Vanguard International Semiconductor Corp. (VISC) has decided to stop manufacturing memory chips on subcontract basis for Winbond Electronics Corp. from the middle of 2010 so that it can spare capacity to make power-management ICs to increase profit.

VISC, which is partly held by foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC), has been bound by an agreement to offer Winbond subcontract manufacturing service for its DRAM and Flash memory chips for four years since it took over two 200mm wafer fabs from Winbond in 2007 for around NT$8.3 billion (US$259 million at US$1:NT$32).

However, the agreement will come to an end earlier as Winbond recently announced it would move the production back to its in-house 300mm wafer fabs from VISC’s factories. Also, according to the agreement, the subcontract volumes will be declining year after year.

Industry executives associated VISC’s earlier end to the agreement with the company’s loss caused by the collapse of the DRAM market during the global financial tsunami that broke out in September 2008, and estimated that ending the deal would help VISC return to profitability and boost its 2010 gross margin to 15-20%.

Throughout the first 11 months this year, VISC had cumulative revenue of NT$11.5 billion (US$361 million), contracting 25.72% year on year. Its cumulative gross margin for the first three quarters of 2009 posted at 9.42%, collapsing from 21% it registered in the same period of 2008.

Poor margins led to an operating loss of NT$66.9 million (US$2 million) throughout the three quarters until the third quarter of 2009. However, selling shares in some reinvested businesses made the firm turn profitable, making a marginal after-tax net income of NT$1.8 million (US$59,062).

Currently, VISC’s product portfolio comprises drive ICs for liquid crystal display, power-management ICs, logic ICs and memory ICs.

More Info: http://www.taiwanheadlines.gov.tw/ct.asp?xItem=175036&CtNode=39