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UMC to spend over US$2bn on new equipment

"The expenditure in UMC's Taiwan plants is in line with my expectations, but I was surprised by the UMCi figure."

Chris Hsieh, an analyst at ING Securities Ltd

The world's second-largest manufacturer of chips to order, United Microelectronics Corp (UMC, 聯電), plans to spend more than US$2 billion on new equipment this year, well ahead of investor forecasts and three times what it spent last year.

At an investors meeting yesterday, the company also announced NT$6.7 billion in profits for the final three months of last year, almost seven times the NT$986 million earned in the same period in 2002.

The equipment plan indicates UMC is in for a bumper year, analysts said.

"UMC's capital expenditure figure for 2004 was well above my expectations of US$1.5 billion," said George Wu (吳裕良), an analyst at Primasia Securities Co in Taipei. "This is very positive news."

The reason for the increase is that Hsinchu-based UMC has been successful in attracting more foreign customers, Wu said.

"It has been confirmed in the industry that hotel rooms are very hard to book in Hsinchu as UMC's overseas clients come to Taiwan to visit the company," Wu said. "They are so aggressive on capital expenditure that these clients must have made promises of good orders."

Of the US$2.12 billion UMC plans to spend on new equipment this year, US$850 million is expected to go to UMCi Pte Ltd, a subsidiary set up in partnership with German chipmaker Infineon Technologies AG and the Singaporean government, the company said.

The plant makes disks of silicon, or wafers, measuring 12 inches in diameter, from which chips are cut.

News of the scale of expansion in Singapore surprised investors.

"The expenditure in UMC's Taiwan plants is in line with my expectations, but I was surprised by the UMCi figure," said Chris Hsieh (謝偉民), an analyst at ING Securities Ltd in Taipei.

A company official said the investment was needed to take the Singapore fab from scratch to mass production.

"We are ramping up our 12-inch fab in Singapore from zero to 10,000 wafers per month, so that is why we plan to spend US$850 million there this year," vice chairman Peter Chang (張崇德) said.

The 12-inch fab is also able to produce denser chips with more transistors per square centimeter of silicon.

The most advanced chips with transistors measuring only 90 nanometers across will account for 4 percent of the company's revenue this year from zero last year, UMC chief executive Jackson Hu (胡國強) said yesterday.

Hu gave investors more positive news when he said that he would be able to increase slightly UMC's chip prices this quarter.

"The average selling price will increase by low single-digit percentage points as we are fully loaded at present and demand is strong," he said.

UMC's fabs are expected to run at full capacity this quarter, Hu said.

While UMC expands, some orders beyond capacity could be passed to its Chinese partner He Jian Technology (Suzhou) Co (和艦科技), Hu added.

Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電) -- which ran at 101 percent capacity last quarter -- said last week that it could not raise prices until the second half of the year as there is too much competition in the industry right now. TSMC's average selling prices are around US$1,500 per 8-inch wafer, whereas UMC's are around US$1,100, according to company figures.
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