UMC Reports First Quarter 2018 Results

UMC Reports First Quarter 2018 Results

Proposed cash dividend of NT$0.70; company currently engaged in share buyback program

First Quarter 2018 Overview ¹ :

• Revenue: NT$37.50 billion (US$1.29 billion)
• Gross margin: 12.4%
• Foundry revenue from 28nm: 12%; Foundry operating margin: 2.3%
• Foundry capacity utilization rate: 94%
• Net income attributable to stockholders of the parent: NT$3.40 billion (US$117 million)
• Earnings per share: NT$0.28; earnings per ADS: US$0.048

United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the first quarter of 2018.

First quarter consolidated revenue was NT$37.50 billion, up 2.4% from NT$36.63 billion in 4Q17 and flat YoY from NT$37.42 billion in 1Q17. Consolidated gross margin for 1Q18 was 12.4%. Net income attributable to stockholders of the parent was NT$3.40 billion, with earnings per ordinary share of NT$0.28.

Jason Wang, co-president of UMC, said, “In the first quarter of 2018, despite the unfavorable movement of the NT dollar, our foundry revenue increased 2.5% QoQ to NT$37.44 billion. Stable loading across 8" and mature 12" technologies resulted in an overall utilization rate of 94%, bringing wafer shipments to 1.75 million 8-inch equivalent wafers. Softening demand in smartphone and other wireless devices was more than offset by strength in the computer and consumer segments.”

Co-president Wang continued, “Looking into the second quarter, we anticipate our wafer shipments to increase, mainly due to growing business opportunities from wireless communication as well as computer peripheral related chip demand. As we secure new product tape outs across advanced and mature technologies including 28nm, we will leverage our collaborative efforts with customers supported by UMC’s manufacturing excellence to enhance our market share and financial results. While we focus on revenue and profit growth, we also seek to maximize shareholder returns. Subject to shareholders’ approval, the board of directors recently proposed a cash dividend distribution of approximately NT$0.70 per share, which constitutes around an 88% cash dividend payout ratio. In addition, we began our 18th share buyback program in March 8, 2018 and will complete the purchase of shares for cancellation by May 7, 2018. Moving forward, we will continue to improve UMC’s profitability and maintaining business growth to maximize benefits to our shareholders.”

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¹ Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with TIFRSs recognized by Financial Supervisory Commission in the ROC, which is different from IFRSs issued by the International Accounting Standards Board. They represent comparisons among the three-month period ending March 31, 2018, the three-month period ending December 31, 2017, and the equivalent three-month period that ended March 31, 2017. For all 1Q18 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the March 31, 2018 exchange rate of NT$ 29.11 per U.S. Dollar.

Summary of Operating Results

Net operating revenues in 1Q18 increased 2.4% to NT$37.50 billion, including NT$37.44 billion from the foundry segment. Revenue contribution from 40nm and below technologies remained flat at 44%. Gross profit declined 26.3% to NT$4.64 billion, or 12.4% of revenue. Operating expenses decreased 6.7% to NT$4.85 billion. Net other operating income was NT$977 million, leading to operating income of NT$0.77 billion. Net non-operating income was NT$1.09 billion. Net income attributable to stockholders of the parent was NT$3.40 billion.

Earnings per ordinary share for the quarter was NT$0.28. Earnings per ADS was US$0.048. The basic weighted average number of outstanding shares in 1Q18 was 12,202,773,078, compared with 12,208,239,978 shares in 4Q17 and 12,208,239,978 shares in 1Q17. The diluted weighted average number of outstanding shares was 13,457,161,259 in 1Q18, compared with 13,474,873,551 shares in 4Q17 and 13,418,016,296 shares in 1Q17. The fully diluted share count on March 31, 2018 was approximately 13,839,101,000. On March 31, 2018, UMC held 440 million treasury shares acquired from the 16th, 17th and 18th share buy-back programs.

