UMC posts first profit in three quarters

UMC vice chairman Peter Chang, left, chairman and chief executive officer Jackson Hu, center, and chief financial officer Chitung Liu, right, participate in the company's quarterly investor conference yesterday in Taipei. PHOTO: SAM YEH, AFP

United Microelectronics Corp (UMC, 聯電), the world's No. 2 contract chipmaker, yesterday posted its first operating profit in three quarters due to rising demand for higher-priced chips made with advanced technology.

For the fourth quarter last year, the company posted operating profits of NT$928 million (US$28.73 million), the first such profits since the second quarter last year, after a recent industry downturn driven by excessive inventory.

But demand will weaken this quarter on seasonal factors, which will cause a decline in factory usage to 75 percent from 86 percent last quarter, chairman Jackson Hu (胡國強) told investors yesterday.

Wafer shipments will slide by around 8 percent at quarterly rates and prices would also drop by one or two percent, Hu said.

Despite the decline in those key indices, Hu said UMC will break even in terms of operating profitability in the first quarter of this year.

"Basically, our customer's inventory situation is normal this quarter and we don't see any negative factors to impact on market demand," Hu said. "Most of our customers are positive about the demand in the second half."

Giving a vote of confidence to industry trends, UMC plans to boost its capital spending for this year to US$1 billion, up about 40 percent from US$722 million for last year.

"Rising demand for wireless communications products, computers and LCD drivers are the key [factors] driving growth," Hu said in a statement.

During the October-December period last year, UMC earned NT$3.04 billion, more than double the NT$1.33 billion net income for the same period in 2004, according to company statistics.

Earnings per share also rose to NT$0.16 from NT$0.07 for the same period, according to the company.

For the full year last year, however, UMC's net income declined fully 78 percent to NT$7.03 billion, or NT$0.38 per share, from a year ago, UMC said. Revenues for last year fell 23 percent year-on-year to NT$90.78 billion.

Roland Shu (徐振志), a semiconductor analyst with J. P. Morgan Securities Ltd in Taipei, said the quarterly results largely matched his forecast.

"But, we care more about the [long-term] trends," Shu said. "UMC still has a gap [in the technology contest] with its bigger rival Semiconductor Manufacturing Co (TSMC, 台積電)," he said.

Shu said it would take a long time for UMC to profit from advanced technology because of its limited customer portfolio.

UMC, which supplies chips to Texas Instruments Inc and Xilinx Inc, said it would start making chips in small volumes for three new customers this quarter using advanced 90-nanometer processing technology.

The new orders will strengthen the company's profitability in the next two quarters, UMC's Hu said.

Hu said that rising demand for chips made on the advanced 90-nanometer processing technology boosted chip prices by 2 percent in the three-month-period to December from the previous quarter.

UMC's gross margin recovered to 18.1 percent last quarter, but still lagged far behind TSMC, which has a 49 percent gross margin.

Chips made on 90-nanometer technology made up 11 percent of its total sales last year, up from 3 percent in 2004, the chipmaker said.

UMC shares were unchanged at NT$17.9 on the Taiwan Stock Exchange yesterday.