Benzinga  Apr 17  Comment 
In a report published Friday, analyst Gokul Hariharan of JP Morgan downgraded United Microelectronics Corp (ADR) (NYSE: UMC) to Neutral. The price target has also been lowered to NT$14. There is likely to be near-term downside to the estimates for...
TheStreet.com  Jan 30  Comment 
Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.  TheStreet Ratings quantitative algorithm...
Reuters  Jan 26  Comment 
* Says unit Wavetek Microelectronics to announce information on merger with Epitron Technology
TheStreet.com  Jan 9  Comment 
NEW YORK (TheStreet) -- United Microelectronics shares are down 19.6% to $1.93 in after-hours trading after closing intraday trading up 1.06% on heavy volume Friday after the semiconductor foundry company reported a 23.2% increase in December...
Benzinga  Dec 30  Comment 
United Microelectronics Corporation (NYSE: UMC) sales generated from 28nm process technology is expected to double in 2015, reports DigiTimes. Industry sources say UMC has been receiving orders for the 28nm chips from Qualcomm (NASDAQ: QCOM),...
Benzinga  Oct 29  Comment 
In a midday note Wednesday, Deutsche Bank upgraded United Microelectronics Corp (ADR) (NYSE: UMC) from Hold to Buy and raised the price target from NT$14 to NT$15. While Deutsche Bank analysts did note that third quarter earnings of $0.038 per...
newratings.com  Oct 9  Comment 
TAIPEI (dpa-AFX) - United Microelectronics Corp. (UMC) announced its Board has resolved to participate in a 3-way agreement for a joint venture company focused on 12" wafer foundry services with Xiamen Municipal People's Government and FuJian...
newratings.com  Oct 9  Comment 
TAIPEI (dpa-AFX) - Taiwanese chip maker United Microelectronics Corp. (UMC) Thursday said net sales for the month of September increased by 12.96 percent to NT$12.26 billion from NT$10.85 billion a year earlier. Net sales for the period January...


UMC (United Microelectronics Corporation) NYSE:UMC (ADR) TSEC:2303 is a semiconductor foundry that manufactures integrated circuit wafers for fabless semiconductor companies. In this role, UMC is second in revenues only to competitor Taiwan Semiconductor Manufacturing Company (TSM), earning $3.3B in revenues in 2007.[1]

From an operational perspective UMC has not been able to achieve the success and scale of its main rival TSM, who as the industry leader generates more cash flow and has reinvested it into technological improvements. TSM has both revenue scale and margin (2007 Revenue and Operating Margin - TSM: NT$ 322,660MM, 34.6%[2], UMC: NT$ 113,311MM, 5%[3]) , and has drastically outspent UMC on capital investment (2007: TSM - $2.59B[4] , UMC - $872.6MM[5]) TSM's margins are better both due to operational efficiencies, as well as a pricing premium they command due to the quality of their chips.[6] As a result of the technological gap, UMC has begun trading with the cash on its balance sheet, acting as a high-tech hedge fund buying Asian tech securities.[7][8] This behavior indicates that it may be unable to find good cash investments within its own operations. As a result, the company must run its operations at nearly full capacity to achieve an operating profit (Break-even utilization the from 2005-2007 was approximately 75% utilization[9]). The downside of this is exposure to economic volatility, a risk since it doesn't have excess capacity to take advantage of an upturn while a downturn will reduce orders.

Business Description

UMC was founded as Taiwan's first semiconductor company in 1980 as a spin-off of the government-sponsored institute Industrial Technology Research Institute (ITRI). Today, UMC is best known as a semiconductor foundry, manufacturing integrated circuits wafers for fabless semiconductor companies. UMC evolved as a semiconductor foundry opposite rival Taiwan Semiconductor Manufacturing Company (TSM), both functioning as an oligopoly throughout much of the 80's and 90's. Many of UMC's activities can be characterized by ways it has differed in strategy from largest foundry TSM.

While TSM has often focused on "disruptive" new technologies, such as the transition to 300mm wafers and pushing 450mm wafers, UMC has been more reluctant to embrace these changes, preferring incremental process improvements.[10] This may in part be due to its second-place in the market, which gives it less technology-pulling capability as its competitor and less negotiating power with equipment makers.

