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To: Johnny Canuck who wrote (39989)	7/30/2003 11:40:07 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69358

UPDATE - UMC profits fall 40 pct, sees Q3 decline Wednesday July 30, 6:38 am ET By Michael Kramer (recasts, adds quotes, background) TAIPEI, July 30 (Reuters) - Taiwan's UMC (Taiwan:2303.TW - News), the world's No. 2 contract microchip maker, reported a 40 percent slump in second quarter profits on Wednesday and warned business would worsen temporarily after SARS hurt Asian demand for mobile phone chips. ADVERTISEMENT United Microelectronics Corp (UMC) (NYSE:UMC - News) said it expected third quarter shipments to fall by "low to mid single digits" in percentage point terms from the second quarter, dealing a setback to recovery after strong quarter-over-quarter growth in the April-June period. Analysts pointed the finger at UMC customers Motorola Inc (NYSE:MOT - News) and Qualcomm Inc (NasdaqNM:QCOM - News), which both gave downbeat forecasts earlier this month due to a sales slowdown in China, where Severe Acute Respiratory Syndrome (SARS) hit the hardest. "I would say it is a slight disappointment," said Nomura Securities analyst Rick Hsu. "We're taking a short rest." "When inventory adjustment is finished on Qualcomm's side and on Motorola's side, things will get better," Hsu said. Though SARS has already faded from Asia after infection rates peaked in May, the long manufacturing cycle for microchips of two months or more means the impact from the deadly flu-like virus did not hit shipments from UMC until the third quarter. The forecast slowdown comes after a strong second quarter, which nevertheless showed a 40 percent decline in year-on-year terms because the year-ago period had been a false dawn in the semiconductor sector's stop-and-go recovery from a record sales drop in 2001. UMC said second quarter net profit slipped to T$2.69 billion (US$78 million) from T$4.45 billion in the year-ago period. But profit surged nearly 570 percent from the January-March quarter. That brought earnings per share to T$0.18 against an average forecast of T$0.17 from a Reuters survey of six analysts. CHRISTMAS IS COMING UMC's recovery lags that of sector leader Taiwan Semiconductor Manufacturing Co (TSMC) (Taiwan:2330.TW - News; NYSE:TSM - News), because of the No.2 firm's reliance on consumer electronics companies, which generally use lower-end chips with slimmer profit margins. TSMC announced a 26 percent rise in net profit last week, posting its best result since the chip sector downturn began in 2001. However, UMC did outperform Singapore's Chartered Semiconductor Manufacturing Ltd (SES:CSMF.SI - News), which showed a second-quarter loss. UMC said strong demand for consumer electronics helped to power the quarter's revenues, and that the segment would remain strong in the third quarter, when tech manufacturers gear up for pre-holiday demand at the end of the year. "Things that people buy around Christmas time are doing relatively better," said Peter Chang, UMC's head of operations, pointing to products like DVD players, digital cameras and LCD televisions and computer screens. "SARS especially affected the handset area, causing inventories in this area to be relatively high," Chang said. "We expect that this will recover sometime in the fourth quarter." Besides warning of a third-quarter dip in shipments, Chang also said UMC expected capacity utilisation to be around 80 percent, down from 85 percent in the April-June period. Operating margins were also forecast to drop to the high single digits, down from 11.5 percent, although average prices would remain steady with a chance of climbing higher, UMC said. UMC kept its US$500 million 2003 capital expenditure budget unchanged, although it said its Singapore joint venture plant with Infineon Technologies AG (XETRA:IFXGn.DE - News) was likely to announce a sharp increase for 2004. By Wednesday's close, UMC's Taiwan-listed shares were up 32.5 percent from a pre Iraq-war low on February 10, but TSMC showed a gain of 51 percent and the U.S. Philadelphia semiconductor index (Philadelphia:^SOXX - News) was up 46 percent. UMC announced results after close of trade in Taiwan. The issue fell T$0.30, or 1.2 percent, to T$24.60, while the benchmark TAIEX (Taiwan:^TWII - News) share index lost 0.66 percent. (US$1 = T$34.4)