Stock Preacher

United Microelectronics Corp. (NYSE: UMC)

United Microelectronics Corp. (UMC) is a provider of advanced technology and manufacturing services for applications spanning every major sector of the integrated circuit (IC) industry. The Company is leveraging its leading-edge foundry technology to develop faster and more powerful system-on-chip (SOC) ICs for various applications, including copper interconnects, low k dielectrics, embedded DRAM, and mixed signal/RF CMOS. Its production is supported through 10 wafer manufacturing facilities that include two advanced 300mm fabs – Fab 12A in Taiwan and Fab 12i in Singapore.

Founded in 1980, UMC is headquartered in Hsinchu City, Taiwan, with additional offices in Japan, Singapore, Europe and the United States.

Source: Reuters.com, SEC Filings, FY ending December

*$1 averages NT$32(Taiwanese Dollar)

Financial Summary

The Company reported a 42% increase in revenue from the Asia Pacific region, primarily due to stronger demand from Asian fabless customers. Revenue from its 65-nanometer business increased to 120% from the first quarter of 2009, attributable to stronger demand for leading communication chips. Meanwhile, percentage revenue from IDN customers also increased to 23% in the second quarter. Further, its communication segment posted above-average improvements and generated 62% of total revenue in the second quarter, primarily attributable to stronger demand from the wireless communication segment.

For the second quarter, UMC CEO Dr. Shih-Wei Sun stated that wafer shipments rose substantially to 898 thousand 8-inch equivalent wafers, while utilization rate for the quarter was up to 79%. Dr. Sun also said that the Company has executed well on its Customer-Driven Foundry solutions approach to provide ideal solutions that meet customer’s needs.

UMC’s second-quarter net cash inflow was NT$2 billion, while operating cash inflow was NT$3.42 billion. Free cash flow was NT$4.35 billion. The Company looks to repay NT$7.5 billion in term loans over the next 12 months. Cash and cash equivalents increased NT$2 billion to NT$37.9 billion.

UMC is set to release its third-quarter financial results on October 28, 2009.

Source: UMC Q2 2009 Results

Analyst Consensus

*Sales and Profit Figures in Taiwanese Dollar (TWD)
*Earnings and Dividend Figures in Taiwanese Dollar (TWD)

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=UMC

Analysts covering UMC rate its shares an “Outperform.”

This is the consensus forecast amongst 21 polled investment analysts.

Source: http://markets.ft.com/tearsheets/analysis.asp?s=UMC%3ANYQ

Investment Highlights

Since its founding in 1980, UMC has grown to become a world-leading semiconductor foundry. UMC pioneered the manufacture of wafers using copper materials, production of chips on 300mm wafers, delivery of functional 65-nanometer ICs to customers and production of chips using 28-nanometer process technology. It has led the development of the commercial semiconductor industry in Taiwan, and was the first company to offer foundry services. UMC boasts of being the company with more semiconductor patents than any other Taiwanese company in both Taiwan and the United States.

UMC’s leading-edge foundry technologies paved the way for faster and more powerful chips, meeting today’s demanding applications such as copper interconnects, low k dielectrics, embedded DRAM, and mixed signal/RFCMOS. Its customer-driven foundry solution allows chip designers to leverage the Company’s leading edge processes. Its customer-driven foundry solutions start from a common logic-based platform, where designers can choose the process technology and transistor options that best fit their application.

The Company’s production is supported through 10 wafer manufacturing facilities that include two advanced 300mm fabs located in Taiwan (Fab 12A ) and Singapore (Fab 12i). Its advanced 300mm manufacturing are both in volume production for a variety of products.

On October 8, the Company announced Fab12i has begun an aggressive expansion project to increase capacity and enable the 300mm fab for 45/40nm production. “This capacity expansion and advanced technology migration project for Fab 12i has demonstrated our commitment to provide Customer-driven Foundry Solutions to support the needs of our customers, Po Wen Yen, senior vice president in charge of 300mm operations at UMC, said in the Company’s press release. According to the report, Fab 12i has a current capacity of 31,000 wafers per month and currently is in volume production for customer products down to 65/55nm.

Moving forward with its commitment to green production, UMC recently announced it has completed the EPD (Environmental Production Declaration) verification for integrated circuit wafers produced at its facilities. “UMC has always valued environmentally sustainable growth as an important part of our business. As such, we provide Total Green Solutions to help customers produce high quality, environmentally friendly products,” stated Muh Liang Liao, vice president from UMC. Last month, UMC completed the foundry industry’s first reported carbon footprint verification for integrated circuit wafers produced at its facilities.

On October 8, the Company announced it recorded sales of T$9.536 billion ($297 million) for the month of September, reflecting a stronger demand for its technology products. This represents an 18% increase from a year earlier. However, analysts are offering downbeat outlook for the Company’s fourth-quarter sale, expecting it to be flat or slightly decline.

In a report by Reuters, Citi semiconductor analyst Andrew Lu stated that “UMC faces the risk of larger order cuts from October as many of its key local fabless customers could see a larger drop in demand in October to December.”

On the upbeat side, UMC is expected to increase its capital expenditure budget for 2010 as current market indicators suggest that semiconductor market is likely to improve next year. In 2009, UMC allocated 82% of its 2009 budget for the expansion of 45/50 nm and 65/55 production capacity, as well as the acquisition of the most advanced R&D equipment – which indicate the Company’s willingness to spend on advanced equipment to make the latest products. Most of UMC’s capital expenditure budget will reportedly be consumed in the second half of 2009.

Last month, tech research house iSuppli said global semiconductor sales will decline 16.5% this year to $216.1 billion, less than the previous decline forecast of 23%, and will return to growth in 2010. In its report, the firm cited stronger semiconductor sales in the second quarter compared with the first quarter, as well as the improving supply chain visibility and demand. The report added that the Chinese stimulus package boosted consumer spending in the second quarter, while the U.S. stimulus package has yet to have had a significant impact.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

Moving Average

UMC is currently above its 13-day moving average. This is generally considered to be an indication of a bullish trend.

MACD

UMC’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

Bollinger Bands

UMC has been relatively stable recently. This is evidenced by the width of its Bollinger Bands, which are tighter than normal. Additionally, UMC is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Source: http://www.scottrade.com

Comparative Analysis

UMC has a negative Return on Assets of -14.47%, compared with an industry average of 0.54%; Return on Investment of -16.53%, compared with an industry average of 0.66%; and a Return on Equity of -15.89%, compared with an industry average of 0.03%.

Source: Yahoo! Finance, Analyst Estimates.

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Data provided by Thomson Financial

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