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Chipmaker paints bleak economic picture

Chartered Semiconductor, a major contract chip manufacturer that builds chips for IBM, is looking at a bleak economic picture in the coming months.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
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Brooke Crothers
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Chartered Semiconductor, which builds chips for companies like IBM and Samsung, says it is looking at a bleak economic picture for the coming months.

Update: Infineon Technologies, a German chipmaker, announced Friday that it would lay off 3,000 workers due to the "levels of risk in the current market conditions."

Chartered CEO Chia Song Hwee issued a cautionary statement when the company announced earnings late Thursday afternoon. "We continue to be cautious about the worsening economic situation," he said, adding that Chartered is "dealing with the challenges of...crude oil price increases" and "a weaker U.S. dollar." Chartered is one of the largest contract chip manufacturers in the world and competes with Taiwan Semiconductor Manufacturing Company (TSMC).

Chartered partners with IBM in chip manufacture and development
Chartered partners with IBM in chip manufacture and development Chartered Semiconductor

Energy-related costs are negating cost-saving efforts, according to Chia. "Cost increases in items such as chemicals, process gases, and supplies are nullifying the results of our cost reduction and productivity improvement efforts," he said.

Chartered is looking to customers to help it defray costs. "Due to the unprecedented situation and limited opportunities to offset such increases through internal cost reduction measures in the near term, we have initiated discussions with our customers to share the cost increases," said Chia.

This is coming at an inopportune moment because Chartered is moving from its current 65-nanometer manufacturing technology to a more advanced 45-nanometer process. "We are at a point where we can no longer defer enabling 45nm capacity," he said. The company will need an additional capital expenditure of $160 million for the year to support "early customers at 45nm in 2009" as well as for rebalancing the mix between 65nm and 45nm, Chia said.

Chartered reported gross profit of $69.9 million for the second quarter, or 15.3 percent of revenue, compared with a gross profit of $60.2 million, or 18.6 percent of revenue in the year-ago quarter. This is also up from $64.6 million in the first quarter of this year.