ChipMOS Cuts Costs

Like nearly every other company in or around the semiconductor industry, ChipMOS Technologies (Nasdaq: IMOS) is working on cost controls.

It's a little bit ironic, really. Chip designers like Intel (Nasdaq: INTC) and Texas Instruments (NYSE: TXN) are using outsourced chip testing services like ChipMOS to save costs for themselves, you know. In fact, even other middlemen such as semiconductor foundries Semiconductor Manufacturing International (NYSE: SMI) hand off the testing step to cut their own costs.

So when ChipMOS CEO Shih-Jye Cheng talks about DRAM pricing pressures, and CFO S.K. Chen says the company cut capital expenditures (capex) by more than half compared to last year, the magnitude of the harsh semiconductor environment these days really hits home. What started last year as scattered reports of slow high-end cell phone sales from the likes of Samsung and Nokia (NYSE: NOK) was exacerbated by memory makers not knowing whether consumers wanted more DRAM or flash memory, and on top of all that, flat-panel displays and the electronics inside them went on fire sale.

ChipMOS is already -- by necessity -- a lean organization. The company files its reports from Bermuda for tax reasons, for goodness' sakes, and operating costs are often no more than 6% of sales. It's the cost of materials and contract pricing that drives the ups and downs here. And right now, things are more down than up.

Again, the stock has already been severely spanked by the market, and ChipMOS is a very cheap stock in an already cheap sector, with a P/E under 10. A concerned reader told me that he wants to like this stock, but the lack of cash flow was too troubling. We don't have a cash flow statement yet, but the capex controls must be a good start. Perhaps it's time to start liking ChipMOS for real.

Further Foolish reading:

• Foolish Forecast: A ChipMOS on Your Shoulder
• 7 Highly Rated Stocks on Sale
• High-Octane Investing

Intel is a Motley Fool Inside Value recommendation.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always affordable, but never cheap.