UMC expects solid growth

The pace of strong orders and advanced technology that led United Microelectronics Corp (聯電) to raise its year 2000 profit forecast by two thirds will continue to push growth over the next six months, the company's chairman said yesterday.

John Hsuan, chairman of the world's second largest chip contractor, made the projection after UMC yesterday reported record third quarter profits.

Revenue during the quarter rose 20.6 percent over the previous quarter and 107 percent over the same period a year ago to NT$29.48 billion, the company said at a briefing for institutional investors. Net profit rose to NT$14.56 billion, up 20.6 percent over the second quarter, and 488 percent year-on-year.

The wafer foundry service provider subsequently raised its year 2000 revenue forecast by nearly 20 percent to NT$105.5 billion. It raised its net income projection to NT$50.03 billion, up 66.6 percent over the previous figure, for an earnings per share of NT$4.5.

Before the briefing, analysts had predicted the company would post an earnings per share of NT$3.79, according to Barra Global Estimates.

"That's higher than we had forecast," said Kou-Shien Lee, an analyst at Wider View Securities Investment Advisory Co.

For the future, Lee said, "The gross profit margin has opportunity to grow ... the bottom line has the opportunity to grow, and with net income of nearly NT$16 billion in the fourth quarter, the speed of growth is still very strong."

Lee made the assessment after being reassured by the UMC chairman about strong growth continuing into the first quarter of next year.

"Growth in the first quarter will keep growing following a very strong fourth quarter," UMC's Hsuan said.

"Even though market growth for PCs and certain telecommunications products such as handsets has not been as strong as predicted, with our advanced and diversified process technology, we have the flexibility to adjust our production for other high growth and high profit products," Hsuan said in a statement.

The products include logic chips such as field-programmable gate arrays, niche memory chips and smart cards, he said.

Despite lower than expected PC demand, the company's gross profit margin in the third quarter rose to 52 percent, up from 48.5 percent in the second quarter. Meanwhile, the proportion of sales using 0.18 or 0.25 micron process technology rose to 48 percent.

The profit margin and sales using the more advanced technology were higher than those posted by rival Taiwan Semiconductor Manufacturing Co (TSMC, 台灣積體電路公司), Hsuan said. "From the numbers, we can see that our technology is superior to our competitors," he said. TSMC announced its third quarter results last week.

The solid bookings over the next two quarters has taken even UMC by surprise, a UMC official said.

"It's above our expectations because the first quarter is usually the quarter that's not so good," the official said. "People are adjusting their inventories in the third and fourth quarters, so the first quarter [next year] is going to be strong ... that's usually an indication of how things are going to go for the year," he said.

Wider View Securities' Lee had been concerned about the first quarter as foundry orders are traditionally quite weak at that time. "Now, we're quite optimistic," he said.

But the optimism wasn't shared by all. While impressed by the numbers and the outlook, some analysts were concerned about the effects of government policy on UMC's outlook.