“Chartered revenues in the second quarter of 2008 were up 18 percent and revenues including our share of SMP were up 17 percent compared to the previous quarter, in line with the guidance we provided on June 10, 2008. Revenues from 0.13-micron and below technologies, including those from 65 nanometer (nm), accounted for 49 percent of our total business base revenues. Revenues from 65nm alone, including both SOI and bulk technologies, grew approximately 50 percent sequentially and represented 13 percent of our total business base revenues. We ended the quarter with a net income of approximately $43 million, which included a tax benefit of $50 million,” said George Thomas, senior vice president and CFO of Chartered.
Summary of Second Quarter 2008 Performance
- Revenues were $457.6 million in second quarter 2008, including $41.1 million from the recently acquired Fab 3E. Revenues in second quarter 2008 were up 41.1 percent from $324.3 million in second quarter 2007. Revenues including Chartered’s share of SMP were $482.5 million, up 36.7 percent from $353.0 million in the year-ago quarter, primarily due to strength in the communications sector and to a lesser extent the consumer sector, partially offset by weakness in the computer sector. Sequentially, revenues were up 17.9 percent compared to $388.2 million in first quarter 2008. Revenues including Chartered’s share of SMP were up 16.5 percent from $414.1 million in first quarter 2008, primarily due to strength in the communications sector and to a lesser extent the consumer and computer sectors. Excluding Fab 3E, revenues in second quarter 2008 were up 7.3 percent and revenues including Chartered’s share of SMP were up 6.6 percent sequentially.
- Gross profit was $69.9 million, or 15.3 percent of revenues, compared to a gross profit of $60.2 million, or 18.6 percent of revenues in the year-ago quarter and compared to 8.1 percent sequentially from $64.6 million, or 16.6 percent of revenues in first quarter 2008, primarily due to higher revenues resulting from higher shipments and lower cost per wafer resulting from higher production volumes over which fixed costs are allocated, partially offset by lower selling prices.
- Other revenue which primarily relates to rental income from SMP (Fab 5) was $2.7 million, down 51.5 percent from $5.6 million in the year-ago quarter and similarly down compared to the previous quarter, due to the renewal of the lease with SMP. The rental charged to SMP is arrived at based on the terms of the original joint venture agreement, which is a function of recovering the cost of the building and facility machinery and equipment over the period of the joint venture agreement. The lower rental starting from second quarter 2008 reflects Chartered’s recovery of the majority of these costs over the initial 10 years of the joint venture.
- Research and development (R&D) expenses were $42.8 million, an increase of 11.3 percent from the year-ago quarter, primarily due to higher development activities related to the advanced 45nm technology node and higher payroll-related expenses. Compared to the previous quarter, R&D expenses were down 5.7 percent from $45.4 million, primarily due to lower cost of development activities related to the advanced 45nm technology node.
- Sales and marketing expenses were $17.8 million, up 33.5 percent compared to $13.4 million in the year-ago quarter, primarily due to higher payroll-related expenses and higher financial support for pre-contract customer design validation activities.
- General and administrative (G&A) expenses were $11.2 million, up 15.3 percent compared to $9.7 million in the year-ago quarter, primarily due to higher payroll-related expenses.
- Equity in income of Chartered’s minority-owned joint-venture fab, SMP (Fab 5), was $9.6 million compared to $10.2 million in the year-ago quarter, primarily due to lower revenues resulting from lower shipments.
- Net interest expense was $14.2 million, compared to $8.7 million in the year-ago quarter and $10.6 million in the previous quarter, primarily due to higher interest expense resulting from higher outstanding debt and to a lesser extent lower interest income arising from lower interest rates and lower interest capitalization associated with the ramp of Fab 7.
- Net income for Chartered ’ s consolidated joint venture fab, Chartered Silicon Partners (CSP or Fab 6), was $4.3 million in second quarter 2008. Due to CSP ’ s cumulative losses, the obligation of its minority shareholders was reduced to zero in first quarter 2003 and none of its losses from that point forward have been allocated to the minority shareholders. When CSP subsequently becomes profitable, the profits applicable to the minority shareholders are taken to the consolidated statements of operations until the minority shareholders ’ share of losses previously taken to the consolidated statement of operations is fully recovered. As such, all of CSP ’ s $4.3 million income in second quarter 2008 was taken to Chartered ’ s consolidated statement of operations. At the end of second quarter 2008, CSP ’ s shareholders ’ deficit was $418.1 million.
- Net income was $43.4 million, or 9.5 percent of revenues, compared to a net loss of $25.3 million, or negative 7.8 percent of revenues in the year-ago quarter and a net income of $2.4 million or 0.6 percent of revenues in the previous quarter. Net income includes a tax benefit of $49.5 million, of which $48.7 million resulted from a retroactive change of tax status for Fab 7 from “ pioneer ” to “ non-pioneer. ” The tax benefit of $48.7 million arose primarily from the carry forward of prior years ’ wear and tear allowances on plant and machinery and tax losses, net of valuation allowance. This amount includes $10.2 million which was used to offset tax paid or incurred by the company in prior years, with the balance being recognized as an offset against future tax liabilities. The future tax liabilities are based on Chartered ’ s projection of future taxable income which is contingent upon future market conditions. Net loss before tax in second quarter 2008 was $6.1 million.
- Basic earnings per American Depositary Share (ADS) and basic earnings per share in second quarter 2008 were $0.16 and $0.02 respectively, compared with basic loss per ADS and basic loss per share of ($0.11) and ($0.01) respectively in second quarter 2007. Diluted earnings per ADS and diluted earnings per share in second quarter 2008 were $0.15 and $0.02 respectively, compared with diluted loss per ADS and diluted loss per share of ($0.11) and ($0.01) respectively in second quarter 2007.
