UMC Sees Surprise Operating Loss After Falling Behind in Chips

United Microelectronics Corp., the world’s second-largest contract maker of chips, unexpectedly predicted a first-quarter operating loss of about NT$1 billion ($34 million) after failing to keep pace in mobile-phone chips.

The main chip-making operations will about break even in the period, while the New Business segment making solar cells and light-emitting diodes will lose NT$1 billion, Chief Financial Officer Liu Chitung said today in Taipei.

Fourth-quarter net income also trailed estimates after UMC’s later introduction of 28-nanometer production hindered competition with Taiwan Semiconductor Manufacturing Co. in making chips for mobile phones and tablets. Excess inventory at customers also hit earnings, Hsinchu, Taiwan-based UMC said.

“You can’t afford to be a few quarters behind or you’ll miss out on orders,” said Randy Abrams, a Credit Suisse Group AG analyst in Taipei, who rates UMC neutral. “Their 28-nanometer is disappointing.”

Net income rose 20 percent to NT$1.17 billion in the quarter ended December. That missed the NT$1.6 billion average of 15 analyst estimates compiled by Bloomberg. The company was expected to post an operating profit of NT$1 billion in the current quarter, based on the average of 10 estimates.

Research Spending

UMC doesn’t expect to see a “significant” contribution from 28-nanometer processes in the first half, Chief Executive Officer Yen Po-wen told investors. Yen, who became CEO in November, said he plans to boost research spending.

“Our 28 nanometer has not ramped as expected,” he said.

The chipmaker fell 0.4 percent to NT$11.35 at the close of trading in Taipei. It has slumped 26 percent in the past year, compared with a 36 percent surge for Hsinchu, Taiwan-based TSMC, the world’s largest custom chipmaker.

Average prices will fall by about 6 percent this quarter, from the prior three months, while shipments will increase by about 6 percent, UMC said. Its spending on equipment will fall to $1.5 billion this year from $1.7 billion last year. It had predicted $2 billion for 2012.

TSMC last month forecast first-quarter sales that exceeded analysts’ estimates. The company said demand for its 28 nanometer technology was a “resounding success.”

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