Thu, Aug 03, 2006 - Page 12 News List

UMC Q2 earnings soar, Q3 rise seen

HAPPY DAYS The chipmaker said its net profit for the second quarter was NT$6.05 billion, while its chairman downplayed concerns over customers' inventory pile-up

By Lisa Wang  /  STAFF REPORTER

United Microelectronics Corp chief executive officer Jackson Hu gestures during an investors' meeting yesterday in Taipei. UMC, the world's second-biggest contract chipmaker by revenue, reported that its net profit for the second quarter soared 20 times from the same period last year, partly on large share sales.

PHOTO: AP

United Microelectronics Corp (UMC, 聯電), the world's second-biggest contract chipmaker, said yesterday that second-quarter earnings had soared by nearly 20- fold from a year ago because of recovering demand and further asset sales.

That momentum is expected to extend into the current quarter as UMC said that net profits would grow and hinted that revenues would expand by double-digit percent at quarterly rate, as it had projected in April.

"The industry has fully recovered [from the downturn last year]," chairman and chief executive Jackson Hu (胡國強) told an investors' conference.

UMC posted NT$6.05 billion (US$184.1 million) in net income for the three-month period ending in June, compared with NT$299 million during the same period last year, according to a company statement.

Earnings per share also jumped to NT$0.34 from NT$0.02.

Revenues surged 32 percent year-on-year to NT$25.75 billion last quarter, the company said earlier.

The quarterly earnings, however, represented a 50 percent quarterly decline as the chipmaker booked NT$5.08 billion, down 60 percent, in proceedings from asset sales.

In response to investors' concern about inventory, which drove the industry into its last trough, Hu was optimistic as his counterpart at arch rival Taiwan Semiconductor Manu-facturing Corp (TSMC, 台積電).

Hu said that it's customers' inventories, especially those in the consumer electronics sector, grew over the past three months because they had overestimated the degree to which the World Cup would boost demand for flat-panel TVs.

But the inventory adjustment could be short-lived as "one of our customers told us that it would take two months to write off the backlog and demand could pick up later in September," he said.

Inventory level at major mobile phone vendors was reasonable, Hu said.

Communications products made up the biggest portion, or 56 percent, of UMC's total revenues in the second quarter.

Consumer electronics were second, with 28 percent.

Hu's confidence mirrored the chipmaker's decision to keep its US$1 billion capital spending for this year unchanged.

In contrast, TSMC expects a slight slowdown in its expansion as its clients work through their inventory in the final quarter.

UMC expects its operating margin to improve this quarter to 10 percent from 6.3 percent last quarter, as chip prices are forecast to rise another 6 percent to 8 percent quarter-on-quarter.

"More customers are ordering chips made on advanced technologies, including 90-nanometer and 65-nanometer processing technologies," Hu said.

By the end of this year, UMC plans to have chips made on the advanced technologies account for half of its total revenues, Hu said.

Shipments in the current quarter would increase as much as 2 percent at a quarterly rate, he said.

"UMC's guidance is better than I have imagined. The company's progress in developing advanced technologies is impressive," said Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities in Taipei.

UMC could report unexpectedly fair third-quarter earnings since it expects chip prices to rise, Chen said.

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