Company Reports

We retain our fair value estimate of TWD 70 per share for no-moat-rated United Microelectronics despite lowering our 2024 revenue and EPS forecasts by 5% and 6%, respectively, amid a weaker-than-expected automotive and industrial outlook. Our midcycle estimates are largely unchanged. We see UMC’s shares as undervalued, as investors are focusing on short-term headwinds in automotive and industrial demand and downplaying structural growth for supporting chips used in less-powerful devices that emphasize cost and low power consumption.

We retain our fair value estimates on Taiwanese technology companies in our coverage following a powerful earthquake and multiple strong aftershocks near the eastern city of Hualien on April 3, namely: Advantech at TWD 337; Delta Electronics at TWD 331; GlobalWafers at TWD 710; Largan at TWD 3,000; MediaTek at TWD 1,400; Sino-American Silicon at TWD 281; Taiwan Semiconductor Manufacturing Co at TWD 950 (USD 151 per ADR); United Microelectronics Corp at TWD 70; and Win Semiconductors at TWD 245 per share.

We lift our fair value estimate on no-moat United Microelectronics, or UMC, to TWD 70 from TWD 62 per share, factoring in higher midcycle gross margin arising from its partnership with Intel and higher confidence in UMC’s ability to mitigate cycle downturns, which was demonstrated in the past two years. Trading at 8.7 times 2025 P/E, we see UMC’s shares as undervalued, as investors are focusing on short-term headwinds in automotive and industrial demand rather than structural demand growth for supporting chips used in less-powerful devices that emphasize cost and low power consumption.

United Microelectronics, or UMC, is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies moving to fabless (no factory) business models, bolstering demand for UMC's services. UMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

Our fair value estimate for no-moat United Microelectronics Corp, or UMC, stays at TWD 62 per share after minor changes. Management’s comments on consumer electronics demand bottoming and an unimpressive automotive outlook are in line with what other firms in our coverage have said so far. UMC’s shares remain undervalued, in our view, pressured by uncertain short-term automotive and industrial demand. We believe UMC is virtually unaffected by updated U.S. chip export rules as of Oct. 17, as its yet-to-ramp artificial intelligence-related products have little influence on chip performance.

Our fair value estimate on no-moat United Microelectronics Corp, or UMC, remains at TWD 62 per share as we lower our 2023 forecasts on a longer-than-expected inventory digestion but hold midcycle projections largely unchanged. Management’s downbeat comments on the fourth quarter are what prompted us to cut 2023 revenue and operating estimates by 5% and 3%, respectively, as we see a more modest recovery in the period. On a brighter note, we view UMC’s long-term competitiveness as strengthening based on two signs—the first is that management guides third-quarter average selling price, or ASP, should be 2% higher compared with the prior three-month period, the second is that UMC is moving to capitalize on the artificial intelligence trend. Our fair value estimate corresponds to almost 2.4 times price/book. UMC’s shares are undervalued, in our view, pressured by short-term concerns to demand and reignited geopolitical concerns between China and the U.S.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies moving to fabless (no factory) business models, bolstering demand for UMC's services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

We trim our fair value estimate on no-moat United Microelectronics to TWD 62 per share, as we lower our forecasts to account for softer-than-expected inventory digestion and unchanged capital spending that will weigh more on depreciation expenses. Our fair value estimate corresponds to almost 2.2 times price/book. While the March quarter is not as impressive as previous quarters, we are still upbeat on UMC’s opportunities in Internet of Things, image sensors and automotives. Shares are undervalued, in our view, pressured by short-term concerns as to demand and reignited geopolitical concerns between China and the U.S.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies moving to fabless (no factory) business models, bolstering demand for UMC's services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

We raise our fair value estimate on no-moat United Microelectronics Corp, or UMC, to TWD 65 per share as we assumed stronger average selling price, or ASP, and moved the next semiconductor boom-bust cycle one year earlier featuring a recovery in 2024. Our fair value estimate corresponds to almost 2.5 times price to book. While earnings may bottom a half year later, we are upbeat on UMC benefiting from structural growth in Internet of Things, increased OLED adoption, and image-related chips. We think with a clear bottom in sight, the stock is more likely to move up once more customers report lower inventory data.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies switching from integrated device manufacturers to fabless business models, bolstering demand for UMC's services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

We retain our fair value estimate for no-moat United Microelectronics, or UMC, at TWD 62 per share after adjusting capital expenditure assumptions for the next few years, among other minor model changes. UMC’s ADR price dropped 4% during Wednesday trading probably because of more cautious management comments on the first half of 2023. The stock is undervalued in our view as our fair value estimate is derived from sub-consensus (per Pitchbook) gross margin and EPS assumptions for both 2023 and 2024. While we are more wary of potential near-term earnings downside, we are more optimistic on how UMC benefits from secular growth in "Internet of Things" and increased OLED adoption. Still, we believe a better entry point is possible in the next few months since potential automotive chip weakness is yet to come.

