UPDATE 1-UMC Oct sales show signs of weaker tech demand

* October sales up 18 pct y/y but down from September

* Advanced technology to bolster UMC's bottom line

* Share price has more than doubled this year, outpacing TSMC (Adds details and graphic)

By Baker Li

TAIPEI, Nov 9 (Reuters) - Taiwan's UMC (2303.TW), the world's No.2 contract chipmaker, saw October sales rise 18 percent from a year earlier, but the result was lower than a two-year high reached in September, showing signs of weakness in technology demand.

About a week ago, UMC (UMC.N) flagged a flat fourth quarter as demand typically slows from a peak late in the third quarter into the first quarter, while analysts were upbeat on the compay's earnings growth next year as it beefs up efforts to make more chips using advanced technology that yeilds higher margins.

New technologies should further cut manufacturing costs and help the chip foundry win new orders from clients, who are selling more powerful chips for a new generation of personal computers, mobile phones and flat-screen TVs.

United Microelectronics Corp (UMC) said on Monday that sales reached T$9.3 billion ($287 million) last month, up from T$7.9 billion a year earlier, but down 2.5 percent from September.

(For a graphic, click here)

A weak fourth quarter has been largely priced in [ID:nTP112950] and many brokerages, including Daiwa Securities, have recently upgraded their investment ratings on UMC.

On a yearly basis, UMC has seen its sales rise each month since June, while sector leader TSMC's (2330.TW) monthly sales have declined in the past year. Analysts said UMC won more clients for advanced 65-nanometre technology because of relatively lower prices.

"We liked UMC's gross-profit margin improvement for the third quarter," Daiwa said in a research note last week.

UMC's gross profit margin rose to 28 percent in July-September from 23.8 percent in the previous three months, still lower than TSMC's gross profit margin of 47.7 percent in the third quarter.

Daiwa said UMC had more room for margin upside than TSMC (TSM.N) during the cyclical recovery, which could help UMC book earnings per share of T$0.25 this year and T$1 next year.

UMC released the results after the Taipei stock market closed on Monday. UMC shares fell 0.95 percent versus the main TAIEX's 1 percent gain. Shares of TSMC, whose October sales results are due out on Tuesday, were unchanged.

So far this year, UMC shares have more than doubled, outpacing TSMC's 36 percent rise in the same period. (US$1=T$32.4) (Reporting by Baker Li; Editing by Chris Lewis)