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United Micro profit falls 88% as clients cut orders

United Microelectronics Corp (UMC, 聯電), the world's second-largest custom-chip maker, reported a bigger first-quarter profit decline than some analysts had estimated as customers cut orders to clear excess inventory.

Net income fell 88 percent to NT$1.5 billion (US$45 million) -- or NT$0.08 a share -- from NT$12.29 billion, or NT$0.69, year-on-year, the Hsinchu-based company said yesterday.

The chipmaker joined market leader Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Singapore's Chartered Semiconductor Manufacturing Ltd in reporting a decline in first-quarter profit after customers including Texas Instruments Inc cut orders to clear inventory of chips used in mobile phones. Dallas-based Texas Instruments said orders will recover this quarter.

"When the industry is under pressure, UMC feels the pressure more," said Albert King, who manages US$10 million in assets as chief investment officer at Prophet Capital Inc in Taipei. "When the industry rebounds, they rebound more."

UMC' sales, reported earlier, declined 5.6 percent to NT$23 billion. Shares of UMC gained 0.3 percent to NT$19.1 at the close of trade in Taipei yesterday, compared with a 0.9 percent decline in the benchmark TAIEX index.

Operating profit -- which measures sales minus the cost of goods sold and administrative expenses -- declined 78 percent to NT$18.5 million from NT$85 million a year earlier, Bloomberg calculations, based on figures filed to the exchange by the company, showed.

The chipmaker's first-quarter operating margin fell to 0.08 percent, from 0.34 percent a year earlier, the lowest in seven quarters. Profit margin, which measures profit as a percentage of sales, declined to 6.3 percent from 50 percent a year earlier.

UMC last year posted non-operating profit of NT$14.1 billion in the first quarter from the sale of shares in chip design company Mediatek Inc, a gain which was not repeated in the first-quarter of this year.

TSMC last week said first-quarter profit fell 42 percent to NT$18.8 billion.

Chartered Semiconductor, the world's third-largest custom-chip maker, last Thursday said net income had dropped 76 percent to US$5.34 million.

Texas Instruments last week said profit fell for the first time in two years as customers such as Motorola Inc cut orders to clear inventories of chips. The company forecast sales will rise in the second quarter to between US$3.32 billion and US$3.6 billion, compared with US$3.4 billion analysts estimated.

UMC will hold an investors' conference on Wednesday to discuss the results and outlook.
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