This should help a bit:
UMC Likely to Report 3Q Profit Rising Sixfold on Strong Demand
Taipei, Oct. 23 (Bloomberg) -- United Microelectronics Corp., the world's No. 2 chip subcontractor, will probably report that profit rose in the third quarter of 2000 as orders from electronics customers surged from the year-ago period.
Net income probably rose more than sixfold to NT$13.4 billion ($416 million) in the quarter compared with NT$1.9 billion in the same period in 1999, according to an average of estimates from four analysts surveyed by Bloomberg News.
UMC increased production this year by about 50 percent to meet surging demand from customers including STMicroelectronics NV and Infineon Technologies AG. While UMC will have more orders than it can meet throughout this year, analysts say slower demand in 2001 could result in some manufacturing capacity going idle.
``UMC will be close to or less than 100 percent utilization in the first quarter of 2001,'' said Bhavin Shah, an analyst with Credit Suisse First Boston Ltd.
Utilization is a measure of actual production compared to production capacity, Shah said. It is used as an indicator of profitability for the chipmaking business.
UMC, a semiconductor ``foundry,'' imprints customers' designs on silicon wafers, which are cut and packaged into chips. By specializing in manufacturing only, UMC offers customers low production costs and saves them the financial burden of a multibillion-dollar investment in a chip factory.
Exposure
While demand for chips from personal computer and mobile phone makers may fall this year and next, few of UMC's customers are in these two areas, according to analysts.
The company's main customers, including STMicroelectronics, Infineon and Xilinx Inc., sell chips in consumer electronics and telecommunications markets that are still growing, said Andrew Lu, an analyst with Salomon Smith Barney.
``UMC has less exposure to certain market sectors that have shown weakness,'' he said. ``No UMC customers are cutting back.''
Still, UMC does make dynamic random access memory chips for one customer, Alliance Semiconductor Corp. Prices for benchmark DRAM chips have fallen by more than 35 percent in the last two months amid weakening demand for personal computers, which use DRAM chips as short-term memory.
``UMC has greater exposure in the memory area, so there may be some weakness in the future,'' says Daniel Heyler, an analyst with Merrill Lynch.
Memory exposure aside, UMC enjoys several advantages over its No. 1 rival, Taiwan Semiconductor Manufacturing Corp.
``They are currently leading in narrow-line geometry,'' said Janardan Menon, an analyst with Dresdner Kleinwort Benson. ``As a result, they are able to maintain better margins than TSMC.'' Geometry refers to the size of electronic circuits on a chip.
Because UMC's capital expansion plan for next year is less aggressive than TSMC's, UMC will be in a better position than its competitor to maintain capacity utilization close to 100 percent, Menon said.
Upside vs. Share Slide
While UMC has reported strong quarterly sales and profits throughout this year, its share price has fallen 51 percent, from the high this year of NT$106.67 on Jan. 27 to NT$52 at the close of trading on Friday.
``UMC is trading below TSMC's evaluation,'' said Salomon analyst Lu. ``We expect much more upside on UMC than TSMC.''
UMC's gross margins for the year also will probably be two to three percentage points better than those for rival TSMC, according to all the analysts interviewed by Bloomberg News.
While TSMC last week reported a 47 percent gross margin for the third quarter, three of the four analysts interviewed by Bloomberg News estimated UMC's gross margin at 50 percent.
``That's among the best operating margins in the world for companies with manufacturing facilities,'' said Credit Suisse analyst Shah.
UMC's share price in part reflects a decline in the Taiwan Stock Exchange that made it the world's worst-performing major exchange in the past month as of Friday.
The stock market fell after the Nationalist Party, which controlled Taiwan's politics for over 50 years, lost the presidential election in March. The new administration under President Chen Shui-bian has been plagued by the resignation of a premier, a banking crisis and criticism from business leaders over policy on construction of a fourth nuclear power generator.
The Taiwan stock market has also closely tracked the decline of the technology-heavy Nasdaq stock market in the U.S. since March.
UMC rose NT$3.1, or six percent, to NT$52 at the close of trading on the Taiwan stock market on Friday. That followed a rally in technology stocks on the Nasdaq 12 hours earlier.
Oct/22/2000 20:22 ET |
