United Microelectronics CEO Discusses Q2 2011 Results - Earnings Call Transcript

United Microelectronics Corporation ( UMC)

Q2 2011 Earnings Call

August 2, 2011 8:00 am ET

Executives

Richard Yu - Head of IR

Shih-Wei Sun - CEO

Chi-Tung Liu - CFO

Analysts

Randy Abrams - Credit Suisse

Dan Heyler - Merrill Lynch

Robert Lee - Jefferies

Donald Lu - Goldman Sachs

Szeho Ng - BNP

Steven Pelayo - HSBC

Presentation

Operator

Welcome everyone to UMC's 2011 Q2 earnings conference call. (Operator Instructions) For your information, this conference call is now being broadcasted live over the internet. A webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investor Events section.

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 second 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 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 UMC's Q2 2011 business results.

Chi-Tung Liu

Thank you, Richard. For the second quarter of 2011, revenue was NT$28.15 billion, a 0.1% quarter-over-quarter increase from NT$28.12 billion in Q1 '11 and a 5.4% year-over-year decrease from NT$29.75 billion in 2Q 2010. Gross margin was 23.9%. Operating margin was 11.8%. Net income was NT$3.19 billion. And earnings per ordinary share were NT$0.26.

Above, there is a short summary for the results on 2Q 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. Good morning, good afternoon and good evening, ladies and gentlemen. In Q2 2011, wafer shipments reached 1.15 million 8-inch equivalent wafers, in line with UMC's guidance.

As we enter the third quarter of 2011, certain macroeconomic factors such as European and U.S. sovereign debt issues and the emerging market inflation have led to unfavorable global economic conditions. These macro uncertainties have led customers to adopt a conservative outlook. Furthermore, customers have adjusted their order patterns in order to consume elevated inventory levels due to overstocking after Japan's March earthquake.

This ongoing situation has negatively impacted the worldwide semiconductor industry and will offset the high demand season traditionally seen during the second half of the year. Consequently, we anticipate UMC's business performance may reflect this weakened demand condition beyond Q3.

During this period, we will further enhance our operations through active customer diversification, efficient business execution and aggressive cost control measures. We will also focus on the opportunities ahead. UMC's CapEx, which remains at US$1.8 billion for 2011, will support our advanced production ramp.

UMC's R&D efforts will continue in earnest to prepare for customers' future technology requirements. We will also leverage our foundry technologies to take advantage of the fast-growing mobile communication and the computing markets with high-performance, low-power consumption requirements.

UMC's volume production 40nm process is expected to reach 10% of revenue by the end of 2011. We are also smoothly developing our 28nm process and design IP platform, with the first of several 28nm customer products entering pilot production in Q3 2011. For 65nm, UMC will benefit from the second wave of new customers targeting specialty technologies including analog, high-voltage, CMOS image sensor and embedded non-volatile memory products.

We believe through the leadership of our cohesive, high-caliber management team, healthy capital structure and clearly defined business strategy, UMC will emerge from the downturn stronger and better positioned to capitalize on the business opportunities in 2012 and beyond.

Now, let me provide you with the guidance for the third quarter of 2011. Revenue will show a low-teen percentage range, about 10% to 12% decline, mostly driven by lower volume. Operating margin would be in the low single digit percentage range. Capacity utilization would be in the low 70% range. The consumer and the computer segments will outpace the communications sector.

This concludes my comments. We're now ready for questions. Operator, please open the lines up. Thanks.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Kevin Chen from Credit Suisse.

Randy Abrams - Credit Suisse

Hi, this is Randy Abrams from Credit Suisse. The first question follows on a bit from this afternoon. On your fast-follower strategy, you've traditionally over the past couple of years invested a bit slower on R&D and CapEx to focus on profitability. Are you starting to tilt back as you look at 28nm to be more aggressive now in R&D and CapEx to start to narrow the gap again, so be less of that fast-follower and start to try to narrow the gap again with TSMC?

Shih-Wei Sun

First of all, we are not really fast-follower if you're talking about logic technology. I think that's really the Intel. They are defining the process architecture for logic technology generation-after-generation, starting from strain engineering, silicon-germanium, high-k metal gate, et cetera.

So for UMC, (inaudible) we are trying to provide our customer-driven solution in a timely fashion, also fit into our overall structure. We still try to raise our R&D spending. In the past few quarter, it's 8% or below. So we're still doing that.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

UAW Officially Files Complaint on Tesla Thanks to CEO Elon Musk

UAW Officially Files Complaint on Tesla Thanks to CEO Elon Musk

Video: You Could Live in a Ritz-Carlton or St. Regis Home

Video: You Could Live in a Ritz-Carlton or St. Regis Home