Like competitors Chartered Semiconductor Manufacturing (CHRT) and Semiconductor Manufacturing International (SMI), UMC's capabilities at non-cutting edge technologies (.13micron+) are roughly on par with Taiwan Semiconductor Manufacturing Company (TSM). However, the TSM name and quality lets it charge a slight premium on legacy products, and a significant premium on cutting-edge products.[11] As a result, UMC's margins are not as good as those of its competitors, with operating margin negative in 2005, and at 5% in 2006 and 2007.[12] In 2008, UMC is trying to remake itself as the go-to "System-on-a-Chip" (SoC) provider, with chips that can conduct multiple tasks at lower cost since they combine functionality once spread across multiple chips.[13]

In addition, the company holds NT$69.813B ($2.2B USD) in long-term securities, investing in equity and fixed income securities like a hedge fund.[14][15] As a result of its trading, it earned more income from trading (NT$13.551B) than from operations (NT$6.119B) in 2007.[16]

Financial Analysis

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UMC Revenues and Operating Income, 2005-2007[17]
Metric (NT$MM)[18] 2005 2006 2007
Operating Income($8,087)$5,159$6,119
Revenue Growth-12%1%
Operating Margin-8%5%5%

UMC's negative and single-digit operating margins, in comparison with the approximately 40% operating margin that TSM achieves[19], can be explained by two things. First, TSM's quality advantage gives it a pricing power that helps with margins. In addition, the high-fixed costs associated with paying labor and depreciating capital expenditures are largely fixed, and not affected by utilization of capacity. As such, when utilization is too low, margins will suffer, since plants are idling without producing as much as they could. When the company was not operating profitably in 2005, utilization was well under 80%, at 72.4%.[20] In the years 2006 and 2007 UMC was operating profitably, its utilization was at 79.5% and 81.9%, respectively.[21] This reveals part of UMC's operating weakness: that it must nearly fully book its factories to achieve operating profitability.

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UMC Customer Revenue Share 2005-2007[22]
Customer Share ( NT$MM)[23] 2005 2006 2007
Fabless Semiconductor Company$65,406 $69,442 $83,510
Integrated Device Manufacturers$34,910 $42,562 $29,801
Fabless Semiconductor Company Share65.2%62.0%73.7%
Integrated Device Manufacturers Share34.8%38.0%26.3%

In 2007, UMC's revenues earned from Fabless customers rose while IDM orders fell. This highlights how UMC conducts its business. Customers can either book capacity in advance, or they can make deposits as options on capacity as well.[24] If within a specific time period all capacity is booked, another client cannot book that capacity for that specific time, and must either turn to another foundry or accept a different time period. It is not apparent from the financial statements why the IDM contribution decreased, but this method of booking capacity may have contributed.

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UMC Geographic Revenue Share 2005-2007[25]
Region (NT$MM)[26] 2005 2006 2007
North America$43,537 $55,666 $50,877
Asia$49,857 $47,826 $53,143
Europe$6,922 $8,512 $9,292
North America Share43.4%49.7%44.9%
Asia Share49.7%42.7%46.9%
Europe Share6.9%7.6%8.2%

In contrast to TSM, UMC has a nearly even split between Asian and North American customers. Indeed, although the regional contributions are different by percentage, in absolute terms, TSM and UMC have similar absolute contributions from Asia, approximately NT$40-50B, and UMC has had trouble getting as many North American contracts as TSM.[27][28]. The contribution from each region has not dramatically shifted from 2005-2007.


While operating profits are low, the firm participates in securities trading with its capital, exposing it to overall market risk

As mentioned above, UMC earned more of net income from trading (NT$13.551B) than from operations (NT$6.119B) in 2007.[29] This departure from its operating business makes UMC's net income and financial earnings more unpredictable. Moreover, it reflects an inability for the company to find higher yielding investments in capital. Also, since it invests in the securities of high tech Asian companies, a market downturn would doubly affect UMC, both in its operations and in its portfolio of securities.[30]

Firm's PR and governmental relations a risk, due to past circumspect behavior and need for tax incentives to stay profitable

As of 2008, law in Taiwan restricts investment in China and ownership of mainland Chinese companies. UMC's former CEO and Chairman was charged with crimes related to these issues, and the company has been caught in this investigation.[31] Furthermore, the company received NT$926MM in tax benefits from the Taiwanese government, not insignificant compared to the $6.119B in operating income.[32]

"System-on-a-Chip" (SoC) focus an opportunity to differentiate its business from competition and Commoditization

Much of the business suffers from the Commoditization effect, with little differentiation between the competition, with the exception of Taiwan Semiconductor Manufacturing Company (TSM). The company's new effort to win SoC business and focus on supporting fabless SoC manufacturers presents an opportunity for differentiation. This can be likened to Taiwan Semiconductor Manufacturing Company (TSM) technological differentiation, and presents a opportunity for repeat business and revenue growth.

