UMC holds off on plant in Singapore

Construction on a US$3.6 billion joint venture chipmaking facility touted as the single largest investment in Singapore last year will be postponed, officials from United Microelectronics Corp (UMC, 聯電) said yesterday.

Production at the plant, backed by UMC and German chipmaker Infineon, was due to begin at the end of this year or early next year. Now its opening date is uncertain.

"We really don't need the extra capacity right now, so we can slow down the process," said Liu Chitung (劉啟東), an official at the chip giant.

Currently, over half of UMC's production lines are sitting idle, as demand for the chips it manufactures on a contract basis for customers has yet to recover.

The company's balance sheet posted a loss in the middle of last year as total semiconductor industry sales plummeted by a record 33 percent to US$152 billion.

The new Singapore plant was a joint venture to develop cutting edge 12-inch chipmaking technology. Industry executives believe they will shave 30 percent off current costs by using the 12-inch discs.

UMC is believed to have provided half of the joint-venture capital needed for the new plant, US$1.8 billion according to reports.

So far, only the shell of the building has been completed.

The most expensive portion of the new facility is the chipmaking equipment.

UMC said it would devise a new timetable in the second half of the year on when to add chipmaking machines. It may wait for the industry to show more signs of real recovery.

"It's a prudent step," said Ian Lui, who counts UMC shares among the US$500 million he helps manage at Allianz Asset Management Co in Singapore. "What worries people most is so many plants going up."

Other analysts worried that without the new plant up and running, UMC would be left out of a quick industry upsurge. Yesterday analysts titillated technology markets with reports of a rebound in chip demand.

Personal-computer makers such as Compaq Computer Corp and Dell Computer Corp continued placing orders with Intel, the biggest maker of computer microprocessors, through the end of last month, signaling demand may be accelerating, J.P. Morgan Securities Inc analyst Eric Chen told clients.

The industry also saw month-on-month growth through October and November, the first time since the downturn sent prices plunging.

Global chip sales in November rose slightly month on month to US$10.6 billion, boosted by a 5.3 percent monthly increase in Europe, the Semiconductor Industry Association said on Wednesday.

The figure was 42 percent lower than the same time a year ago.

Taiwan Semiconductor Man-ufacturing Co (TSMC, 台積電), UMC's largest rival, said last month it will probably invest about US$1.3 billion this year for expansion. TSMC's spending last year amounted to US$2.2 billion, second only to Intel.

TSMC stayed profitable this year as UMC and other rivals such as Chartered Semiconductor Manufacturing Co (特許) of Singapore reported losses. Customers increased orders for TSMC's more advanced production capacity starting in the third quarter this year, helping it increase market share, TSMC said.

Shares of UMC rose by 5.9 percent yesterday to NT$52. TSMC shares also gained, closing up 4 percent at NT$89.