Detailed Financials Section

Net operating revenues grew 2.4% to NT$37.50 billion. COGS increased to NT$32.86 billion, as depreciation increased 7.5% to NT$11.82 billion. Other manufacturing costs increased 8.8% to NT$21.04 billion mainly from higher wafer shipments. Gross profit was NT$4.64 billion. Operating expenses declined 6.7% to NT$4.85 billion. General and Administrative (G&A) expenses decreased 12.6% to NT$1.02 billion. Sales & Marketing declined 3.7% to NT$0.91 billion and R&D expense fell 5.4% to NT$2.92 billion, or 7.8% of net operating revenues. Net other operating income was NT$977 million, leading to an operating income of NT$769 million.

Net non-operating income in 1Q18 was NT$1.09 billion, which primarily resulted from NT$1.02 billion in exchange gain and NT$582 million in net investment gain, which were partially offset by a NT$529 million in net interest expenses.

Cash inflow from operating activities was NT$8.78 billion. Cash inflow from investing activities amounted to NT$0.67 billion, including NT$5.72 billion in CAPEX spending for the foundry segment, resulting in free cash flow of NT$3.06 billion. Cash outflow from financing activities totaled NT$13.71 billion, mainly from NT$7.50 billion in redemption of bonds and NT$5.56 billion in bank loans. Net cash outflow in 1Q18 was NT$4.53 billion. Over the next 12 months, the company expects to repay NT$2.40 billion in bank loans.

Cash and cash equivalents decreased to NT$77.14 billion. Days of inventory decreased to 49 days.

Current liabilities decreased to NT$72.57 billion, mainly from a decrease in Short-Term Credit/Bonds. Total liabilities declined to NT$169.35 billion, leading to a debt to equity ratio of 78%.

Analysis of Revenue ² for Foundry Segment

Revenue from Asia Pacific increased to 47% while the contribution from North American customers declined to 42%. Revenue from Japan remained at 3%.

Business from 14nm remained unchanged at 2% of 1Q18 revenue, while 28nm contribution declined to 12%.

Fabless customers accounted for 92% of revenue in 1Q18.

Communication segment represented 47% of sales while revenue from consumer applications remained flat at 29%.

⁽¹⁾ Computer consists of ICs such as CPU, GPU, HDD controllers, DVD/CD-RW control ICs, PC chipset, audio codec, keyboard controller, monitor scaler, USB, I/O chipset. Communication consists of handset components, broadband, WLAN, bluetooth, Ethernet, LAN, DSP, etc. Consumer consists of ICs used for DVD players, DTV, STB, MP3/MP4, flash controller, game consoles, DSC, smart cards, toys, etc.
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² Revenue in this section represents wafer sales

Blended ASP Trend for Foundry Segment

Blended average selling price (ASP) in 1Q18 declined slightly.

(To view ASP trend, visit http://www.umc.com/english/investors/1Q18_ASP_trend.asp)

Shipment and Utilization Rate ³ for Foundry Segment

In 1Q18, wafer shipments grew 4.6% to 1,747K. Quarterly capacity declined slightly to 1.5% QoQ or 1,858K, resulting in an overall utilization rate of 94% in 1Q18.

³ Utilization Rate = Quarterly Wafer Out / Quarterly Capacity



Capacity ⁴ for Foundry Segment

Total capacity during the first quarter totaled 1,858K 8-inch equivalent wafers. We foresee capacity in the second quarter to grow 3.1% QoQ to 1,916K 8-inch equivalent wafers, mostly from capacity expansion at Fab 12X.

⁽¹⁾One 6-inch wafer is converted into 0.5625(6²/8²) 8-inch equivalent wafer; one 12-inch wafer is converted into 2.25(12²/8²) 8-inch equivalent wafers. Capacity total figures are expressed in 8-inch equivalent wafers.

CAPEX for Foundry Segment

CAPEX spending in 1Q18 was US$195 million. Full year 2018 CAPEX plan is budgeted for US$1.1 billion.

⁴ Estimated capacity numbers are based on calculated maximum output rather than designed capacity. The actual capacity numbers may differ depending upon equipment delivery schedules, pace of migration to more advanced process technologies, and other factors affecting production ramp-up.

