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Chip maker UMC's Q1 profit is up; sees strong Q3

Chip maker UMC's Q1 profit is up; sees strong Q3

United Microelectronics reported stronger than expected first-quarter earnings and offered a robust outlook for its business in the coming six months.

United Microelectronics, the world's second largest contract chip maker, has reported stronger than expected first-quarter earnings and offered a robust outlook for its business in the coming six months.

The outlook is important because contract chip makers normally have a good view of the health of the global tech industry. Because chips need to be ordered months in advance of their placement inside gadgets, companies placing orders need to be fairly confident about user demand.

UMC's net profit in the first quarter rose more than seven-fold on year to $NT12.29 billion ($US384.4 million) from $NT1.52 billion during the same quarter in 2005, due to the sale of stock in other companies. Its operating income, which counts only money earned from its main business, fell 72 per cent on year to $NT85 million from $NT302 million last year due to sluggish sales of networking chips in the first quarter, which is traditionally a weak time period for chip makers.

Revenue rose 20 per cent to $NT24.38 billion.

The company also offered robust guidance for the second and third quarters - an anomaly because companies typically won't discuss forecasts past the next quarter.

"Third quarter visibility is quite high," a vice-chairman at UMC, Peter Chang, said. "Our profit and revenue will be significantly improved by the third quarter of this year." The company expects double-digit revenue growth in the third quarter.

Brisk sales of mobile phone chips in the current financial quarter, to June 30, will mean an improvement for UMC compared to the first quarter. The company, which manufactures chips designed by its customers, said shipments would increase up to 6 per cent in the second quarter over the first quarter, and it should be able to charge slightly higher prices.

Communications is one area where demand continues to accelerate.

"Demand for low-cost mobile phones in emerging markets, including Africa, India and China, is growing fast," chairman of UMC, Jackson Hu, said.

Analysts were generally upbeat about the company's outlook.

"They're optimistic about the second half, and I think that's reasonable," chip industry analyst at Primasia Securities in Taipei, Kenneth Lee, said, adding that the company was likely to beat its forecasts for the second quarter.

"I think they're being conservative," he said.


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