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UMC imposes strict cost controls over weak demand

Taiwanese chipmaker United Microelectronics Corp said on Monday it was implementing strict cost controls because of soft demand and a weak outlook, in a further sign of pain facing the tech industry.

UMC, whose clients include U.S. company Qualcomm Inc and Germany’s Infineon, has benefited from a global semiconductor shortage that has kept chipmaker order books full in the past two years or so.

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

“Given the soft global economic outlook for 2023, we expect the current challenging environment to persist through the first quarter as customers’ days of inventory are still higher than normal while order visibility remains low,” Co-President Jason Wang told an earnings call.

“To manage this period of weakness, the company is implementing strict cost control measures and deferring certain capital expenditures where possible.” I

The company’s 2022 capital spending was $2.7 billion, less than the $3 billion previously planned, with 2023 spending set at $3 billion, said finance chief Chitung Liu, adding new capacity would come online in the third quarter in the southern Taiwanese city of Tainan.

The automotive industry, which was hit hard by global chip shortages, was expected to be a “key growth catalyst” this year and beyond, given the move to electric vehicles, Wang added.

The company reported a 14.8% year-on-year rise in fourth-quarter revenue to T$67.84 billion ($2.24 billion), although that was 10% down compared to the previous quarter with wafer shipments falling 14.8% quarter on quarter.

Bigger Taiwanese rival TSMC, the world’s largest contract chipmaker, last week reported a 78% surge in fourth-quarter profit, but warned that first-quarter revenue would drop as much as 5% and it would slash annual investment.

Shares in UMC closed 1.1% down on Monday, underperforming a 0.7% rise in the broader market. They have gained 10.3% so far this year, giving the company a market value of $18.7 billion. Reuters

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