HSINCHU, Taiwan -- Hurt by sluggish demand for communications chips worldwide, United Microelectronics Corp. posted losses in the second quarter and said it expects widening losses in the third.
UMC, the world's No.2 pure-play silicon foundry, said it had a net loss of $53.3 million in the three months to June, compared to $186 million in net income sequentially. Sales dropped 36.4% to $431.0 million over the same period.
In the September quarter, the company said that losses would increase and sales would slide 15%-20% sequentially. Only about 30% of UMC's capacity lines would be run, lower than 45% in the second quarter.
"It's unrealistic to predict the current downturn will improve anytime soon," company chairman Robert Tsao told investors and analysts here. "Chances are a significant pickup won't occur" until late 2002.
The company was particularly hit for its huge presence in the communications sector, as demand waned for top customers such as Xilinx Inc., Alcatel SA, Conexant Systems Inc. and STMicroelectronics Inc., some analysts said.
In the June quarter, communication chips made up 34% of UMC's sales, falling from 48% sequentially. "Our advanced 0.18 micron and 0.25 micron process technologies -- which together represented 51% of our sales -- were mostly used in communications products. That left us very vulnerable since wireless and communications infrastructure were hit hardest this time," said John Hsuan, a vice chairman of UMC, Hsinchu, Taiwan.
The situation at Taiwan Semiconductor Manufacturing Co., the major rival of UMC, wasn't as bad partly because communications IC accounted for only 24% of sales in the second quarter. TSMC chairman Morris Chang said last week that third-quarter run rates would be close to 40%, exceeding the 30% forecast by UMC. Chartered Semiconductor Manufacturing Co., though, has projected about 20% capacity utilization, mainly due to the 60% exposure the Singapore-based company had in the communications sector.
"Whoever has more exposure in that area got more hurt," said Rick Hsu, a senior analyst with Nomura Securities in Taipei.
To deal with the dramatic slowdown, UMC is planning to focus on 300mm wafer production and slash 8-inch capability.
One of UMC's strategies is to sell some 200mm wafer manufacturing equipment at plants like "8E" in the "next six to eight months," reducing its 8-inch-equivalent wafer capacity to 160,000 per month from 240,000, said the chairman. "There has been a serious glut of supply in 8-inch wafers."
He declining to identify the potential customers of the equipment, but analysts said among the possible buyers are Grace Semiconductor Manufacturing Co. -- a startup in Shanghai, China -- Tonbu, Korea and Malaysia's 1st Silicon.
UMC is also counting on 300mm wafers to help boost its competitiveness as the wafers can save one-third in production costs compared to 200mm wafers.
Tricenti Technologies, a 12-inch wafer venture between UMC and Hitachi Corp. of Japan, has started mass production, according to Peter Chang, a vice chairman of UMC.
The total process time for a 0.18-micron product on 25 masks in that venture is 5.8 days. "This is record fast, and it cuts time to the market, making our customers become more competitive," Chang said.
UMC is also running a 300mm wafer fab in Tainan, Taiwan, and building another one in Singapore with Infineon and the government-run Economic Development Board of Singapore.
For this year, UMC is maintaining its capital spending at $1.5 billion, as it previously forecast, with most of the money being used to raise the production of 300mm wafers.
Despite the soft demand in the semiconductor industry, UMC said the third quarter would be its bottom and the situation would mildly improve in the fourth. "Some customers have started to book our capacity as they're working off their inventories. There are also new design-wins coming in in the fourth quarter," Hsuan said.
Having said that, the IC industry isn't going to improve at a rapid pace. "We can't say the first quarter of next year will be better than the final quarter of this year," he added.
In the June quarter, UMC wrote off $45.6 million in inventories It also had an investment loss of $12.8 million from units including Unipac, a maker of TFT-LCD.