On Tuesday, Citi analysts revised their stance on United Microelectronics Corp (2303:TT) (NYSE: NYSE:UMC), downgrading the stock from Buy to Sell and adjusting the price target to $40.00 TWD from the previous $55.00 TWD. The stock, currently trading near its 52-week low at $6.03, appears undervalued according to InvestingPro analysis, which identifies it as one of several opportunities in the semiconductor sector.
The decision followed United Microelectronics Corp's fourth-quarter financials, which revealed a net profit of NT$8.5 billion. This figure represents a significant decrease, falling 41% quarter-over-quarter and 36% year-over-year, missing both Citi's and the broader market's expectations.
Despite these challenges, InvestingPro data shows the company maintains strong fundamentals with a P/E ratio of 10.3 and an attractive dividend yield of 5.57%. For deeper insights into UMC's valuation and financial health, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
The shortfall was attributed to a non-operating loss, although the company's gross margin (GM) and operating profit margin (OPM) of 30.4% and 19.8%, respectively, were in line with projections. United Microelectronics Corp's management anticipates wafer shipments to remain stable quarter-over-quarter, with a 4-6% decrease in average selling price (ASP) for the first quarter of 2025.
Further challenges are expected for UMC in the near term, as the company predicts a decline in gross margin to approximately 25% in the first quarter of 2025, down from the current 33.11% reported in recent quarters according to InvestingPro data. This is due to a combination of factors, including rising depreciation costs, one-time price adjustments, and minor impacts from a recent earthquake.
The company maintains a strong financial health score of 2.96 (GOOD), supported by liquid assets exceeding short-term obligations and moderate debt levels. Looking ahead to the rest of the year, UMC's management is targeting single-digit year-over-year revenue growth, which is modest compared to the industry's expected growth rate of around 10% and the low-single-digit growth anticipated for mature node foundry operations.
Citi's downgrade reflects concerns over the semiconductor company's outlook amid a "continued challenging landscape," increased depreciation costs, and a slow recovery in trailing edge foundry demand. The analysts suggest that investors may prefer to wait for clearer signs of demand recovery in the trailing edge foundry sector before considering UMC stock favorably again.
In other recent news, United Microelectronics Corporation (UMC) reported its fourth-quarter earnings, which didn't meet analyst expectations. The Taiwan-based semiconductor foundry posted adjusted earnings per ADS of $0.104, falling short of the consensus forecast of $0.14. Despite this, UMC's revenue saw a 9.9% YoY increase, reaching $1.84 billion, albeit below the anticipated $1.87 billion.
Notably, UMC's gross margin was 30.4% for the fourth quarter, a decrease from 33.8% in the third quarter. The company's operating margin also declined to 19.8% from the previous quarter's 23.3%. UMC revealed that its 22/28nm portfolio remained their largest revenue contributor, making up 34% of wafer sales in the fourth quarter.
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