"Chartered revenues and revenues including our share of SMP in fourth quarter 2007 were down approximately one percent compared to the previous quarter, coming in above the high end of the guidance we had provided on December 14, 2007. Revenues from 0.13-micron and below technologies, including those from 65 nanometer (nm), accounted for 48 percent of our total business base revenues. Revenues from 65nm alone, including both SOI and bulk technologies, more than doubled in dollar terms compared to second quarter 2007 when we started commercial production, and represented 13 percent of our total business base revenues. We ended the quarter with a net income of $6 million, in line with our previous guidance," said George Thomas, senior vice president and CFO of Chartered.
Summary of Fourth Quarter 2007 Performance
-- Revenues were $352.6 million in fourth quarter 2007, up 4.0 percent
from $339.1 million in fourth quarter 2006. Revenues including
Chartered's share of SMP were $377.8 million, up 3.9 percent from
$363.7 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 down 0.6 percent compared to $354.8
million in third quarter 2007. Revenues including Chartered's
share of SMP were down 1.0 percent from $381.8 million in third
quarter 2007, primarily due to weakness in the computer sector and
to a significantly lesser extent the consumer sector, partially
offset by strength in the communications sector.
-- Gross profit was $60.5 million, or 17.2 percent of revenues, down
from a gross profit of $68.0 million, or 20.1 percent of revenues
in the year-ago quarter, primarily due to a less favorable product
mix arising from lower shipments of 90nm products and lower
selling prices, partially offset by higher shipments from 65nm
products. Gross profit was down 10.1 percent sequentially from
$67.2 million, or 19.0 percent of revenues in third quarter 2007,
primarily due to the effect of lower selling prices and a less
favorable product mix arising from lower shipments of 90nm
products, partially offset by higher shipments from 65nm products.
-- Other revenue which primarily relates to rental income from SMP
(Fab 5) was $6.0 million compared to $5.4 million in the year-ago
quarter.
-- Research and development (R&D) expenses were $44.8 million, an
increase of 17.5 percent from the year-ago quarter, primarily due
to higher development activities related to the advanced 45nm
technology node. Compared to the previous quarter, R&D expenses
were up 15.0 percent from $38.9 million, primarily due to higher
development activities related to the advanced 45nm technology
node and higher payroll-related expenses.
-- Sales and marketing expenses were $15.8 million, up 2.9 percent
compared to $15.4 million in the year-ago quarter. Compared to the
previous quarter, sales and marketing expenses were up 8.2 percent
from $14.6 million, primarily due to higher payroll-related
expenses.
-- General and administrative (G&A) expenses were $10.7 million, a
decrease of 11.4 percent compared to $12.1 million in the year-ago
quarter, primarily due to lower payroll-related expenses. Compared
to the previous quarter, G&A expenses were up 14.5 percent from
$9.3 million, primarily due to higher payment for external
services and higher payroll-related expenses.
-- Equity in income of Chartered's minority-owned joint-venture fab,
SMP (Fab 5), was $9.0 million compared to $8.4 million in the
year-ago quarter, primarily due to lower cost per wafer resulting
from lower depreciation and higher production volumes over which
fixed costs are allocated.
-- Other income (loss), net, was a loss of $2.4 million, compared to a
loss of $0.7 million in the year-ago quarter and an income of $0.2
million in third quarter 2007, primarily due to a decline in value
of other investments.
-- Net interest expense was $8.1 million, compared to $7.5 million in
the year-ago quarter, primarily due to lower interest income
arising from lower principal balances and to a lesser extent
higher interest expense arising from higher outstanding debt,
partially offset by higher 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 $3.3 million in
fourth quarter 2007. 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 $3.3 million income in
fourth quarter 2007 was taken to Chartered's consolidated
statement of operations. At the end of fourth quarter 2007, CSP's
shareholders' deficit was $431.0 million.
-- Net income was $5.9 million, or 1.7 percent of revenues, compared
to a net income of $5.4 million, or 1.6 percent of revenues in the
year-ago quarter and a net income of $114.8 million or 32.3
percent of revenues in the previous quarter.
