United Microelectronics, Inc. ( UMC)

Q4 2010 Earnings Call

January 26, 2010 08:00 am ET


Richard Yu - Head IR

Shih-Wei Sun - CEO

Chi-Tung Liu - CFO


Randy Abrams - Credit Suisse

Mehdi Hosseini - Susquehanna

Steven Pelayo - HSBC

Sam Wang - Gartner

Pranab Sarmah - Daiwa Capital

Aaron Husock - Lanexa Global



Welcome everyone, to UMC's 2010 Q4 earnings conference call. (Operator Instructions) I would now like to introduce Mr. Richard Yu, Head Investor Relations at UMC. Mr. Yu, you may begin.

Richard Yu

Thank you, and welcome to UMC's conference call for the fourth quarter of 2010. With me today is the CEO of UMC, Dr. Shih-Wei Sun; and the CFO, Mr. Chi-Tung Liu.

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 the company's control. For these risks, please refer to UMC's filings with the SEC in the US and the ROC security authorities.

I'd now like to introduce UMC's CFO, Mr. Chi-Tung Liu to explain our Q4 2010 business results.

Chi-Tung Liu

Thank you, Richard. For the fourth quarter of 2010, revenue was NT$31.32 billion, a 4.1% quarter-over-quarter decrease from NT$32.65 billion in Q3 2010, and that's a 12.9% year-over-year increase from NT$27.75 billion in Q4 2009. Gross margin was 32.1%, with 21.1% in operating margin. The net income was NT$6.42 billion, and NT$0.52 earnings per ordinary shares.

In 2010, revenue for the full year was NT$120.43 billion, with NT$23.9 billion net income and NT$1.91 earnings per shares. So that is a short summary for the results on Q4, 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.

Shih-Wei Sun

Thanks, Chi-Tung. With the Chinese New Year around the corner now, I would like to take this opportunity to wish everybody the best for a happy and a prosperous New Year. Again, 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 fourth quarter operating results and share with you our general operating status. After that, I will provide you with the guidance for the first quarter of 2011. We will then have the Q&A session to answer your questions.

First of all, I would like to reaffirm you of this dedication to the customer-driven development of advanced technologies and the foundry manufacturing solutions. This commitment has led to considerable success in our efforts to broaden our customer base, optimize product mix and boost profit capability.

For 2010, wafer shipments reached a record high of approximately 4.52 million 8-inch equivalent wafers, with revenue hitting another record high of NT$120.4 billion. Full year operating profit, EPS and a ROE of 11% also reached the highest levels in recent years. 2010 capital expenditures were $1.8 billion.

With the expansion of high-end capacities, 65-nanometer and below revenue contribution for the fourth quarter alone reached 35%, with 40-nanometer products increasing to 5% of the total revenue. Revenue contribution from 65-nanometer and below products for the full year grew an impressive 170% as well.

After experiencing growth momentum for over a year-and-a-half at UMC, we anticipate revenue for the first quarter of 2011 to decline slightly due to appreciation of NT dollar, certain customers undergoing product and technology node transitions and other seasonal adjustments.

UMC is optimistic about demand for high-end chips this year, with revenue contribution from 40-nanometer growing quarterly in 2011 to become our main revenue driver. We will also begin 28-nanometer customer product pilot around the middle of this year, to satisfy customers' technology and capacity requirements while ensuring both stable growth and long-term ROE. We plan to invest about the same amount of CapEx as last year.

Looking ahead in 2011, UMC will build upon its solid foundation and will continue advancing its technologies and service quality to provide its global customers the most appropriate foundry solutions.

Now let me provide you with the guidance for the first quarter of 2011. Wafer shipments show us low single digit percentage decline. Wafer ASP in US dollars will decline in the low to mid single digit percentage range. Capacity utilization will be approximately 90%. Gross margin will be over 25%. The consumer segment will be relatively weaker than the computer and the communication segments.

2011 CapEx budget is approximately $1.8 billion.

That concludes my comments. We are now ready for questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Randy Abrams of Credit Suisse.

Randy Abrams - Credit Suisse

I wanted to know if you could elaborate on the node transition you were talking about at some customers. Is that a one-quarter transition that's taking place, and is that a mix? And maybe if you can elaborate the transition that is going on in the business and if that's a one-quarter event?

Shih-Wei Sun

So that was mentioned in our press. It's just certain customers are having their products transitioned. And those are node transitions. Some have some lag or priority to support it. Whether it's one quarter or not, we are managing it with our customers closely. So we expect second quarter mix will continue to improve.

Randy Abrams - Credit Suisse

And if you could clarify I guess the 8-inch versus 12-inch, if there's a meaningful difference on utilization between the two?

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