United Microelectronics (UMC)

Taiwan-based United Microelectronics (UMC) is a pure-play semiconductor foundry that manufactures wafers containing integrated circuits. UMC is the second largest foundry globally, with an estimated 24% share (according to IC Insights), only Taiwan Semiconductor Manufacturing Corporation (TSMC) is larger. UMC plants mainly conduct front-end processes in the production of semiconductor devices. The company operates one 6-inch wafer fabrication facility (fab), six 8-inch fabs and two 12-inch fabs. At the end of the second quarter, the total monthly wafer capacity in thousands (K) of 8-inch wafer equivalents was 29K for the 6-inch facility, 212K for the 8-inch fabs together and 73K for the 12-inch facilities.

The front-end process begins with device formation. This process begins with a wafer (usually made of silicon) having a layer of photoresist (a chemical that hardens when exposed to an ultraviolet light source) spin-coated onto the surface in liquid form to drive off the excess solvent, and then "soft-baked" or cured. A photomask is then loaded into the lithography system. Photomasks, also called masks or reticles (if the mask is "stepped" across the wafer), are high-purity quartz or glass plates containing precise microscopic images that are used by a photolithography tool, also known as a stepper. An excimer laser is then passed over the photomask and through a reduction lens system that exposes the desired areas of photoresist, which is then subsequently removed, permitting deposition to the surface of the wafer. A strip system is utilized to remove the photoresist or other chemical residues following diffusion processing or film deposition. Thin layers of dopants are then grown or deposited in a precise pattern within the wafer using various chemical, vapor or ion implant techniques. The deposition process alters the atomic structure of the material, and therefore necessarily the electronic properties of the material. Further into the wafer fabrication process, a series of metallization steps are executed, in which conducting materials, that interconnect the semiconductor devices, are deposited. Multiple layers of conducting, semiconducting and insulating materials are constructed on and within the wafer via successive steps of lithography, etching and deposition, utilizing unique masks for each layer. Depending on the geometry and the device, anywhere from 35 to 45 unique masks are used in the device formation process with 10 to 100 layers (or more for microprocessors) being constructed. Typically, the outcome is a wafer with multi-layered semiconducting devices, known as transistors. The transistors are interconnected with conducting materials, and insulating materials are used to electronically isolate the active components. The net result is a silicon wafer that contains multiple copies of integrated circuit devices.

The company provides manufacturing capabilities at different design geometries, from 0.50um through higher technology nodes at 130nm and 90nm. Revenue contribution by process technology in 2004 was 0.50um 9.2% (up 19.6% from 2003), 0.35um 18.4% (up 3.8%), 0.25um 15.8% (down 6.4%), 0.15um 13.2% (up 34.4%), 0.13um 15.7% (up 152.5%) and 90nm 2.8% (up 151.0%). The company started commercial usage of 90nm technology in the second quarter of 2003. It was one of the first to offer 90nm and 0.13um copper services. UMC offers an array of technologies including mixed signal, RF and CMOS manufacturing technologies. In addition to front-end manufacturing services, UMC also provides design services for analog, digital and mixed signal IP cores as well as some backend services. Back-end services include testers for 8-inch and 12-inch wafer sorting, including functional testing, yield feedback and a range of packaging services (bumping/flip chip, fine pitch wire bonders, CSP, wafer level packaging, MCP/SiP and TCP/COF). Products are priced on a per wafer or per die basis, depending on the complexity of the technology, the prevailing market conditions, the order size, the cycle time, relationship with the particular customer and capacity utilization. Non-front end service revenue has historically remained fixed in the 4 5% range of total revenue.

United Microelectronics' customer base comprises fabless design companies (semiconductor designers without fabrication facilities) and integrated device manufacturers (IDMs) that choose to outsource production for economic reasons. The fabless design companies generated 68.9% of 2004 revenue while IDMs accounted for the remaining 31.1%. Customers include big names in the industry such as AMD, ATI, Infineon, MediaTek, Oki, Qualcomm, Realtek, SanDisk, Sharp, Sony, STMicroelectronics, Texas Instruments and Xilinx. The most important end markets are communications, consumer electronics, computing and memory, generating 45%, 29%, 22% and 2%, respectively, of the company's revenue in 2004. The remaining 2% came from other areas. Geographically, North America was the largest contributor, generating 45% of revenue, Asia (excluding Japan) was the second largest region with 34%, Japan generated 4%, while the remaining 17% of revenue came from Europe. The company's strategy is to form deep-rooted relationships with its existing customers, collaborating with them to provide customized and integrated solutions according to their wafer and technology requirements. The company also has patent cross-licensing agreements with companies like IBM and Texas Instruments, which provide access to further IP.

The company faces direct competition from pure-play foundries such as Taiwan Semiconductor Manufacturing Corporation (TSMC), Semiconductor Manufacturing International Corporation (SMI), Chartered Semiconductor Manufacturing Ltd., as well as large IDMs with their own production facilities such as IBM and Texas Instruments. Newer competitors in the market include Dongbu-Anam Semiconductor, Grace Semiconductor Manufacturing Corp., Silterra Malaysia Sdn. Bhd. and 1st Silicon.

Below is a table that converts the yearly revenue and earnings per ADS (EPADS) figures into United States dollars (US$) at the quarter ending market exchange rate. Future periods use the current spot rate as a forward proxy. Note that there have not been any accounting adjustments made from the reported financial results and this presentation is for illustrative purposes only. UMC reports all financial results in Taiwan dollars (NT$) using ROC (Republic of China) GAAP accounting rules.

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