Wed, Jul 30, 2003 - Page 11 News List

Analysts expect big loss for UMC

EARNINGS REPORT The chipmaker's profitability has been lagging behind that of rival TSMC and another drop has been forecast as the company shifts strategy again


United Microelectronics Corp (聯電), the world's No. 2 supplier of made-to-order semiconductors, may say second-quarter profit fell 41 percent because it cut sales of shares in affiliated companies.

Net income dropped to NT$2.6 billion (US$75.6 million) in the three months ended June 30 from NT$4.4 billion a year ago, when profit was inflated by NT$3.44 billion of one-time gains, analysts said.

UMC is scheduled to report second-quarter earnings today after the stock market closes.

The chipmaker this month appointed a new chief executive, Jackson Hu (胡國強), and ended a strategy of seeking alliances with electronics companies to focus on chipmaking.

The company may be depending less on investments in units to boost profit because the chip business, where it has lagged behind Taiwan Semiconductor Manufacturing Co (台積電), is recovering.

"The company has flip-flopped strategies three times in the last few years," said Devan Kaloo, who helps manage the equivalent of US$2.4 billion in Asia excluding Japan for Aberdeen Asset Management.

Shares of UMC have risen 23 percent this year, against a 47 percent gain for TSMC, which last week reported a better-than-expected 26 percent increase in second-quarter profit to NT$11.7 billion.

Sales at United Microelectronics rose 16 percent to NT$21.7 billion in the second quarter, outpacing a 13 percent increase at TSMC.

While UMC gained from an improvement in demand that has benefited most global chipmakers this year, its profitability may have lagged that of TSMC, which was able to raise prices for chips made with its newest production technology.

"UMC hasn't been able to jack up its prices," said Michael Ding, who counts shares in both chipmakers among the equivalent of US$4.2 billion he helps manage for International Investment Trust Co (國際投信).

UMC has more Asian customers than its rival and these haven't been able to raise their own prices. The firm's Asian customers include companies in which it holds stakes, including chip designers Silicon Integrated Systems Corp (矽統) and MediaTek Inc (聯發科技).

"United Microelectronics has to diversify away from its Taiwanese customer list," said James Johnstone, an analyst with Gartmore Investment Management.

The company needs to divest itself of stakes in chip companies to win new customers, he added.

Hu, appointed on July 15, has said the company will stop forming partnerships with other electronics companies, reversing a strategy announced only six months ago.

Hu's appointment signals a renewed focus on the company's main business as a "chip foundry," a manufacturer of semiconductors for other companies that either don't have their own factories or can't afford to invest in new capacity.

UMC's profit is likely to be lower than the same quarter last year, when the company booked one-time gains including NT$3.25 billion from selling shares in AU Optronics Corp (友達光電), the nation's biggest maker of flat-panel displays.

UMC is among the first companies in the world to invest in new factories that make larger, 12-inch silicon wafers from which chips are cut. The company is building a 12-inch factory in Singapore with Germany's Infineon Technologies AG at a cost of about US$3.6 billion.

The partners said they expected to start production in the second quarter of this year.

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