United Microelectronics Corp (UMC, 聯電) said yesterday its board approved a proposal to buy out the holding company of Chinese chipmaker He Jian Technology (Suzhou) Co (和艦) for US$285 million to tap into the fast-growing Chinese market after posting three quarterly losses in a row amid the industry’s severest-ever downturn.
The Hsinchu-based chipmaker said it was key to build a production facility in China as part of UMC’s efforts to expedite growth and to enhance profitability by building a greater presence in new markets with strong growth potential.
Compared with other markets that are reeling from the global economic downturn, “China’s market is relatively strong, attracting many customers that prefer the option of local production,” UMC chief executive Sun Shih-wei (孫世偉) told investors.
UMC plans to purchase an 85 percent stake in Infoshine Technology Ltd, which owns He Jian, for US$285 million in cash, or by offering common shares or American depositary receipts. UMC currently holds about a 15 percent stake in the Suzhou-based chipmaker, which He Jian gave to UMC for helping to establish the firm.
Bigger rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has been operating a plant in Shanghai since late 2006.
“He Jian’s capacity is merely 8 percent of UMC. You can judge the impact,” said Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities (Taiwan) Co.
UMC said it has US$1.2 billion in cash, more than sufficient for the acquisition. The chipmaker hopes to wrap up the deal within the next four to six months. The acquisition will be subject to the approval of its shareholders and the government.
He Jian, which operates a factory with monthly capacity of 41,000 eight-inch wafers, primarily makes driver integrated circuits and chips used in digital music players.
Losses at the the world’s No. 2 contract chipmaker narrowed to NT$8.16 billion (US$243 million) in the first quarter, while non-operating losses decreased significantly to NT$843 million, UMC said yesterday. In the previous quarter, the company posted losses of NT$23.51 billion, with NT$19 billion in non-operating losses. A year ago, UMC made profits of NT$206 million.
“Recent orders indicate strong demand in the second quarter, confirming our assessment at our conference for the last quarter that demand has already bottomed out,” Sun said. “We expect second-quarter revenues to grow significantly and we will return to profits.”
Gross margin is expected to return to 20 percent this quarter, compared with minus 40 percent last quarter, he said.
Shipments may more than double this quarter from last quarter’s 384,000 wafers on the back of a rebound in demand, the strongest upturn in the communications sector, which accounted for nearly 60 percent of UMC’s total revenues of NT$10.84 billion in the January to March period.
UMC supplies chips to the world’s biggest handset chipmaker Texas Instruments Inc, Taiwan’s MediaTek Inc (聯發科) and Broadcomm Inc, among others.
Reflecting the strong recovery, factory utilization may spike to 75 percent this quarter from 30 percent in the first quarter, UMC said.
Average selling prices seem to be stabilizing and prices may fall 5 percent quarter-on-quarter, from a 10 percent decrease in the first quarter, the company said.
UMC maintained its capital spending forecast for this year at less than US$400 million.