Pure-play foundry United Microelectronics (UMC) expects its fab operation in Xiamen, China to remain unprofitable in 2018 due to insufficient economies of scale.

Dubbed Fab 12X, UMC's 12-inch wafer plant in Xiamen kicked off production at the end of 2017 with monthly capacity of 170,000 wafers. The monthly output will climb to 250,000 units at the end of 2018, according to company CFO Chi Tung Liu.

The Fab 12X is still developing its client portfolio, said Liu, adding that China-based communication IC firms are currently the fab's main customers. The facility is in mass production for 40nm and 28nm technologies.

UMC's Fab 12X is part of a 3-way joint venture foundry named United Semi between UMC, Xiamen Municipal Government, and Fujian Electronics and Information Group. United Semi generated net losses of NT$5.8 billion (US$194.1 million) on revenues of NT$5.3 billion in 2017.

In addition, commenting on the continued tight supply of silicon wafers and the wafer price rally, Liu said UMC has struck long-term supply deals with wafer makers. Nevertheless, UMC has raised its 8-inch foundry quotes to reflect its tight capacity, Liu indicated.

Liu also disclosed UMC plans to expand production capacity at Hejian Technology, its 8-inch fab in Suzhou. An additional 10,000 wafers will be built at Hejian monthly when the expansion is carried out after 6-9 months, Liu said.

Liu made the remarks at UMC's recent shareholders meeting on June 12. UMC's shareholders approved the distribution of a NT$0.70 cash dividend per share for 2017, when the company reported revenues came to a record high of NT$149.29 billion with net profits growing 15.8% on year to NT$9.63 billion. UMC's EPS for 2017 arrived at NT$0.79.