Taiwan’s UMC seeks funds to narrow gap with TSMC

* UMC says may seek investment from overseas chipmakers

* Aims to boost technology, efficiency to catch rival TSMC

* Looking to pursue acquisition in China market

TAIPEI, May 6 (BestGrowthStock) – United Microelectronics Corp’s
(UMC) (2303.TW: ) plan to raise $411 million could pave the way
for the world’s No.2 chip foundry to seek the new technology and
markets it needs to keep up with rival Taiwan Semiconductor
Manufacturing Co (TSMC) (2330.TW: ) as demand recovers worldwide.

UMC (UMC.N: ) said on Wednesday its board had approved a plan
to raise more than T$13 billion ($411 million) via a private
placement as it seeks opportunities for technology cooperation
with partners or a strategic alliance. [ID:nTOE64404U]

TSMC (TSM.N: ) and UMC are racing to tap growing demand for
chips, but analysts say UMC must broaden its customer base and
sell more advanced chips with fatter margins to stay
competitive, and could gain from investment from for example
companies such as Texas Instruments (TXN.N: ), one of its clients.

“If other chipmakers such as TI in the United States can
invest in UMC, that would be good news because they can work on
new technology together,” said John Chiu, who manages about T$10
billion of equity assets for Fuh Hwa Securities Investment Trust
and has UMC shares in his portfolios. “But it will take some
time before we can see a big leap.”

Big foreign chipmakers such as TI might help UMC move up the
ladder by using smaller circuitry for more powerful chip designs
for PCs, cell phones and flat-screen televisions. Squeezing more
circuits onto a single chip also increases chip yields, boosting
efficiency.

UMC’s operating profit margin stood at 12.7 percent in the
first quarter, much lower than TSMC’s 37 percent, in part
because sales of chips from advanced 40/65 nanometre process
technology made up about 41 percent of TSMC’s sales whereas UMC
will make a small amount of chips with 40 nanometre technology
this year.

Further widening the gap between the two, TSMC will start
using more advanced 20-nanometre process chip production
technology in the second half of 2012.

U.S.-based chipmaker Globalfoundries may also be a potential
investor if it aims to merge with UMC to compete with TSMC in
the longer term, said Kenneth Lee, analyst at Fubon Securities
Investment Services.

In a note on Thursday, Fubon said any investment by
Globalfoundries would be positive, even it meant UMC might lose
some management control.

With Globalfoundries merging its operations with recently
acquired Chartered Semiconductor in Singapore to create a single
contract chipmaker, adding an investment in UMC could further
increase the potential threat to TSMC.

Investors cheered UMC’s plan, sending its Taipei-listed
shares up as much as 2.04 percent on Thursday before they
settled 0.34 percent higher. The main TAIEX index (.TWII: ) fell
1.5 percent and TSMC lost 0.5 percent.

UMC may also use the money to pursue its plan to merge with
Chinese chipmaker Hejian, of which it currently owns 15 percent.
Such a move would allow it to tap robust demand on the mainland,
but it needs final approval from shareholders in June to allow
it to acquire the remaining 85 percent stake. [ID:nTP130150]

“UMC can serve more customers in China if it merges Hejian,”
said Fuh Hwa’s Chiu.

Stock Market Money

(US$1=T$31.6)

Taiwan’s UMC seeks funds to narrow gap with TSMC