UMC touts glowing 2Q results, warns about inventory concerns

August 2, 2006 – 2Q06 was a solid quarter for United Microelectronics Corp. (UMC), as the Taiwan foundry posted a 20x year-on-year increase in net profit to about $187 million, on 32% higher sales of about $796 million. A big chunk of those earnings ($136.2 million) came from the sale of ownership stakes in MediaTek Inc. and SirF Technology Holdings Inc. Sequentially, profits were down 50%, as margins were higher due to more shipments of 130nm and 90nm chips, while sales rose about 5%.

Growth was strongest in consumer electronics segments, due to demand particularly for cell phones. Communications chips accounted for 56% of sales, compared with 44% a year ago, due to demand for wireless chips, according to UMC. Sales of chips using 90nm process technologies rose to 16%, mainly due to strong demand for communication components and newly ramped PC graphics production. Overall utilization rates rose a point to 80%. By region, North America accounted for more than half (51%) of sales, up from 44% in 2Q05, while revenues from the Asia-Pacific region declined to 35% of total sales, vs. 45% a year ago.

Echoing statements from rival foundry TSMC, UMC chairman and CEO Jackson Hu noted “a significant change in market conditions over the past three months,” including signs of higher inventories from some customers. ICs related to flat-panel displays and digital TVs are one sore spot, as overproduction in anticipation of the World Cup soccer event this summer, resulted in product buildup that will have to be digested, he said.

Although 2Q inventories traditionally rise ahead of busy 3Q demand, Hu warned that “there are signs that demand is being postponed due to delays in the release of new CPUs and operating systems.” He also pointed to some inventory build-up at smaller handset providers, although major brand-name providers are at normal inventory levels.

For 3Q06, UMC projects revenues in 3Q06 will likely be flat, due to customers’ efforts to work off inventories. Sales of chips using 90nm process technology will account for 20% of sales. Capex plans for FY06 remain unchanged at $1.0 billion, and will be heavily loaded into the second half of the year (UMC spent only $346 million in 1H06), with 97% of investments going toward expansion and R&D at UMC’s two 300mm fabs, Fab 12A and Fab 12i. The sites, which accounted for 303,000 (200mm-equivalent) wafers/month in 2Q, will see utilization rates “improve significantly” over the next quarter, Hu stated.


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