UMC Net Income Beats Estimates, Forecasts Second-Half Slowdown

United Microelectronics Corp. (2303), the world’s second-largest contract maker of chips, posted profit that beat estimates while forecasting slower growth amid continued global economic weakness.

Second-quarter net income dropped 6.3 percent to NT$2.99 billion ($99 million), from NT$3.19 billion a year earlier, the Hsinchu, Taiwan-based company said in a statement today. The average of 16 analyst estimates compiled by Bloomberg was for profit of NT$2.63 billion.

United Microelectronics, which has about one-fifth the revenue of Taiwan Semiconductor Manufacturing Co. (2330), faces lower profitability by being about one year behind its larger rival in technology development. The introduction of more-advanced 28- nanometer production and new devices to be released by the end of the year may help the company offset a weaker economy.

“We started to see some deterioration in summer and the second half shall be weaker,” Chief Executive Officer Sun Shih- wei said at an investors’ conference today. “The global macro- economy is very difficult to predict, the EU sovereign debt issue continues, the emerging countries are slowing down and the U.S. is mixed.”

Unconsolidated sales dropped 1.9 percent to NT$27.6 billion. The company’s shares fell 2 percent to NT$12.10 at the close of trade in Taipei before the earnings announcement, and have declined 4.7 percent this year.

Price Increases

Shipments and prices this quarter will both rise “marginally” from the prior three-month period, driven by the computer and consumer electronics segments, UMC said in a statement today. Factory usage will be about the same as the 84 percent it posted in the second-quarter, it said.

Third-quarter revenue is expected to be NT$29.7 billion according to the average of 19 analyst estimates compiled by Bloomberg. That’s growth of 7.7 percent from the prior quarter, according to Bloomberg calculations.

TSMC, the world’s largest custom chipmaker with more than 50 percent market share, on July 19 forecast record sales this quarter that exceeded analysts’ estimates while predicting revenue will drop in the fourth and first quarters because of a weak global economy and rising inventories.

Qualcomm, which turns to TSMC as its major manufacturing partner, can’t get enough chips from the Taiwanese company and is working with new suppliers to boost output, it said last week.

UMC’s gross margin, a key measure of profitability that tracks sales less the cost of goods sold, was 24.4 percent on a parent-level basis in the second quarter, wider than the 22.6 percent average of 15 analyst estimates compiled by Bloomberg. That figure will be in the “mid-20 percent range” this quarter, UMC said, with the analysts expecting it to be 24.1 percent.

UMC maintained its 2012 capital expenditure plan of $2 billion, less than a quarter of the $8 billion to $8.5 billion TSMC said it will spend.

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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