Mon, Nov 15, 2004 - Page 10 News List

UMC chairman cautions on tough times in future

INDUSTRY DOWNTURN While the company expects to achieve record sales this year, Robert Tsao warned that the next two or three quarters may not be so good


United Microelectronics Corp (UMC, 聯電) expects sales to hit a historical high this year, but its chairman has warned that an industrial downturn is looming to take away its growth momentum in the next few quarters.

The world's No.2 contract maker of microchips expects sales to exceed NT$100 billion this year, a level not seen since 2000, chairman Robert Tsao (曹興誠) told company employees during an annual sports event on Saturday.

In 2000, UMC's sales climbed to NT$105.08 billion, when the global semiconductor sector hit the peak.

The NT$100 billion sales target for this year, if achieved, would represent 18-percent annual growth from NT$84.86 billion in sales last year.

But the firm's growth already appears to be waning. UMC's sales last month slid by a sharper-than-expected 15 percent to NT$10.06 billion, from NT$11.86 billion in September, while larger rival Tai-wan Semiconductor Manufacturing Co's (台積電) sales fell 0.9 percent.

"UMC is undergoing an industry-wide downtrend," Tsao said. "It's like passing through a tunnel. But, it's lucky that this is not a long tunnel."

Tsao said the global semiconductor industry may trend down in the upcoming two or three quarters before a rebound sets in the second half of next year.

A full recovery would follow in 2006 and that would bring three years of prosperity for the cyclical semiconductor industry, Tsao predicted.

Tsao's comments, however, are far more upbeat compared to most market researchers' projection.

iSupply Corp, a relative optimist among numerous research houses, said 2006 would mark the bottom of the semiconductor downturn.

"The seasonal pick-up in the second half of 2005 will not spur a real recovery in the semiconductor [sector]," said iSupply analyst Gary Grandbois in the latest report released in September, "as a DRAM [dynamic random access memory] sales downturn in 2006 will limit total semiconductor growth to only two percent in that year."

In the report, Grandbois trimmed his projection for semiconductor growth for next year, blaming weak demand for chips for mobile phones and laptop computers.

Global chip industry will only have a 9.6-percent expansion in sales to total US$250.25 billion, down from 11.8 percent of previous estimate, according to iSupply.

Last month, UMC gave a gloomy outlook to its investors, saying that factory utilization could fell drastically to 70 percent in the current quarter as customers cut back orders due to expanding inventories.

During the quarter that ended in September, the utilization rate was 94 percent.

UMC earned NT$10.96 billion, or NT$0.65 per share, on record revenue of NT$34.6 billion in the third quarter. Gross margin was expected to slide 10 percent during the same period from 33.7 percent in the third quarter.

The company's shares have plunged 28 percent since the beginning of the year. They closed at NT$20.5 on Friday on the Taiwan Stock Exchange.

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