UPDATE - UMC upbeat after strong Q2 despite analyst doubts
Wednesday July 28, 5:23 am ET
By Roger Tung
(Adds details, background)
TAIPEI, July 28 (Reuters) - UMC (Taiwan:2303.TW - News), the world's second-largest contract microchip maker, posted a near-fivefold jump in quarterly profits on Wednesday and forecast further growth on strong demand for chips for mobile phones.
United Microelectronics Corp.'s (UMC) (NYSE:UMC - News) better-than-expected profit was its strongest since 2000 and the company brushed aside investor concerns that demand for chips is peaking as the United States and China act to slow their economies.
"Demand is increasing, revenue and profit are expected to grow in the third quarter," Chief Executive Jackson Hu told an investors' conference.
He said orders for chips used in cellphones were especially strong. Texas Instruments Inc. (NYSE:TXN - News), UMC's main customer for such chips and the market leader in the segment, said this month that its quarterly profits soared nearly fourfold.
But in contrast to UMC's optimism, TI said demand slowed somewhat in the second half of the quarter and growth over the rest of the year would be moderate.
UMC said third-quarter shipments would rise 15-16 percent over the previous quarter, while the average selling price for its chips would edge up 3-4 percent.
The company said it would maintain its capital expenditure budget this year at US$2.15 billion, a positive sign as analysts had said a cut would indicate the company was receiving fewer orders than it had forecast.
MARGINS RISING
For the quarter to June 30, net profits soared to T$12.7 billion ($37 million) from T$2.69 billion a year earlier, easily outpacing analyst expectations of T$10.75 billion.
Its bigger rival, Taiwan Semiconductor Manufacturing Co. (TSMC) (Taiwan:2330.TW - News; NYSE:TSM - News), reports on Thursday.
UMC's gross profit margin rose to 34.5 percent in the second quarter from 30.1 percent in the first quarter, and Hu said it would increase further in the current quarter.
But analysts remained concerned that slower economic growth in the United States and China -- Taiwan's top export markets -- and a build-up in inventories at electronics retailers would hurt UMC later in the year.
Investors would have to monitor third-quarter inventory levels of downstream customers, said Dan Heyler, a semiconductor analyst with Merrill Lynch.
Shares in UMC and TSMC have given up about 29 percent and 23 percent, respectively, over the past three months, compared with a 18 percent loss in the benchmark TAIEX (Taiwan:^TWII - News) share index, as investors anticipate weakening demand for electronics.
The sector's third-largest player, Singapore's Chartered Semiconductor Manufacturing Corp. (SES:CSMF.SI - News; NasdaqNM:CHRT - News), posted its second straight quarterly profit last week, but said September quarter sales would be flat on weak demand for mobile phones and DVD players.
Goldman Sachs, Merrill Lynch and Smith Barney have downgraded TSMC and UMC in recent weeks, saying slowing economic growth meant little upside for the shares.
UMC shares closed up 0.47 percent at T$21.40 ahead of the results, while the benchmark TAIEX (Taiwan:^TWII - News) share index lost 0.28 percent. (US$1=T$34.2) |
