Credit Suisse expects the world’s second-largest contract chipmaker, United Microelectronics Corp (UMC, 聯電), to double capital spending this year in the face of increased competition from GlobalFoundries Inc.
UMC may double its capital expenditure to US$1 billion from the US$500 million budgeted for last year, while larger rival Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) may also raise spending on new equipment by 50 percent to US$4 billion, Credit Suisse semiconductor analyst Randy Abrams said in a report issued yesterday.
That would drive the capital-to-revenue ratio for the top four contract chipmakers up to 33 percent, above its post-bubble 31 percent average, the report said.
“The company [UMC] also needs to signal to its customers its intentions for an aggressive ramp up to support its business and stop customers from actively seeking to qualify GlobalFoundries,” Abrams said in the report.
GlobalFoundries, which is headquartered in Silicon Valley, is a joint venture between chipmaker AMD and Advanced Technology Investment Co, owned by the government of Abu Dhabi. The new contract chipmaker acquired Singaporean contract chipmaker Chartered Semiconductor Manufacturing Ltd (特許) last month.
GlobalFoundries’ merger with Chartered Semiconductor and its US$8 billion to US$10 billion backing for capital spending should help the company grow its share of the market from 13.6 percent to 16.3 percent by 2012, which would pose a threat to the existing players, Abrams said.
Increased demand for communications and consumer electronics devices has boosted demand for chips and UMC may speed up its capacity expansion by ramping up its Japanese unit UMCi and the third phase of its new 12 -inch factory, called Fab 12, in the second half of this year.
Credit Suisse maintained its “neutral” rating on UMC, while raising its earnings forecast for this year to NT$4.53 billion (NT$142 million) from its previous estimate of NT$4.03 billion as competitive risk weighs on the stock’s long-term outlook.
“With GlobalFoundries putting its emphasis on 12-inch customers, higher risk is here [leading edge technology], putting more pressure on UMC’s ability to realize the same returns on incremental capital spending,” Abrams said.
Shares of UMC and TSMC dropped 0.83 percent and 0.94 percent to NT$17.85 and NT$62.9 respectively on the Taiwan Stock Exchange, under-performing the benchmark TAIEX, which edged 0.23 percent lower.
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