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Missed Taiwan Semi’s Rise? Try United Microelectronics

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Key Points

  • United Microelectronics is a contract chip maker (wafer foundry) based out of Taiwan.
  • The company makes high-volume, low-end mature processing chips for Texas Instrument, Broadcom, Qualcomm and Cisco Systems.
  • United Microelectronics shares are trading at 12.1X forward earnings.
  • 5 stocks we like better than United Microelectronics

Thanks to the artificial intelligence (AI) trend, the semiconductor industry has been on fire. Semiconductor stocks within the computer and technology sector are benefactors. The foundries that are contracted out to make the chips are also seeing double-digit revenue growth. The leading maker of semiconductors with an 80% market share is Taiwan Semiconductor Manufacturing Ltd. Co. NYSE: TSM. The dominance has been reflected in its performance gaining 37% year-to-date (YTD). Risk-tolerant investors who don't want to chase performance but are willing to take the risk with an underperformer who may be setting up for a laggard rise can take a look at United Microelectronics Co. NYSE: UMC.

A Cheaper Version of Taiwan Semiconductor

United Microelectronics is a foundry that’s also based out of Taiwan. They manufacture semiconductors built to specifications designed by other semiconductor companies, which include well-known customers like QUALCOMM Inc. NASDAQ: QCOM, Broadcom Inc. NASDAQ: AVGO and Cisco Systems Inc. NASDAQ: CSCO, Xilinx. United Micro provides high-volume and cost-effective manufacturing services that reduce capex for its clients, as building in-house foundries can cost billions of dollars and take years to build.

Differences Between Taiwan Semi and United Micro

While Taiwan Semi is a market leader for advanced chips focused on cutting-edge chip manufacturing at a premium price for companies like Advanced Micro Devices Inc. NASDAQ: AMD and NVIDIA Co. NASDAQ: NVDA, United Micro focuses on providing more economic solutions for less complex and lower-end chips. Rather than competitors, Taiwan Semi and United Micro are complementary contract chip manufacturers. Taiwan handles the high-end, cutting-edge, highest-performance and advanced chips, while United Micro handles affordable, high-volume, lower-end chips handling mature processes.

Weekly Ascending Triangle Pattern

The weekly candlestick chart for UMC illustrates an ascending triangle pattern. The flat-top upper horizontal trendline resistance formed at $8.50. The ascending trendline formed at $5.08 on October 3, 2022, representing higher lows on pullbacks as the trendlines converge at the apex point. The channel continues to get tighter, waiting for a breakout through the upper flat-top trendline at $8.50 or a breakdown under the ascending trendline. The weekly relative strength index (RSI) is hovering just above the 50-band. Pullback support levels are at $7.48, $6.73, $6.14 and $5.51.

 Weak Q4 2023 Performance

On January 21, 2024, United Micro reported 17 cents per share earnings, beating consensus estimates by a penny. Revenues slipped 20.86% YoY to $1.76 billion, beating consensus estimates by $1.9 million. Gross margins were 32.4%, with operating margin at 22.6%. Revenues for 22/28 nanometer wafers represented 36% of revenues. The capacity utilization rate was 66%. Net income attributable to shareholders was $430 million.


Co-President’s Insights

United Microelectronics Co-President Jason Wang commented on how the fourth-quarter macroeconomic conditions were challenging, as evidenced by prolonged inventory correction in the chip industry. Semiconductor wafer ships fell 2.5% QoQ, while fab utilization rates fell 66%. Wang noted the company proved resilient as it safeguarded structural profitability with a gross margin of 34.9% even as utilization rates fell significantly. 

Wang concluded, “Looking into the first quarter of 2024, we anticipate overall wafer demand will increase mildly. However, customers maintain a cautious approach to their inventory management. UMC will continue to navigate headwinds amid an increasingly competitive landscape and swelling geopolitical tensions via a diversified manufacturing base and differentiation in 12-inch specialty technologies.”

Outlook for Q1 2024

United Micro expects wafer shipments to rise 2% to 3% YoY. ASP in USD will fall by 5%. The gross profit margin will be approximately 30%. Capacity utilization will be in the low-60% range. Capex is expected to be around $3.3 billion in 2024.

Monthly Sales Updates for 2024

On February 6, 2024, United Micro reported that January 2024 revenues fell 2.9% YoY to $591.8 million. On March 6, 2024, the company reported February 2024 sales rose 3.1% YoY to $542.25 million. On April 8, 2024, United Micro reported March sales rose 2.7% YoY to $579.44 million.

Taiwan Earthquake Update

On April 3, 2024, Taiwan suffered a 7.2 magnitude earthquake off the coast of Hualien, Taiwan. It had no material impact on United Micro's operations. All personnel were reported safe, and automatic safety measures at its fabs in Hsinchu and Fab 12A in Tainan were triggered as some wafers in the production line were affected. All systems have resumed with no financial impact on the company's business. 

United Microelectronics analyst ratings and price targets are at MarketBeat. UMC shares are trading a 12.1X forward earnings.

 

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
United Microelectronics (UMC)
2.197 of 5 stars
$8.67+1.0%5.07%12.39Hold$8.90
Taiwan Semiconductor Manufacturing (TSM)
2.5926 of 5 stars
$152.96-0.9%1.12%29.14Moderate Buy$157.00
QUALCOMM (QCOM)
4.7137 of 5 stars
$204.80-1.7%1.56%27.53Moderate Buy$180.48
Broadcom (AVGO)
4.8793 of 5 stars
$1,364.08-1.9%1.54%50.56Moderate Buy$1,296.91
Cisco Systems (CSCO)
4.7199 of 5 stars
$46.12+0.1%3.47%15.53Hold$56.47
NVIDIA (NVDA)
4.6322 of 5 stars
$1,105.00-3.8%0.01%64.62Moderate Buy$1,123.49
Advanced Micro Devices (AMD)
4.6136 of 5 stars
$166.75+1.0%N/A245.22Moderate Buy$185.26
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Jea Yu

About Jea Yu

  • JeaYu21@gmail.com

Contributing Author

Trading Strategies

Experience

Jea Yu has been a contributing writer for MarketBeat since 2018.

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Equities, options, ETFs and futures; fundamental, qualitative, quantitative and technical analysis and pattern identification; active and swing trading; trading systems and methodology development

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Bachelor of Arts, University of Maryland, College Park

Past Experience

U.S. equity markets trader, writer and analyst for over 25 years. Published four books by publishers McGraw-Hill, John Wiley & Sons, Marketplace Books and Bloomberg Press. Speaker at various expos and seminars and has been quoted and featured in USA Today, The Wall Street Journal, Traders Magazine, The Financial Times and various trade publications, including Stocks & Commodities, Active Trader and Online Investor.


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