Sat, Jan 25, 2014 - Page 13 News List

UMC reports 79% decline in profits on lack of demand

ROSY OUTLOOK:This year the firm is optimistic about its business, as it will ‘benefit from product design wins across a broad spectrum of the semiconductor industry

By Lisa Wang  /  Staff reporter

United Microelectronics Corp (UMC, 聯電), the nation’s second-largest contract chipmaker, yesterday posted a 79 percent decline in net profit for last quarter as weak demand for high-end smartphones curtailed customers’ orders.

Net profit plunged to NT$749 million (US$24.62 million), compared with NT$3.48 billion in the third quarter last year. That represented about a 1.35 percent increase from NT$739 million in the same period of 2012.

The fourth-quarter figure is better than the chipmaker’s forecast that it would break even, while it is slightly below the NT$998 million forecast by Credit Suisse analyst Randy Abrams and well below the NT$1.84 billion forecast by Daiwa Capital Markets analyst Eric Chen (陳慧明).

This quarter, UMC expects factory usage to fall further to about 70 percent from last quarter’s 79 percent and 87 percent in the third quarter last year, due to decreased wafer capacity utilization because of a slower-than-expected ramp-up production at its 12-inch factories on weak demand for high-end smartphones.

“For the first quarter, we anticipate a softer business environment due to normal early-year seasonality,” UMC chief executive Yen Po-wen (顏博文) said in a statement.

Gross margin is expected to drop to about 15 percent this quarter from 18.1 percent last quarter. Average selling prices are expected to fall 4 percent quarter-on-quarter, not including foreign exchange factors.

Shipments are expected to grow slightly from last quarter’s 1.24 million 8-inch wafers, driven by an increase in demand for consumer electronics and computers.

UMC’s forecast for this quarter implies a 3 percent sequential decline in revenue, Abrams said in a research note issued yesterday. That is a little faster than the 2.5 percent quarterly reduction forecast by Abrams and the 1 percent growth estimated by Chen.

Abrams maintains a “neutral” rating on UMC's shares, while Chen retains a “hold” rating on the stock.

“It is our target to remain profitable in the first quarter,” Yen told investors yesterday.

Last year, UMC’s net profit doubled to NT$12.63 billion, or earning per share of NT$1.01, compared with NT$6.18 billion, or NT$0.49 per share, in 2012, after the firm booked NT$10.33 billion in non-operating income, 87 percent higher year-on-year.

Yen said the company is optimistic about its business this year as it will “benefit from product design wins across a broad spectrum of the semiconductor industry.”

UMC plans to spend between US$1.1 billion and US$1.3 billion on new equipment, which is similar to last year’s budget.

“We probably are unlikely to see a turnaround in UMC’s blended average selling price and gross margin in 2014, given its late 28-nanometer migration and smaller scale,” Chen said in a report.

UMC expects to start volume production of 28-nanometer wafers in the second half, while capacity is expected to remain at 10,000 wafers a month.

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