United Microelectronics Corporation ( UMC) Q3 2011 Earnings Call October 26, 2011 8:00 AM ET Executives Bowen Huang – Head, Investor Relations Shih-Wei Sun – Chief Executive Officer Chitung Liu – Chief Financial Officer Analysts Randy Abrams – Credit Suisse Robert Lee – Jefferies Steven Pelayo – HSBC Donald Lu – Goldman Sachs Mahesh Sanganeria – RBC Capital Market Presentation Operator
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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 (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. Read the rest of this transcript for free on seekingalpha.com