United Microelectronics Corp (UMC, 聯電), the world’s second-biggest contract chipmaker, yesterday raised its capital spending for this year by 20 percent after growing demand for high-priced chips helped lift quarterly net profit to its highest in three quarters.
During the April-June period, UMC’s net profit more than tripled to NT$5.27 billion (US$165 million), compared with NT$1.55 billion a year ago, beating most analysts’ forecast, including Credit Suisse’s Randy Abrams, who expected the company to earn NT$4.99 billion.
Abrams has a “neutral” rating on UMC amid concern over intensifying competition from rivals, including newcomer GlobalFoundries Inc, which is funded by Abu Dhabi.
On a quarterly basis, UMC’s profit was up 51.4 percent from NT$3.48 billion in the first quarter, as recovering demand boosted prices and shipments of chips used in handsets and TVs.
“We are working very hard to support customers’ demand for [chips using] 65 [nanometer process technology] and 45 [nanometers]. Capacity is still under constraint,” chief executive Sun Shih-wei (孫世偉) told an investor conference. “Growth of our 45 [nanometer chip sales] is capped by capacity.”
To capture this growing business opportunity, UMC has budgeted US$1.8 billion for new equipment this year, up 20 percent from the US$1.5 billion estimated in April, matching a similar move by rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which boosted spending to US$5.9 billion.
Last year, UMC spent US$551 million on new equipment.
Sun said that UMC “will not get into an arms race with other foundries [contract chipmakers]. We have a healthy outlook for mid to long-term demand.”
UMC expects the growth momentum to extend into this quarter, led by consumer electronics chips amid expanding applications.
“I’m surprised at the forecast,” said Michael Chou (周立中), a semiconductor analyst with Deutsche Securities in Taipei, given that demand for most consumer electronics, such as TVs, were going down.
However, “Broadcom’s digital set-top box chips could be a boost to UMC,” Chou said.
Consumer chips accounted for a bigger share, or more than a third of UMC’s revenues of NT$29.75 billion in the second quarter, up from 26 percent in the first quarter. Communications chips were still UMC’s biggest revenue source, accounting for 54 percent.
Chip prices are expected to rise by a mid-single-digit percentage this quarter as rising demand for chips made on advanced technologies could raise their revenue contribution to 30 percent of the total, from 25 percent last quarter, Sun said.
Gross margin could rise to 30 percent this quarter from 29.6 percent last quarter, he said.
Shipments would increase by a low-to-mid single digit percentage, from a record high of 1.16 million 8-inch equivalent wafers last quarter, UMC said.
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