Second Quarter of 2018 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To increase 2-4%
• ASP in USD: To remain flat
• Profitability: Gross profit margin will be in the mid-teens % range
• Foundry Segment Capacity Utilization: Mid-90% range
• 2018 CAPEX for Foundry Segment: US$1.1 billion

Recent Developments / Announcements

Please visit UMC’s website for further details regarding the above announcements

Conference Call / Webcast Announcement

Wednesday, April 25, 2018

Time: 5:00 PM (Taipei) / 5:00 AM (New York) / 10:00 AM (London)

Dial-in numbers and Access Codes:
USA Toll Free:        1-866 836-0101
Taiwan Number:     02-2192-8016
Other Areas:           +886-2-2192-8016

Access Code: UMC

A live webcast and replay of the 1Q18 results announcement will be available at
www.umc.com under the “Investors / Events” section.

About UMC

UMC (NYSE: UMC, TWSE: 2303) is a leading global semiconductor foundry that provides advanced IC production for applications spanning every major sector of the electronics industry. UMC’s comprehensive foundry solutions enable chip designers to leverage the company’s sophisticated technology and manufacturing, which include high volume 28nm High-K/Metal Gate technology, 14nm FinFET mass production, ultra-low power platform processes specifically developed for Internet of Things (IoT) applications and the automotive industry’s highest-rated AEC-Q100 Grade-0 manufacturing capabilities for the production of ICs found in vehicles. UMC’s 11 wafer fabs are strategically located throughout Asia and are able to produce nearly 600,000 wafers per month. The company employs over 19,000 people worldwide, with offices in Taiwan, China, Europe, Japan, Korea, Singapore, and the United States. UMC can be found on the web at http://www.umc.com.

Note from UMC Concerning Forward-Looking Statements

Some of the statements in the foregoing announcement are forward-looking within the meaning of the U.S. Federal Securities laws, including statements about introduction of new services and technologies, future outsourcing, competition, wafer capacity, business relationships and market conditions. Investors are cautioned that actual events and results could differ materially from these statements as a result of a variety of factors, including conditions in the overall semiconductor market and economy; acceptance and demand for products from UMC; and technological and development risks. Further information regarding these and other risks is included in UMC’s filings with the U.S. Securities and Exchange Commission. UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Safe Harbor Statements

This release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended, and as defined in the United States Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of UMC to be materially different from what is stated or may be implied in such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, but not limited to: (i) dependence upon the frequent introduction of new services and technologies based on the latest developments in the industry in which UMC operates; (ii) the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets; (iii) the risks associated with international business activities; (iv) dependence upon key personnel; (v) general economic and political conditions; (vi) possible disruptions in commercial activities caused by natural and human-induced events and disasters, including natural disasters, terrorist activity, armed conflict and highly contagious diseases; (vii) reduced end-user purchases relative to expectations and orders; and (viii) fluctuations in foreign currency exchange rates. Further information regarding these and other risks is included in UMC’s filings with the United States Securities and Exchange Commission. All information provided in this release is as of the date of this release and are based on assumptions that UMC believes to be reasonable as of this date, and UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

The financial statements included in this release are prepared and published in accordance with Taiwan International Financial Reporting Standards, or TIFRSs, recognized by the Financial Supervisory Commission in the ROC, which is different from International Financial Reporting Standards, or IFRSs, issued by the International Accounting Standards Board. Investors are cautioned that there may be significant differences between TIFRSs and IFRSs. In addition, TIFRSs and IFRSs differ in certain significant respects from generally accepted accounting principles in the ROC and generally accepted accounting principles in the United States.

This presentation is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

- FINANCIAL TABLES TO FOLLOW -

UMC
Investor Relations
Michael Lin, + 886-2-2658-9168, ext. 16900
jinhong_lin@umc.com
or
David Wong, + 886-2-2658-9168, ext. 16900
david_wong@umc.com

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