United Microelectronics Meets Expectations in Second Quarter

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United Microelectronics reported second-quarter results that were in line with Street expectations. For the quarter, revenue was $1.06 billion, up 15% sequentially and an increase from sales of $1.01 billion in the year-ago quarter. UMC’s main foundry business achieved revenue of $1.01 billion, while the new business segment, which consists mainly of solar, posted $54 million in sales.

The firm saw higher foundry business levels driven primarily by communications chips, which accounted for 51% of foundry segment revenue. The popularity of smartphones and tablets has provided tailwinds for UMC and other foundries, as it has boosted demand for outsourced manufacturing services for communications chips incorporated into these mobile devices. Consumer chips made up 28% of foundry sales, while computer chips accounted for 18%. UMC saw second-quarter factory utilization rise to 85% from 78% in the first quarter, which helped boost the gross margin to 19.4% from 16.2% last quarter. The operating margin came in at 3.6%.

For the third quarter, management expects wafer shipments in the main foundry business to rise 3%-4%, with flat average selling prices. It expects the new business segment to post revenue of about $50 million. Taken together, the forecast would indicate a low- to mid-single-digit sequential revenue increase.

While UMC expects to see sales growth in the third quarter, some caution has arisen in recent weeks about foundry demand for the fourth quarter. Leading foundry Taiwan Semiconductor Manufacturing TSM noted during its earnings call that there are signs chip inventories are building up in the electronics supply chain, caused by lower-than-expected sales of PCs and some smartphone models, which will probably result in inventory adjustments and in turn hamper foundry demand in the fourth quarter.

Analysts are not particularly concerned about a potential near term slowdown toward the end of the year, as the foundry segment is notoriously cyclical and such business corrections should be expected from time to time.

 

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