Thu, Apr 26, 2012 - Page 12 News List

UMC first-quarter profit beats estimates

IS IT OVER?CEO Sun Shih-wei said the multiquarter inventory correction appears to have subsided as customers start to rebuild stocks in anticipation of rising demand

By Lisa Wang  /  Staff reporter

United Microelectronics Corp (UMC, 聯電), the world’s No. 2 contract chipmaker, yesterday reported a stronger-than-expected quarterly net income as higher shipments and better cost control helped lift its profit margin.

That lent support to UMC’s previous statement that the first quarter would be the trough of this down cycle driven by inventory reduction. As clients have started to rebuild inventory, UMC expects shipments to grow 15 percent this quarter, from 963,000 8-inch equivalent wafers last quarter.

The projection reflects its belief that “the semiconductor industry’s multiquarter inventory correction has subsided,” UMC chief executive officer Sun Shih-wei (孫世偉) told an investor conference yesterday.

Net income rose 36 percent to NT$1.34 billion (US$45 million) during the quarter ending March 31, from NT$980 million in the final quarter of last year. On an annual basis, first-quarter net profit plunged 70 percent, from NT$4.48 billion a year earlier.

Operating margin improved to 5.6 percent last quarter, from 3.4 percent in the fourth quarter, a company statement showed.

“UMC’s first-quarter profitability beat expectations,” Credit Suisse analyst Randy Abrams said in a report yesterday.

The result was far ahead of Abrams’ forecast of a net profit of NT$435 million. He rated UMC “outperform” with a price target of NT$17.50.

Sun was also upbeat about the outlook for the current quarter, which again was better than most analysts’ forecasts.

Sun said the average selling price would be flat this quarter compared with last quarter in US dollar terms. That means the chipmaker’s second-quarter revenue would rise about 15 percent quarterly.

Demand from communications and consumer electronics chips would outpace that of computer chips, Sun said.

“The [revenue] growth [forecast] is higher than my expectation of 10 percent,” KGI Securities Investment Advisory Co analyst Ricky Liu (劉浩民) said. “That will be fueled by customers rebuilding inventory, primarily from smartphone chip designers — or mainly from MediaTek Inc (聯發科).”

Despite the solid recovery in demand, UMC did not change its capital spending plan of US$2 billion for this year — most of which will go into developing advanced 28-nanometer (nm) technology.

“The lead time for 28nm capacity deployment is long. It is unlikely to boost capacity for short-term demand,” Sun said.

Besides, UMC plans to adjust its capacity for 65nm chips to make 28nm chips to satisfy clients’ demand, he said.

Meanwhile, rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is set to upgrade its capital spending for this year to more than the record US$7 billion it spent last year, citing insufficient capacity to meet customers’ demand for 28nm chips.

UMC plans to ramp up production of 28nm chips in the second half as scheduled, Sun said. The chipmaker expects 28nm chips to account for 5 percent of its total revenue by the end of this year.

UMC’s board also approved a proposal to issue NT$20 billion in corporate bonds as part of its plan to seek strategic partners.

In addition, the board gave the green light to acquire another 65 percent of Chinese chipmaker HeJian Technology (Suzhou) Co (和艦科技) to increase its stakeholding from the current 30 percent to about 90 percent. The company said it would cost about NT$190 million to acquire the 65 percent stake.

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