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UMC Reports Second Quarter 2016 ResultsUnited Microelectronics Corporation (NYSE: UMC; TWSE: 2303) ("UMC" or "The Company"), a leading global semiconductor foundry, today announced its consolidated operating results for the second quarter of 2016. Second quarter consolidated revenue was NT$37.00 billion, up 7.5% quarterly from NT$34.40 billion in 1Q16 and down 2.7% YoY from NT$38.01 billion in 2Q15. 2Q16 consolidated gross margin was 22.4%. Net income attributable to the stockholders of the parent was NT$2.58 billion, with earnings per ordinary share of NT$0.21. Mr. Po-Wen Yen, CEO of UMC, said "In the second quarter of 2016, our foundry revenue increased 7.5% sequentially to NT$36.87 billion. We achieved foundry operating margin of 7.1%. Overall capacity utilization was 89%, bringing wafer shipments to 1.51 million 8-inch equivalent wafers. As the latest semi inventory cycle came to an end, 2Q16 reflected a return to semiconductor seasonality as chip demand improved. As a result, UMC experienced a surge in 28nm business, especially from communication customers. Many of the chips found in the newly released smartphone models have adopted our 28nm solutions, which helped trigger our 28nm revenue growth that began in 2Q16. For the consumer segment, UMC has also delivered other 28nm volume production ICs in areas such as DTV and set top box to help further boost 28nm utilization. The widespread adoption of our 28nm process technologies underscores the technology readiness and value that UMC provides to the IC industry." CEO Yen continued, "Looking into next quarter, we anticipate a slight increase to our overall foundry revenue, with 28nm revenue contribution expected to reach 20% or more. Our 40nm demand is also expected to remain stable. As our advanced node performance remains on track, we do anticipate a decline in 8" demand due to changes in customer mix and market dynamics. While we continue to expand additional 28nm capacity at Fab 12A in Tainan, UMC's 12" Xiamen operations, 12X, is set to begin pilot production. As such, UMC will accrue higher quarterly depreciation and operating expenses. However, we expect our high 28nm utilization rate and the revenue recognition when 12X enters production at year's end to somewhat offset a portion of the accrued depreciation and operating expense. We foresee 12X to aggressively capitalize on the fast growing Chinese semiconductor market and provide our customers with a viable solution for local foundry services in China. We believe 12X will play a key role as a critical manufacturing base as it ramps to economy of scale" Summary of Operating Results
Consolidated revenues in 2Q16 increased 7.5% sequentially to NT$37.00 billion, including NT$36.87 billion from the foundry segment, with 17% of contribution from 28nm technologies. Gross profit reached NT$8.29 billion, or 22.4% of revenue, up 64.6% compared to 1Q16. Operating expenses increased 15.7% sequentially to NT$5.86 billion, and net other operating income was NT$23 million, leading to an operating income of NT$2.45 billion. Net non-operating expenses was NT$650 million. Net income attributable to stockholders of the parent in 2Q16 was NT$2.58 billion. Earnings per ordinary share for the quarter was NT$0.21. Earnings per ADS was US$0.033. The basic weighted average number of outstanding shares in 2Q16 was 12,334,888,329, compared with 12,408,239,978 shares in 1Q16 and 12,572,497,200 shares in 2Q15. The diluted weighted average number of outstanding shares was 13,460,073,526 in 2Q16, compared with 12,492,270,589 shares in 1Q16 and 13,222,544,584 shares in 2Q15. The fully diluted share count on June 30, 2016 was approximately 13,749,505,000. On June 30, 2016, UMC held 400 million treasury shares acquired from the 16th and 17th share buy-back programs. Detailed Financials Section Consolidated revenues increased 7.5% sequentially to NT$37.00 billion, driven by stronger demand for 28nm and 40nm shipments. Depreciation increased 8.1% in 2Q16 mainly from 28nm capacity deployment. Other manufacturing costs decreased 7.9% to NT$17.45 billion QoQ, since in 1Q16 there were higher manufacturing costs associated with the February 6 earthquake, leading to a total of NT$28.71 billion in cost of goods sold. Gross profit increased to NT$8.29 billion, up 64.6% sequentially. Operating expenses increased 15.7%, mainly from NT$1.54 billion in G&A expense that includes 12X setup costs. Sales & marketing expenses increased 8.1% to NT$1.09 billion. R&D expenses represented 8.7% of operating revenues. Operating income in 2Q16 reached NT$2.45 billion.
