Tuesday, August 2, 2005
With STATS ChipPAC Ltd. continuing to post losses nearly a year after the merger that created it, and failing to leverage on a generally positive industry environment, observers said the immediate outlook for the test and packaging firm is grim.
On July 28, the company reported a loss of $15.1 million for the quarter ending June 30, an improvement over the $27.1 million loss seen in the first quarter of 2005 but still on the low end of the company's own guidance and analysts' expectations.
Many said the firm's mediocre performance is largely a result of the $1.2 billion union of ST Test and Assembly Services and ChipPAC last August, which has so far failed to live up to its promise.
STATS ChipPAC said in its quarterly earnings report that special items and costs associated with the merger reached $14.1 million.
"The company may still be in the midst of completing its integration," Jonathan Koh, an analyst with UOB KayHian Securities, said. "It's working very hard, but the synergies from the merger are just not coming."
Dharmo Soejanto of Kim Eng Securities noted that despite the merger supposedly generating "facilities across a wider geography and synergistic cost savings" the combined STATS ChipPAC entity is currently worth slightly less than when on its own, meaning shareholders have so far lost out from the alliance.
Rohan Suppiah, research manager with OCBC Investment Research, said the company's results were "disappointing" and could signal deeper problems with its product range.
"The merger is of course going to take some time, but with utilization rates high and general upside now in the sector it seems that STATS ChipPAC's product offering may not be relevant, and that's why it's not seeing growth," he said. "There needs to be some leadership there to drive the business."
Most analysts agreed the short-term outlook for the company was less than promising, despite its plans to expand its product range and complete a new 300,000-square-foot facility in Shanghai, China, next year.
"We don't expect them to turn profitable in the next few quarters. The company is still being weighed down by amortization charges related to its merger. This amounts to about $13 million every quarter until the second quarter of next year. So we are only expecting them to turn profitable in the third quarter of 2006, assuming the semiconductor market continues to grow," Soejanto said.
Koh of UOB KayHian said STATS ChipPAC would likely register losses for at least two more quarters.
Suppiah said the firm could return to profitability early next year but that this was heavily dependent on its success in expanding its customer base.
By: DocMemory
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