United Microelectronics Corporation ( UMC)

Q3 2011 Earnings Call

October 26, 2011 8:00 AM ET


Bowen Huang – Head, Investor Relations

Shih-Wei Sun – Chief Executive Officer

Chitung Liu – Chief Financial Officer


Randy Abrams – Credit Suisse

Robert Lee – Jefferies

Steven Pelayo – HSBC

Donald Lu – Goldman Sachs

Mahesh Sanganeria – RBC Capital Market



Welcome everyone to UMC’s 2011 Q3 Earnings Conference Call. All lines have been placed on mute to prevent 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 now being broadcast live over the internet. Webcast replay will be available within an hour after conference is finished. Please visit our website www.umc.com under the Investor Relation’s Investor Events section.

I would like to introduce Mr. Bowen Huang, Head of Investor Relations at UMC. Mr. Wang, you may begin.

Bowen Huang

Thank you. And welcome to UMC’s conference call for the third quarter of 2011. With me today is the CEO of UMC, Dr. Shih-Wei Sun; and the CFO, Mr. Chitung Liu.

During this conference, we may make forward-looking statements based on management’s current expectation and beliefs. These forward-looking statements are subject to a number of risk and uncertainties that cause actual result to differ materially, including risk that may be beyond the company’s control. For these risks, please refer to UMC’s filing with the SEC in the U.S. and to the ROC Securities Authorities.

I’d now like to introduce UMC’s CFO, Mr. Chitung Liu, to explain UMC’s Q3 2011 business results.

Chitung Liu

Thank you, Bowen. For the third quarter of 2011, revenue was NT$25.19 billion, a 10.5% quarter-over-quarter decrease from NT$28.15 billion in second quarter 2011 and 22.9% year-over-year decrease from NT$32.65 billion in 3Q, 2010.

Gross margin was 19.8%, operating margin was 6.1%, net income was NT$1.95 billion and earnings per ordinary share were NT$0.16. Above is a short summary of UMC results from Q3, 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, Chitung. Good morning, good afternoon and good evening, ladies and gentlemen. In Q3, 2011, revenue was in line with UMC’s guidance. We shipped 1.03 million 8-inch equivalent wafers, with ASP remaining flat. Overall utilization rate was 74%, with 40% of revenue coming from 65-nanometer and below technologies.

We maintain our previous semiconductor market view as we enter the fourth quarter of 2011, with unresolved European and the U.S. sovereign debt, China inflation and limited inventory distribution and the digestion visibility through the supply chain all contributing to industry uncertainty.

Accordingly, semiconductor market demand continues to be weak as reflected by our customers conservative order patterns. During this time, UMC will continue with its cautious approach.

We do anticipate UMC’s rate of revenue decline to ease in Q4 and will remain operating profitable as our efforts to strengthen the company’s operating efficiency and the cost structure bear fruits.

Despite the dynamic nature of the semiconductor industry, we believe that customer driven development of advanced processes and IP platforms will form the foundation of UMC’s next growth phase.

In addition to the volume production 40-nanometer technologies, we have also invested heavily to develop our 28-nanometer technologies and IP platforms including the High-K/Metal-Gate 28HPM and the Poly/SiON 28HLP processes.

UMC’s 28HPM process is developed with the mainstream Gate-Last approach and is suitable for high performance mobile devices and high-speed networking products. The 28HLP delivers industry leading performance to cost ratio through the adoption of the traditional Poly/SiON gate-stack and the proprietary performance enhancement process features.

These 28-nanometer technologies are supported with robust IP platforms developed through cross collaboration with ARM, Synopsys and our customers to create optimized the 28-nanometer integrated solutions.

Customer 28HLP product has entered the pilot production, with 28HPM scheduled for pilot production in mid-2012.

We are optimistic about our 28HLP and 28HPM since they formed the dual-engine that will propel UMC’s advanced process growth, strengthening our future competitiveness and enhance our portfolio of comprehensive foundry solutions available to UMC customers.

Now, let me provide you with the guidance for the fourth quarter of 2011. Wafer shipment were decreased approximately 10%. Wafer ASP in NT dollars will increase approximately 5%.

Operating margin will be in the low single-digit percentage range. Capacity utilization will be in the mid to high 60% range. The communication segment will outpace consumer and the computer segments. UMC 2011 CapEx will remain at US$1.8 million.

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

Question-and-Answer Session


(Operator Instructions) You have a question from the line of Randy Abrams of Credit Suisse.

Randy Abrams – Credit Suisse

Yes. Good evening. The first question I had was on the IDM revenue, more dropped from, I guess, a pretty big drop this quarter. Was that in-sourcing or using some adjustments taking place for reclassification of customers just to drive that big change this quarter and if now I guess looking for adjusting any stabilization from the IDMs?

Shih-Wei Sun

Randy, if we can separate IDMs outsourcing into advance leading technology that partly is intact, there is not much of a change. But for certain IDM customers during this economic slowdown, they pored some of the legacy technologies back to their own factory.

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