UPDATE 1-UMC posts solid June sales, Q2 seen profitable

* Books biggest monthly sales in nearly one year

* Could have returned to profit in second quarter

* Lagging TSMC in more advanced technology

* UMC, TSMC shares mixed before results (Recasts with quotes and details)

By Baker Li

TAIPEI, July 9 (Reuters) - Monthly sales at UMC (2303.TW), the world's No.2 contract chipmaker, hit the highest level in 11 months in June on growing demand that could have pushed the money-losing company into the black in the second quarter.

UMC (UMC.N) and sector leader Taiwan Semiconductor Manufacturing Co. (TSMC) (2330.TW) (TSM.N) have benefitted from growth in demand for computers and other consumer gadgets, especially from China as a result of mainland stimulus spending.

United Microelectronics Corp (UMC) on Thursday said its June sales rose 1.6 percent from a year earlier to T$8.236 billion ($250 million), the first annual rise in a year. The result was up 9.6 percent from May, its fourth straight monthly rise.

That brought UMC's April-June sales to T$22.63 billion, down 10 percent from a year earlier but more than double the first quarter, according to Reuters calculations.

It is expected that both TSMC and UMC will increase sales into the third quarter, the onset of the annual peak manufacturing season for Taiwanese exporters, while UMC still lags TSMC in more advanced process technology that could hurt its long-term competitiveness.

"TSMC is migrating to 40/45 nanometer technology aggressively, but UMC is lagging behind," Citi semiconductor analyst Andrew Lu said in a report on Wednesday.

"For the foundry sector generally, we still fear a de-rating, especially of tier-two vendors," said Lu, who rated UMC "sell".

Citi forecast UMC would book a net profit of T$1.71 billion for the April-June quarter after swimming in the red in the previous three quarters. But Lu warned that UMC would likely lose money again from the first quarter of 2010.

Separately, a UMC spokesman on Thursday said UMC would book a non-operating loss of about T$1.7 billion for the second quarter from its investment in UMC Japan, based on a new accounting rule.

TSMC, which counts Texas Instruments (TXN.N) and Nvidia (NVDA.O) among its major clients, has been driving process technology to advanced 65-, 45- and 40-nanometre technology as next-generation electronics devices including mobile phones and game consoles require more powerful processors.

The smaller circuitry allows the design of more powerful chips for more complex devices, more circuits can be included on a single chip, increasing chip yield per wafer and boosting efficiency.