INTERVIEW - Singapore UMS cashes in on rising chip demand

SINGAPORE Tue Aug 3, 2010 3:34pm IST

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SINGAPORE (Reuters) - Singapore chip equipment maker UMS Holdings(UMSH.SI), which counts Applied Materials as its biggest client, will boost capacity utilisation to 85 percent in the third quarter from 65 percent in a booming industry.

"We have a lot of orders from customers in the semiconductor business...We have more orders than our capacity can take," UMS Chief Executive Officer Andy Luong told Reuters in an interview.

Applied Materials(AMAT.O), the world's largest semiconductor equipment maker, accounts for more than 50 percent of UMS sales.

Luong said UMS was poised to take advantage of the upswing in demand for semiconductor chips as global spending on electronics such as smartphones and computers increases.

Apple's(AAPL.O) newest products, the iPhone 4 and the iPad, have led more consumers to upgrade to higher-end gadgets that require more advanced chips, benefiting firms in the semiconductor supply chain, such as UMS.

"Outlook for the semiconductor industry is very bullish and healthy," said Luong. Nearly 75 percent of its revenue comes from the semiconductor business.

By 0840 GMT, UMS shares were down 4.6 percent at S$0.42 after hitting a 2010 high of S$0.44 on Monday. The stock has risen 147 percent so far this year, outperforming peers such as Global Testing and AEM Holdings.

"UMS is undervalued, compared to other technology firms in Singapore, and its valuation looks very attractive right now," said Roger Tan, head of research at SIAS Research.

Tan said the firm was trading at about 6 times its earnings versus an average of 12-15 times for other Singapore-listed technology companies.

Luong expects UMS to have a full order book for the rest of the year but declined to provide revenue forecasts.

The company's second-quarter net profit surged 62 percent to S$7.5 million from the preceding quarter while revenue rose 43 percent to S$35.3 million.

Increased capital spending in the sector has raised concerns of a supply glut forming in late 2010 or early 2011 if Europe's debt problems persist and weakens demand for electronics.

In July, TSMC, the world's largest contract chipmaker, raised its 2010 capital spending forecast by 23 percent to $5.9 billion, after posting a record quarterly profit.

But Luong sees little chance of an oversupply as the increased spending targets are mainly because chipmakers under-invested during the global financial crisis.

"Moreover, the increase in capacity expenditure by the big chipmakers is to meet demand for new technologies," he said.

Luong said UMS aims to expand its oil and gas business as a hedge against the cyclical semiconductor industry. He expects revenue contribution from the energy sector, which accounts for less than 25 percent of UMS total sales, to increase.

(Editing by Raju Gopalakrishnan and Anshuman Daga)

(For more news on Reuters India, click in.reuters.com)

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