‘One China’: Taiwan Conflict: normalization in relations with China an opportunity to expand China businesses to improve margins

The victory of the Kuomintang (Nationalist) party in the Taiwanese elections of March 22, 2008, was a wish come true for those desiring closer economic ties between Taiwan and China.[33] This in conjunction with UMC's questionable history with Chinese investment and ownership may prove to be a boon, allowing it to expand capital investment in China for the purpose of margin expansion, as well as further ownership of Chinese securities for its "hedge fund" business.


Market Share

The total revenues for the global semiconductor foundry market are estimated at $22.2B by Gartner Dataquest[34] and $24.5B by IC Insights for the year 2007.[35] The "Top 4" - TSM, UMC, SMI, and CHRT - are estimated to have 72.5%[36] and 68%[37] combined share of the total market by the two data services, respectively.

Below are Gartner's estimates of market share by revenues for the year 2007 with the top 10 semiconductor foundries. By these estimates, UMC had 15% market share in 2007 by revenues, making it the 2nd largest company in the industry.

Semiconductor Foundry 2007 Market Share
Semiconductor Foundry 2007 Market Share[38]
Company Revenue 2007 ($MM)[39] 2007 Market Share (%)
Taiwan Semiconductor Manufacturing Company (TSM) $9,828 44.3
United Microelectronics (UMC) $3,263 14.7
Semiconductor Manufacturing International (SMI) $1,550 7.0
Chartered Semiconductor Manufacturing (CHRT) $1,445 6.5
IBM Microelectronics $605 2.7
Vanguard$488 2.2
X-Fab$411 1.9
Dongbu HiTek$405 1.8
MagnaChip$370 1.7
Hua Hong NEC$321 1.4
Others$3,506 15.8


  1. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  2. Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Selected Financial and Operating Data" pg. 2
  3. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  4. Yahoo Finance TSM
  5. Yahoo Finance UMC
  6. Taiwan Semiconductor Manufacturing Company (TSM)
  7. United Microelectronics FY 2007 20-F "Consolidated Balance Sheet Data:" pg. 5
  8. United Microelectronics FY 2007 20-F "Our Investments" pg. 34
  9. United Microelectronics FY 2007 20-F "Capacity and Utilization" pg. 27
  10. Electronic Engineering Times "UMC tips roadmap, questions 450-mm" June 10, 2008
  11. ThinkEquity Research, Foundry Industry, February 20, 2008
  12. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  13. United Microelectronics FY 2007 20-F "Our Strategy" pg. 22
  14. United Microelectronics FY 2007 20-F "Consolidated Balance Sheet Data:" pg. 5
  15. United Microelectronics FY 2007 20-F "Our Investments" pg. 34
  16. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  17. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  18. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  19. Taiwan Semiconductor Manufacturing Company (TSM)
  20. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 5
  21. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 5
  22. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 31
  23. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 31
  24. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 32
  25. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 30
  26. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 30
  27. United Microelectronics FY 2007 20-F "Customers and Markets" pg. 20
  28. Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Markets and Customers " pg. 15
  29. United Microelectronics FY 2007 20-F "Selected Financial Data" pg. 4
  30. United Microelectronics FY 2007 20-F "Our Investments" pg. 34
  31. United Microelectronics FY 2007 20-F "Risk Factors" pg. 11
  32. United Microelectronics FY 2007 20-F "Risk Factors" pg. 16
  33. International Herald Tribune "Markets surge in Taiwan as election raises hopes for mainland ties" March 24, 2008
  34. Electronic Engineering Times "Big changes seen in foundry rankings" April 28, 2008
  35. Purchasing Magazine "Big Four Foundries Dominate Chipmaking" June 12, 2008
  36. Electronic Engineering Times "Big changes seen in foundry rankings" Attached Image. April 28, 2008
  37. Purchasing Magazine "Big Four Foundries Dominate Chipmaking" June 12, 2008
  38. Electronic Engineering Times "Big changes seen in foundry rankings" Attached Image. April 28, 2008
  39. Electronic Engineering Times "Big changes seen in foundry rankings" Attached Image. April 28, 2008
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