Taiwan Ratings slashes outlook rating for UMC

By Lisa Wang  /  Staff reporter

Wed, Oct 02, 2013 - Page 14

Taiwan Ratings (中華信評) yesterday downgraded its outlook rating of United Microelectronics Corp (UMC, 聯電) to “negative,” citing the company’s weakening technological competitiveness and falling market share.

UMC, the world’s second-largest contract chipmaker, previously was assigned a “stable” outlook by Taiwan Ratings, which is a local partner of Standard & Poor’s.

“Intensifying competition and slower-than-expected progress in its development of 28-nanometer process technology will prevent UMC from enhancing its average selling price and profitability,” Taiwan Ratings analyst Raymond Hsu (許智清) said in a statement.

UMC said in August that it expected revenue contribution from 28nm chips to account for 2 percent at the end of this year. Industrial leader Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) had about 30 percent of its revenue coming from 28nm chips in the second quarter.

Hsu said UMC would likely face heavy pressure over the next one or two years.

TSMC has increased its dominance in the 28nm technology, while rivals such as GlobalFoundries Inc and Samsung Electronics Co are racing to catch up, Hsu said.

UMC’s revenue shrank 8.5 percent from 2010 through last year, underperforming the wafer foundry industry’s 20 percent growth caused by strong demand from smartphones and tablets, Taiwan Ratings said.

Hsu expected UMC to post an annual decline ranging from 2 percent to 4 percent in average selling prices this year and to be flat next year on the back of growing contribution from 28nm chips.

Revenue is expected to grow between 5 percent and 7 percent this year from last year’s NT$106 billion (US$3.6 billion), and to expand between 5 percent and 7 percent next year, he said.

Because of weakening profitability and ability to generate cash flow, UMC is expected to cut its capital spending to NT$45 billion this year from NT$52 billion last year, Taiwan Ratings said.

Taiwan Ratings kepts UMC’s “twAA” long-term rating and “twA-1+” short-term corporate rating unchanged.