UMC Reports Fourth Quarter 2019 Results

United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the fourth quarter of 2019.

Fourth quarter consolidated revenue was NT$41.85 billion, up 10.9% QoQ from NT$37.74 billion in 3Q19 and up 17.8% YoY from NT$35.52 billion in 4Q18. Consolidated gross margin for 4Q19 was 16.7%. Net income attributable to the stockholders of the parent was NT$3.84 billion, with earnings per ordinary share of NT$0.33.

Jason Wang, co-president of UMC, said, “During the fourth quarter, we started to account for the foundry operations at our recently acquired USJC (Fab 12M) in Japan. In spite of currency headwinds encountered in the foreign exchange markets, our foundry revenue increased 10.9% QoQ to NT$41.83 billion, leading to a foundry operating margin of 4.9%. Utilization rate increased to 92%, bringing wafer shipments to 2.04 million 8-inch equivalent wafers primarily driven by the communication and computing segments. For the year, our earnings per share increased 41% YoY to NT$0.82. Our continued disciplined CAPEX approach also enabled UMC to generate a total of NT$37.1 billion in free cash flow, up 19% YoY. In terms of technology, we recently validated our 22nm process on a USB 2.0 test vehicle, demonstrating the technology readiness of this design rule shrink from 28nm. UMC’s 22nm process features a 10% area reduction, better power-to-performance ratio and enhanced RF capabilities compared to our existing 28nm High-K/Metal Gate technology.”

Co-president Wang further commented, “Looking to the first quarter of 2020, based on customer forecasts, the overall business outlook appears to remain consistent with the previous quarter, primarily due to stable wafer demand across wireless communication and computer peripheral segments. As we receive new product tape-outs that will enter future production pipelines, we expect to benefit from 5G and IoT trends that will generate additional semiconductor demand, specifically in wireless devices as well as power management applications. While our focus remains to maintain a disciplined capital expenditure spending, owing to mid to long term customer and market demand, we have setup our 2020 capex budget of US$1 billion. In the meantime, UMC will continue to penetrate into new segments and expand our presence in existing markets; our core competence in process technology development, and world-class foundry service will strengthen our position in delivering logic and specialty manufacturing solutions.”

Summary of Operating Results

Operating revenues in 4Q19 increased 10.9% to NT$41.85 billion, including NT$41.83 billion from the foundry segment. Revenue contribution from 40nm and below technologies declined to 32%. Gross profit increased 8.3% quarterly to NT$6.97 billion, or 16.7% of revenue. Operating expenses increased 20.2% to NT$6.17 billion. Net other operating income remained flat at NT$1.22 billion, leading to an operating income of NT$2.02 billion. Net non-operating income was NT$946 million. Net income attributable to stockholders of the parent was NT$3.84 billion.

Earnings per ordinary share for the quarter was NT$0.33. Earnings per ADS was US$0.055. The basic weighted average number of outstanding shares in 4Q19 was 11,708,869,140, compared with 11,708,239,978 shares in 3Q19 and 12,111,826,935 shares in 4Q18. The diluted weighted average number of outstanding shares was 13,073,000,039 in 4Q19, compared with 13,049,025,428 shares in 3Q19 and 12,111,826,935 shares in 4Q18. The fully diluted share count on December 31, 2019 was approximately 13,089,079,000.

Detailed Financials Section

Operating revenues grew 10.9% QoQ to NT$41.85 billion. COGS increased 11.4% to NT$34.88 billion, as other manufacturing costs increased 15.6% to NT$23.81 billion, mainly as a result of higher wafer shipments while depreciation was up 3.4% to NT$11.07 billion. Gross profit grew 8.3% to NT$6.97 billion. Operating expenses rose 20.2% to NT$6.17 billion. R&D expenses grew 22.7% sequentially to NT$3.45 billion, representing 8.3% of 4Q19 operating revenues. General & Administrative (G&A) expenses were up 19.2% to NT$1.60 billion. Net other operating income was NT$1.22 billion. In 4Q19, operating income totaled NT$2.02 billion.

Net non-operating income in 4Q19 was NT$946 million, mainly resulting from NT$1.06 billion in net investment gain, partly offset by NT$468 million in net interest expense.

