UMC profit drops, but chip recovery continues

United Microelectronics Corp., the world’s second-largest contract chip maker, said Wednesday that its net profit in the third quarter fell over 80 percent compared to last year, but indicated the chip industry continues to recover from a supply glut earlier this year.

The company’s financial results were far better in the three months to Sept. 30 than in the April-to-June period, when the impact of high inventories in the chip supply chain slowed orders and almost caused UMC to post a loss. The company credited rising orders in the third quarter mainly to communications and consumer electronics products and said the good times will continue in the fourth quarter, normally the strongest of the year for the electronics industry due to holiday gift giving.

But UMC executives declined to forecast beyond the end of the year because no one knows whether consumers will buy all the gadgets that have been stocked up in preparation for the holiday season. Vendors are hoping that users will load up on Xboxes, iPods, digital cameras, and other toys this year, but a number of factors could stop them, including high fuel prices.

UMC’s net profit for the third quarter fell to NT$2.17 billion (US$65 million as of the last day of the period being reported), from NT$10.9 billion during the same quarter last year. Sales fell 32 percent to NT$23.6 billion.

“We saw demand for a wide range of products start to increase in the third quarter, including wireless and fixed line telecommunications products, computers and LCD monitors, and consumer products such as DVD and MP3 products,” said Jackson Hu, chief executive officer at UMC, during the company’s third quarter investors conference in Taipei.

Contract chip makers usually have a broad view of the technology industry because they manufacture such a wide range of the chips used inside gadgets.

UMC’s chip shipments rose nearly 18 percent in the third quarter from the second quarter, and it was able to raise chip prices. The company forecast that in the October to December quarter, shipments will continue to rise, possibly by 13 percent, and it will likely increase prices slightly.

The company highlighted its progress in finding customers for its cutting-edge 90-nanometer production technology. A nanometer is a measurement of the size of transistors and other parts that are etched onto chips. The more transistors on a chip, and the closer they are together, the faster the chip can perform tasks.

The 90-nanometer chip shipments accounted for 14 percent of UMC’s revenue in the third quarter, up from 9 percent in the second quarter, and the company expects them to make up as much as 20 percent of its fourth quarter revenue, executives said.