Thu, Feb 03, 2005 - Page 10 News List

UMC earns 80% less than previous year

NO BOTTOM YET United Microelectronics Corp cited sluggish demand on excessive inventories for its loss of earnings, but said its operations should hit the bottom soon

By Lisa Wang  /  STAFF REPORTER

United Microelectronics Corp (UMC, 聯電) yesterday said earnings contracted 80 percent last quarter from a year earlier, citing sluggish demand on excessive inventories. But the world's No.2 contract chipmaker expected operation to hit the bottom in the this quarter.

After a digestion period of several months, the inventory level has lowered significantly, UMC executive chief Jackson Hu (胡國強) told an investor's conference.

"We see orders start to pick up in March on rising demand for chips used in TFT-LCD panels, in particular," Hu said. "Therefore, we cautiously believe that sales will hit the bottom in the first quarter," he said.

During the worst period, UMC can still break even, Hu said.

About bringing a quick end to inventory write-offs, Hu said, "a turnaround may come in the second half."

During the industrial downcycle, UMC's earnings shrank 80 percent to NT$1.33 billion, or NT$0.07 a share, during the October-December quarter, from NT$6.73 billion a year ago, according to the company.

That brought the Hsinchu-based chipmaker's earnings last year to NT$31.84 billion, almost double the previous year's NT$14.02 billion, on record-high revenue of NT$117.3 billion. Earnings per share also rose to NT$1.89 from NT$0.84.

Getting little help from the nascent rebound, UMC said the factory utilization rate would further drop to around 60 percent during the current quarter, from 72 percent last quarter.

Average selling prices would drop 10 percent and wafer shipments would fall another 17 percent, according to Hu.

As a recovery is still uncertain, UMC is slowing its capacity expansion now, a far cry from rival Taiwan Semiconductor Manufacturing Co's (TSMC, 台積電) aggressive plan to hike its capital expenditure to US$2.5 billion at least.

UMC said it plans to spend as much as US$1.5 billion on new facilities this year, 40 percent lower than the US$2.56 billion the company overspent last year. UMC originally planned to spend US$2.2 billion.

Not only UMC is cautious about its every step, but analysts are also evaluating their investment risk.

"I'll still keep UMC's rating unchanged at `hold,'" said John Chen (陳政隆), an analyst with Deutsche Securities Asia Ltd, in Taipei.

Chen raised TSMC's investment rating to "buy" from "hold" soon after the world's top contract chipmaker last week projected a steady first quarter with flat average selling prices and only a single-digit decline in shipments.

However, UMC topped the overseas fund managers' list of favorites yesterday. Foreign investors bought a total of 92.93 million UMC shares, according to the Taiwan Stock Exchange's statistics.

The purchase has helped pushed UMC's share price 2.45 percent higher to NT$20.9. Rival TSMC ended NT$1.0 higher at NT$53.5.

To dispel concerns over the implementation of a new accounting rule -- called the Statements of Financial Accounting Standard 35, which aims to boost corporate financial transparency -- on UMC's asset position, the chipmaker said the impact would be minimal, as the company regularly reviews its long-term investment portfolio.

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