United Microelectronics Corp (UMC, 聯電), the world's second largest contract chipmaker, yesterday said its quarterly earnings dipped almost 80 percent from a year earlier on lower prices as demand dwindled amid customers' constant digestion of inventory.
"Now we're seeing a healthy inventory reduction ... We believe this is a positive sign showing that the industry is approaching the bottom of the curve," chief executive officer Jackson Hu (
A turnaround is expected to arrive in the third quarter as demand rebounds, boosting chip prices and increasing UMC's shipments, Hu said.
Feedback from customers indicated that demand for chips used in mobile phones would increase significantly in the second half of this year, he added.
UMC, which supplies chips to Xilinx Inc, received a bulky 45 percent of its total revenues from the communication segment last quarter.
As demand is expected to remain weak in the April-June period, further driving down the company's factory utilization rate to 60 percent, Hu said UMC's profitability could weaken further to breakeven point in terms of gross profit.
Last quarter, UMC's earnings dropped for the third straight quarter to NT$1.52 billion, down 78 percent from NT$6.9 billion a year ago, the company said. Earnings per share also dipped to NT$0.09 from NT$0.41 year-on-year. Revenues fell 20 percent to NT$20.29 billion at an annual pace.
The chipmaker blamed a 12-percent slide in chip prices for the profit decline. The downtrend could carry on into this quarter, Hu said.
Low chip prices caused operating income to fall more drastically by 94 percent to NT$302 million, compared with NT$5.29 billion a year earlier, according to UMC.
Non-operating income reached NT$1.22 billion, derived mostly from the proceeds of UMC's sale of shares in its affiliates, including MediaTek Inc (聯發科技) and Novatek Microelectronics Corp (聯詠科技).
"To boost its bottom line, UMC will continue the share sale [on the public market] as there are no clear signs indicating a strong growth momentum for the chipmaker," said Paul Tsai (蔡昀達), a portfolio manager who oversees a NT$500 million fund for International Investment Trust Co Ltd (國際投信).
Demand seemed to be stabilizing, but a strong improvement seemed unlikely, Tsai said. He said UMC's first-quarter result was slightly better than expected.
From investors' point of view, however, UMC looked attractive, compared with companies such as its bigger rival, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). Daniel Heyler, a semiconductor analyst with Merrill Lynch, assigned a "buy" rating to UMC, saying "both the valuation and utilization of UMC are in the trough."
Heyler gave a "neutral" rating on TSMC.
Overseas fund managers have bought 40.71 million UMC shares during the past three trading sessions, pushing UMC 0.27 percent higher to close at NT$18.45 on the Taiwan Stock Exchange.
Hu yesterday shunned investors' questions about the government's ongoing probes into UMC's allegedly illegal ties with Chinese chipmaker He Jian Technology (Suzhou) Co (
Last week, the Financial Supervisory Commission fined UMC chairman Robert Tsao (
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