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UMC posts first loss in seven years

United Microelectronics Corp (UMC, 聯電), the world’s second-biggest contract chipmaker, yesterday posted its first quarterly loss in seven years on a one-off asset writedown and as the spreading economic slowdown curtails demand.

Without any clear signs of a revival, the Hsinchu-based chipmaker also planned to cut capital spending by almost a third for this year to between US$400 million and US$500 million, down from the US$500 million to US$700 million range.

In the quarter ending Sept. 30, UMC posted net losses of NT$1.41 billion (US$42.3 million) after booking NT$2.1l billion in non-operating losses, including an impairment charge from its holding in local chip designer Silicon Integrated Systems Corp (矽統科技), a company statement showed. A year earlier, UMC reported a net income of NT$9.23 billion.

UMC last reported quarterly losses in the final quarter of 2001 during an inventory-driven downturn.

“We see that the [macro] environment is more challenging than we previously anticipated. Customers have adopted a cautious attitude,” UMC chief executive Sun Shih-wei (孫世偉) told investors.

“Communications, among other sectors, may be affected [negatively] by the economic slowdown,” Sun said.

Stagnant demand may lead the company’s equipment utilization to fall to 55 percent this quarter after running about 80 percent in the first half, the company said.

Shipments may drop 25 percent in the final quarter of the year from 883,000 8-inch wafers in the July-to-September period, Sun said.

“UMC’s handset customers such as Texas Instruments Inc may reduce orders after giving a bleak business outlook for the current quarter,” said Kenneth Lee (李克揚), who tracks the semiconductor industry for Primasia Securities in Taipei.

Gross margin may fall to 10 percent in the October-to-December quarter from 26.5 percent a year earlier and 17.6 percent last quarter, UMC said. The average selling price may rise slightly after excluding the foreign exchange rate factor, UMC said.

“Low gross margin and factory usage may drive the chipmaker into operating losses in the fourth quarter,” Lee said.

But, for the whole of this year, UMC may still book positive operating income as it has accumulated NT$3.48 billion in net income during the first nine months, UMC chief financial executive Liu Chi-tung (劉啟東) said, assuring investors that the company has the ability to manage the industrial trough.

Commenting on recent speculation on industry consolidation, which usually proliferates in a downturn, Sun said: “We are happy to see any merger and acquisition [M&A] deals. We are seriously looking for M&A opportunities, but we don’t have a certain timetable yet.”

UMC is well-positioned to strike M&A deals on the back of its strong cash position, with cash amounting to NT$22 billion and a stable cash inflow of between NT$3 billion and NT$4 billion a quarter, Liu said.

Primasia Securities reiterated its “buy” rating for UMC because of the chipmaker’s strong cash position. Besides, the stock has been trading lower than its net value of NT$16.55 as of the first half.

UMC shares rose to close at the 7 percent daily limit of NT$8 yesterday, out-performing the benchmark TAIEX index, which inched up 0.15 percent.
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