UMC Sees Weakening Demand at 28nm

TAIPEI — United Microelectronics Corp. (UMC), Taiwan’s second largest foundry, said sales of its most advanced technology node have slipped for a third time under strong competition.

The company’s 28nm process fell to 17 percent of overall sales in the first quarter of this year compared with 22 percent in the fourth quarter last year. It’s been a bumpy ride for UMC. The company has seen its portion of overall sales from 28nm decline on a quarterly basis for the third time since ramping up the process technology nearly three years ago, according to company reports.
“There has been some weakness in demand,” UMC CEO Po-Wen Yen said on a conference call to announce the company’s first-quarter 2017 results. Demand for 28nm in the high-k metal gate niche has been good, CEO Yen said. Even so, some customers have been migrating products to more advanced geometries earlier than expected, he added.


Larger rival Taiwan Semiconductor Manufacturing Co. (TSMC) has successfully defended its cash cow 28nm node after launching it nearly five years ago. TSMC’s 28nm products rose to account for 25 percent of the company’s overall sales in the first quarter this year compared with 24 percent in the fourth quarter last year. The company has held on to a 90 percent share of the 28nm market even as competitors such as Intel are trying to take away business in that segment.
“It feels like there is some oversupply in 28nm,” JPMorgan analyst Gokul Hariharan said on the conference call. Other analysts voiced suspicions that there is pricing pressure in the node that’s also supplied by TSMC and Semiconductor Manufacturing International Corp. of China.
UMC said it aims to increase 28nm to 20 percent of its total sales by the fourth quarter of this year. The process technology will probably contribute about 15 percent to company revenue during the second quarter, according to UMC CEO Yen.
UMC will expand production of 28nm products at its new fab in Xiamen, China that’s a joint venture with the local government. By the end of this year, the company expects to have 39,500 12-inch wafers per month – including about 5,000 wafers at the Xiamen fab – in 28nm capacity.
UMC is playing catch up in process technology. While TSMC and Samsung are ramping up 10nm, UMC is setting its sights on 14nm. For the 14nm process that UMC started shipping to one customer early this year, the company said it has a 2,000 12-inch wafer per month capacity. UMC’s 14nm is in test vehicle verification, and the company said it has no plan to expand output currently.
While UMC didn’t provide information on 14nm in its sales breakdown for the first quarter of this year, the company said it expects 14nm shipments to increase during the second quarter.
Bright spots
Despite the headwinds, UMC’s utilization rate rose to 96 percent in the first quarter compared with 94 percent in the fourth quarter of last year. Demand has been good for WiFi, FPGA, application processor and baseband chips, according to CEO Yen.
The company reiterated its plan for capital expenditures this year to reach $2 billion.
UMC said the utilization rates in its eight-inch fabs as well as in 12-inch advanced nodes approached near full capacity, driven by strength in consumer and communication segments. Demand for automotive chips, which is increasing, still accounts for less than 5 percent of overall sales.
The company said it expects business to be relatively flat during the second quarter this year, an outlook that’s in line with an earlier forecast by TSMC. UMC expects a pick-up in mature 12-inch wafer business due to higher demand from wireless, internet of things (IoT) and consumer electronics. However, the increased demand in legacy 12-inch wafer shipments will be offset by a decline in 28nm business, the company said.

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