Company Reports

Along with its second-quarter release, United Microelectronics Corp. guided third-quarter shipments to grow by a high-single-digit percentage sequentially and increased its 2026 capital expenditure budget by 33% to USD 2 billion. Shares popped 7% in Taiwan on July 30.

We assess the impact on our coverage of Taiwan Semiconductor Manufacturing Company, United Microelectronics, SMIC, and Hua Hong Semiconductor after Huawei revealed its approach to improving chip performance, called Tau Scaling Law. SMIC and Hua Hong shares jumped on the news.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry, by revenue. It makes integrated circuits for customers based on their proprietary designs. The company has long benefited from US and increasingly Asian semiconductor companies specializing in fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during periods of burgeoning demand, which can result in underutilization during downturns, thereby hampering profitability.

United Microelectronics guided for second-quarter shipments to grow by a high-single-digit percentage sequentially, the strongest in over six years, and confirmed price increases for orders placed from July 1. It unveiled a buyback scheme. Shares popped 9% in early US trading.

United Microelectronics is the world’s fourth-largest dedicated contract chip manufacturer, or foundry, by revenue. It makes integrated circuits for customers based on their proprietary designs. The company has long benefited from US and increasingly Asian semiconductor companies specializing in fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during periods of burgeoning demand, which can result in underutilization during downturns, thereby hampering profitability.

United Microelectronics Corporation's December-quarter revenue was TWD 61.8 billion, up 4.5% sequentially. Gross margin improved by 87 basis points from the previous quarter to 30.7% on a weaker Taiwan dollar. Shares retreated 18% since earnings.

United Microelectronics is the world’s fourth-largest dedicated contract chip manufacturer, or foundry, by revenue. It makes integrated circuits for customers based on their proprietary designs. The company has long benefited from US and increasingly Asian semiconductor companies specializing in fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during periods of burgeoning demand, which can result in underutilization during downturns, thereby hampering profitability.

United Microelectronic Corporation's September quarter revenue was TWD 59.1 billion, up 0.6% sequentially. Gross margin improved by 109 basis points from the previous quarter to 29.8% on higher utilization and a weaker Taiwan dollar. The numbers met management guidance.

United Microelectronics' June-quarter revenue was TWD 58.8 billion, up 2% sequentially. Gross margin improved by 203 basis points from the previous quarter to 28.7% due to higher utilization. However, gross margin slightly missed management's guidance due to a strong Taiwan dollar.

United Microelectronics' first-quarter 2025 revenue was TWD 57.9 billion, down 4% sequentially. Gross margin fell 368 basis points from the previous quarter to 26.7%. The numbers met management guidance.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry, by revenue. It makes integrated circuits for customers based on their proprietary designs. The company has long benefited from US and increasingly Asian semiconductor companies specializing in fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

UMC's fourth-quarter 2024 revenue was TWD 60.3 billion, up 10% year on year. Gross margin dropped 2 percentage points from the year-ago quarter to 30.4%. The numbers met management's guidance.

We view the latest US export controls by the Commerce Department as having minimal impact on the foundries under our coverage. As such, we leave our fair value estimates on TSMC, UMC, GlobalFoundries, SMIC, and Hua Hong Semiconductor unchanged at TWD 1,380, TWD 70.00, USD 42.00, HKD 14.00, and HKD 16.50 per share, respectively. TSMC and UMC remain our top picks for the sector.

Our fair value estimate for United Microelectronics stays at TWD 70 per share after unsurprising third-quarter results and fourth-quarter guidance. UMC’s shares are attractive as short-term headwinds in automotive are easing and demand upside in industrial is overlooked if a reported CNY 10 trillion government stimulus package materializes.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry, by revenue. It makes integrated circuits for customers based on their proprietary designs. The company has long benefited from US and increasingly Asian semiconductor companies specializing in fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

Our fair value estimate for United Microelectronics stays at TWD 70 per share after lifting 2024 gross margin assumptions in line with guidance. Our outer-year estimates are little changed. UMC’s shares are attractive, as short-term headwinds in automotive are easing. We are impressed with UMC’s ability to manage downcycles, which remains underappreciated.

We retain our fair value estimate of TWD 70 per share for no-moat-rated United Microelectronics despite lowering our 2024 revenue and EPS forecasts by 5% and 6%, respectively, amid a weaker-than-expected automotive and industrial outlook. Our midcycle estimates are largely unchanged. We see UMC’s shares as undervalued, as investors are focusing on short-term headwinds in automotive and industrial demand and downplaying structural growth for supporting chips used in less-powerful devices that emphasize cost and low power consumption.

We retain our fair value estimates on Taiwanese technology companies in our coverage following a powerful earthquake and multiple strong aftershocks near the eastern city of Hualien on April 3, namely: Advantech at TWD 337; Delta Electronics at TWD 331; GlobalWafers at TWD 710; Largan at TWD 3,000; MediaTek at TWD 1,400; Sino-American Silicon at TWD 281; Taiwan Semiconductor Manufacturing Co at TWD 950 (USD 151 per ADR); United Microelectronics Corp at TWD 70; and Win Semiconductors at TWD 245 per share.

We lift our fair value estimate on no-moat United Microelectronics, or UMC, to TWD 70 from TWD 62 per share, factoring in higher midcycle gross margin arising from its partnership with Intel and higher confidence in UMC’s ability to mitigate cycle downturns, which was demonstrated in the past two years. Trading at 8.7 times 2025 P/E, we see UMC’s shares as undervalued, as investors are focusing on short-term headwinds in automotive and industrial demand rather than structural demand growth for supporting chips used in less-powerful devices that emphasize cost and low power consumption.

United Microelectronics, or UMC, is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies moving to fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.