Chip maker UMC’s Q1 profit is up; sees strong Q3

United Microelectronics Corp., the world’s second largest contract chip maker, on Wednesday reported stronger than expected first-quarter earnings and offered a robust outlook for its business in the coming six months.

The outlook is important because contract chip makers normally have a good view of the health of the global tech industry. Because chips need to be ordered months in advance of their placement inside gadgets, companies placing orders need to be fairly confident about user demand.

UMC’s net profit in the first quarter rose more than seven-fold on year to NT$12.29 billion ($384.4 million) from NT$1.52 billion during the same quarter in 2005, because of the sale of stock in other companies. Its operating income, which counts only money earned from its main business, fell 72% on year to NT$85 million from NT$302 million last year because of sluggish sales of networking chips in the first quarter, which is traditionally a weak time period for chip makers.

Revenue rose 20% to NT$24.38 billion.

The company also offered robust guidance for the second and third quarters – an anomaly because companies typically won’t discuss forecasts past the next quarter.

“Third quarter visibility is quite high,” said Peter Chang, a vice chairman at UMC. “Our profit and revenue will be significantly improved by the third quarter of this year.” The company expects double-digit revenue growth in the third quarter.

Brisk sales of mobile phone chips in the current financial quarter, April through June, will mean an improvement for UMC compared with the first quarter. The company, which manufactures chips designed by its customers, said shipments will increase up to 6% in the second quarter over the first quarter, and it should be able to charge slightly higher prices.

Communications is one area where demand continues to accelerate.

“Demand for low-cost mobile phones in emerging markets, including Africa, India and China, is growing fast,” said Jackson Hu, chairman of UMC.

Analysts were generally upbeat about the company’s outlook.

“They’re optimistic about the second half, and I think that’s reasonable,” said Kenneth Lee, chip industry analyst at Primasia Securities, adding that the company is likely to beat its forecasts for the second quarter.

“They’re being conservative,” he said.