United Microelectronics Corporation (UMC)
Q2 2010 Earnings Call Transcript
August 04, 2010 08:00 am
Chitung Liu - CFO
Shih-Wei Sun - CEO
Steven Pelayo - HSBC
J.J. Park of JPMorgan
Randy Abrams - Credit Suisse
Pranab Sharma - Daiwa Securities
Emily Liu - Arete Research
Aaron Husock - Lanexa Global
Previous Statements by UMC
» United Microelectronics Corp. Q1 2010 Earnings Call Transcript
» United Microelectronics Corp. Q4 2009 Earnings Call Transcript
» United Microelectronics Q3 2009 Earnings Call Transcript
Welcome everyone to UMC 2010 Quarter Two Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. For your information, this conference call is being broadcast live over the internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website www.umc.com under the Investor Relation, Investor Events section. I would now like to introduce Mr. Chitung Liu, CFO of UMC. Mr. Liu you may begin your conference.
Thank you and welcome to UMC’s conference call for the second quarter of 2010. With me today is the CEO of UMC Dr. Shih-Wei Sun. During this conference we may make forward looking statements based on management’s current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially including risks that may be beyond company’s control. For these risks please refer to UMC’s filing with the SEC in the US and the ROC security authorities
For the second quarter of 2010, the capacity utilization rate was (full) with shipment growing to a record 1156 thousand eight-inch equivalent wafers. Revenue increased 11.3% quarter-over-quarter to NT$29.75 billion from NT$26.72 billion in Q1 2010, an increase of 31.5% year-over-year from NT$22.63 billion in quarter two ’09. Gross margin was 29.6%, operating margin was 18.3%, net income was NT$5.27 billion and earnings per ordinary shares were NT $0.42, earnings per ADS were US $0.065.
Above is a short show summary for the results in quarter two 2010. More details are available in the quarterly report which has been posted on our website. I would now turn the call over to Dr. Sun.
Thanks Chitung. Good morning, good afternoon and good evening. Thank you all for joining us today. As always we appreciate your interest in UMC. I will start with a brief summary of UMC’s 2010 second quarter operating results and share with you our general operating outlook. After that I will provide you with the guidance for the third quarter of 2010. We will then have our Q&A session to answer your questions.
Okay let’s now get it started. For Q2 revenue exceeded expectations due to UMC’s accelerated ramp up of advanced process capacity and optimization of a product mix. Revenue contribution from 65 nanometer and below products grew more than 50% compared to the previous quarter, with 40 nanometer output reaching 3% of the revenue. As such UMC achieved a five year high in operating income and then annualized return on stockholder’s equity ROE of more than 10% this quarter.
Demand is expected to maintain robust for advanced processes driven by new applications and the technology migration. Therefore we are optimistic about third quarter growth anticipating rise in revenues and profits and to maintain our healthy outlook for mid to long term demand. UMC’s successful efforts to customize advanced technology development and optimize product mix have led to an expanded customer base and increased the sales and the greater profit capability.
To continue boosting competitiveness and pursuing steady growth, UMC plans its captive expenditures based on careful assessments of mid to long term demand and the capacity expansion risks according to our customer driven perspective so as to capture the robust growth momentum in adjustable foundry markets. UMC plans to raise this year’s capital expenditures to $1.8 billion to satisfy customer demand for advanced technology and the capacity.
This CapEx that the company has invested is being used to expand advanced capacity. Currently, advanced process equipment and procurement and installation offers are proceeding smoothly. Singapore’s Fab 12i has been accelerating its 65 and the 55 nanometer capacity expansion to better serve all our foundry customers this year.
Fab 12A’s phase III cleanroom already completed in July ahead of schedule and beginning equipment installation is expected to start production by year’s end and increase 40 nanometer production output at an accelerated pace next year. This expansion will gradually build up economy of scale and ushering a new wave of growth, producing a win-win situation with customers and boosting shareholder’s return on equity
Now let me provide you with guidance for the third quarter of 2010. We expect wafer shipments to go in the low to mid single digit percentage range. Wafer ASP will increase approaching mid single digit percentage. Capacity utilization will remain full with gross margin in the low 30% range, gross momentum welcomed from all three segment led by the consumer sector. Revenue contribution from 65 nanometer and below will reach approximately 30%. The CapEx budget for 2010 increases to $1.8 billion.
That concludes my comments. We are now ready for questions. Operator please open the lines up next.
(Operator Instructions) Your first question comes from the line of Randy Abrams of Credit Suisse.
Abrams - Credit Suisse
I wonder if you could elaborate on the order trends you are seeing, if you are seeing any change in urgency of orders from customers and if any end markets are looking particularly weaker going into second half?