US tariffs on Chinese chips and surge in chip demand result in sharp increase in orders for UMC

The Taiwanese company UMC, despite losing its market position to the local Chinese company SMIC in terms of income, remains an experienced player in the industry with a broad range of services and an extensive client base. The US government’s decision to increase tariffs on imported Chinese chips has resulted in some clients looking toward UMC’s services.

Accordingly, UMC stepped up the negotiations with major Western clients, including American Texas Instruments and German Infineon, reports TrendForce citing Economic Daily News. This is due to the looming increase in the import tariffs of semiconductor components produced in China to the United States, set to double to 50% next year. This forces suppliers to seek new platforms for manufacturing chips intended for the American market.

In the second half of this year, utilization of UMC’s production lines might rise to 70–75%. However, the company has been suffering from a lack of orders lately due to the overproduction crisis caused by the pandemic. Other Taiwanese contract manufacturers are also noticing this trend. Vanguard’s utilization rate should rise to 75% or more while PSMC may reach 85–90%. UMC hopes to encapsulate long-term contracts with major foreign chip developers.

Secondly, the demand in the segment of components for networking equipment has been on the rise since last month. Consequently, UMC expects additional orders from MediaTek and Realtek soon. UMC’s revenue increased by 8.67% sequentially to $614 million in April, and on a year-over-year basis, it grew by 6.93%, reaching a 16-month high. However, the consumption of stockpiles in automotive electronics and components for the industrial automation sector is slower than expected, thereby seemingly curbing the demand for the services of contract manufacturers.

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