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UMC Q4 earnings rise by 87%

United Microelectronics Co (UMC, 聯電), the world's No. 2 contract chipmaker, yesterday said fourth quarter earnings jumped about 87 percent at an annual rate, driven primarily by asset gains.

UMC posted quarterly earnings of NT$5.69 billion (US$172.4 million), or NT$0.33 per share, in the quarter ending Dec. 31, compared to NT$3.04 billion, or NT$0.17 a share, a year ago.

Non-operating income more than doubled to NT$5.23 billion in the final quarter of last year primarily due to the NT$4.39 billion gain on disposal of MediaTek Inc (聯發科技) shares.

The quarterly net income represented a 33.8 percent decline as customers, primarily in North America, slowed booking amid inventories digestion.

"We expect a recovery in orders beginning in the second quarter after the traditionally slack first quarter," UMC chief executive Jackson Hu (胡國強) told an investor's conference yesterday.

"Most of our customers are expecting demand to be strong in the second half," Hu said in a statement. He added that customers would continue to digest inventories this quarter.

For the overall foundry industry, Hu expected the industry to grow at an annual 7-percent rate in sales, in line with rival Taiwan Semiconductor Co's (TSMC, 台積電) forecast of a 4 percent to 6 percent expansion.

For UMC alone, shipments and average selling price (ASP) would fall by 5 percent and 6 percent, respectively, on weak demand for high-end chips in the first three months of the year, Hu predicted.

Factory usage would decrease further to 70 percent this quarter from 76 percent in the fourth quarter and 82 percent in the third quarter last year, Hu said.

Despite further decline in the key indicators, Hu expects UMC to break even in terms of operating level.

"It will be quite challenging for UMC to break even as UMC forecast a faster price decline as it is under price pressure from bigger competitor TSMC," said Rick Hsu (徐稦成), an analyst with Nomura Securities Co in Taipei.

Hsu estimated that UMC's ASP would drop by 1 percent to 2 percent and that UMC's fourth quarter operating income was merely acceptable.

UMC said operating income rose 47.8 percent to NT$1.37 billion in the fourth quarter from a year earlier as lower costs helped offset price fall.

Gross margin improved to 20.9 percent from 18.1 percent during the same period.

The chipmaker planned to spend US$1 billion to US$1.2 billion on new facilities and equipment this year, compared to US$1 billion in capital spending for last year.

Separately, UMC's Hu said that the company's recent plan to axe its capital by 30 percent did not aim to lure buyout bids from private equity fund investors, but simply to better utilize the cash.

"We are not seeking any buyout offer," Hu said, denying widespread speculation.

UMC shares dropped 0.73 percent to NT$20.45 before the company posted its quarterly results yesterday, underperforming the broader market's 0.3 percent loss.
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