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February 15, 2006 1:33 am

Outlook is less gloomy at UMC

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United Microelectronics, the world’s second-largest contract chipmaker, more than doubled net profit in the final quarter of last year but said it expected no more than an operating break-even in the current quarter.

The figures indicate that UMC has finally started to improve its sagging profitability but give a less than optimistic outlook for the first quarter of this year.

UMC has increasingly lagged behind rival Taiwan Semiconductor Manufacturing in profitability. This is despite a recovery in the sector last year, when customers digested inventories they had amassed in 2004. 

Net income in the fourth quarter was T$3.04bn (US$94m), up from T$1.33bn a year earlier. The company’s gross margin rose to 18.1 per cent from 12.5 per cent in the third quarter. UMC also returned to an operating profit after a tough third quarter, when investment gains helped it report a net profit.

However, the fourth-quarter turnround was not enough to offset a weak performance earlier in the year. For the year UMC’s net income fell 78 per cent to T$7bn and it reported an operating loss of T$2.7bn.

Jackson Hu, chairman and chief executive, said that while UMC expected shipments to drop 7-8 per cent in the three months to March 31, the strong local currency would shave 5 per cent off quarterly revenue.

“That means we will see a revenue drop in the low teens,” said Rick Hsu, an analyst at Nomura in Taipei.

UMC expects capacity utilisation to fall to 75 per cent in the current quarter from 86 per cent late last year but the company said it would still be able to break even on an operating level.

“That shows that they are gradually moving into the right direction, with the capacity utilisation level needed for operational break-even coming down,” said Mr Hsu.

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