TAIPEI, Taiwan Foundry United Microelectronics Corp. lost $53 million in the second quarter and said its slump will hit bottom in the current quarter before better fortunes return toward the end of the year. The company said it did not know if sales would continue to increase in the beginning of 2002.
"It is unrealistic to expect recovery in a short time," said UMC chairman Robert Tsao. "So far we have not seen any clear evidence to give optimistic predictions even though we certainly hope that [the recession] will reverse ahead of time."
The tough times at UMC are being mirrored across Taiwan's information technology sector that weighs heavily on the country's export-oriented economy. The economic slowdown in the United States, which has led to slumping demand for PCs and DRAMs, has Taiwan's semiconductor sector bracing for its first decline in 25 years. The island's IC industry should tally sales of $17 billion this year, off 12 percent from $20 billion last year, according to Taiwan's Industrial Economics and Knowledge Center.
Although inventory burn-off continues at some of its customers, UMC's executives said that selective demand should kick in soon. Newly designed products should trigger some idle lines into production by year end, said John Hsuan, a vice chairman of UMC.
Anticipation of a mild fourth-quarter upswing echoes the stance of two other electronics giants Intel Corp. and Taiwan Semiconductor Manufacturing Co. On Monday (July 30), Intel chief executive officer Craig Barrett told Taiwanese businessmen that he expected a slight increase in second half PC sales due to seasonal demand and the launch of Microsoft XP. He was much more tepid about the communications industry, saying it is "likely to be sick for another six to 12 months."
Similarly, TSMC's chief executive officer Morris Chang has said he expects a better second half for his company, even though the number of idle production lines at his company will increase in the third quarter. TSMC's net profit decreased 96 percent sequentially in the second quarter, to about $9 million. Before a tax credit, the company lost $26 million. The company said nearly two-thirds of its lines will lay idle in the third quarter, compared to one-third in the first quarter.
In Singapore, foundry Chartered Semiconductor Manufacturing recently announced a quarterly net loss of $107 million and said it would slice capital spending another $300 million and delay the construction of its first 300-mm wafer fabrication facility. The company has seen its utilization rate drop to 31 percent. The current industry average is 48 percent, according to International Data Corp. Chartered has warned that it expects only a quarter of its lines to run in the third quarter.
With some of its major customers announcing poor results and limited expectations, UMC said its visibility is still low. In the third quarter, nearly 70 percent of its manufacturing lines will be idle. The company recently laid off 266 workers, but Tsao said it was not directly related to the capacity glut affecting the foundry industry. In the capital intensive foundry business, labor usually represents a small percentage of expenditures. "There is no point in laying off workers to reduce cost," he said. "But it is necessary to strengthen company discipline by laying off under-motivated employees."
One arguably bright note for UMC is that it has lessened its reliance on customers for whom it makes communications chips. In the first quarter, 48 percent of the foundry's deliveries involved communications ICs. That declined to 34 percent in the second quarter. However, the company's average selling price per wafer has taken a hit, dropping from nearly $1,600 in the first quarter to almost $1,200. Correspondingly, UMC also saw a slip in the usage of advanced process technologies (with 0.18-micron and finer geometries), from 23 percent to 14 percent.
Before its tax credit, UMC registered a loss of $88 million on $436 million in sales.