Sat, Apr 14, 2012 - Page 12 News List

Electricity rate raise will hurt a bit, UMC says

GROSS MARGINS:LCD panel makers and contract chipmakers will be affected the most by the price increase because of their factories in Taiwan

By Lisa Wang  /  Staff Reporter

United Microelectronics Corp (UMC, 聯電), the world’s No. 2 contract chipmaker, yesterday said the planned industrial electricity rate hike averaging 35 percent would erode its gross margin by less than 1 percentage point.

UMC’s comments came after Taiwan’s contract chipmakers and LCD panel makers were widely expected to suffer the most from the price increase, because of heavy power consumption in their manufacturing processes and most of their advanced plants being located in Taiwan due to the government’s restrictions on moving such plants abroad.

The price hike would increase local electronics manufacturers’ electricity cost ratio from 1.93 percent to 2.38 percent, according to the Ministry of Economic Affairs’ forecast.

The ministry’s did not provide a projection for the chip manufacturing sector, which is one of two major pillars of Taiwan’s manufacturing sector.

“The impact will vary in scale in according to the company’s operations in different stages,” UMC chief financial officer Liu Chi-tung (劉啟東) said by telephone, when asked if he considered the 1 percent erosion a significant impact.

The slumping global economy helped push UMC’s gross margin down to the weakest level in more than two years at 18.6 percent during the final quarter of last year.

The figure is expected to shrink to 16 percent in the first quarter of this year, not counting the effect of rising electricity bills, Credit Suisse said.

“Contract chipmakers and LCD panel makers will be worst hit by the new electricity price increase because most of their factories are here,” independent analyst Henry Chen (陳志恆) said yesterday in Taipei.

The LCD panel manufacturing sector, another pillar of the manufacturing sector, expects to see electricity costs rise 0.45 percentage points, from 1.92 percent at the moment to 2.37 percent.

“The increase in the electricity rates will definitely increase our costs as long as electricity consumption is a component of our cost structure, but I will not say it is a major one. Instead, raw material costs account for the biggest part,” Freda Lee (李秀芬), a spokesperson of the nation’s No. 2 LCD panel maker, AU Optronics Corp (友達光電), said by telephone.

Lee declined to quantify the impact on the company’s overall production costs.

In February, AU Optronics unveiled a new project to cut power consumption by 25 percent in 2015 from 2010.

Based on the ministry’s projection, cement providers and textile companies would see their electricity costs rise the most, by 1.41 percentage points and 0.81 percentage points respectively, but this does not factor in that most local cement companies have relocated their factories to China.

“Based on my knowledge, local factories make up a very small portion, or less than 20 percent, of their total capacities,” Chen said.

On Thursday, the ministry unveiled its plan to raise electricity rates to help turn around state-run Taiwan Power Co (Taipower, 台電), which is expected to lose NT$15.2 billion this year even after the proposed price hikes, down from a previous estimate of NT$117.6 billion amid rocketing costs of importing coal and other fuels.

The new rates will take effect in the middle of next month.

Share prices of AU Optronics and its bigger rival Chimei Innolux Corp (奇美電子) rallied 4.11 percent and 2.17 percent to NT$15.2 and NT$14.1 respectively yesterday, as panel prices are expected to improve this month and be flat next month and in June, helping the companies reduce losses, as Credit Suisse predicted.

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