Mosel Vitelic gets negative forecast

The negative outlook issued by S&P "reflects the challenges faced by management to reduce debt leverage and improve it stressed financial profile in the near term. S&P further added that the company's ratings could lower again should Mosel fail to improve its financial flexibility.

According to S&P, Mosel Vitelic, derives approximately 70 percent of its revenues from the highly volatile and competitive DRAM industry. With its one 6-inch wafer fabrication facility in Taiwan and a 47-percent interest in ProMos Technologies, Mosel Vitelic is currently making the transition to more advance memory products and higher-margin foundry services.

However, as stated by S&P "competition in these sectors is also intense and changing process technologies is difficult."

In addition, S&P added that the DRAM industry, characterized by rapid technological advances and intense competitors has experienced substantial pricing volatility in recent years. Global demand for DRAM products such as 64MB and 128MB products have dropped by more than 90 percent, reflecting the "significant weak end-user demand and overcapacity in the semiconductor industry."

Due to the industry downturn, Mosel Vitelic’s operating revenues have, over the first 11 months, experienced a 66-percent drop from the same period last year. The drop to NT$8.7 billion, have resulted in losses in the first three quarters amounting to NT$15 billion. According to S&P, the company had, as of Sept. 30, 2001, NT$24.9 billion in debt, and NT$6.3 billion in cash and cash equivalents. The company also had pledged time deposits of NT$7.0 billion.

The poor operating performance "has resulted in weak credit protection measures, constrained liquidity, and heightened financial risks." Further pressuring the company's liquidity position is the significant amount of debt maturing over the next 12 months.

In a bid to improve its financial position, Mosel Vitelic is considering various options including disposal of investments, and new financing arrangements. This includes the recently announced plans to divest some of its shareholdings in ProMos Technologies.

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