UMC Plunges 20% Year to Date: Should You Buy, Hold or Sell the Stock?

Core Viewpoint - United Microelectronics (UMC) has underperformed in the semiconductor industry, with a year-to-date share price decline of 19.9%, contrasting with a 44.3% increase in the Zacks Electronics - Semiconductors industry and a 27.4% rise in the broader Zacks Computer & Technology sector [1][2]. Year-to-Date Performance - UMC's shares have significantly lagged behind peers like Taiwan Semiconductor, which has seen an 83.5% return, and Toshiba, which has lost 7.9% [1]. Factors Contributing to Underperformance - The underperformance is attributed to intense competition in the semiconductor foundry service market, rising supply-chain constraints due to geopolitical tensions, and higher inflationary costs [2]. Growth Opportunities - UMC is experiencing growth in wafer shipments, which increased by 7.8% sequentially in Q3 2024, driven by strong demand for 22 nm and 28 nm products [5]. - The specialty technology portfolio accounted for 53.1% of total sales in Q3 2024, with advanced solutions like the 22-nm display driver technology gaining momentum [6]. Technological Advancements - UMC launched a 22 nm embedded high voltage technology platform in June, enhancing power efficiency and visual experiences for premium displays in mobile devices [7]. - The company is expanding its manufacturing footprint with a new fab in Singapore, critical for meeting increasing demand and providing advanced solutions [8]. Workforce Development - UMC signed a Memorandum of Understanding with Ngee Ann Polytechnic to enhance training for engineering talents, supporting workforce expansion in the semiconductor industry [9]. Strategic Partnerships - UMC's partnerships with major companies like Intel, Infineon, and Cadence are driving growth: - Collaboration with Intel focuses on developing a 12-nm semiconductor process platform, targeting high-growth markets [11]. - Partnership with Infineon expands automotive microcontroller production, addressing rising demand in the automotive sector [12]. - Collaboration with Cadence accelerates time to market for edge AI and wireless communication applications [13]. Earnings Estimates - For Q4 2024, the Zacks Consensus Estimate for UMC revenues is $1.88 billion, reflecting a year-over-year increase of 44.77%, with earnings estimated at 17 cents per share [14]. Valuation Metrics - UMC shares are trading at a significant discount, with a forward 12-month Price/Sales ratio of 2.33X, well below the industry average of 9.22X [16]. Currency Impact - The appreciation of the New Taiwan dollar against the U.S. dollar is expected to lead to a decline in reported NT dollar revenue for Q4 2024, potentially impacting financial results [19].