UMC upbeat on increase in demand

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United Microelectronics, the world's number two contract chipmaker, said growth in demand from makers of communications and consumer electronics products would help it recover from a dismal second quarter.

The company reported net profit of T$299m (US$9.35m) in the three months to June 30, down 80.3 per cent from the previous quarter and 97.6 per cent lower than the same period last year.

“The second quarter of 2005 was a difficult quarter, but we are quite confident that we have exited the trough of the downturn,” Jackson Hu, chief executive, said.

UMC said the first-quarter slump in profits, as well as a 4.2 per cent fall in revenues despite an 11.7 per cent increase in shipments, was the result of a 9 per cent fall in average selling price and a higher return rate.

Mr Hu said an increase in demand from the consumer products market beginning at the end of the first quarter, and more recently from the communications and computer sectors, were positive developments.

“The across-the-board jump in demand leads us to believe that we will soon be entering a new stage of growth,” he said.

For the third quarter, UMC forecast an increase in wafer shipments of between 14 per cent and 16 per cent, with the strongest demand coming from customers making communications equipment such as handsets.

The utilisation rate rose slightly to 65 per cent, despite an increase in capacity at its 12-inch wafer fabs, a figure it expected to rise to 75 per cent in the third quarter.

Analysts were heartened by UMC's forecast for a turnround in average selling price, which fell 9 per cent in the second quarter.

The company said it expected increasing shipments of chips made using more advanced 90-nanometre manufacturing technology to help lift the average selling price up to 4 per cent in the third quarter, in contrast to its larger rival Taiwan Semiconductor Manufacturing, which on Tuesday predicted a similar decrease.

Although TSMC reported a turnround in its fortunes for the second quarter, its predictions for the average selling price contributed to a sell-off of its shares on Wednesday. TSMC closed 4.5 per cent lower at T$53.10.

Murat Atamer, an analyst at Primasia Securities, said he shared UMC's optimism about prices. “The worst that could happen has already happened,” he said. “There's no more room to go down.” Mr Atamer said the two chipmakers' forecasts indicated that the electronics sector's growth was firm. “Seasonally, everything's good,” he said.

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