United Microelectronics UMC shares have lost 19.9% in the year-to-date period against the Zacks Electronics - Semiconductors industry’s rise of 44.3% and the broader Zacks Computer & Technology sector’s return of 27.4%.

UMC has also underperformed its peers, such as Toshiba and Taiwan Semiconductor TSM, which offer similar semiconductor manufacturing services. Taiwan Semiconductor has returned 83.5% YTD, whereas Toshiba has lost 7.9% over the same time frame. 

The underperformance can be attributed to intense competition in the semiconductor foundry service market, rising supply-chain constraints due to geopolitical tensions and higher inflationary costs.

YTD Performance

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However, UMC is benefiting from its expanding portfolio and growth in wafer shipments, which increased 7.8% sequentially in the third quarter of 2024. This growth was largely due to strong demand for 22 nanometer (nm) and 28 nm products, which helped offset other market challenges.

These advanced nodes are essential in producing high-performance chips used in various industries, including consumer electronics and automotive, where demand has remained robust.

Expanding Portfolio Aids UMC Prospects

Expanding portfolio has been a key catalyst. Revenues from UMC’s specialty technology portfolio accounted for 53.1% of total sales in the third quarter of 2024. This portfolio includes advanced solutions like its 22-nm display driver technology, which is gaining strong momentum.

Building on this success, in June, UMC launched its 22 nm embedded high voltage technology platform, the most advanced display driver IC solution, enhancing power efficiency and visual experiences for premium displays in mobile devices.

UMC’s diversified manufacturing footprint, highlighted by the near completion of its new fab expansion in Singapore, enables the company to support customers’ long-term strategies while strengthening its position in the semiconductor industry. This expansion is critical to meeting increasing demand and providing advanced solutions.

In addition to technological advancements, UMC is also investing in the future workforce. In October, United Microelectronics signed a Memorandum of Understanding with Ngee Ann Polytechnic to enhance training for engineering talents and expand the workforce for the growing semiconductor industry.

UMC Benefits From a Strong Partner Base

UMC’s expanding partner base, which includes Intel INTC, Infineon IFNNY and Cadence, has been a major growth driver.

UMC’s collaboration with Intel focuses on developing a 12-nm semiconductor process platform. It leverages Intel’s U.S.-based manufacturing capabilities and FinFET transistor design expertise, combined with UMC’s extensive foundry experience in mature nodes.

The partnership with Intel aims to address high-growth markets such as mobile, communications infrastructure, and networking, offering global customers a more resilient and diversified supply chain.

The collaboration with Infineon expands automotive microcontroller production at UMC’s Singapore fab, leveraging Infineon’s eNVM (embedded non-volatile memories) technology. As the automotive market grows, this partnership ensures UMC meets the rising demand for automotive semiconductors.

UMC’s collaboration with Cadence on 3D-IC reference flow accelerates time to market for edge AI and wireless communication applications. This gives UMC a competitive edge, enabling it to stay ahead of the growing demand for advanced semiconductor solutions.

Earnings Estimates Show Upward Movement

For the fourth quarter of 2024, the Zacks Consensus Estimate for UMC revenues is pegged at $1.88 billion, indicating a year-over-year increase of 44.77%.

The Zacks Consensus Estimate for fourth-quarter 2024 earnings is pegged at 17 cents per share, which has increased by a penny in the past 30 days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

UMC Shares: Buy, Hold or Sell?

UMC shares are currently trading at a significant discount, as suggested by a Value Score of A. 

The forward 12-month Price/Sales ratio for UMC stands at 2.33X, significantly below the industry average of 9.22X.

Price/Sales (TTM)

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UMC’s strong demand for advanced technology products like 22 and 28 nm solutions and expanding partner base has been noteworthy.

However, the appreciation of the NT (New Taiwan) dollar against the U.S. dollar is expected to lead to a decline in reported NT dollar revenue for the fourth quarter of 2024, which could hurt UMC’s financial results.

United Microelectronics currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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