Wall Street Beat: Powerchip Scandal Prompts Stock Sell off

Shares of Powerchip Semiconductor fell by their market limit in Taiwan on Friday, a day after prosecutors indicted the chip maker's chairman for insider trading and breach of trust.

The stock of Taiwan's largest DRAM maker slumped 7 percent, the daily market limit in Taiwan, to trade at NT$6.68 (US$0.22).

Early Thursday, Taiwanese prosecutors alleged that Frank Huang oversaw the illegal trade of over NT$600 million worth of shares in chip maker Macronix International shortly before Powerchip announced a deal to buy a chip factory from Macronix. Huang and a few associates allegedly made over NT$11 million in profits from the transaction.

He faces four and a half years in prison and an NT$60 million fine if convicted.

Powerchip denied the allegations in a statement. The company also said Huang had planned to buy Macronix stock prior to Powerchip entering talks with the company. Powerchip bought an empty 12-inch (300 millimeter) factory building from Macronix in January 2006 for NT$5.3 billion.

"This investigation really hurts the company's reputation. Huang has been chairman for a long time," said Andrew Teng, sales manager at Taiwan International Securities in Taipei. He said this kind of case will likely take a long time to prosecute.

"Problems in the DRAM market are another reason the stock is falling," he added.

Powerchip reported an NT$7.27 billion (US$237 million) net loss for the second quarter, compared to a NT$9.74 billion net loss in the first quarter. Nearly all DRAM makers have posted losses in the most recent quarter. One of Powerchip's largest rivals in Taiwan, Inotera Memories, reported a net loss NT$3.27 billion in the second quarter, after losing NT$4.18 billion in the first.

South Korea's Hynix Semiconductor, the world's second largest DRAM maker, on Thursday reported a net loss 711 billion Korean won (US$703.5 million) in the quarter, compared to a loss of 676 billion won in the first quarter. Germany's Qimonda AG reported a net loss of €401 million (US$629 million) in the quarter ended June 30, its fifth straight quarterly loss.

Average DRAM selling prices fell 45 percent during the quarter, Qimonda said, which is the same problem all DRAM makers have these days. A memory chip glut has sent prices down below the cost of production. Companies can't just stop making the chips because they need to keep cash coming in so they can pay off the massive loans needed to build a chip factory.

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