Earthquake, price fall could drive UMC's Q1 gross margin down below 30%

Taipei, Jan. 21 (CNA) A magnitude 6.4 earthquake that hit southern Taiwan early Tuesday morning and a fall in product prices could send the gross margin of United Microelectronics Corp. (UMC), the second largest contract chipmaker in Taiwan, below the 30 percent in the first quarter of this year, a company official said.

The earthquake, which rocked Chiayi County at 12:17 a.m., forced UMC to evacuate its employees from the Southern Taiwan Science Park, affecting its operations in the industrial park.

Speaking at an investor conference, UMC's co-President Jason Wang (王石) said he estimated that the quake will drag down its gross margin -- the difference between revenue and cost of goods sold.

Along with the impact from a product price fall of 4-6 percent on average, its gross margin could fall below 30 percent in the January-March period, down from 30.4 percent recorded in the previous quarter, Wang said.

Still, Wang said the first quarter gross margin is expected to be sustained above 25 percent.

During the investor conference, UMC reported a 41.3 percent decline in net profit from the previous quarter, falling to NT$8.497 billion (US$259 million) in the fourth quarter of 2024. Earnings per share (EPS) decreased to NT$0.68, compared to NT$1.16 in the third quarter

In 2024, UMC's net profit stood at NT$47.21 billion, down 22.6 percent from a year earlier, with EPS at NT$3.80, compared with NT$4.93 recorded in 2023.

UMC's consolidated sales for 2024 rose 4.4 percent from a year earlier to NT$232.30 billion, while its gross margin fell 2.3 percentage points year-on-year to 32.6 percent.

Wang said demand for chips used in communications, consumer electronics, and computers grew steadily, driving UMC's sales growth in 2024, with chips manufactured using 28-nanometer and 22-nanometer technologies accounting for 34 percent of its total sales.

Looking into 2025, the global semiconductor industry is expected to benefit from strong demand for artificial intelligence servers, while an increase in chip shipments for smartphone and computers is also expected to drive up the IC industry, Wang said.

He added that sales in the industry is expected to grow by about 10 percent this year.

As for the mature IC segment UMC specializes in, Wang said sales could rise 1-3 percent in 2025, adding that the 22nm is expected to make greater contribution to UMC's sales in 2025.

In the first quarter of this year, Wang said, UMC's capacity utilization rate could come close to 70 percent, with wafer shipments likely to stay little changed from the previous quarter.

UMC's capital expenditure for 2025 is expected to hit US$1.8 billion, down 38 percent from US$2.9 billion in 2024, he said.

Meanwhile, a new facility located in Singapore will start commercial production in 2026 as scheduled, but production volume will be adjusted based on its client's demand, according to Wang.

In February 2022, UMC announced plans to invest US$5 billion in the phase three expansion of its Fab12i, or Fab12i P3, in Singapore and also designated the new facility as one of the most advanced semiconductor fabs in the country. The fab is set to roll out chips made on UMC's 22nm and 28nm processes.