Having reported profits only a third of those in the previous quarter, United Microelectronics Corp's (UMC, 聯電) third-quarter performance was well below expectations.
Reporting to investors in Taipei yesterday, UMC made a profit of NT$1.4 billion in the third quarter of this year, down 68 percent from the second quarter's NT$4.4 billion. A survey of analysts carried out by Bloomberg News before the announcement had expected this quarter's figure to be NT$2.1 billion.
Sales revenue was up slightly quarter-on-quarter at NT$19.15 billion, 3.1 percent more than the second quarter, the company said.
The slowdown is expected to continue into the fourth quarter, as UMC expects the average selling price of wafers to drop by 3 to 5 percent, and shipments to drop by as much as 7 percent. This will result in a combined drop in sales revenue of between 10 and 12 percent.
"This lags behind current market consensus," said Chris Hsieh (謝偉民), a semiconductor analyst at ING Financial Securities in Taipei. "The latest consensus is for sales to decline less than 6 percent quarter-on-quarter. Our official view is 5 percent."
Hsieh attributes this "disappointing" prediction to increased competition. "UMC is facing pricing pressures, most probably from China," he said.
The two largest competitors in China are Shanghai's Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) and Central Semiconductor Manufacturing Co (CSMC, 上華半導體).
Both companies produce chips for consumer products using older technologies. Thirty-one percent of UMC's revenue comes from its sales of consumer products, Hsieh said.
To reflect the shakier state of UMC's finances, Hsuan announced that spending on new equipment this year would be slashed by a third to US$800 million. This is UMC's second concurrent spending cut this year. Last quarter the company revised its capital expenditure forecast down from US$1.6 billion to US$1.3 billion.
There are further negative signs. Vice Chairman and CEO John Hsuan (宣明智) predicted that UMC's utilization rate, or active percentage of total manufacturing capacity, would be in the high 50s in the fourth quarter, but he did not expect to make a loss. He said that the company would approach "the break-even level."
This figure is better than UMC's closest rival, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). "TSMC said its fourth-quarter utilization rate will be around 50 percent, so UMC's prediction is better. If it is doing 10 percent better than TSMC, then this is very good," said George Wu (吳裕良), an analyst at Primasia Securities Co, whose portfolio includes both TSMC and UMC.
There are other signs that UMC's results might not be totally gloomy.
"The average selling price went up between 5 and 10 percent in the third quarter, which is better than expectations," Wu said. And newer, more profitable chips with transistors measuring 0.18 microns in width will increase to 40 percent of the company's total sales in 2003, Hsuan said.
At the same time, leading-edge 0.13-micron chips would make up 15 percent of UMC's income, he added.
Unfortunately a turnaround in UMC's fortunes is not expected anytime soon. "Customer forecasts are not so strong, so UMC can't see too far ahead. But I expect that probably in the second half of next year there will be a significant improvement," Wu said.
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