Shares of United Microelectronics Corp (UMC, 聯電) plunged yesterday after several brokerages expressed caution about the world’s fourth-largest contract chipmaker in view of the company’s slow ramp-up production of 28 nanometer (nm) chips.
The company’s shares fell by 3.89 percent to close at NT$12.35 on the Taiwan Stock Exchange, underperforming the TAIEX’s 1.58 percent fall, after UMC on Friday told investors it expects to start volume production of 28nm chips in the second half of the year, which is much slower than market expectations of the final quarter last year.
At an investors’ conference, UMC said that its 28nm capacity would likely reach just 10,000 wafers a month by the end of the year, which is lower than JPMorgan Securities Ltd’s estimate of 20,000 wafers.
As Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is pushing for 28nm lower-cost solutions on high-k metal-gate (HKMG) technology, demand for UMC’s 28nm wafers on polysilicon/oxynitride (polysion) technology could “dry up very quickly,” JPMorgan analysts, led by analyst Gokul Hariharan, said in a note.
Both HKMG and polysion represent different process technologies in wafer manufacturing.
According to TSMC, 28nm is the first generation with which the foundry industry uses the HKMG process, although the polysion process is also offered to meet customer’s time-to-market needs.
However, the yield rates of UMC’s 28nm HKMG technology are still below those of polysion solutions,
JPMorgan said this implies “potential push-out” of revenue and profit contributions by the firm’s 28nm business some time later.
HSBC Ltd regional head of technology research Steven Pelayo also expressed concern that UMC’s management did not provide a 28nm revenue target last week despite more than a year’s delay in 28nm wafer production.
“We now forecast 28nm to be less than 5 percent of [total] revenue this year, versus [the] 5 to 7 percent previously expected,” Pelayo said in a note to clients. “It appears that UMC continues to slip in their 28nm progress and is at risk of losing second-source ‘relevancy’ in the market.”
Barclays Capital Securities Ltd analyst Andrew Lu (陸行之) warned that UMC might incur an operating loss this quarter, after posting an operating income of NT$194 million for the fourth quarter of last year, citing higher depreciation costs, a lower 12-inch fab utilization rate and rising sales in low-margin new businesses, mainly solar items.
Despite these cautious remarks, UBS Securities chief semiconductor analyst Jonah Cheng (程正樺) is upbeat about the company’s potential turnaround
Cheng said that the company’s fourth-quarter results show its downward momentum is bottoming out.
On Friday, UMC reported a net profit of NT$749 million for last year’s October-to-December quarter, down 78.45 percent quarter-on-quarter, but better than UBS’ forecast of NT$560 million.
“Under improving utilization rates of [its] foundry business and lower loss from the new businesses (solar), we think UMC will keep showing improving profitability in the coming quarters,” Cheng said.
Additional reporting by Lisa Wang
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