Bangkok--15 Oct--Moody's
Moody's Investors Service maintains a
stable rating outlook for the Asian technology and semiconductor sector,
although credit risks vary within this highly diverse industry.
"Market demand is expected to remain strong, with a number of popular new
products driving sales, and companies have helped foster a measure of
market stability by diversifying and becoming more consumer driven,"
Moody's says in a new report.
Authored by Moody's Analysts Ken Chan and Wonnie Chu, the report
discusses the outlook for ratings in the technology and semiconductor
industry in Asia (ex-Japan). Moody's rates ten companies in the sector,
mostly in the semiconductor and dynamic random access memory (DRAM)
industries.
The continued erosion of average selling prices (ASP), in tandem with
rising raw material costs, presents a significant challenge for the
sector, according to the report. "In this environment, it is important
for companies to protect margins and sustain profitability by cutting
costs, maintaining scale, and continuing to move up the value chain,"
says Chan.
"To achieve these goals and stay competitive, companies have expanded
capacity, but this approach is not without risk, given that only a few
companies in the sector are free cash flow positive, and higher product
volumes can depress prices," he adds.
"The sustainability of research and development (R&D) spending is another
source of uncertainty in the current cost environment, and the steps that
companies have begun to take to rationalize spending have spurred an
increase in joint-venture activity," Chu says.
"Another trend that bears watching is the emergence of joint-technology
development and cost-sharing arrangements, which are now commonplace,
and have allowed some companies to save on R&D, reduce risk and encourage
alliances," she says.
The report, part of the Moody's Industry Snapshot series which offer
succinct and incisive looks at specific sectors, is entitled 'Industry
Snapshot: Asia Technology and Semiconductor Sector,' and can be found at
www.moodys.com.