We retain our fair value estimates for TSMC at TWD 990 (USD 166 per ADR), UMC at TWD 62, and SMIC at HKD 21 per share respectively after the U.S. Department of Commerce introduced new rules to restrict semiconductor-related exports to China on Oct. 7. We intend to update our forecasts for both companies once they announce financials later this month. We believe short-term uncertainties over foundry demand will increase, as China is the world’s second-largest cloud computing market, and local cloud service providers may struggle to secure chips for their expansion initiatives. The new shock may further dampen sentiment in a sector that is already ravaged by weak consumer electronics demand. However, our long-term outlook remains positive, since export licenses are still possible under the new rules, and unfulfilled demand can be met by overseas peers. Although we believe TSMC is undervalued as an outsize beneficiary in cloud services over the long term, its near-term share performance may be weaker than UMC and SMIC given its exposure in cutting-edge nodes.

We've reduced our fair value estimate for United Microelectronics to TWD 62 per share from TWD 64 after accounting for the effects of inventory correction, which may show after the company digests its backlog in the second half of 2022. UMC’s ADR price soared 4% during July 27 premarket trading, probably because of management’s reassurance that utilization and financial performance will remain strong for the remainder of 2022. The stock is undervalued, in our view, after assuming a sizable drop in 2023 and 2024 earnings per share arising from possible oversupply, as the market appears to price in no earnings recovery after 2024.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from U.S. and increasingly Asian semiconductor companies switching from integrated device manufacturers to fabless business models, bolstering demand for UMC's services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

We hike our fair value estimate on United Microelectronics Corp, or UMC, to TWD 64 per share after factoring in higher 2022 gross margins, expansion in Singapore and the latest agreement with Denso. UMC’s share price surged 8% on Thursday Taiwan trading as a result of gross margin beat and a better long-term outlook including contribution from Denso expected in 2024. We think the stock has ample margin of safety since we have already assumed a massive drop in 2024 and 2025 gross margins arising from possible oversupply.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from United States and, increasingly, Asia semiconductor companies switching from integrated device manufacturers to fabless business models, bolstering demand for United Microelectronics' services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.

Our fair value estimates for: United Microelectronics Corp, or UMC (TWD 52); Taiwan Semiconductor Co, or TSMC (TWD 990), and Semiconductor Manufacturing International, or SMIC (HKD 21), are unchanged amid war in Ukraine and raw material markets' volatility. We believe foundries’ inventory of raw materials and gases, and their long-term agreements with suppliers help cushion most short-term supply shocks and buy time for securing alternative sources if the conflict drags on. Today’s risk aversion serves as an entry point for TSMC, in our view.

We raise our fair value estimate on United Microelectronics Corporation to TWD 52. We maintain our view that the semiconductor market will cool in 2023 and 2024, but we have better visibility for 2022 involving better bottom line fueled by higher prices. Also, we are rolling our model to include a midcycle scenario into 2026 where structural demand, like Internet of Things and automotive, catches up and boosts gross margin a year into a potential oversupply in 2024. As a result, our sales and EPS forecasts for 2022 and 2023 are revised up by over 6% and 14% respectively, while 2024 and 2025 projections are little changed. After the stock plunged 6.8% Wednesday in Taiwan, partly due to management comments on a mild oversupply beyond 2023, we view UMC is slightly overvalued due to overoptimistic views on the help of long-term agreements, or LTAs.

United Microelectronics is the world’s third-largest dedicated contract chip manufacturer, or foundry. It makes integrated circuits for customers based on their proprietary IC designs. The company has long benefited from United States and, increasingly, Asia semiconductor companies switching from integrated device manufacturers to fabless business models, bolstering demand for United Microelectronics' services. United Microelectronics, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers. Such cyclicality stems from the fact that foundries tend to add excessive capacity during times of burgeoning demand that can result in underutilization during downturns that hamper profitability.