Thu, Sep 06, 2001 page18

• UMC to make Conexant's wafers

  WHEELING AND DEALING The five-year deal between the two firms is worth millions and UMC stands to become Conexant's primary supplier of silicon wafers

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  United Microelectronics Corp (UMC, 聯電) said it signed a five-year agreement worth hundreds of millions of dollars with Conexant Systems Inc to become the main supplier of silicon wafers to the largest maker of chips used in modems.

  UMC, the second-largest maker of semiconductors for brand-name companies, said it will make most of Conexant's chips for wireless communications, consumer electronics and personal computing. The company would take orders away from rival Chartered Semiconductor Manufacturing Ltd (特許), analysts said.

  While the contract with Conexant, which had sales of US$2.1 billion last year, will help UMC in the longer term, some investors said they do not see any immediate gains given the slump in demand for communications chips. UMC shares are too expensive, they said.

  "UMC's capacity use may improve," said Michael Yeh, who helps manage NT$300 million (US$9 million) in equities, about 6 percent of which are UMC shares. "But that won't drive me to buy more UMC stock."

  UMC currently uses 30 percent of its capacity, the company said during its second-quarter earnings announcement in July.

  Communications chips accounted for about a third of UMC's production in the second quarter, falling from about half in the first quarter.

  Earlier this year, Conexant said it would close most of its silicon wafer factories and farm out production to companies such as UMC to cut costs. Conexant also has manufacturing partnerships with Taiwan Semiconductor Manufacturing Corp (TSMC, 台積電) and Chartered Semiconductor. As TSMC has a separate contract with Conexant for specialized wafers, the UMC contract will hurt Chartered the most, some analysts said.

  "The real threat is not just losing capacity utilization, but losing orders at the advanced technology end of your business," said Mark Baughan, an analyst with Deutsche Securities Asia Ltd. "That's Chartered's situation."

  Three of Conexant's units that account for more than 75 percent of the company's revenue will order most of their silicon wafers from UMC, Conexant said. Conexant will continue to make its own communications chips that use two special semiconductor materials called silicon germanium and gallium arsenide, Conexant spokeswoman Gwen Carlson said.

  Silicon germanium and gallium arsenide chips are used in wireless communications devices such as mobile phones for high frequency transmission.

  Conexant's existing agreement with TSMC as a supplier of silicon germanium chips will not be affected by the agreement with UMC, Carlson said.

  A Conexant unit that accounts for about a quarter of the company's revenue and makes chips for Internet networking equipment is still in negotiations with an outside chip supplier for a long-term agreement, Carlson said.

  UMC shares fell 0.7 percent on the Taiwan Stock Exchange, while TSMC fell 0.8 percent. Chartered shares in Singapore declined as much as 4.1 percent.

  For your information

  Conexant's main squeeze

  * UMC signed an agreement with Conexant Systems Inc to become its main supplier of silicon wafers. * UMC will make most of Conexant's chips for wireless communications, consumer electronics and personal computing. * Analysts say the deal will hurt UMC rival Chartered Semiconductor. * Investors say the deal will not provide any immediate gains in the slump in chip demand.
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