United Microelectronics Corp (UMC, 聯電), the world’s No. 2 contract chipmaker, yesterday axed this year’s capital spending by 15 percent as it is taking a more realistic approach to boost equity returns rather than splurging on the most advanced technologies.
UMC plans to spend US$1.7 billion on new equipment this year, down from its earlier estimate of US$2 billion.
Although the chipmaker said the reduction would apply to all nodes, it is seen as an early indicator that the firm is abandoning its long-term pursuit of making ever smaller and advanced chips.
The strategy adjustment was announced by the company’s new copresident Jason Wang (王石) during his first appearance on the chipmaker’s quarterly investors’ teleconference yesterday.
“The worldwide foundry market could reach US$65 billion in 2020. About US$20 billion to US$25 billion will be advanced nodes, or chips smaller than 14 nanometers [nm]. Those applications might not be addressable [markets] for UMC,” Wang said.
Next-generation 10nm and 7nm technologies would not be its major focus, the company said.
With its rich technology offerings and customer portfolios, UMC still has significant business opportunities, given the remaining US$40 billion and US$65 billion foundry markets, Wang said.
Those markets “will be driven by Internet of Things, automotive and emerging memory [chips], which do not require advanced technologies,” Wang said.
Want said 28nm technology would be an important growth driver and it would be a long-life technological node due to growing demand from Wi-Fi, digital TV, set-top boxes and the Internet of Things.
UMC’s priority is to enhance returns on equity and investment, Wang said.
“We are not satisfied with our current levels,” he said.
UMC yesterday posted an 8.2 percent decline in net profit last quarter at NT$2.1 billion (US$69.07 million), compared with NT$2.87 billion in the first quarter. Earnings per share dropped from NT$0.19 to NT$0.17.
Net profit contracted 18.6 percent year-on-year from NT$2.58 billion in the second quarter last year.
Gross margin fell to 18 percent last quarter, from 19.9 percent in the first quarter primarily due to foreign-exchange rates. A 2 percent appreciation of the New Taiwan dollar took 1.5 percentage points from the chipmaker’s gross margin last quarter, UMC said.
“Demand for our mature technologies remains strong. However, due to a softened outlook for 28 nanometer chips, we project a sequentially flat quarter,” Wang said.
He expects demand for 28nm chips to return in next three to four quarters.
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