UMC.US welcomes double catalysis: PIC business accelerated+ joins hands with Intel to develop 12 nm, and institutions set off a multi-empty game

The Zhitong Finance App learned that GF Securities expects that thanks to the development of the photonic integrated circuit (PIC) business, the stock of foundry giant Lianhua Electronics (UMC.US) will strengthen.

Jeff Pu, an analyst at GF Securities, said in a report to investors: “Due to TSMC.US (TSMC.US)'s statement that 'there is no shortage of mature processes', UMC's stock price fell 26% behind the Taiwan Weighted Stock Price Index (Taiex) in the second half of July, but so far this month it has fluctuated sideways to absorb the company's higher depreciation guidelines and previously crowded long positions. Despite this, we now expect its high-margin PIC business to accelerate, mainly driven by Hyperlight [which may have made significant progress on Google's side] and TeraHop. We expect wafer shipments to grow to 20,000 pieces per month and 40,000 wafers per month by the fourth quarter of 2027 and the fourth quarter of 2028, respectively, with gross margins significantly higher than the company's overall level.”

GF Securities maintained its “buy” rating for the stock and raised its target price from NT$135 to NT$160 (approximately $5). Each American Depositary Share (ADS) listed by UMC on the New York Stock Exchange is equivalent to five common shares traded in Taiwan.

UMC is collaborating with Intel to jointly develop and manufacture a 12nm process. Production is expected to begin next year at one of Intel's fabs in Arizona.

Jeff Pu stated, “Regarding Intel, management has previously reiterated that cooperation plans are still on track. It is expected that streaming will be completed on the Intel 12 process in 2027, and we expect production capacity to be more than limited to a single stage.”

The overall consensus is still “sell”

Many factions, represented by Guangfa and Arete Research, have successively raised UMC's ratings, but the air side's insistence has left the overall consensus still biased. UMC is becoming one of Wall Street's most controversial targets on “how to reevaluate mature process foundry”.

Bernstein maintained its “sell” rating on July 28, with a target price of 13.60 US dollars, which implied a decline of about 28.98% compared to the stock price at the time; the agency continued to “sell” as early as July 7 and April 13, with a target price of 7.40 US dollars, which is the most determined gap among UMC's covered institutions.

According to data from S&P Global, the consensus rating of UMC was “sold” by four analysts, with an average target price of 18.492 US dollars for 12 months.

The main concerns of the empty side focus on three aspects: First, Q2's net profit of $42.26 billion included a one-time contribution of about NT$30.5 billion in investment income, and the main operating momentum needs to be observed; second, TSMC's judgment that “there is no longer a shortage of mature process nodes” has weakened UMC's bargaining power; third, depreciation expenses will increase by a “low double digit” percentage before 2027, and capital expenditure increases will suppress profit release in the short term.

The stock price of UMC ADR fluctuated between $17.07 and $20.85 from July 31 to August 24, and closed at $18.83 on August 24. After rising to $19.50 before the market, it fell back — this is a fierce market game over these differences. Since Arete's rating was raised on August 10, bullish catalysts have gradually accumulated; however, Bernstein's sales rating and overall “reduced holdings” consensus mean that the stock price has not yet formed consistent expectations on the pricing of the PIC business.