UMC says sales about to rebound

United Microelectronics Corp (UMC, 聯電), the world's second-largest contract chipmaker, said yesterday it would return to profitability in the second quarter as sales recover more quickly than anticipated.

The company also said it hopes to create more opportunities to partner with firms on state-of-the-art 12-inch chip plants, such as the recent agreement with Advanced Micro Devices Inc (AMD), the second-largest maker of computer CPUs and Intel Corp's largest rival.

UMC reported fourth-quarter losses of NT$3.75 billion (US$108 million), the third straight losing quarter for the company and nearly NT$1 billion more than analysts expected.

UMC's revenues dropped 39 percent last year from the previous year and it has been operating at a loss for the past three business quarters, due to the chip industry slump.

Fourth-quarter sales at UMC increased 16 percent from the previous quarter to NT$14 billion, but the firm expects this number to drop by 10 percent this quarter because of the lunar new year holiday, which begins on Feb. 11. Most workers in Taiwan have a week off during this period.

"In the second quarter, the odds we will turn a profit are quite good," said UMC Chairman Robert Tsao (曹興誠) yesterday. The company earlier stated it would not return to profitability until much later in the year.

The company also expects the percentage of production lines in use to increase from 48 percent in the fourth quarter last year to at least 55 percent during this quarter. Part of this increase is not because of new orders, but because the firm sold an 8-inch production line to a company in China earlier this year.

UMC sold the 8-inch equipment to the Shanghai Belling Corp (上海貝嶺), one of three new foundry chipmakers in China, including Grace Semiconductor Manufacturing Corp (宏力半導體) and Semiconductor Manufacturing International Corp (中芯國際集成電路).

Shanghai Belling is widely believed to be UMC's partner in China. One analyst predicted the 8-inch equipment bought by belling would be transferred back to UMC as soon as the Taiwan government changes its policy and allows chipmakers to invest in China.

Taiwan's top chip foundries, UMC and rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) want to begin setting up plants in China to take advantage of the growing market for chips there.

The government is afraid that by opening the door to China, chip companies will rush to invest there in the same manner as other industries.

A number of reports indicate that UMC plans to set up an 8-inch fab in Suzhou, one hour west of Shanghai. The company, however, said it has made no investments in China so far.

"As soon as the government changes its policies and allows investment in China, we will be there," Tsao said. "Currently, our investment in China is zero."

UMC's latest investment project with AMD will be located in Singapore.

Tsao said Taiwan would stand a better chance of attracting such joint ventures by offering more attractive R&D grants and other financial support. He said the AMD venture would not have much of an impact on UMC's bottom line this year.