TSMC, UMC Q2 sales continue to improve sequentially

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 8/1/2007

Taipei, Taiwan-based semiconductor foundry United Microelectronics Corp. (UMC) reported that unconsolidated operating revenue for Q2 increased 9 percent sequentially to $764 million (25.1 billion Taiwanese dollars), signaling better times for the world’s leading semiconductor foundries. The world's top foundry, Taiwan Semiconductor Manufacturing Co. (TSMC), reported similarly positive Q2 results.

UMC’s Q2 operating profit margin improved to 4.9 percent from 0.1 percent in Q1, while net income was $149 million (4.91 billion TWD) and earnings per share were 28 Taiwanese cents.

Dr. Jackson Hu, CEO at UMC noted in a statement regarding the results, “We noticed signs of recovery from our customers in the second quarter, leading to a 9.8 percent increase in wafer shipments. This increase contributed to a 9 percent growth in quarter-over-quarter revenue and a meaningful increase in operating income.”

“Starting from June, we have seen a continuous reduction of our customers' inventory levels. In fact, quite a few of them are currently experiencing inventory levels that are lower than normal. This situation leads us to foresee strong demand across the board for all applications in Q3. Due to much improved product and customer mixes, we are taking full advantage of this seasonally strong demand,” Hu continued.

Looking ahead to Q3, UMC expects, total wafer shipments to increase by 20 percent, while average utilization rate will be greater than 90 percent. Average selling prices are expected to stay flat.

“12-inch fab utilization rates will be slightly stronger than the average loading for our 8-inch fabs, while our 6-inch fab will be fully loaded. In terms of revenue contribution, sales from 90-nm and 65-nm technologies will increase to 25 percent. Our CAPEX remains unchanged at $1 billion to $1.2 billion for 2007,” he explained.

On the advanced technology front, Hu said UMC is continuing to work with several customers on multiple products, and production yields for 65-nm products have been “very satisfactory.”

UMC has also noticed that customer demand for 65-nm product is still in the early stage of development, and a meaningful percentage of revenue from 65-nm may not be seen until early 2008.

“For 45-nm, we will have product tape-out in Q3. We believe that applications will make good use of the increasing chip density offered by Moore's Law, which will enable the integration of more and more features on a single chip. The future of the semiconductor industry will be defined by the proliferation of these SoCs. Electronic product companies will utilize these chips to roll out a continuous stream of innovative products that feature increased functionality, lower power consumption and higher performance, and current innovative products such as the game console Wii and the iPhone can be manufactured more cost effectively,” Hu believes.

Last week, the world’s top foundry, Hsin-Chu, Taiwan-based TSMC announced its Q2 consolidated revenue of $2.3 billion (74.9 billion TWD), net income of $772.8 billion (25.5 billion TWD, and diluted earnings per share of 15 cents per ADS unit (96 Taiwanese cents).

Year-over-year, TSMC’s Q2 revenue decreased 8.8 percent while net income and diluted EPS both declined 25.1 percent. On a sequential basis, Q2 revenue was up 15.4 percent over Q1 revenue, with net income and diluted EPS both up 35.3 percent.

TSMC noted that its Q2 results were in-line with the guidance given on April 26.

Advanced process technologies (0.13-micron and below) accounted for 53 percent of wafer revenues with 90-nm process technology accounting for 26 percent and 65-nm reaching 3 percent of total wafer sales. Q2 gross margin was 43 percent, operating margin was 33 percent, and net margin increased 5 percentage points to 34 percent from Q1.

Looking ahead to Q3, TSMC expects revenue to be between $2.58 and $2.6 billion (85 and 87 billion TWD), gross profit margin expected to be between 43 and 45 percent, and operating profit margin expected to be between 33 and 35 percent.