Chip maker Chartered Semiconductor predicted it will post a loss in the third quarter as growth slows and rising costs bite.

The world's third largest contract chip maker was only able to report a net profit in the second quarter because of a US$50 million tax benefit, and expects to post a net loss of US$29 million for the three months ending September 30, it said Friday.

Chartered reported a net profit of US$43.4 million in the second quarter as revenue increased 41 percent year-on-year to US$457.6 million.

One major problem for the company is falling prices. Average selling prices per silicon wafer fell to US$864 in the second quarter, from US$892 in the first quarter. Hundreds or even thousands of chips can be made on one silicon wafer, depending on the type of chip.

The declining value of the U.S. dollar is also part Chartered's problem. Chips are bought and sold in U.S. dollars globally, but since the company operates in Singapore, its costs are in Singapore dollars. The Singapore dollar has strengthened around 6 percent against the U.S. dollar so far this year.

Global issues such as rising energy and materials costs are also causing Chartered earnings pain.

"Crude oil price increases, a weaker U.S. dollar and input cost increases in items such as chemicals, process gases and supplies are nullifying the results of our cost reduction and productivity improvement efforts," said Chia Song Hwee, CEO of Chartered, in a statement. "We expect a substantial increase in our energy cost in the fourth quarter due to the expiration of our long-term fixed-rate contract for power supply."

The company has started discussions with customers to help share some of its rising costs, he said.

Chartered, a partner of IBM, is the first of the three biggest contract chip makers to report second quarter earnings. Taiwan Semiconductor Manufacturing (TSMC) and United Microelectronics (UMC) are both scheduled to report earnings next week.

The IDG News Service is a Network World affiliate.