Tech giant with surprisingly high dividends
In the world of technology companies, it is not common for companies to pay high dividends. Yet there is an exception that not only surprises with its innovation, but also with its generous dividends, making it an interesting choice for both growth and dividend investors.
The company in question announced a dividend of $0.46 per share in the third quarter of 2024, which represents a dividend yield of 5.21%. This company stands apart from many other tech giants that often favor reinvesting in research and development over paying dividends. What other factors make this company so attractive to investors looking for steady income?
Company introduction
United Microelectronics Corporation $UMC-2.1% is a major player in the semiconductor industry and is one of the largest independent contract chip manufacturers in the world. Founded in 1980 in Taiwan, the company has since grown into a global enterprise with a broad footprint in semiconductor research, development and manufacturing.
UMC specializes in providing comprehensive semiconductor chip design and manufacturing services, offering lithography, wafer fabrication, chip assembly and testing. Its technologies include advanced CMOS processes, as well as other innovative semiconductor processes that are essential to the manufacture of integrated circuits (ICs). These chips find applications in a variety of industries, including automotive, communications, consumer electronics and healthcare.
UMC has manufacturing and research facilities located around the world. Its headquarters and several key manufacturing facilities are located in Taiwan. The company also has significant manufacturing capabilities in Singapore and China, specifically in Shanghai and Xiamen. UMC operates manufacturing facilities in Japan and has research and development facilities in the U.S. that support its global operations and innovation.
UMC's history is filled with important milestones. In 1985, it became the first Taiwanese company to successfully put CMOS technology into production. In 1995, UMC began construction of its first overseas plant in Singapore, strengthening its global presence. Another important step was the acquisition of several technology companies and research centres, which enabled the company to expand its technical know-how and improve its production capabilities.
Among the highlights is the fact that UMC was the first company in the world to introduce manufacturing technology on 12-inch waferswhich revolutionised the efficiency and capacity of semiconductor production. The company also places great emphasis on environmental sustainability and invests in environmentally friendly technologies, an increasingly important topic in the industry today.
UMC continues to invest in research and development of new technologies and manufacturing processes to keep pace with the rapidly changing technology environment and remain at the cutting edge of the semiconductor industry. With its long-standing focus on innovation and quality service, UMC has become a trusted partner for many of the world's leading technology companies that rely on its capabilities and expertise.
Why is the company interesting?
United Microelectronics Corporation is an interesting company for several reasons that illustrate its leadership and innovative approach to semiconductors.
One key aspect is UMC's recent announcement of the availability of their 22nm embedded high voltage (eHV) technology platform. This technology represents the most advanced display driver IC solution on the market for premium displays in smartphones and other mobile devices.
The new 22eHV platform enables mobile device manufacturers to improve the battery life of their products through unmatched power efficiency and smaller chip size. UMC is the first company in the industry to launch a 22nm eHV platform, which has reduced the power consumption of the base device by up to 30% compared to 28nm eHV processes.
In addition, this platform offers the smallest SRAM bit cells in the industry, reducing chip area by 10% and improving image processing speed for high resolution and fast response. This innovation strengthens UMC's leadership position in the AMOLED DDIC market from 2020, when they began production of 28nm eHV.
Another major milestone is the expansion of UMC's manufacturing capacity at Fab 12i in Singapore. The company recently celebrated the arrival of the first tool in Phase 3 of this expansion, marking an important step in building the new facility. First announced in February 2022, Phase 3 will become one of the most advanced semiconductor manufacturing facilities in Singapore. This move strengthens UMC's global presence and their ability to meet the growing demand for advanced semiconductor solutions.
UMC also excels in 3D IC technology for RFSOI (Radio Frequency Silicon On Insulator), which was recently confirmed with the launch of the industry's first 3D IC technology for RFSOI on a 55nm platform.
