United Microelectronics Corp (UMC,
The company blamed its second consecutive losing quarter on falling chip orders, particularly from its customers in the communications sector.
UMC manufactures semiconductors based on design specifications from its customers.
"The announcement is in line with market expectations," said Chris Hsieh, a chip sector analyst at ING Barings in Taipei.
He said new orders from communications firms could provide a boost for UMC in coming months. Hsieh also praised comments by UMC vice chairman John Hsuan (
The chairman said Conexant would outsource the manufacture of 95 percent of its advanced products to UMC.
Many of UMC's top customers supply communications and networking companies such as Sweden's mobile-phone giant Ericsson and US-based Xilinx and Altera, which make microchips for mobile phones and the back-end systems used for cellular networks. The drop in communications chip orders, however, was named a key reason for UMC's poor performance in the third quarter.
In the second quarter, 34 percent of UMC's sales went to the communications sector, but the number dropped by 13 percent in the third quarter.
The company believes sales of chips for personal computers and electronics devices will rise 10 percent in the fourth quarter, but "in communications, we do not yet see any signs of a recovery," Hsuan said. "We believe growth will be better next year, but with regards to the first quarter, we cannot really say."
The continuing recession in the tech sector has prompted UMC to cut spending on new semiconductor wafer fabrication plants. The company pared spending by US$400 million down to US$1.1 billion.
UMC also lowered its sales forecast for the year to a loss of NT$3.2 billion (US$92.9 million). The revised annual forecast shows that the company is not out of the woods yet, analysts said. They questioned UMC's sales breakdown by technology.
UMC said 17 percent of its sales were for chips requiring fine etching at 0.18 microns. It did not list sales for chips using smaller 0.15 micron or the most advanced 0.13 micron process.
Chips requiring the highest technology process bring in higher revenues.
According to a report issued last week by the Industrial Technology Research Institute, the total value of Taiwan's chip sales fell 19.8 percent year-on-year during the first nine months to NT$413.2 billion (US$11.96 billion). The think tank projects annual value will reach NT$525.9 billion (US$15.2 billion), a drop of 26.4 percent compared to last year. The report said Taiwan's chip design sector expects sales to be 3 percent higher this year.
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