Chipmaker UMC's $3.6 bil. expansion caters to long-term clients

06, May. 2021

A UMC staff handling a wafer at one of its foundries. The contract chipmaker will invest NT$100 billion ($3.6 billion) to ramp up chip capacity at one plant. (Photo courtesy of UMC)
A UMC staff handling a wafer at one of its foundries. The contract chipmaker will invest NT$100 billion ($3.6 billion) to ramp up chip capacity at one plant. (Photo courtesy of UMC)

By Gloria Cho

TAIPEI, NNA - Contract chipmaker United Microelectronics Co. (UMC) plans to invest NT$100 billion ($3.6 billion) with the support of some clients over the next three years to expand capacity at an existing plant in Taiwan amid a worsening global shortage that is likely to stretch into 2022.

Focusing on long-term contracts to guarantee supplies to clients, the new 28nm production at its P6 plant Tainan Science Park in southern Taiwan is expected to begin in the second quarter of 2023, UMC management told an online investors conference on April 28. It will churn out 27,500 more wafers monthly.

Co-president Jason Wang said the company and its clients will collaborate to reinforce their capex strategy to stabilize supplies and prevent any prolonged bottlenecks in future. Several leading global customers are expected to pay sizable deposits for their pre-priced, long-term orders.

UMC did not mention the clients that will collaborate in the capacity expansion at the P6 plant. However, it is believed big names like Samsung, Qualcomm and MediaTek are among them, according to industry sources.

"Amid the semiconductor component shortage, we are working with our customers, suppliers and partners to alleviate the capacity tightness across the supply chain," said Wang, adding that UMC's total investment in the science park will reach NT$150 billion over the next three years.

SC Chien, co-president of UMC, said pre-determined pricing contracts would not only support top-line growths but also multi-year, margin accretions. Prices are expected to be higher but stable since they are pre-agreed.

Welcoming the long-term business deals, Liu Pei-chen, a semiconductor researcher at Taiwan Institute of Economic Research, told NNA that “This can be an effective strategy that will do no harm to major integrated circuit firms as they can always transfer extra inventory to smaller players.”

Second-tier chipmakers in Taiwan might adopt a similar strategy if the UMC plan succeeds, she added.

According to UMC's website, the NT$100 billion investment will include the $1.5 billion to be spent on equipment for its P5 plant which will start operating later this year.

The world's biggest producer, TSMC, and other foundries have also increased investment to expand capacity.

The global chip shortage has forced car makers to cut production significantly since last year. The crisis has since worsened as it hits smartphones, notebook computers and home appliances too this year.

Chip producers have made efforts to increase production capacity, but it is still not enough. UMC plants have been running at full capacity in the first quarter of this year.

UMC expects its gross margin to hit 30 percent in the next quarter, from 26.5 percent in the first. It foresees wafer shipment to rise by 2 percent, with average selling prices in US dollars to increase by 3 to 4 percent.

Analysts expect UMC to see its revenue hit another record high in Q2 after it achieved NT$47.1 billion in Q1, up by 4 percent from the previous quarter and 11.4 percent from a year ago.

Gross profit in Q1 soared 15.2 percent to NT$12.49 billion, driven by a higher demand for 28nm chips which are needed in digital TVs, set top boxes and smartphones. Its revenue surged by 19.3 percent to NT$176.8 billion last year.