Tight capacity may benefit Taiwan's No. 2 chipmaker UMC

Russell Flannery, Forbes Staff

A shortage of semiconductor manufacturing capacity for products that use relatively advanced processes may be creating an opportunity for Taiwan’s no. 2 chip contract manufacturer United Microelectronics to gain some business that might otherwise go to number one, Taiwan Semiconductor Manufacturing.

“UMC has a fantastic opportunity falling in its lap,” says Matt Cleary, head of research at Primasia Securities in Taipei.

A shortage of capacity for chips that require 28 nanometer processes was underscored last week when chip designer Qualcomm, a supplier to Apple that uses contract manufacturers to produce its products, suggested its shipments this quarter would be constrained by supply.   

Qualcomm sells baseband chipsets and power management chips, among others, to Apple, and its main major manufacturing partner is TSMC, Cleary says.

UMC, on the other hand, has 28 nanometer capacity to pick up some of that business and is the best-placed alternative to TSMC,  according to Cleary.  

TSMC’s U.S.-traded ADRs are up about a quarter in the past year, while UMC’s have gained about five percent.

The trade group SEMI on Friday said U.S. semiconductor equipment manufacturers had a book-to-bill ratio of 1.13 in March, suggesting that manufacturers were stepping up their investments in anticipation of promising future demand for chips.