, wireless controller and Xbox 360 headset is now selling at a
more affordable price of US$349.99.
AMD loosing ground for quad-core microprocessors. AMD’s widely
anticipated new quad-core Opteron microprocessor code-named Barcelona
was delayed and did not reverse AMD’s predicament in the server space.
AMD only began shipping Barcelona with frequencies up to 2.0GHz in Aug 07,
two months behind schedule. Unfortunately, a rejuvenated Intel continues to
ramp up in terms of new product introductions. Rival Intel launched quad-core
Xeon 5300 microprocessor with frequencies up to 2.66GHz as early as Nov
06. It subsequently unveiled six quad-core Xeon 7300 microprocessors with
frequencies up to 2.93GHz designed for multi-processor servers in Sep 07.
The challenge from Intel has resulted in price erosion for microprocessors
used in servers. We suspect that price reduction has forced AMD to focus on
internal fab efficiency, leading to lower outsourced volume. Weakness in
shipment to AMD will affect contribution from leading edge 65nm technology
node in 2H07.
Slower-than-anticipated ramp-up for 65nm in 2H07. Revenue from 65nm
technology node is expected to expand 70% qoq in 3Q07 due to a ramp-up
for video game consoles and mobile phones but represents only 10% of total
business. Chartered has customer engagements on 65nm for baseband,
wireless communications and high-definition TV for production starting 4Q07
and 1Q08. However, production ramp for 65nm in 2H07 is slower than
previously anticipated, possibly due to more competition from Taiwan-based
semiconductor foundries.
Maintain HOLD. Management guided revenue of US$338m, a 4.2% increase
qoq, and expects the company to break even in 3Q07. Management
reaffirmed the third quarter guidance on 6 Sep 07. As such, we continue to
expect Chartered to trade between S$1.10 (entry price) and S$1.32 (fair price
based on 2007 EV/EBITDA of 5.5x). The stock is also trading at an attractive
P/B ratio of 1.4x.
October 15, 2007...11:57 am
Chartered Semiconductor
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