Sales slump expected to hurt UMC

United Microelectronics Corp (UMC, 聯電), the second-largest maker of chips for other companies, is expected to say it made a loss in the first quarter after sales declined by almost half.

The company probably posted a loss of NT$2.3 billion (US$66 million), or NT$0.17 a share, compared with a net income of NT$6.5 billion, or NT$0.57, a year ago, according to analysts. Sales fell to NT$12.1 billion from NT$23.6 billion a year ago, according to monthly figures reported by the company.

UMC will report earnings on Monday after the close of the Taiwan stock market.

As demand for chips rebounds, UMC is increasing sales at a greater pace than Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), its larger rival, and will return to a profit in the second quarter, some investors said.

"I plan to increase my stake in UMC," said Michael Ding (丁予嘉), who counts shares in the company among the US$457 million he helps manage at International Investment Trust Ltd (國際投信). "Now is a good time to accumulate the shares."

The company, which said in January it will start building a plant with Advanced Micro Devices Inc in Singapore, will supply computer processors to Intel Corp's biggest rival starting in the second quarter, six months ahead of schedule, investors and analysts said.

UMC will probably use as much as 65 percent of its capacity in the second quarter, compared with the current 45 percent, as orders increase from companies such as AMD and Texas Instruments Inc, the largest maker of chips used in mobile phones, analysts said.

UMC turned to a loss last year while TSMC stayed profitable and gained market share.

Sales in the global chip industry fell by a third to about US$138 billion last year.

UMC's first-quarter results will be boosted by income from stakes the company recently sold in units that design chips and make flat-panel displays, analysts said.

"A NT$0.15 earnings per share is possible in the second quarter if the company sells more shares," said Chris Hsieh, an analyst with ING Barings Securities Ltd.

The company, which earlier planned to sell unused production equipment, probably canceled the plan after orders improved and the Taiwan government intervened on concerns that the equipment would be sold to China, analysts said.

UMC is among about five chipmakers in the world that make 300mm wafers, which yield more chips than the standard 200mm wafers, reducing costs. Plants that make the dinner-plate-sized wafers cost as much as US$3.5 billion to build.

The company will win more orders this year as other chipmakers that can't afford the investment outsource more production, analysts said.