Why JPMorgan Is Downgrading United Microelectronics

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In a report published Friday, analyst Gokul Hariharan of JP Morgan downgraded
United Microelectronics Corp (ADR)UMC
to Neutral. The price target has also been lowered to NT$14. There is likely to be near-term downside to the estimates for the company, following the announcement by
Taiwan Semiconductor Mfg. Co. Ltd.TSM
of "a steeper inventory correction in 2Q15." The analyst expects United Microelectronics to be impacted by the ongoing weak demand for low-to-mid range smartphones in 2Q/3Q15. "In addition, we see a higher risk that UMC's driver IC customers on 8" could start cutting orders in late 2Q15, given weaker demand from the mobile market and share losses in the TV space. In this situation, we believe the 28nm trade on UMC is unlikely to work; hence, our downgrade to Neutral," Hariharan said. The EPS estimates for FY15 and FY16 have also been reduced by 14 percent and 13 percent, respectively. The 2Q15 estimates have also been reduced further, with JP Morgan expecting the company's revenues to decline 5 percent, quarter on quarter in 2Q. According to the analyst, "The key downside risk is that the 28nm rebound will be affected by a slower demand pickup from key customers like Mediatek, while the key upside surprise could come from better GMs in existing 12" nodes."
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Posted In: Analyst ColorDowngradesAnalyst RatingsJP Morgan
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