Expanding production capacity! UMC reportedly spends NT$10 billion to acquire Toshiba's 8-inch plant

Market sources say that UMC intends to spend less than NT$10 billion to acquire Toshiba's 8-inch wafer fab in response to strong demand for 8-inch wafer foundry and to expand its operating scale. At a time when 8-inch wafer foundry capacity is in short supply, if UMC successfully acquires Toshiba's 8-inch fab, it will have an even stronger advantage in receiving orders.

UMC said yesterday (27) that it would not respond to market rumors and emphasized that it has an open attitude towards mergers and acquisitions. UMC's stock price turned sharply higher at the end of yesterday's trading, closing at NT$33.5, up NT$0.5. Its ADR rose by more than 2% in early trading on Tuesday.

UMC has been making frequent mergers and acquisitions recently. In September last year, it was approved to acquire all the shares of Mie Fujitsu Semiconductor (MIFS), a 12-inch wafer factory jointly established by the company and Fujitsu Semiconductor (FSL), for 54.4 billion yen (approximately NT$15.6 billion), greatly expanding its 12-inch wafer foundry capacity. If it acquires Toshiba's 8-inch factory this time, it will be another expansion of UMC's layout in Japan.

Legal persons pointed out that the global 5G commercialization has boosted the demand for key components such as panel driver ICs and power management chips, which are mainly produced in 8-inch wafer fabs. However, as there have been no new 8-inch wafer fabs in the world in the past few years, the explosive growth of peripheral chips driven by 5G has caused the global 8-inch wafer foundry capacity to sound the alarm. The production capacity of companies such as UMC and World Advanced has been overwhelmed, and news of price increases have been reported one after another.

Due to the increasing demand for mature processes, there have been frequent acquisitions of 8-inch and 6-inch wafer fabs around the world recently. At the beginning of last year, World Advanced acquired GlobalFoundries' Singapore 8-inch wafer foundry and also acquired its factory facilities, machinery and equipment.

Last year, Nuvoton, a subsidiary of Walsin Lihwa Group, acquired Panasonic Semiconductor Solutions (PSCS), a semiconductor business of Japan's Panasonic, and its Suzhou factory, including a 6-inch and 8-inch wafer fab, for US$250 million (approximately NT$7 billion).

It is reported that Toshiba currently has two 8-inch wafer fabs, Fab 1 and Fab 2, and UMC is said to spend NT$10 billion to acquire these two fabs. Legal persons believe that if UMC joins this wave of cross-border mergers and acquisitions, it will further highlight the popularity of the 8-inch wafer foundry market.

UMC used to own an 8-inch wafer fab, UMC Japan, in Japan, but announced liquidation and cessation of operations in 2012. Last year, it purchased the 12-inch wafer fab, Mie Fujitsu Semiconductor, and recognized revenue from it in the fourth quarter of the same year.

Industry insiders revealed that it took UMC about three quarters to integrate Fujitsu into the UMC system, and it has now reached the level the company expected. Therefore, if UMC makes another acquisition of a Japanese company, it will be able to use Fujitsu's experience to help UMC grow again.

Benefiting from the hot demand for 8-inch wafer foundry, UMC achieved consolidated revenue of NT$44.87 billion in the third quarter, a record high for a single quarter. UMC will hold an online investor briefing tomorrow (29th). Foreign investors are optimistic about the company's hot operation this quarter. It is expected that cross-border mergers and acquisitions, wafer foundry price increases and other issues will become the focus of investors.

In 2017, UMC announced that it would no longer pursue advanced processes below 12 nanometers and would focus on mature processes to avoid the financial pressure of high capital expenditures and the risk of depreciation of new plants. UMC's investment is relatively light, and taking advantage of the business opportunities brought by this wave of epidemic, the 8-inch and 12-inch wafer production capacity is in short supply. Industry insiders believe that in the foreseeable future, thanks to the structural changes brought about by the epidemic, the shortage of 8-inch wafer foundry will continue.

Recently, as 5G construction has driven related peripheral applications, UMC's 8-inch and 12-inch fabs have reached near full capacity, the benefits of transformation have taken effect, the fundamentals have improved, and operating performance has been boosted to achieve excellent results.

Industry insiders believe that compared with TSMC's annual capital expenditure of nearly US$20 billion and the risk of depreciation of new plants, UMC's investment is relatively light. UMC's capital expenditure budget this year is US$1 billion, an increase of more than 40% from last year's US$700 million, of which 85% will be used for 12-inch plants, and part will be invested in expanding Xiamen Unigroup's 28nm production capacity. As for the new 12-inch plant in Japan, it reached break-even in the fourth quarter of last year, and the progress is better than expected.