UMC's attempt to raise cash selling convertible bonds yesterday proved more successful than it had anticipated with the sale more than 17 times oversubscribed and the bonds changing hands for 40 per cent more than the 4 December closing price of previously offered American depositary receipts.

The sale netted UMC $302 million. The company won't say what it plans to do with the cash.

We're not sure whether the success of the sale is, as some analysts have suggested, a sign that the world chip market is beginning to rebound, but it's clear that a lot of investors think it is and figure UMC, the world's second largest chip foundry, is going to be one of the winners.

All this interest in UMC follows its arch-rival, TSMC's announcement that its full-year earnings will be 55 per cent higher than it previously forecast, thanks to a big rise on orders during the current quarter, its fourth. TSMC is the world's largest foundry and now expects to announce pre-tax profits of $271 million.

But we'd suggest that recent reports suggesting that Nvidia has signed UMC to produce chips, possibly for Microsoft's Xbox console, has more to do with the success of the sale than the example set by TSMC. Nvidia has largely maintained its share value throughout the year despite the massive dips in price its fellow hi-tech players have experienced. Nvidia is clearly a respected operation - by Wall Street, at least - and its opinion counts. If it thinks UMC is worth signing - particularly since its relationship with TSMC is so tight - investors see that as a sign they should get involved too.

In contrast to TSMC's profit, UMC is expected to post a loss of $92.8 million for 2001 as a whole. ®

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