UMC Earnings View Bodes Well for Chip Industry

United Microelectronics (UMC), the world’s second-largest contract chip maker, is targeting earnings per share far higher than industry analysts estimate, a sign chip sales remain brisk globally.

The company is targeting earnings per share at 2 new Taiwan dollars (US$0.06) for the full year. It may not seem like a lot, but it’s far higher than the NT$1.53 estimate analysts have for the company, according to Thomson Financial.

Company executives made the target public at an investors conference in Taiwan on Monday, but the company is not making it an official target, according to a UMC spokesman.

UMC has been struggling this year as stiff competition with other contract chip makers, such as rival Taiwan Semiconductor Manufacturing and Singapore’s Chartered Semiconductor Manufacturing, eats into margins.

But its better-than-expected financial forecast is a sign chip makers are faring better than expected.

Last month, a chip industry trade group said global chip revenue could be higher than originally expected this year due to strong demand and an increase in the number of chips used in various electronics products.

Global chip revenue in 2006 could rise 10.1 percent over last year to US$250 billion, according to World Semiconductor Trade Statistics, which supplies its data to industry trade groups around the world, including the Semiconductor Industry Association. The figure is higher than its earlier projection of 8 percent growth, and would also beat the 6.8 percent increase from last year.

Although higher prices for semiconductors usually increase end-user prices for gadgets, increased budgets also mean companies can devote more resources to R&D, which can lead to even cooler gadgets.

UMC stock was down 2.9 percent at NT$18.55 during trading on the Taiwan Stock Exchange early Tuesday, despite the earnings-per-share target.

-Dan Nystedt, IDG News Service (Taipei Bureau)

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