Thu, Jul 31, 2003 - Page 10 News List

UMC will abandon alliance strategy as profits drop 39%


United Microelectronics Corp, (UMC, 聯電), the world's No. 2 made-to-order chipmaker, said profit fell 39.5 percent in the second quarter and shipments are declining this quarter.

Net income in three months ended June 30 dropped to NT$2.69 billion (US$79 million) from NT$4.4 billion a year ago, when profit was inflated by NT$3.44 billion of one-time gains. Sales, reported earlier, rose 16 percent to NT$21.71 billion.

The decline was a result of less non-operating income than a year ago, especially income related to the sale of share holdings, said Liu Chi-tung (劉啟東), the company's director of investors.

The profit slump contrasts with a gain in earnings reported last week by larger rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). TSMC posted a better-than-expected 26 percent rise in second-quarter profit.

"A gap is opening up between TSMC and UMC," said Gerald Smith, who counts shares in TSMC among the equivalent of US$30 billion he helps manage globally for Baillie Gifford & Co. "I'm a bit confused on UMC's strategy."

The company, which makes chips for Advanced Micro Devices Inc and Texas Instruments Inc, said it expects shipments to fall by a single-digit percentage this quarter from the second, while average selling prices will be little changed.

"The capacity utilization rate is seen close to 80 percent in the third quarter while average selling prices will be flat to higher from the previous quarter," company vice chairman Peter Chang (張崇德) said at a briefing.

Hu said demand, particularly from the telecommunications industry, could slow in the third quarter.

"However it would could be a tempoarary phenomenon. Dem-and could pick up soon," he said.

The company's shipments in the second quarter totaled 550,000 eight-inch-equivalent wafers, while its capacity utilization rate was 85 percent. Chang forecasts the company will use 80 percent of its factory equipment.

The company's third-quarter outlook adds to doubts over whether the chip market is recovering from an industry slump lasting more than two years.

Global chipmakers, including Intel Corp, Texas Instruments, Advanced Micro and Samsung Electronics Co all forecast higher sales for this quarter in recent weeks. Others, including UMC, haven't been so optimistic. STMicroelectronics NV, Europe's largest semiconductor maker, last week cut its forecast for profitability.

UMC said it's keeping its planned capital spending budget at US$500 million this year, which was reduced from US$800 million last year.

UMC shares fell NT$0.30, or NT$1.20, to NT$24.60 in Taipei before the earnings announcement. The shares have gained 21 percent this year, against a 45 percent rise for TSMC.

"We will continue to be a dedicated foundry," Chang said. Taking equity stakes in partners will "depend on the situation," he said.

Jackson Hu (胡國強), named as UMC's chief executive last month, plans to lift returns by focusing on the company's chipmaking business and backing away from a strategy of seeking alliances with clients.

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