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Second largest pure play foundry, UMC has reported its first operating loss in 7 years of approximately $42 million, as demand weakens. The Taiwanese foundry expects utilization rates to fall significantly in the fourth quarter of 2008 to approximately 55 percent, down from 79 percent reported for the third quarter. With a renewed focus on cost controls, UMC said that it would also cut capital expenditure for the year to between $400-$500 million, down from $700 million.

“We see that the environment is more challenging than we previously anticipated,” noted Dr. Shih-Wei Sun, CEO of UMC. “Customers have adopted a cautious attitude with regard to their wafer demand forecasts due to uncertainty related to the current global economic situation."

Sun said that customer demand for 90nm and 65nm technologies had remained steady with 38 percent of revenues coming from these technology nodes. The percentage of revenue from advanced 65nm business increased to 7 percent, compared to 5% in 2Q08, which the company said was coming from communications and PC markets.

However, 65nm technology adoption remains slow as it had taken 4 quarters to reach that level. UMC announced in June 2006 that two customers had entered production at the 65nm node. It took until 4Q07 for 65nm revenues to reach 1 percent of total sales.

With utilization rates dropping to 55 percent in 4Q08 and with the first two quarters of 2009 expected to be seasonally soft, UMC is expected to struggle to make a profit in the short-term. Indeed it is reasonable to expect utilization rates to decline further in the coming quarters.

In such a climate, UMC has already reacted to preserve cash with a cut in this years capital spending, indicating that 2009 spending could return to low’s of the 2003 downturn when spending was only $400 million and focused on technology buys only.

UMC also reiterated that cost controls would not impact R&D efforts for next generation technology or equipment purchases.

“I would like to emphasize the fact that our cost control measures will have no effect on our advanced technology research and development and the purchase of necessary equipment,” Sun said. “These and other important expenditures will continue as planned so that we emerge from the current economic slowdown with even stronger long-term competitiveness. We will continue to pursue our foundry strategy, and are optimistic about the prospects of future growth and profitability once the global economy stabilizes and consumer confidence grows."