Net income included a tax benefit of $14.6 million. This tax
benefit arose as a result of the difference between the actual tax
expense for the financial year and the cumulative tax expense
recognized for the first three quarters of the year.
-- Basic earnings per American Depositary Share (ADS) and basic
earnings per share in fourth quarter 2007 were $0.01 and $0.00
respectively, compared with basic earnings per ADS and basic
earnings per share of $0.01 and $0.00 respectively in fourth
quarter 2006. Diluted earnings per ADS and diluted earnings per
share in fourth quarter 2007 were $0.01 and $0.00 respectively,
compared with diluted earnings per ADS and diluted earnings per
share of $0.01 and $0.00 respectively in fourth quarter 2006.
Summary of Year 2007 Performance
-- Revenues were $1,355.5 million, down 4.2 percent compared to
$1,414.5 million in 2006. Revenues including Chartered's share of
SMP were $1,458.0 million, down 4.5 percent from $1,526.6 million
a year ago, primarily due to weakness in the consumer sector and
to a lesser extent the computer sector, partially offset by
strength in the communications sector.
-- Gross profit was $259.7 million, or 19.2 percent of revenues, a
decrease from $344.0 million, or 24.3 percent of revenues in 2006,
primarily due to a less favorable product mix arising from lower
shipments of 90nm products and lower selling prices, partially
offset by higher shipments from 65nm products.
-- Other revenue which primarily relates to rental income from SMP
(Fab 5) was $22.9 million compared to $21.0 million in 2006.
-- R&D expenses were $159.8 million, an increase of 4.6 percent from
$152.8 million in 2006, primarily due to higher development
activities related to the advanced 65nm and 45nm technology nodes
and higher payroll-related expenses, partially offset by higher
reimbursement of expenses related to grants.
-- Sales and marketing expenses were $58.0 million, an increase of 5.5
percent from $55.0 million in 2006, primarily due to higher
expenses related to Electronic Design Automation (EDA) offerings
and higher financial support for pre-contract customer design
validation activities.
-- G&A expenses were $39.6 million, 6.8 percent lower compared to
$42.6 million in 2006, primarily due to lower payroll-related
expenses and lower expenses associated with overseas office
facilities.
-- Equity in income of SMP was $34.2 million compared to $36.0 million
in 2006, primarily due to lower revenues resulting from lower
selling prices, partially offset by lower cost per wafer resulting
from lower depreciation and higher production volumes over which
fixed costs are allocated.
-- Net interest expense was $33.3 million, compared to a net interest
expense of $43.4 million in 2006, primarily due to higher interest
capitalization associated with the ramp of Fab 7, partially offset
by lower interest income arising from lower principal balances.
-- CSP's financial position continued to be in a shareholders' deficit
in 2007, and therefore, none of the loss of $11.0 million in 2007
was allocated to the minority shareholders.
-- Net income was $101.7 million, or 7.5 percent of revenues, compared
to a net income of $67.0 million, or 4.7 percent of revenues in
2006.
Net income for 2007 included a tax benefit of $91.4 million, of
which $119.5 million resulted from a retroactive change of tax
status for Fab 3 from "pioneer" to "non-pioneer." This tax benefit
arose primarily from prior year allowances related to wear and
tear of plant and machinery and losses of Fab 3 which became
available to offset tax paid or incurred by the company in current
and prior years. Excluding this tax benefit of $119.5 million, the
income tax expense was $28.1 million in 2007.
-- Basic earnings per ADS and basic earnings per share in 2007 were
$0.36 and $0.04 respectively, compared with basic earnings per ADS
and basic earnings per share of $0.23 and $0.02 respectively in
2006. Diluted earnings per ADS and diluted earnings per share in
2007 were $0.35 and $0.04 respectively, compared with diluted
earnings per ADS and diluted earnings per share of $0.23 and $0.02
respectively in 2006.
