Thu, Nov 01, 2007 - Page 12 News List

UMC's Q3 earnings set 3-year high

PESSIMISM Most of the quarter's earnings came from asset sales. The chipmaker said it would sharply reduce its capital expenditures next year

By Lisa Wang  /  STAFF REPORTER

A woman examines a mask part used in wafer conception at a show room of the 12-inch United Microelectronics Corp (UMC) factory in Tainan on April 28 last year. UMC said its net profit rose 88 percent in the third quarter to NT$9.23 billion from the previous quarter.

PHOTO: SAM YEH, AFP

United Microelectronics Corp (UMC, 聯電), the world's No. 2 contract chipmaker, announced third-quarter earnings yesterday that hit a three-year high driven by asset gains and stronger-than-expected rebound in demand for its chips.

But UMC appeared conservative about next year's forecasts.

The company said it planned to significantly reduce its capital spending next year from US$1 billion this year.

In the third quarter, net income leapt more than 7 percent to NT$9.23 billion (US$285 million) from NT$8.59 billion a year earlier, or the best since the third quarter of 2004. Compared to last quarter, the growth is around 88 percent.

Some NT$5.76 billion, or 62 percent, of the third-quarter earnings came mainly from asset sales, including its stakeholdings in local handset chipmaker MediaTek Inc (聯發科).

"Growth in shipments was higher than our previous forecast of 20 percent growth, meaning demand is better than we expected," company spokesman Liu Chi-tung (劉啟東) said.

The Hsinchu-based chipmaker shipped 26.5 percent more chips in the third quarter to 1.02 million 8-inch wafers.

However, UMC expects shipments to drop 9 percent at quarterly rate this quarter on seasonal factors, especially slowing demand for handset related chips.

UMC supplies chips to the world's biggest handset chipmaker Texas Inc and chips used in Apple Inc's iPhones.

Chips used in communication devices made up 57 percent of UMC's overall revenues of NT$31.03 billion in the quarter ended Sept. 30.

"We are seeing seasonal correction," chairman Jackson Hu (胡國強) told an investor conference yesterday in Taipei.

Factory usage may drop to 85 percent this quarter from 93 percent, Hu said.

Gross margins may decline to 20 percent from 26.5 percent last quarter partly due to a 1 percent quarter-on-quarter drop in average selling price, he said.

"The decline is much bigger than our expectation of a mid single-digit percent drop," said Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities' Taiwan branch.

Chen maintained his "hold" rating on UMC as the company was hit harder during downtrends than its bigger rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).

Commenting on possible reduction in capital spending next year, Chen said UMC may trim its spending by 20 percent to 30 percent compared to this year.

Strict control of capital spending would be the first step in making profits and would be one of the most important tasks rather than capacity competition, UMC said.

Separately, Hu said UMC would not rule out the possibility of manufacturing computer memory, or other special memory chips, aiming to boost utilization rate during the slack season.

Last month UMC announced that it had signed a cross license agreement with Tokyo-based memory chipmaker Elpida Memory Inc.

UMC shares were down 0.7 percent to NT$21.25 yesterday, better than the benchmark TAIEX's 0.48 percent loss.

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