United Microelectronics: Some Relief May Be In Sight

seekingalpha11-22

UMC has lost a lot of ground recently, putting it in a hole with 2024 almost over, but some relief may be near with support in the charts potentially close.While there may be support for UMC in the ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUnited Microelectronics: Some Relief May Be In Sight\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-22 23:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739635-united-microelectronics-some-relief-may-be-in-sight-umc-stock><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>UMC has lost a lot of ground recently, putting it in a hole with 2024 almost over, but some relief may be near with support in the charts potentially close.While there may be support for UMC in the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739635-united-microelectronics-some-relief-may-be-in-sight-umc-stock\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4141","symbol_name":"半导体产品","start_time":0,"source_url":"https://seekingalpha.com/article/4739635-united-microelectronics-some-relief-may-be-in-sight-umc-stock","article_id":"2485267462","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1414159141/image_1414159141.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485267462","pubTimestamp":1732289471,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"UMC got close to $9 with $8.85 as recently as September 27, but the stock then proceeded to sell off in the month of October. This decline eventually resulted in a new 52-week low of $6.78 on October 31, which also happened to be when UMC released its most recent earnings report. However, there have been no new lows since then and the stock has been showing signs it may be trying to stabilize itself, if not go for a rebound. Source: Thinkorswim appThe chart above suggests why there is reason to think a rebound could be possible. The most recent low of $6.78 is in a region where the stock has been able to find support before, which paved the way for a rebound. The table below shows how the stock has a history of repeatedly bottoming in the $6.70-6.80 region.       Date Low   11/18/2024 $6.80   11/15/2024 $6.78   10/31/2024 $6","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4141":"半导体产品","BK4554":"元宇宙及AR概念","BK4526":"热门中概股","UMC":"联电"},"translate_title":"联华电子：可能会有所缓解","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UMC":0.9},"content_text":"UMC has lost a lot of ground recently, putting it in a hole with 2024 almost over, but some relief may be near with support in the charts potentially close.While there may be support for UMC in the charts, there is also resistance, which has kept a lock on UMC for quite some time.There is a lot of weighing on UMC with 2025 not far away, which look poised to make 2025 into a challenging year for UMC.UMC will have to work hard to keep FY2025 earnings stable YoY, but the risk is that there is a lot that could potentially go wrong.   SweetBunFactory United Microelectronics Corporation (NYSE:UMC), a provider of foundry services to the semiconductor industry, has really struggled in the past 6-7 weeks after a better start to the year. The stock fell to a new 2024 and 52-week low on November 15 after failing to get past what was in all likelihood resistance in the charts, despite repeated attempts over several months. However, some relief could be possible after the decline in the stock. Why will be covered next. Resistance wins out again, but support may be close by A previous article from early June mentioned some strengths UMC had to offer. This included a rather generous dividend with a yield of 5.4%, which is much higher than what most tech stocks have to offer. On the other hand, the article pointed out how the stock was close to resistance in the charts, which raised the possibility the stock could turn south, especially since that was exactly what had happened several times before. Accordingly, the article rated UMC a hold. Source: Thinkorswim appThe chart above shows why the article was right to point out that the stock was likely to face resistance as it got closer to $9 or so. In fact, the stock got as high as exactly $9 not long thereafter on June 20, which is the 52-week high, but that was as far as it got. UMC has been unable to get past resistance around $9 despite repeated attempts in the last several months, as the previous article suspected might happen. Note how subsequent attempts in August and September to break through were unsuccessful, similar to what happened in June. Could there be support close by for UMC? UMC got close to $9 with $8.85 as recently as September 27, but the stock then proceeded to sell off in the month of October. This decline eventually resulted in a new 52-week low of $6.78 on October 31, which also happened to be when UMC released its most recent earnings report. However, there have been no new lows since then and the stock has been showing signs it may be trying to stabilize itself, if not go for a rebound. Source: Thinkorswim appThe chart above suggests why there is reason to think a rebound could be possible. The most recent low of $6.78 is in a region where the stock has been able to find support before, which paved the way for a rebound. The table below shows how the stock has a history of repeatedly bottoming in the $6.70-6.80 region.       