United Microelectronics, Inc. ( UMC)

Q1 2011 Earnings Call

April 27, 2011 8:00 am ET

Executives

Richard Yu - Head, IR

Shih-Wei Sun - CEO

Chi-Tung Liu - CFO

Analysts

Aaron Husock - Lanexa Global

Mahesh Sanganeria - RBC Capital Markets

Pranab Sarmah - Daiwa Capital Markets

Presentation

Operator

Welcome everyone to UMC's 2011 Q1 earnings conference call. (Operator Instructions)

I would like to introduce Mr. Richard Yu, Head of Investor Relations at UMC.

Richard Yu

Thank you, and welcome to UMC's conference call for the first quarter of 2011. 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 U.S. and the ROC Securities authorities.

I'd now like to introduce UMC's CFO, Mr. Chi-Tung Liu to explain Q1 2011's business results.

Chi-Tung Liu

Thank you, Richard. For the first quarter of 2011, revenue was NT$28.12 billion, a 10.2% quarter-over-quarter decrease from NT$31.32 billion in Q4 2010, and a 5.3% year-over-year increase from NT$26.72 billion in Q1 2010.

Gross margin was 27.5%, operating margin was 15.8%, net income was NT$4.48 billion, and earnings per ordinary shares were NT$0.36.

Above, there is a short summary for the results on Q1, 2011. 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. In Q1 2011, wafer shipments reached 1.12 million, 8-inch equivalent wafers. Capacity utilization was 90% with revenue in line with projection.

For Q2, we have tempered our expectations for revenue and profit, since more time is needed to accurately assess worldwide semiconductor demand due to Japan's March 11 earthquake and its impact on the global supply chain.

With regard to UMCs whole operation, the company's supply of raw materials and equipment components remained secure, while production at our UMCJ factory in Tateyama, Japan, recovered in minimum time. Following the quake, we promptly allocated resources to support customers' demands, while also assisting suppliers and partners that sustained earthquake damage which needed materials and supplies to help accelerate supply chain recovery.

The next several quarters involve several uncertainties, such as the schedule for supply chain recovery, inflation in emerging markets, European sovereign debt, and exit of the U.S. quantitative easing program. These factors may potentially impact the global economy, as well as UMCs performance in the second half of the year.

Nevertheless, UMC remains optimistic about mid to long-term foundry growth and will proceed rationally with financial discipline. To ensure our core competitiveness, the company is moving forward as planned with R&D and capacity expansion for advanced technologies. Revenue contribution from UMCs volume production 40-nanometer technology is expected to continue growing in the second half of 2011.

28-nanometer R&D collaboration with customers is also progressing smoothly and is scheduled for pilot production by mid-year. To maintain favorable ROE, the Board of Directors has proposed for shareholder approval a cash dividend payout of NT$1.12 per share.

Going forward, we will further improve technology and service quality to enhance the company's performance for the maximum benefit of customers, shareholders, and UMC.

Now let me provide you with the guidance for the second quarter of 2011. Wafer shipments and ASP will remain flat. Capacity utilization will be in the mid 80% range. Gross margin will be in the low to mid 20% range. The consumer and the computer segments will outpace the communication sector.

That concludes my comments. We are now ready for questions. Operator, please open the lines up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mehdi Hosseini of Susquehanna International.

Mehdi Hosseini - Susquehanna International

Regarding the updated Q2 guidance, how should we interpret that? Does that mean that some of that wafer shipment is being pushed from Q2 into Q3, and would that make Q3 better than seasonal pattern?

And the second question has to do with the CapEx. Given the change in wafer shipment pattern, does that have any impact on the overall CapEx budget for this year?

Chi-Tung Liu

I will answer the latter question first. CapEx stays the same, $1.8 billion, and the CapEx is longer range arrangement for our advanced technology commitment and expansion. In the past two years actually, we have been relatively disciplined in our CapEx, and it's in line with our customer requirements especially in the 42 and 28-nanomenter requirements down the road.

Your earlier question was about the Q2 result.

Now, this is clearly just our Q2 guidance. And there are certainly some factors about Q3. Sorry, your question was about the push-out. We are not considering any push-out, and we are not giving guidance for Q3 either.

Mehdi Hosseini - Susquehanna International

Right, but qualitatively, Q3 could potentially turn out to be better than seasonal, especially with the build-up of back-to-school and holiday season after that. So directionally, with the lower base in Q2, Q3 mathematically looks better than seasonal. Is that the right way of thinking about it?

Chi-Tung Liu

That's why in our description earlier, after the Japanese earthquake the uncertainty becomes much higher. And we need approximately one more month to clarify the demand situation. And after the earthquake, certain customers, they are putting in orders to build more inventory, and are concerned about the shortage of components.

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