UMC Beats; Shares Fall on Soft Capex, Gross Margin Guidance

The world's second-largest contract chipmaker, United Microelectronics Corp., reported its Q3 profit rose 7.5% to NT$9.23 billion ($284 million), well above consensus analyst estimates (full earnings call transcript later today). But shares fell 2.8% in early trading (as of 9:58 AM ET), on soft capacity utilization and gross margin forecasts for Q4 and beyond. Consensus analyst estimates had been for net income of just NT$6.96 billion. EPS was $0.09, topping consensus analyst expectations of EPS in a range of $0.07 to $0.08. Revenue climbed 11.4% to NT$31.03 billion, versus NT$27.85 billion a year ago. Capacity utilization was 93% in Q3, versus 82% in the year-ago period. The company expects capacity utilization to fall to about 85% in Q4. Furthermore, UMC warned 2008's capex "will be significantly reduced relative to 2007." Gross margin was a robust 26.5% in Q3, versus 19.8% a year ago. That is expected to fall to 20% in Q4 as the average selling price for wafers falls 1% Q/Q. Overall wafer sales are expected to fall 9% Q/Q on handset sales weakness.

Sources: Press release, Bloomberg, AP, Reuters
Commentary: Eight Ways to Invest in Taiwan • Excess Chip Inventory Keeps Growing • UMC Increasing Capacity Despite Chip Glut
Stocks to watch: UMC. Competitors: TSM, CHRT, SMI. ETFs: SMH, IGW
Earnings call transcript: United Microelectronics Q2 2007 Earnings Call Transcript

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