Date Low   11/18/2024 $6.80   11/15/2024 $6.78   10/31/2024 $6.78   8/25/2023 $6.75   8/24/2023 $6.76   8/23/2023 $6.75   8/22/2023 $6.74   8/21/2023 $6.73   8/18/2023 $6.72   8/17/2023 $6.72   8/16/2023 $6.71   Click to enlarge Source: Thinkorswim app The last time this happened was in August 2023, the stock proceeded to turn around to head north. It may be happening again in November 2024. At the very least, there appears to be support present in or around the $6.70-6.80 region, considering the number of times the stock has bottomed here. Yes, support can be breached, but at least it is there. What is causing problems for UMC or its stock? As mentioned earlier, the stock’s drop to the 52-week low coincided with the release of the most recent Q3 FY2024 report, as shown in the prior chart. However, prior to the report’s release, the stock had already come under pressure for various reasons. For instance, UMC got downgraded by several Wall Street banks. This included Morgan Stanley and Goldman Sachs, which both cited a weak demand environment as the reason to downgrade UMC. The fact that there could be a new U.S. administration further weighed on UMC because the front-runner according to betting odds had previously made a number of less than encouraging statements about Taiwan, especially as it relates to the semiconductor industry. This is relevant to companies from Taiwan, UMC included. Taiwan is where UMC has most of its manufacturing facilities, so UMC stands to be affected on paper. The Q3 FY2024 reports show UMC is also dealing with challenges internally. The table below shows the numbers in the most recent report. The top line grew, but the bottom line shrank due to lower margins. Revenue came in at NTD60,485M, up 6% YoY, which converts to $1,911M using a USD:NTD exchange rate of 1:31.65. Yet EPS decreased by 10.1% YoY to NTD1.16, which converts to NTD5.80 or $0.18, $0.183 to be exact, per ADS.  (Unit: M NTD, except EPS)    Q3 FY2024 Q2 FY2024 Q3 FY2023 QoQ YoY   Revenue 60,485 56,799 57,069 6.5% 6.0%   Gross margin 33.8% 35.2% 35.9% (140bps) (210bps)   Operating margin 23.3% 24.5% 26.8% (120bps) (350bps)   Operating income 14,100 13,891 15,312 1.5% (7.9%)   Net income (attributable to shareholders of parent) 14,472 13,786 15,971 5.0% (9.4%)   EPS 1.16 1.11 1.29 4.5% (10.1%)   Click to enlarge Source: UMC report The decline in gross margins was due to an increase in the cost of goods sold, more than the increase in revenue. This increase was driven by a 23.1% YoY increase in depreciation expense and a 5.3% increase in other manufacturing costs, especially energy costs. Keep in mind UMC has been bringing new fab capacity online and the new equipment is set to be depreciated. In response, UMC has begun taking measures to keep costs under control. There is a lot of slack, but the utilization rate increased to 71%, up 300 basis points QoQ and 400 basis points YoY. Wafer shipments increased by 7.8% QoQ to 896K and the quarterly capacity was 1,274K, both in 12-inch equivalent. UMC finished with cash and cash equivalents totaling NTD103.41B or $3.27B, partially offset by long-term credit/bonds worth NTD58.13B or $1.84B and short-term credit/bonds worth NTD30.86B or $0.98B. What the outlook is like for UMC Earnings are going down, and they are likely to decrease further. The guidance calls for gross margin and utilization to decrease to close to 30% and the high 60% range, respectively, in Q4 FY2024. From the Q3 earnings call: “Now, let's move on to fourth quarter 2024 guidance. Our wafer shipments will remain flat. ASP in U.S. dollars will remain flat. NT dollar appreciation may lead to a decline in our reported Q4 NT dollar revenue. Gross margin will be close to 30 percent. Capacity utilization rate will be in the high 60% range.” Source: UMC earnings call Using the above guidelines, UMC is estimated to earn $0.16-0.17 per ADS on revenue of about $1.87-1.88B, although the final numbers could get swayed by the actual change in exchange rates. This implies EPADS of $0.65-0.66 by the end of FY2024, which translates to a P/E ratio of 10.6x with the stock at $6.98 as of November 19. In comparison, EPADS was $0.80 in FY2023, or $0.803 to be exact. UMC is likely to reduce its dividend next year since the dividend is tied to earnings. UMC tends to spend roughly half on dividends, but the last one was higher at $0.46 per ADS, or $0.06 than the $0.40 UMC would have normally paid if only using half. If UMC sticks to paying half, then the dividend to be paid in 2025 will be about $0.33. If it is more like this year, then the dividend could come in at about $0.38. The latter implies a dividend yield of 5.4%, but the former 4.7%. Could FY2025 be better than FY2024 for UMC? FY2024 is likely to end up a down year for UMC with both the stock and earnings going down. Moreover, while UMC has yet to get into next year, FY2025 is unlikely to be much better. The semiconductor market is generally expected to grow in 2025, and the foundry market