United Microelectronics Corporation's CEO Discusses Q1 2012 Results - Earnings Call Transcript

United Microelectronics Corporation (UMC)

Q1 2012 Earnings Conference Call

April 25, 2012 08:00 AM ET

Executives

Shih-Wei Sun - CEO

Chitung Liu – CFO

Bowen Huang - Head of IR

Analysts

Randy Abrams - Credit Suisse

Robert Lea – Jefferies

Donald Lu - Goldman Sachs

Mahesh Sanganeria - RBC Capital Markets

Mehdi Hosseini – Susquehanna

C.J. Muse – Barclays

Satya Kumar – Credit Suisse

Presentation

Operator

Welcome everyone to UMC’s 2012 First Quarter Earnings Conference Call. (Operator Instructions) For your information, this conference is now being broadcasted live over the internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website at www.umc.com under the Investor Relations Investor Events section.

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

Bowen Huang

Thank you and welcome to UMC's conference call for the first quarter of 2012. 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 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 the 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 at ROC Securities Authorities.

I'd now like to introduce UMC's CFO, Mr. Chitung Liu, to explain UMC's Q1 2012 business results.

Chitung Liu

Thank you, Bowen. For the first quarter of 2012, revenue was NT$23.77 billion, a 2.7% quarter-over-quarter decrease from NT$24.43 billion in Q4 2011 and 15.5% year-over-year decrease from NT$28.12 billion in first quarter of 2011. Gross margin this quarter was 19.1%, operating margin was 5.6%, and net income was NT$1.34 billion and earnings per ordinary shares were NT$0.11.

Above is the short summary of UMC's results for Q1, 2012. More details are available in the 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 Q1 2012, UMC saw profitability and the revenue exceeded our expectations. Wafer shipments reached 963,000 8-inch equivalent wafers bringing overall capacity utilization to 71%. Revenue contribution from 40-nanometer increased to 9%. For the second quarter we would expect the wafer shipments to increase 15% as communication and the consumer IC demand grows. This projected growth reconfirms that the economic cycle trough seen in the first quarter signaled that the semiconductor industry saw multi-quarter inventory correction has subsided.

UMC is progressing smoothly on our advanced 28-nanometer process technology. We have successfully delivered the 28-nanometer flagship product samples to mobile communication and computing customers with additional product tape outs during last quarter. We remained on track to enter volume production for UMC 28-nanometer process in the second half of the 2012, meanwhile to effectively utilize the existing 65 and the 90-nanometer capacity. We are developing numerous specialty technologies to deliver more diversified and the comprehensive customer foundry solutions for the future.

We are optimistic about the semiconductor industries’ long term development. To solidify UMC’s profitability and business growth we will continue to follow the customer-driven foundry solutions philosophy that involves internal technology R&D to fulfill customer needs. Moreover, we are actively building sufficient capacity for 28-nanometer technology and believe that this node will enhance UMC’s customer and the product meets average selling price and profitability once volume production begins. In the meantime, the board of directors have proposed for shareholder’s approval of 2011 cash dividend payout of NT$0.5 per share.

The resolution would maintain a 60% cash dividend payout ratio even after the ECS aggressive capacity expansion plans. Looking ahead into next quarter, our consistent efforts would be directed towards timely management of customers advancing the capacity needs and completing all necessary 28-nanometer preparation for volume production in order to maximize benefits to customers and the UMC.

Now, let me provide you with the guidance for the second quarter of 2012. Wafer shipments increased approximately 15%. Wafer ASP in US dollars will remain flat from previous quarter. Gross margin low 20% range. Capacity utilization low 80% range. The communication in the consumer segments will outpace computer segments. That concludes my comments, we are now ready for questions. Operator, please open the lines up, thanks.

Question-and-Answer Session

Operator

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

Randy Abrams - Credit Suisse

Yes, thank you. Good evening. I wanted to follow up on a point you mentioned this afternoon where you talked about having a bit more capacity on 28-nanometer above the 5%, I think you are targeting for revenue on 28. Could you talk about how much business you could support for 28 based on that CapEx you are targeting to 28 and potential to pull in any additional business for 28 this year?

Shih-Wei Sun

So, the only thing I can share with you that we are providing sufficient capacity to support the 5% revenue percentage by the end of the year, for the exact capacity number I cannot share with you at this moment.

Randy Abrams - Credit Suisse

Okay, fair enough. And on the 40-nanometer, I think you mentioned the mix would be because all nodes are ramping 40-nanometer will still be about flat at about 9% of sales in second quarter. Could you talk about the applications coming in that may drive it toward, I think your target is 15% by year end, the type of applications coming in on 40?

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