Thu, May 01, 2008 - Page 12 News List

UMC posts unexpected earnings

LOOKING UP Chairman Jackson Hu said the company had forecast losses for the first quarter, partly because of the rise of the NT dollar against its US counterpart

By Lisa Wang  /  STAFF REPORTER

United Microelectronics Corp (UMC, 聯電), the world’s second-largest contract chipmaker, yesterday posted higher-than-expected quarterly earnings on the back of recovering demand, especially for its chips made on advanced technologies.

The recovery may be more evident this quarter, with orders expected to increase as most customer inventories fall, UMC said.

In the first quarter, net income declined 86 percent to NT$206 million (US$6.77 million), from NT$1.46 billion a year ago, the Hsinchu-based chipmaker said. Last year, the company booked NT$1.72 billion in non-operating gains, but a repeat was not expected this year.

“The results are better than we thought, since we expected slight losses in the first quarter because of customer inventory adjustments and the appreciation of the NT dollar [against the greenback],” UMC chairman Jackson Hu (胡國強) told an investor’s conference.

Operating profits, or sales minus the cost of goods sold and administrative expenses, grew about tenfold to NT$190 million last quarter from a year earlier.

Warren Lau, a semiconductor analyst with Macquarie, said before the release of UMC’s first-quarter results that an operating loss would not come as a surprise. Macquarie has an “underperform” rating on UMC.

In a note to clients on Monday, Lau said he expected UMC to post a negative operating margin of 4 percent to 6 percent, factoring in the impact of employee bonus dilution. But UMC yesterday reported 0.8 percent in gross margin.

The appreciation of the NT dollar shaved 3 percent off UMC’s first-quarter revenues and may cost the company between 3 percent and 5 percent of its revenues this quarter, it said.

Looking ahead, “we are seeing customer orders starting to recover,” Hu said, adding that telecommunications demand for chips would be a major driving force.

UMC is likely to see a boost in orders from major customers such as US handset maker Broadcom Corp, Infineon Technologies AG and Taiwan’s MediaTek Inc (聯發科), Lau said in the note.

As demand from the telecommunications segment improves, wafer shipments may increase 10 percent in the second quarter from 807 million 8-inch wafers last quarter, Hu said.

Chips used in products such as mobile phones accounted for 56 percent of UMC’s NT$24 billion in first-quarter revenues.

The company’s factory utilization rate may increase to 80 percent in the second quarter from 73 percent in the first quarter, Hu said.

Gross margin may expand to 20 percent this quarter from 14.9 percent last quarter, with potential erosion as a result of the NT dollar’s appreciation factored in, he said.

Average selling prices could slide 2 percent because of quickly increasing shipments of cheaper 8-inch wafers, he said.

However, concerns about the US subprime credit crunch and mounting oil prices overshadowed the nascent recovery, the company said.

UMC said it had allocated NT$80 million in first-quarter earnings for employee bonuses. It booked NT$599 million in losses through its approximately 7 percent stake in local computer chipmaker ProMOS Technologies Inc (茂德科技). It kept capital spending at between US$500 million and US$700 million. UMC shares dropped 0.27 percent to NT$18.6 yesterday, underperforming the benchmark TAIEX, which gained 0.32 percent.

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