should follow in its footsteps, but growth is likely to be slower than in 2024. Furthermore, foundry market growth is likely to be skewed towards process nodes at the leading edge. Demand for mature nodes is likely to be weaker, something that will work against UMC in 2025. The U.S. dollar is likely to remain strong against the Taiwan dollar, especially in the early part of the year, which will affect top line growth. In addition, earnings growth is expected to be constrained by the increase in depreciation expense all throughout 2025. If we then assume FY2025 revenue grows in the low-to-mid single digits YoY, then EPADS is estimated to come in flat at around $0.65. Currency fluctuations and higher costs due to inflation in general could lower that number. Investor takeaways UMC did okay for most of 2024, but in the last two months or so things have taken a major turn for the worse. The stock lost all gains and then some in October to end up down for the year with 2024 coming to an end. A number of headwinds have risen to the forefront, all of which seem to have conspired to take down UMC a notch. First, while UMC intends to offer 12nm by 2026 in cooperation with Intel Corporation (INTC), for now, UMC focuses primarily on mature process nodes. The issue here is that demand is soft at best, which is reflected in the utilization rate at UMC. Q4 guidance calls for utilization to dip into the high sixties, which shows how much production capacity is left underutilized due to the lack of customers. In contrast, Semiconductor Manufacturing International Corporation or SMIC (OTCQX:SIUIF), which is also heavily into mature nodes like UMC, is seeing an increase in its utilization rate, up to 90+% in its latest report. SMIC seems to be benefiting from the fact that a number of Chinese companies like Huawei are denied access to outside foundries, something UMC cannot partake in. The less-than-desirable utilization rate is also in part due to the new fab capacity UMC has brought online. The equipment that has been installed is subject to depreciation, which is the primary reason why earnings decreased in the Q3 report, even though revenue went up. This process is expected to continue throughout 2025 because UMC is not yet done with expanding fabs with new capacity. Nor with capex spending that will impact the balance sheet. There is also a lot of additional fab capacity expected to come online in the next few years in the rest of the world, especially in China, and not just at UMC. In theory, this could lead to pricing pressure on UMC, especially if demand continues to lag behind to absorb the added fab capacity and there is excess capacity among foundries chasing customers. There is reason to believe UMC will find the market not easy to deal with in 2025. If a difficult market is not enough to contend with, then there is the geopolitical aspect. UMC, similar to other companies from Taiwan, was negatively affected by the possibility the incoming U.S. administration might want to make changes to the existing U.S. policy towards Taiwan, including with regard to the semiconductor sector. The U.S. wants more local chip manufacturing, but this may come at the expense of Taiwan. This issue is likely to weigh on UMC, at least until the new POTUS is sworn in, and he clarifies what, if any, changes he wants to make to the U.S.-Taiwan relationship. There will also be many who are curious as to how he intends to proceed with tariffs and trade in general because it could affect what kind of year it will be for the semiconductor market in 2025. I continue to hold UMC, but I would not be a buyer of UMC for now with all the issues discussed above hanging over UMC. Shareholders can look forward to a dividend in the high 4% to low 5% range, depending on the payout percentage UMC opts to go with, but the stock itself may have a hard time making much headway in 2025. There are a number of headwinds out there that are weighing on the stock, and they are unlikely to go away in the short term. UMC, for instance, has its work cut out just to keep earnings flat in 2025 and there is a significant possibility earnings might decline, especially if there are supply chain disruptions due to trade wars. Depreciation will be there and so is inflation. The major decline in the stock price in the past two months is a reflection of the challenges facing UMC. The charts suggest support is present in the $6.70-6.80 region, which might keep the stock from adding to the recent losses, but resistance around $9 is still there. If UMC finds itself between support on one end and resistance at the other end, the stock may be range-bound for some time.  Bottom line, there is not much to be excited about heading into 2025. There is a generous dividend, which compares well against other tech stocks, but not much else. On the contrary, there is much that is likely to be at risk in 2025. This includes earnings pressure, soft demand, excess capacity, higher costs, increased competition, geopolitical/trade disputes, and more. If anything, the risk for UMC, its stock to be specific, is probably to the downside.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485267462"}