UMC Presses Production And Tightening Costs Due To Recession Threats And Weak Market Demand

The founders of UMC Taiwan. (photo: Twitter @ggitimesasia)

JAKARTA – Taiwanese chip maker United Microelectronics Corp (UMC) announced on Monday January 16 that it is implementing strict cost controls due to weak demand and weak market prospects, in a further sign of the difficulties the tech industry has faced this year.

UMC, whose clients include US firm Qualcomm Inc and Germany's Infineon, have benefited from a global semiconductor shortage that has filled their order books in about two years.

But demand has slumped in recent months as soaring inflation, rising interest rates, and a dismal world economic outlook have led consumers and businesses to tighten spending.

"Given the weak global economic outlook for 2023, we expect the current challenging environment to persist into the first quarter as days of customer inventories remain higher than usual while order visibility remains low," UMC Co-President Jason Wang said, as quoted by Reuters.

"To manage this period of weakness, the company is implementing strict cost control measures and deferring certain capital expenditures where possible," he said.

The company's 2022 capital expenditure is USD 2.7 billion (IDR 40.8 trillion), less than the previously planned USD 3 billion (IDR 45 trillion), with 2023 spending set at USD 3 billion. UMC chief financial officer Chitung Liu, also added that the new capacity will be operational in the third quarter in the city of Tainan, southern Taiwan.

"The auto industry, which has been hit hard by the global chip shortage, is expected to be a "major growth catalyst" this year and beyond, given the move to electric vehicles," Wang added.

The company reported a 14.8% year-over-year increase in fourth-quarter revenue to NT$67.84 billion (IDR 33.8 trillion), although that was down 10% over the previous quarter with wafer shipments down 14.8% quarter-on-quarter.

Taiwanese rivals TSMC, also the world's largest contract chip maker, last week reported a 78% surge in fourth-quarter profit, but warned that first-quarter revenue would fall by as much as 5% and would cut annual investment.

UMC shares closed down 1.1% on Monday, underperforming with a 0.7% gain in the broader market. They have gained 10.3% so far this year, giving the company a market value of 18.7 billion US dollars (IDR 282.6 trillion).