This technology enables a chip size reduction of more than 45% without sacrificing RF performance, enabling efficient integration of multiple RF components for 5G-enabled devices. This innovation solves the problem of RF interference between stacked chips using wafer-to-wafer bonding technology. UMC has several patents on this process and is ready for production. This technology not only addresses the increasing demands on frequency bands in the 5G/6G era, but also supports faster data transmission in mobile, IoT and virtual reality devices by enabling parallel processing of multiple frequency bands.
How was the company's last quarter?
Consolidated revenue was NT$54.63 billion, with a gross margin of 30.9%. Net income attributable to parent company shareholders was NT$10.46 billion, equivalent to earnings per share of NT$0.84. The capacity utilization rate was 65% in the first quarter, similar to the 66% in the last quarter of last year. However, the number of wafers shipped increased 4.5% quarter-on-quarter.
Revenue fell slightly to NT$54.6 billion, while gross margin fell 5.1% to 30.9%, equivalent to NT$16.899 billion. Operating expenses were seasonally lower, down 13.4% to NT$5.7 billion. Other operating income, which is mostly made up of government subsidies, decreased significantly to NT$513 million, reflecting a gradual reduction in depreciation. Total net income attributable to shareholders of the parent company was NT$10.4 billion in the first quarter, compared to NT$13.1 billion in the last quarter of last year. Earnings per share were NT$0.84 in the first quarter.
On a year-on-year basis, revenue remained almost flat with a slight increase of 0.8%. However, gross margin fell from 35.5% to 30.9%, mainly due to rising costs such as depreciation and amortization. Non-operating income was also significantly different, mainly due to changes in portfolio investments, which amounted to only NT$1 billion in the first quarter compared to NT$4.6 billion in the same period last year.
The company's cash is now approximately NT$119 billion and total equity is NT$378 billion. The largest increase was in the property, plant and equipment category, which now stands at NT$254 billion. The first quarter of 2024 also included a one-time annual average selling price (ASP) adjustment, which affected wafer shipment growth of 4% to 5%.
In terms of regional sales distribution, Europe's share fell from 11% in the last quarter of last year to 8% in the first quarter of this year. In the category of IDMs (Integrated Device Manufacturers) and fabless manufacturers, the ratio changed to 18% vs. 82% in favour of fabless manufacturers compared to the previous quarter when the ratio was 22% vs. 78%. Applications remained relatively stable, although a seasonal decline in demand from some customers led to a small decline in the 20 to 28 nanometer technology segment to 33%.
Key indicators
UMC shows solid financial health and attractive metrics that indicate a strong market position and efficient use of resources. With a market capitalization of $19.69 billion and a total share count of 2.51 billion, UMC demonstrates its stability and significant presence in the industry.
The company's valuation metrics are also very favorable. With a P/E ratio of 11.73, the company's stock appears affordable relative to its earnings, which may attract investors looking for value opportunities. The P/B ratio of 8.48 indicates that investors have high confidence in the company's future growth and profitability. The P/S ratio of 2.90 indicates the efficient use of earnings to achieve profits.
UMC's financial stability is underscored by its low debt-to-equity (D/E) ratio of 0.18 and debt-to-capital (D/C) ratio of 0.16, indicating a conservative approach to financing and low risk associated with debt burden.
The company's earnings ratio is also impressive. Earnings per share (EPS) of 0.67 and return on assets (ROA) of 9.52% indicate the company's ability to effectively use its assets to generate profits. Return on Equity (ROE) of 15.27% and Return on Invested Capital (ROIC) of 10.19% further underscore the company's ability to create value for shareholders.
Dividend
It is unusual for technology companies to pay fatter dividends as they often reinvest their profits in research, development and expansion. However, United Microelectronics Corporation (UMC) is an exception and rewards its shareholders with regular dividends.
In the quarter ending September 2024, UMC declared a dividend of $0.46, which corresponds to a dividend yield of 5.21%. That's an exceptionally high yield compared to many other tech companies, which often pay no dividends.
This makes UMC one of the exceptional technology companies that not only manages to generate high revenue and maintain steady growth, but also shares its success with shareholders through fat dividends. This strategy not only boosts investor confidence but also ensures the attractiveness of UMC shares in the market.
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