Thu, Aug 02, 2007 - Page 12 News List

UMC income drops on low prices

OPTIMISM The company predicted a solid recovery next quarter from the 25 percent dip, as demand for communication devices should continue to rebound

By Lisa Wang  /  STAFF REPORTER

United Microelectronic Corp (UMC, 聯電) yesterday posted a 25 percent lower operating income for last quarter on falling prices, but the world's No.2 contract chipmaker predicted a solid recovery over the next quarter on growing demand for wireless devices such as Apple Inc's iPhone.

Operating income slid to around NT$1.23 billion (US$37.42 million) in the period from April to June, compared with NT$1.63 billion for the same period last year.

The results represented a substantial jump from NT$18 million in the first quarter of the year.

With the company's impressive NT$4.18 billion in asset gains, its net income totaled NT$4.91 billion, down almost 19 percent from NT$6.05 billion a year earlier. The figure nevertheless represents a three fold increase in quarterly growth from NT$1.46 billion.

Looking forward, chief executive Jackson Hu (胡國強) said: "Quite a few of our customers are currently experiencing inventory levels that are lower than normal. This situation leads us to foresee strong demand across the board for all applications in the third quarter."

Commenting on the fourth quarter, Hu said "demand still looks good."

REBOUND

Rebounding demand for communication devices, which accounted more than half of UMC's NT$25.1 billion in revenues last quarter, should be the biggest driver for the chipmaker's growth next quarter, Hu said.

UMC supplies chips to the world's biggest mobile phone chip vendor, Texas Instruments Inc and Qualcomm Inc.

Supported by the strong recovery, UMC expected shipments to expand 20 percent quarter-on-quarter and predicted its gross margin would improve 5 percent in the third quarter from 19.8 percent last quarter.

Factory usage should also increase to over 90 percent from last quarter's 76 percent, Hu said, adding that prices should hold steady this quarter.

"The financial results exceeded my expectation. And the company's outlook for the third quarter is better than that of rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電)," said Kenneth Lee (李克揚), a Taipei semiconductor analyst with Primasia Securities.

TSMC expected gross margin to rise by as much as two percentage points as a result of dropping chip price.

UMC may see its best gross margin and revenues in recent years during this quarter, Lee said, predicting that UMC would earn NT$3.3 billion.

That could give a reason to upgrade stocks soon from the current "hold" rating, Lee said.

CONCERN

Despite the rosy outlook, "it is a concern that UMC is getting orders at a slower rate for chips made on advanced 65-nanometer technology, which could mean weaker competitiveness in the long term," said Eric Chen (陳慧明), who tracks the semiconductor industry at BNP Paribas Securities' Taipei branch.

UMC expected to ramp up production using 65-nanometer technology, while TSMC owed 3 percent of its revenues to 65-nanometer chips in the second quarter.

UMC said it would retain its capital spending at US$1 billion to US$1.2 billion for this year from last year's US$1 billion.

Shares of UMC declined 3.28 percent to NT$17.7, better than the benchmark TAIEX index's 4.45 percent loss yesterday. TSMC shares slid deeper 5.69 percent to NT$61.3.

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