Contract chip maker UMC hits low point in Q2

United Microelectronics Corp.'s (UMC) second-quarter net income fell 98 percent compared to the same period last year as customers paid lower prices for chips, but executives said the April-June period marked a low point for the company and predicted better results ahead.

UMC suffered the same problem as its larger rival, Taiwan Semiconductor Manufacturing Co. (TSMC): A build-up in excess chip inventories late last year caught electronics makers by surprise, and many reduced chip orders to the contract manufacturers. But TSMC and UMC both said the chip industry bottomed out in the second quarter and forecast higher shipments in the July-September period.

Net income at UMC, the world's second largest contract chip maker, fell to NT$299 million (US$9.4 million) for the quarter, from NT$12.7 billion a year earlier. Sales declined 33 percent over the same period, to NT$19.4 billion.

The company posted an operating loss of NT$3.3 billion, but achieved a profit in part by selling off some of its large stock holdings. Operating results exclude income not derived from a company's core business activities and can give a clearer picture of how a business performed.

"The second quarter was a tough one for us but we believe we've seen the worst of the current [chip] downturn," said Jackson Hu, UMC's chief executive officer, at the company's second quarter investors' conference in Taipei.

UMC's second-quarter average selling prices fell 9 percent from the first quarter, despite a 12 percent rise in chip shipments.

In the third quarter, the company expects chip shipments to increase by a mid-teen percentage, as average selling prices rise slightly and the proportion of its chip production lines in use rises to 75 percent, from 65 percent in the second quarter.

"The market is in full recovery," said Hu. He said orders for communications like mobile phone and ADSL (asymmetric digital subscriber line) chips have been strongest so far in the third quarter, followed by consumer electronics products like chips for LCD screens, DVD players and MP3 players.