Following negative guidance by its bigger rival Taiwan Semiconductor Manufacturing Co (台積電) on Tuesday, United Microelectronics Corp (UMC, 聯電) yesterday also offered a dismal outlook for the fourth quarter.
UMC, the world's second-largest made-to-order chipmaker, said capacity utilization rate may drop to approximately 70 percent in the fourth quarter, compared with 94 percent in the previous quarter.
Due to inventory adjustment, UMC said the average selling price (ASP) is expected to go flat in the fourth quarter, which in turn would cut the chipmaker's shipments by 15 percent to 17 percent, UMC chief executive Jackson Hu (胡國強) told investors.
The company yesterday posted net income of NT$10.9 billion in the third quarter, or NT$0.65 per share, with a gross margin of 33.7 percent. The company's net income was NT$12.7 billion in the second quarter, with a gross margin of 34.5 percent.
"The [fourth-quarter] margin is expected to fall by 10 percentage points" from 33.7 percent recorded in the third quarter, Hu said.
The contract chipmaker saw a record net operating revenue of NT$34.6 billion in the June to September quarter, an increase of 60.5 percent from NT$21.5 billion a year ago, the company said.
The amount of excess inventory in the global supply chain rose by 38 percent quarter-on-quarter to US$1.1 billion in the third quarter, or ten-fold from a year ago, the El Segundo, California-based iSuppli Corp reported last week.
"The excess inventories should be a cause for concern for the semi-conductor industry," the research house said in the report.
While the inventory adjustment could undercut the annual growth rate in the contract business to grow 5.5 percent next year, the industry would see rising growth from 2006 to 2008, Hu said.
He was bullish about the industry's long-term outlook, citing research institute DataQuest as saying that they expected an 18 percent compound annual growth rate from last year to 2010.
Wang Bou-li (王博立), who tracks the memory chip industry for SinoPac Securities Corp (建華證券), said the current piled-up chip inventory over 80 days or 90 days is expected to return to a healthy level of between 45 days and 60 days in the second quarter next year at the earliest.
The industry's capacity utilization rates as well as the revenue growth and the stock prices may not rebound until then, Wang said.
But the analyst said UMC's projection could be overly optimistic, adding that TSMC's estimates of a growth rate between 7 percent and 8 percent for the next 10 years could be more pragmatic.
The problem facing the chip industry is a lack of applications, such as mobile electronics, to effectively spur the demand at end consumer markets, Wang said.
Despite a dull outlook next year, UMC, that shipped 791,000 wafers in the third quarter, planned to use US$1 billion to US$2 billion to boost the output capacity of its fab in the Southern Taiwan Science Park and its Singapore unit UMCi Ltd by 37,000 pieces next year.
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