UMC Reports Third 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 third quarter of 2019.

Third quarter consolidated revenue was NT$37.74 billion, up 4.7% QoQ from NT$36.03 billion in 2Q19 and down 4.2% YoY from NT$39.39 billion in 3Q18. Consolidated gross margin for 3Q19 was 17.1%. Net income attributable to stockholders of the parent was NT$2.93 billion, with earnings per ordinary share of NT$0.25.

Jason Wang, co-president of UMC, said, “In the third quarter, foundry revenue grew 4.8% QoQ to NT$37.73 billion, leading to a foundry operating margin of 6.9%. Utilization rate increased to 91%, bringing wafer shipments to 1.81 million 8-inch equivalent wafers. The increase in wafer demand was primarily driven by inventory restocking in the wireless communication markets, which included products such as WiFi, RF switch and power management ICs. On October 1st, UMC also completed the full acquisition of MIFS, a 300mm fab based in Japan that is currently manufacturing 90nm, 65nm and 40nm products. The fab, which fits our specialty technology focus and long term growth projections, has been renamed United Semiconductor Japan Co., Ltd. (USJC). USJC will increase our foundry market share, provide business synergies and benefit from economies of scale while broadening UMC’s comprehensive specialty and logic technologies to serve Japanese and international customers.”

Co-president Wang further commented, “Looking to the fourth quarter, based on customers’ forecasts, the overall business outlook appears to remain firm primarily due to sustained wafer demand from new product deployment across communications and computing market segments. These product rollouts include RF ICs and OLED driver ICs found in 5G smartphones and power management ICs designed into computing and solid-state drive applications. We expect these product releases to enable UMC to further gain market share in 5G wireless devices as well as in non-volatile memory applications. We will continue to pursue our corporate strategy of focusing on business expansion in mature specialty and logic technologies while delivering world-class service to our customers. With UMC’s economy of scale and our core strength in foundry technologies, we look forward to securing new business opportunities by delivering a variety of differentiated manufacturing solutions in the semiconductor industry.”

Summary of Operating Results

Operating revenues in 3Q19 grew 4.7% to NT$37.74 billion, including NT$37.73 billion from the foundry segment. Revenue contribution from 40nm and below technologies slightly increased to 38%. Gross profit increased 13.8% quarterly to NT$6.4 billion, or 17.1% of revenue. Operating expenses declined 8.0% to NT$5.13 billion. Net other operating income declined to NT$1.21 billion, leading to an operating income of NT$2.51 billion. Net non-operating expense was NT$532 million. Net income attributable to stockholders of the parent was NT$2.93 billion.

Earnings per ordinary share for the quarter was NT$0.25. Earnings per ADS was US$0.040. The basic weighted average number of outstanding shares in 3Q19 was 11,708,239,978, compared with 11,817,657,562 shares in 2Q19 and 12,053,892,152 shares in 3Q18. The diluted weighted average number of outstanding shares was 13,049,025,428 in 3Q19, compared with 13,079,662,179 shares in 2Q19 and 13,354,955,886 shares in 3Q18. The fully diluted share count on September 30, 2019 was approximately 13,065,104,000.

Detailed Financials Section

Operating revenues grew 4.7% to NT$37.74 billion. COGS increased 3.1% to NT$31.31 billion, as depreciation declined 6.3% to NT$10.71 billion while other manufacturing costs increased 8.7% to NT$20.60 billion primarily due to higher wafer shipments. Gross profit grew 13.8% to NT$6.43 billion. Operating expenses declined 8.0% to NT$5.13 billion. R&D expense represented 7.5% of 3Q19 operating revenues and net other operating income was NT$1.21 billion. In 3Q19, the company realized an operating income of NT$2.51 billion.

Net non-operating expense in 3Q19 was NT$532 million, mainly resulting from NT$752 million in exchange loss and NT$503 million in net interest expense, partly offset by NT$736 million in net investment gain.

In 3Q19, the company set aside an amount of JPY 54.4 billion as other current assets in order to complete the acquisition of USJC. As a result, cash outflow from operating activities was NT$3.08 billion. Free cash outflow was NT$7.27 billion due to the PP&E spending of NT$3.55 billion and NT$732 million in the acquisition of intangible assets. Cash inflow from financing activities totaled NT$4.14 billion, primarily from NT$11.17 billion in bank loans, partly offset by NT$6.91 billion in the payment of cash dividends. Net cash outflow in 3Q19 was NT$3.60 billion. Over the next 12 months, the company expects to repay NT$3.13 billion in bank loans.

Cash and cash equivalents decreased to NT$86.76 billion. Days of inventory remained at 58 days.

Current liabilities decreased to NT$70.33 billion. Total liabilities increased to NT$169.00 billion, leading to a debt to equity ratio of 82%.

Analysis of Revenue2 for Foundry Segment

Revenue from Asia Pacific remained at 59%, while revenue contribution from North American customers climbed to 33%. Revenue from Europe and Japan was 6% and 2%, respectively.

Revenue contribution from 28nm was 12% while 40nm business represented 26% of sales.

Revenue from fabless customers decreased to 92% of revenue.

The communication segment grew to 54% of revenue, while revenue from consumer applications declined to 26%. Computer related applications represented 13% of revenue.

(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) in 3Q19 slightly increased.

(To view ASP trend, visit http://www.umc.com/english/investors/3Q19_ASP_trend.asp)

Shipment and Utilization Rate3 for Foundry Segment

In 3Q19, wafer shipments grew 4.4% to 1,806K. Quarterly capacity increased 1.7% QoQ to 2,004K, resulting in an overall utilization rate of 91%.

Capacity4 for Foundry Segment

Total capacity in the third quarter reached 2,004K 8-inch equivalent wafers. We foresee that fourth quarter capacity will grow to 2,237K 8-inch equivalent wafers, representing a sequential increase of 11.6% mainly due to the acquisition of USJC (Fab 12M) and the continuous capacity expansion at Fab 8N.

(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

Capital Expenditure by Year - in US$ billion

2019 CAPEX Plan

CAPEX spending in 3Q19 was US$134 million, leading to US$452 million in capital expenditure for the first three quarters of 2019. Full year 2019 CAPEX budget will be revised to US$700 million.

Fourth Quarter of 2019 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To increase by 10%
• ASP in USD: To remain flat
• Profitability: Gross profit margin will be in the mid-teens % range
• Foundry Segment Capacity Utilization: Close to 90%
• 2019 CAPEX for Foundry Segment: US$700 million

Recent Developments / Announcements

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

Conference Call / Webcast Announcement

Wednesday, October 30, 2019

Time: 5:00 PM (Taipei) / 5:00 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 3Q19 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 19,500 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 release 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 -

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 September 30, 2019, the three-month period ending June 30, 2019, and the equivalent three-month period that ended September 30, 2018. For all 3Q19 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the September 30, 2019 exchange rate of NT$ 31.02 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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