Bangkok--11 Mar--Fitch Ratings
Further to the release issued earlier this week on the back of an Asia-Pacific Technology sector-wide review, Fitch Ratings has affirmed Taiwan Semiconductor Manufacturing Company Limited's (TSMC) Long-term foreign and local currency (FC/LC) Issuer Default Ratings (IDRs) at 'A ', and United Microelectronics Corporation's (UMC) FC/LC IDRs at 'BBB'. The Outlook on all ratings is Stable. Fitch has also simultaneously withdrawn the ratings and will no longer provide rating analysis or analytical coverage on TSMC and UMC. Details of the rationale for affirming TSMC and UMC's ratings are given below, as well as a complete list of rating actions which Fitch has simultaneously taken on 17 rated technology names across Asia-Pacific.
"The affirmation of TSMC's and UMC's ratings takes into account their strong capability to weather the global economic downturn, as well as their balance sheets with net cash positions and positive FCF generation," comments Kevin Chang, Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team. "As long as both companies are able to maintain decent profit margins, their credit metrics are likely to stay in line with their existing rating levels, despite diminished demand momentum amid the likely unfavourable operating environment over the next 18 months," adds Mr. Chang.
Both TSMC and UMC reported weaker profitability in Q408 as a result of their customers' inventory adjustments, triggered by the recent collapse in demand for electronic products. TSMC's sales declined by 31.2% yoy and its EBITDA margin fell nearly 10 percentage points to 51.1% in Q408, reducing its quarterly EBITDAR by 42.2% yoy.
In UMC's case a 32.9% yoy decline in sales lead to its EBITDAR falling by 27.1% yoy. However, UMC was still able to improve its EBITDA margin to 43.0% for the quarter (compared with 39.8% in Q407) thanks to its customers' greater adoption of the more advanced and efficient 40/45 nanometer production technology.
TSMC and UMC are, respectively, the world's No. 1 and No.2 suppliers of dedicated integrated circuit foundry (DICF) services for broad product applications and have the strongest financial flexibility in this sector. Since 2005, they have consistently generated free cash flows and maintained conservative capital structures with very strong coverage on interest and fixed charges.
On the other hand, Fitch has today downgraded Chartered Semiconductor Manufacturing Ltd's (CSM) LT FC IDR and outstanding senior unsecured debt rating to 'BB-' (BB minus) from 'BB+' and revised the Outlook to Negative from Stable. The rating action incorporates Fitch's expectation that the sharp weakening of CSM's financial profile in Q408 driven by weakening end-market demand is likely to continue through 2009, and possibly 2010.
The rating affirmations on TSMC and UMC form part of a sector-wide rating review conducted by Fitch on 17 rated technology issuers across Asia-Pacific. The list below summarises the rating actions taken with specific reference to the Long-term foreign currency Issuer Default Ratings.
China:
ZTE Corporation: Affirmed at 'BB+' with Stable Outlook.
Japan:
- Panasonic Corporation: Downgraded to 'A+' from 'AA-' (AA minus); Rating Watch Negative (RWN) maintained;
- Sharp Corporation: Downgraded to 'A' from 'A+'; Placed on RWN;
- Hitachi, Ltd: Downgraded to 'BBB+' from 'A-' (A minus); Placed on RWN;
- Sony Corporation: Downgraded to 'BBB+' from 'A-' (A minus); RWN maintained;
- NEC Corporation: Downgraded to 'BBB-' (BBB minus) from 'BBB'; Outlook revised to Negative from Stable;
- Toshiba Corporation: Downgraded to 'BB' from 'BBB'; Placed on RWN.
Korea:
- Samsung Electronics Co., Ltd.: Affirmed at 'A+'; Outlook revised to Negative from Stable;
- LG Electronics Co., Ltd.: Affirmed at 'BBB'; Outlook revised to Negative from Stable;
- Hynix Semiconductor Inc.: 'B+'; RWN maintained.
Singapore:
Chartered Semiconductor Manufacturing Ltd: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Stable.
Taiwan:
- Taiwan Semiconductor Manufacturing Company Limited: Affirmed at 'A'; Stable Outlook;
- United Microelectronics Corporation: Affirmed at 'BBB'; Stable Outlook;
- Acer Inc.: Affirmed at 'BBB-' (BBB minus); Outlook revised to Negative from Stable;
- ASUSTeK Computer Inc.: Downgraded to 'BB+' from 'BBB-' (BBB minus); Placed on RWN;
- Quanta Computer Inc.: Affirmed at 'BB'; Outlook revised to Negative from Positive;
- AU Optronics Corporation: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Positive.
Contacts: Kevin Chang, Taipei, +886 2 8175 7609/ [email protected]; Jongwan Kim, Seoul, + 82 2 3278 8371/ [email protected]; Matt Jamieson, Seoul, + 82 2 3278 8355/ [email protected].
Media Relations: Nicole Batchelor, Singapore, Tel: +65 6796 7214, Email: [email protected].