Yageo to shrink investment spending by 40% next year

Taipei, Oct. 19, 2004 (CENS)--Passive-device maker Yageo Corp. has recently decided to invest US$1 billion on expansion in 2005, a sharp reduction from this year's US$1.7 billion.

The company's executives pointed out that the 2005 investment capital was drawn up roughly in line with the fluctuation of the market, which began picking up last year after three years of recession. They noted that many of the suppliers around the world have resumed expansions this year. Yageo itself has so far this year expanded output of monolithic ceramic chip capacitors (MLCCs) to 11 billion units a month from 8.6 billion units while many Japanese suppliers have expanded the outputs by 15%-25%.

Yageo originally planned to expand MLCC output to 12-13 billion units and chip resistors to 24 billion units a month in the second half. However, the market has been not as thriving as expected since the beginning of the second half, prompting the company to decide not to make bold expansion next year.

Throughout this year, the company will spend US$300 million on construction of a factory in Suzhou of mainland China and US$1.4 billion on equipment. Its 2005 capital expenditure will be completely on equipment, the company's executives said.

Due to construction delay of the mainland factory, the company will ramp up output of its operating mainland factory to five billion MLCCs a month next year, up from two billion units planned for the end of this year and one billion units it put out early this year.

Some foreign institutional investors estimated prices of passive electronics devices to shed off 8% this quarter, higher than average pace of 3% to 4%, because of slower-than-expected demand and Intel's rollout delays of some latest chips. In reaction, Yageo executives pointed out that their company would adjust its expansion pace in accordance with actual demand-supply situation. They noted that their company saw prices of its MLCCs slip 4% in the third quarter as compared with prices in the previous quarter and expected the prices to drop 4% more throughout this quarter.

Nevertheless, they were optimistic about the market prospects for next year and recently cited a study released by market research organization Paumanok that forecasts 850 billion passive devices to be shipped throughout the world next year, surging 17% from this year's estimated 720 billion units. By revenue, the industry will soar to US$4.93 billion next year, 21% higher than this year's US$4.07 billion.