Net non-operating expenses in 2Q16 was NT$650 million, including a NT$548 million gain on disposal of investment, which was mainly offset by a NT$504 million net investment loss and a NT$501 million exchange loss.
Cash inflow from operating activities was NT$5.62 billion. Cash outflow from investing activities totaled NT$27.11 billion, including NT$29.31 billion in CAPEX spending, resulting in a free cash outflow of NT$23.69 billion. Cash inflow from financing activities was NT$11.15 billion, primarily due to NT$13.55 billion in bank loans and NT$2.40 billion in treasury stock purchase. Net cash outflow for 2Q16 was NT$10.12 billion. Over the next 12 months, the company expects to repay NT$4.00 billion in bank loans.
Cash and cash equivalents decreased to NT$49.43 billion, mostly due to free cash outflow of NT$23.69 billion, which was offset by NT$13.55 billion in bank loans. The days of inventory increased one day to 53 days.
Current liabilities increased to NT$80.05 billion, primarily reflecting the increase in short-term credit, payable on equipment and dividends payable. The reclassification of long-term bonds to short-term bonds reduced long-term credit/bonds to NT$40.47 billion. Total liabilities increased to NT$148.15 billion, leading to a debt to equity ratio of 67%.
Analysis of Revenue2 for Foundry Segment Revenue from North America and Asia Pacific accounted for 49% and 45% of 2Q16 sales, respectively.
Revenue from advanced 12" technologies contributed 43% of 2Q16 revenue, including 17% from 28nm and 26% from 40nm.
Fabless customers accounted for 93% of revenue in 2Q16.
Revenue from the communication segment increased to 55% of sales mainly driven by strong demand in smartphone related ICs. Consumer applications constituted 27% of sales.
(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. Blended ASP Trend for Foundry Segment Blended average selling price (ASP) increased in 2Q16. (To view ASP trend, visit http://www.umc.com/english/investors/2Q16_ASP_trend.asp) Shipment and Utilization Rate3 for Foundry Segment Wafer shipments increased 5.7% to 1,514K in 2Q16. Quarterly capacity increased 1.8% QoQ to 1,723K, leading to an overall utilization rate of 89% for 2Q16.
Capacity4 for Foundry Segment Overall capacity in the second quarter increased to 1,723K 8-inch equivalent wafers. Estimated capacity in the third quarter will increase by approximately 3.0% sequentially to 1,774K 8-inch equivalent wafers, mainly due to capacity deployment at Fab 12A and Fab 12i.
(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 2Q16 totaled US$904 million, bringing first half spending to US$1.5 billion. Full year 2016 CAPEX plan is budgeted for US$2.2 billion.
Third Quarter of 2016 Outlook & Guidance Quarter-over-Quarter Guidance:
Recent Developments / Announcements
Please visit UMC's website for further details regarding the above announcements Conference Call / Webcast Announcement Wednesday, July 27, 2016 Time: 5:00 PM (Taipei) / 5:00 AM (New York) / 10:00 AM (London) Dial-in numbers and Access Codes: USA Toll Free: 1-800 871-3110, 1-888 700-7397 Taiwan Number: 02-2192-8016 Other Areas: +886-2-2192-8016 Access Code: UMC A live webcast and replay of the 2Q16 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 robust foundry solutions enable chip designers to leverage the company's sophisticated technology and manufacturing, which include volume production 28nm gate-last High-K/Metal Gate technology, ultra-low power platform processes specifically engineered for Internet of Things (IoT) applications and the automotive industry's highest-rated AEC-Q100 Grade-0 manufacturing capabilities for production of ICs found in cars. UMC's 10 wafer fabs are strategically located throughout Asia and are able to produce over 500,000 wafers per month. The company employs more than 17,000 people worldwide, with offices in Taiwan, mainland 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. 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 Jun 30, 2016, the three-month period ending Mar 31, 2016, and the equivalent three-month period that ended Jun 30, 2015. For all 2Q16 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the Jun 30, 2016 exchange rate of NT$ 32.27 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. - FINANCIAL TABLES TO FOLLOW -
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