Oct. 31 (Bloomberg) -- United Microelectronics Corp., the world's second-largest customized semiconductor maker, posted its first profit increase in three quarters on investment gains and sales of communications chips for customers such as Apple Inc.

Third-quarter net income rose 7.5 percent to NT$9.23 billion ($285 million), or 57 NT cents per share, from NT$8.59 billion a year earlier, the Hsinchu, Taiwan-based company said in a statement today. Profit beat the NT$6.39 billion average of 15 analyst estimates compiled by Bloomberg. Revenue advanced 11 percent to NT$31 billion.

Sales of chips used in computers as well as handsets such as Apple's iPhone were buoyed by gains from United Microelectronics' investments. The company said it will cut spending on equipment next year, joining larger rival Taiwan Semiconductor Manufacturing Co. in slowing expansion.

``Chipmakers' capital-spending cuts will ensure healthier and more profitable industrywide earnings going forward,'' said Yu Reming, who helps manage $1.3 billion at Entrust Investment Trust Corp. in Taipei.

United Microelectronics' cut in spending on equipment and technology will be ``significant'' next year, Chief Executive Officer Jackson Hu said at a briefing in Taipei. The company said capital spending will be $1 billion, at the bottom of its Aug. 1 guidance for $1 billion to $1.2 billion.

Profitability

Taiwan Semiconductor said last week it would cut its equipment budget next year from the $2.6 billion it will spend in 2007 as it focuses on profitability. Semiconductor Manufacturing International Corp., the world's fourth-largest custom-chip maker, said today it would reduce expansion next year.

``From now on, increasing profitability will be UMC's No. 1 business objective,'' United Microelectronics said in a statement. The company plans to implement a ``disciplined capex strategy,'' it said, without elaborating.

Operating profit, which measures income from its main business of chip making, climbed 39 percent to NT$4.24 billion, its highest in three years. Operating margin, or operating profit as a percentage of sales, climbed to 13.6 percent for the quarter, from 10.9 percent a year earlier and 4.9 percent in the second quarter.

Non-operating profit declined 10.5 percent to NT$5.76 billion as the company realised fewer gains from selling its stake in Mediatek Inc., Taiwan's largest chip designer. United Microelectronics non-operating profit has exceeded operating income for each of the past 11 quarters.

Investment Gain

``Revenue was actually ahead of our forecast,'' Rick Hsu, who rates the company ``neutral'' in coverage for Nomura Holdings Inc. in Taipei said before the earnings announcement. ``When it comes down to the bottom line, it's quite a lot a function of the investment gain.''

Chips used in communications devices accounted for 57 percent of sales, compared with 55 percent a year earlier, while computer chips rose to 18 percent from 15 percent, the company said. Consumer electronics chips will post the strongest growth in the fourth quarter, followed by communications, United Microelectronics said.

Gross margin, which measures sales minus the cost of goods sold and manufacturing expenses, widened to 26.5 percent from 24.5 percent a year earlier and 19.8 percent in the prior quarter, the chipmaker said.

The gross margin will narrow to about 20 percent in the current quarter as average selling prices for wafers falls 1 percent from the previous three-month period, the statement said.

United Microelectronics shares declined 0.7 percent to NT$21.25 today in Taipei before the earnings announcement, compared with a 0.5 percent slide in the benchmark Taiex index.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

Last Updated: October 31, 2007 05:34 EDT