In 4Q19, cash inflow from operating activities was NT$37.53 billion. Cash outflow from investing activities totaled NT$17.84 billion, which included NT$12.80 billion in the acquisition of USJC and NT$3.50 billion in PP&E spending, resulting in free cash flow of NT$33.81 billion. Cash outflow from financing activities totaled NT$9.72 billion, primarily from NT$9.55 billion in the repayment of bank loans. Net cash inflow in 4Q19 was NT$8.74 billion. Over the next 12 months, the company expects to repay NT$4.70 billion in bank loans.

Cash and cash equivalents increased to NT$95.49 billion. Days of inventory decreased to 55 days.

Current liabilities increased to NT$72.71 billion. Total liabilities decreased to NT$162.97 billion, leading to a debt to equity ratio of 79%.

Analysis of Revenue2 for Foundry Segment

Revenue from Asia Pacific decreased to 55%, while revenue contribution from North American customers declined to 30%. Revenue from Japan rose to 9% while European business remained flat at 6%.

Revenue contribution from 28nm was 10% while 40nm business accounted for 22% of sales.

Revenue from fabless customers decreased to 87% of revenue.

Revenue from communication remained flat at 54%, while business from consumer applications declined to 24%. Computer related applications remained at 13% of revenue.

Blended ASP Trend for Foundry Segment

Blended average selling price (ASP) in 4Q19 remained flat.

(To view ASP trend, visit http://www.umc.com/english/investors/4Q19_ASP_trend.asp)

Shipment and Utilization Rate3 for Foundry Segment

In 4Q19, the acquisition of USJC helped to lift wafer shipments to increase 13.1% QoQ to 2,042K, while quarterly capacity rose 11.6% QoQ to 2,237K. As a result, the overall utilization rate in 4Q19 was 92%. Full-year 2019 utilization rate was 89%.

Capacity4 for Foundry Segment

Total capacity in the fourth quarter reached 2,237K 8-inch equivalent wafers, which included 98K 12-inch equivalent wafers from Fab 12M. We foresee that first quarter capacity will grow 1.8% sequentially to 2,278K 8-inch equivalent wafers, mainly reflecting the capacity expansion at Fab 8N and Fab 12A.

(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 4Q19 was US$122 million, leading to a total spending US$574 million in capital expenditure for full year 2019. 2020 capex budget will be US$1.0 billion.

Brief Summary of Full Year 2019 Consolidated Results

• Consolidated revenue in NTD declined 2.0% YoY to NT$148.20 billion, from NT$151.25 billion in 2018.
• Gross margin was 14.4%, compared to 15.1% in 2018.
• Operating margin was 3.2%, compared to 3.8% in 2018.
• Net income attributable to stockholders of the parent was NT$9.71 billion in 2019.
• EPS was NT$0.82, or EPADS of US$0.136 for 2019.
• The contribution from 28nm technologies and below accounted for 11% in 2019. 40nm business accounted for 23% in 2019.

Annual Sales Breakdown in Revenue for Foundry Segment

First Quarter of 2020 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To remain flat
• ASP in USD: To remain flat
• Profitability: Gross profit margin will be in the mid-teens % range
• Foundry Segment Capacity Utilization: around 90%
• 2020 CAPEX for Foundry Segment: US$1 billion

Recent Developments / Announcements

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

Conference Call / Webcast Announcement

Wednesday, February 5, 2020

Time:5:00 PM (Taipei) / 4:00 AM (New York) / 09:00 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 4Q19 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. The company provides mature and advanced IC production with a focus on Specialty Technologies to serve 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, volume production 14nm FinFET, specialty process platforms specifically developed for AI, 5G and 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 12 wafer fabs are strategically located throughout Asia and are able to produce more than 700,000 wafers per month. The company employs approximately 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.

Safe Harbor Statements

This press release contains 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. These forward-looking statements include, but are not limited to, statements regarding anticipated sales for first quarter; product releases and market shares; opportunities in the 5G and IoT markets; anticipated wafer demands in market segments; execution of corporate strategies; repayment of bank loans; expected foundry capacities; the ability to obtain new business opportunities; and information under the heading “First Quarter of 2020 Outlook and Guidance.”

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, including its Annual Report on Form 20-F. 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.

- FINANCIAL TABLES TO FOLLOW -

1Unless 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 December 31, 2019, the three-month period ending September 30, 2019, and the equivalent three-month period that ended December 31, 2018. For all 4Q19 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the December 31, 2019 exchange rate of NT$ 30.08 per U.S. Dollar.
2 Revenue in this section represents wafer sales
3 Utilization Rate = Quarterly Wafer Out / Quarterly Capacity
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.

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