Chartered's extremely low factory utilization rate and a net loss of $107.6 million in the second quarter caused the Singapore foundry company to announced on Thursday that it was cutting capital spending by 30% this year and postponing the start up of its 300-mm wafer fab by about one year to 2003. Chartered reported its net sales fell sequentially 62.9% to $100.7 million in the second quarter from $271.4 million in Q1 of this year (see July 19 story).

"From a capacity standpoint, we believe we don't need Fab 7 until 2003 because we have significant leading-edge capacity in our fabs 5 and 6," said Barry Waite, president and CEO of Chartered, during a conference call with analysts today. Waite told analysts that the world's third largest pure-play chip foundry company was still pushing ahead with 300-mm technology and that three-fourths of the development had been completed, but the delay was necessary because the low demand did not justify the mid-2002 startup schedule.

Chartered cut its capital spending to $700 million in 2001 from a previous level of $1 billion. Earlier this year, the company had also cut its planned capital expenditures by 20% to a level of $1.2 billion because of the falloff of foundry demand.

For the third quarter, Chartered is bracing for yet another sequential drop in its foundry revenues. The company said it now expects sales to be 15% lower than $100.7 million in Q2. That would make its third-quarter sales 72% lower than $305.6 million in the period last year.

During today's conference call, Chartered's CEO resisted several attempts to nail him down on whether or not the company expected to see a bottom to its slumping sales in the third quarter. "We sense here that the rate of decline has slowed," Waite said, responding to one analyst asking if Q3 could be the bottom with sequential sales growth starting in Q4. "We tried to be careful in our announcement here not to give the wrong impression by that statement because we said in our earnings report we see no signs of stabilization. But obviously, the rate of decline has slowed."

While Chartered's fab utilization rates push to the mid-20 percent range, the overall foundry capacity utilization rate worldwide is expected to be in the mid-40 percent range in the third quarter, according to estimates by Dataquest Inc. During a briefing at Semicon West in San Francisco, analyst James Hines said the foundry business will most likely hit the bottom of the current recession in the third quarter.

Hines called the recession the worst ever in the 14-year history of the silicon foundry business segment. "We have seen average foundry utilization rates plummet from nearly 100% in late 2000 to below 50% in just two quarters," he said. "Clearly it has been the worst oversupply situation that the industry has yet experienced."

Unfortunately for troubled foundry suppliers, the oversupply conditions will continue nearly through the end of 2002, but the business will gradually recover from the severe downturn starting in the fourth quarter, according to Hines. He estimated that average foundry capacity utilization will reach about 60% in the second quarter of 2002 and nearly 80% by the end of next year.

"The next year 12 months will be the most difficult year ever faced by the foundries," he warned.

Chartered believes it has the resources and balance sheet to not only survive this period but also come out of the downturn in a position to serve customers with leading-edge technologies as well as 300-mm fab capacity. Chartered officials said the company has $1.3 billion in cash and cash equivalents, plus $950 million of unused credit facilities.

"We will not back off our technology commitment in any way," promised Waite in today's conference call. "There are some benefits to this delay of the 300-mm fab," he added, attempting to look for a bright side to the fab postponement. "One of the most apparent is that it will allow us to ramp 300-mm on more mature second-generation equipment and a more proven 0.13 micron process."