Bloomberg News

UMC Profit Drops Most in Two Years on Slowing Chip Demand

November 01, 2011

(Updates with comment from company in fourth paragraph.)

Oct. 26 (Bloomberg) -- United Microelectronics Corp., the world’s second-largest contract maker of chips, posted its biggest profit decline in more than two years as economic woes curb demand for components used in computers and mobile phones.

Third-quarter net income fell 78 percent to NT$1.95 billion ($65 million) from NT$8.72 billion a year earlier, the Hsinchu, Taiwan-based company said in a statement today. That’s the company’s largest earnings decline since posting a loss in the first quarter of 2009. The average of 15 analyst estimates compiled by Bloomberg was for profit of NT$1.43 billion.

UMC, whose customers include Texas Instruments Inc. and Qualcomm Inc., posted its biggest peak-season drop in revenue in more than a decade as the U.S. and Europe debt crises crimped demand for semiconductors. Shipments, capacity utilization and operating profit will continue dropping this quarter, it said.

“Semiconductor demand remains weak, as reflected by our customers’ conservative order patterns,” UMC said. The industry will be affected by “unresolved European and U.S. sovereign debt, China inflation, and limited inventory distribution.”

Factory Usage

Unconsolidated sales dropped 23 percent to NT$25.2 billion.

Shipments this quarter will drop by about 10 percent while the average price per wafer will rise by about 5 percent, UMC said. Factory usage will fall to the “mid- to high 60 percent range,” compared with 74 percent in the third quarter.

The chipmaker rose 0.8 percent to NT$12.80 at the close of trading in Taipei before the earnings announcement, stemming the decline to 21 percent this year.

Gross margin, a measure of profitability that tracks sales minus the cost of goods sold, was 19.8 percent in the third quarter, ahead of the 17.5 percent median of six analyst estimates compiled by Bloomberg. That will drop to 15.7 percent, according to the same survey.

Operating margin was 6.1 percent, UMC said, beating the 4.3 percent median estimate. The percentage this quarter will be a “low single digit,” UMC said. The median estimate is for 1.5 percent.

UMC maintained its 2011 capital expenditure plan of $1.8 billion, it said. Net income will drop to NT$686 million this quarter, according to the average of 14 analyst estimates compiled by Bloomberg.

--Editors: Garry Smith, Michael Tighe

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.


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