UMC’s Japan, solar units shrink profits

DRAGGED DOWN::The liquidation of its Japanese unit, coupled with its loss-making solar subsidiary, brought down the chipmaker’s profit to below analysts’ predictions

By Lisa Wang  /  Staff reporter

Thu, Nov 01, 2012 - Page 13

United Microelectronics Corp (UMC, 聯電), the world’s No. 2 contract chipmaker, yesterday posted a 20 percent sequential decline in net profits for last quarter due to asset impairment loss from a Japanese unit and its solar business, falling short of analysts’ predictions.

Non-operating income contracted to NT$83 million (US$2.8 million) last quarter, down 68 percent from NT$261 million in the second quarter and down 81 percent from NT$445 million a year ago. UMC attributed the decline in income to the NT$1.5 billion loss from its Japanese unit’s liquidation and the NT$800 million loss from its solar subsidiary.

As customers digest inventories, revenue is expected to slide between 6 percent and 8 percent this quarter, from last quarter’s NT$28.53 billion, UMC chief executive Sun Shih-wei (孫世偉) told investors.

“We expect present inventory adjustment to continue into early next year. The momentum of demand recovery in 2013 will be determined by macroeconomic conditions, end demand strength and the transitional progress of new products entering the market,” Sun said.

Because the inventory correction cycle has become shorter, Sun said “the two-quarter inventory correction [from this quarter to next quarter] will be milder.”

However, Sun declined to disclose revenue contribution this quarter from its 28-nanometer chips, after UMC started to generate revenue from those chips last quarter. He said the 28-nanometer chips would account for 5 percent of UMC’s shipments at year’s end, as expected.

However, Daiwa Capital Markets analyst Eric Chen (陳慧明) said in a note yesterday that Sun’s comments indicated that “UMC received less orders than expected from Qualcomm Inc in the fourth quarter.”

Chen reiterated his “hold” rating on UMC, citing slow 28-nanometer ramp-up.

Last quarter, speculations swirled that Qualcomm placed some orders with UMC after the world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), was unable to satisfy the US company’s demand for 28-nanometer chips.

TSMC made up 13 percent of its revenue from selling 28-nanometer chips last quarter and expected the share to increase to 20 percent this quarter and to 30 percent next year.

In the quarter ending on Tuesday, UMC’s net income shrank to NT$2.42 billion from NT$2.99 billion in the second quarter. On an annual basis, the figure represented a 24 percent growth from NT$1.95 billion.

The firm’s third-quarter net profits were much lower than the NT$4.02 billion forecast by Credit Suisse’s Randy Abrams and below the median forecast of NT$3.57 billion from analysts surveyed by Bloomberg.

The inventory correction cycle is expected to drive shipments down 7 percent to 9 percent sequentially in the current quarter, while the factory utilization rate would fall to between 75 percent and 78 percent this quarter from 84 percent last quarter, UMC said.

“Results [of operating income] and outlook were broadly in line with expectations, but were overshadowed by the slow pace on 28-nanometer production,” Abrams said in a report released yesterday.

UMC said gross margin is expected to drop to between 17 percent and 19 percent this quarter, from 24 percent last quarter, because of a lower factory utilization rate and higher shipments of low-margin advanced chips.

The company will maintain its capital spending at US$2 billion for this year and is planning to aggressively invest in 3D chips using 14-nanometer technology licensed from IBM, which is highly cost effective, UMC said.