SINGAPORE (AFP) - Singapore's electronics firms, major suppliers to the world's biggest tech giants and an intergral part of the city-state's economy, are likely to face earnings pressure from the slowdown in the global sector, analysts said.
Several of the city-state's top electronics makers are already feeling the pinch from weaker orders as their clients seek to clear an inventory backlog in the run-up to the important Christmas holiday season, they said.
The government has also recently cut its 2005 growth forecasts from 8.0-9.0 percent to 8.0-8.5 percent, citing weaker growth in the global electronics sector as one of the reasons.
"Basically it's an inventory correction by various high-tech companies as a result of slower demand in the markets," said Erly Witoyo, a Singapore-based credit analyst with Standard and Poor's ratings agency.
"It will have an impact on cash flow in the next few quarters."
Venture Corporation has already become one of the big-name casualties, with net profit in the three months to September slumping 26.9 percent to 48.1 million Singapore dollars (29.33 million US) from a year ago.
The company is Singapore's largest electronics contract maker and its clients include Hewlett-Packard, for which it makes computer printers.
Chartered Semiconductor fared better with net profits reaching 16.23 million US dollars in the September quarter, reversing nearly 76 million US dollars in losses a year ago and exceeding analysts' earnings forecasts of 5.5-13.5 million US dollars.
But the company, one of the world's three largest contract chip makers, warned the slowdown was likely to push the company into the red in the December quarter with losses of 44-54 million US dollars.
"As we go into the fourth quarter, we are seeing significant change in the outlook from our customers," Chartered chief financial officer George Thomas said last month when the company announced its September report card.
"The market weakness that we started seeing since the second half of June has deepened as customers in the supply chain reassessed their inventory positions and slower orders due to the softening in their end markets.
"As a result of this, and consistent with the business outlook of five of our larger customers, Chartered's outlook for the fourth quarter 2004 is now considerably weaker than the projections we had earlier in the year."
If Chartered does incur its projected losses in the current quarter, the company will sink into a deficit for its financial year ending December as net profit in the nine months to September amounted to just 33.4 million US dollars.
Rohan Suppiah, a research manager at OCBC Investment Research, said an industry downturn usually hurt Chartered most because its costs were higher.
"(Chartered) has therefore a higher breakeven rate, giving its competitors a better footing to compete for customers on price," Suppiah said in a report this month.
Suppiah projected Chartered would post further losses in the first two quarters of next year.
"We will likely only see a recovery from the third quarter onwards, but are not overly bullish on its velocity."
Suppiah said Chartered was also facing stiff competition from Chinese players, especially Semiconductor Manufacturing International Corporation.
One of Singapore's other highest profile tech companies, Creative Technology, also reported last month declining profit in the September quarter.
Net profit in the quarter fell 83.5 percent to 4.8 million US dollars, with huge one-time gains last year magnifying the decline.
Excluding the gains, the profit would have been 5.5 million dollars, which translates into a 13 percent decline.
11/21/2004 - 05:52 GMT - AFP