Thu, Oct 27, 2005 - Page 10 News List

UMC reports 80 percent slump in third-quarter earnings

By Lisa Wang  /  STAFF REPORTER

United Microelectronics Corp (UMC, 聯電), the world's second-largest contract chipmaker, yesterday reported a slump of 80 percent in third-quarter earnings as customers reduced orders on inventory digestion.

However, the quarterly results represented a big improvement from the second quarter amid recovering demand and easing inventory pressure, UMC chairman Jackson Hu (胡國強) said.

As the growth momentum will extend into the current quarter on the seasonal factor, "the fourth quarter will be a high-growth period for UMC," he said.

Output will increase over 10 percent on the current quarter, from 741,000 wafers last quarter, with growth momentum fueled mostly from communications devices such as mobile phones, Hu said.

The communications segment accounted for the biggest portion, or 47 percent, of UMC's total sales in the previous three-month period.

Factory usage rose to 85 percent in the final quarter of this year, up from 78 percent in the third quarter.

Average selling prices will rise sequentially by a low single-digit percentage point after a 2 percent hike in the third quarter because of a bigger share of chip output on advanced technologies, Hu told investors.

"UMC will book profits [in terms of operating income]," Hu said, adding that his company already swung into the black last month.

UMC's optimistic outlook, however, went against a conservative forecast by its biggest customer, Texas Instrument Inc, the world's biggest maker of cellphone chips.

The Hsinchu-based company suffered operating losses of NT$560 million for the second straight quarter in the July-September period, according to a statement.

Net income for the same period, however, rose six times to NT$2.17 billion, compared to NT$299 million in the second quarter, but fell 80 percent against the NT$10.91 billion posted a year ago.

Non-operating income gained roughly NT$2.73 billion, according to the statement. Earnings per share rose to NT$0.12 from NT$0.02 in the second quarter, down from NT$0.58 a year earlier.

Sales for the three-month quarter ending last month declined 32 percent to

NT$23.58 billion, compared to NT$34.58 billion in the same period last year,

the company said earlier. That meant a 20 percent increase quarter on

quarter.

UMC's quarterly results disappoint most analysts, said an analyst with

Invesco Taiwan Ltd (景順投信) in Taipei, who requested not to be named.

“I thought UMC would return to profitability in the third quarter. Its net

income matches my expectations, though,” said Roland Shu (徐振志), an

analyst with JP Morgan Securities Ltd based in Taipei.

Though UMC is banking on a greater sales contribution from advanced

technologies — 90-nanometer processing technology in particular — to boost

average selling prices, the company will not make significant progress in

this quarter, Shu said.

“It will take time for UMC's customers to complete the chips' qualification

process,” he said.

Chips made using 90-nanometer processing technology will make up nearly 20

percent of UMC's total sales this quarter, up from 14 percent in the third

quarter.

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