Chipmaker UMC cuts capex in readiness for prolonged downturn

TAIWANESE chipmaker United Microelectronics (UMC) has cut this year’s planned capital expenditure by almost a fifth, it said on Wednesday (Oct 26), citing weakening consumer demand without signs of recovery.

UMC, clients of which include US company Qualcomm and Germany’s Infineon, has benefited from a global semiconductor shortage that has kept chipmakers’ order books full over the past two years.

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

“Moving into the fourth quarter, we expect to face headwinds amid demand weakness, impacted by factors including the inflationary environment and the Ukraine war,” UMC co-president Jason Wang said in an earnings call.

The company has observed a prolonged downturn in smartphone and personal computer demand in a trend that will linger into the first half of next year, Wang said, adding that the decline is from a high base.

“There’s no tangible sign of recovery in the near term,” he said.

The company has revised 2022 capital expenditure down to US$3 billion, compared with a previous plan for US$3.6 billion, said finance chief Chitung Liu.

However, expansion in Singapore and Tainan in southern Taiwan are progressing as planned to meet long-term supply commitments, Wang said.

The company reported a 34.9 per cent leap in third-quarter revenue to NT$75.39 billion.

South Korea’s SK Hynix also warned on Wednesday of an “unprecedented deterioration” in memory chip demand, saying it would cut investment drastically after quarterly profit tumbled by 60 per cent.

Taiwanese rival TSMC, the world’s largest contract chipmaker, this month reported an 80 per cent surge in third-quarter profit, its strongest growth in two years, but cut its annual investment budget by at least 10 per cent for 2022 and struck a more cautious note than usual on future demand.

Speaking on the latest set of US export controls aimed at slowing China’s progress in advanced chip manufacturing, Wang said UMC expects limited impact because the rules mainly target more advanced chips than the company produces.

However, UMC will continue to monitor developments and “take risk-management measures as necessary”, he added.

Shares in UMC closed 3.4 per cent down on Wednesday and have fallen about 41 per cent this year. REUTERS