United Microelectronics Corporation
Q1 2008 Earnings Call Transcript

Published: 30 Apr 2008

[Operator:]

Welcome everyoneto UMC's 2008 Quarter One Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instruction given at that time. [Operator Instructions]. For your information this conference call is now being broadcast live over the internet. Broadcast replay will be available within an hour after the conference is finished, please visit www.umc.com under the Investor Relations/investor events section. I would now like to introduce Mr. Qidong Liu, who is Chief Financial Officer of UMC. Mr. Liu, you may begin.

[Quidong Liu:]

Thank you and welcome everyone and thank you for joining our first quarter earnings conference call. We are hosting this conference call from Taipei and with me here are Dr. Jackson Hu, Chairman and CEO of UMC and Mr. Bowen Huang, Senior IR Manager. Dr. Hu will help to report our first quarter results. During today's conference call we will first review our financial results for the first quarter of 2008. Then Dr. Hu will provide an update for our business and forward-looking guidance followed late... lastly with Q&A session. Before we get started, I would like to remind you of UMC's Safe Harbor policy. i.e., certain statement made during the course of our discussion today may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially including risks that may beyond the company's control. For these risks please refer to UMC's filing with the SEC in the U.S. and ROC Security Authority. Now, let me begin with the financial review for Q1 2008. Revenue was NT$24 billion, representing 13.1% quarter-over-quarter decrease from NT$27.62 billion in Q4 2007. And a 4.2% year-over-year increase from NT$23.03 billion in Q1 '07. Gross margin for the quarter was NT$3.58 billion or 14.9% of revenue, compared to NT$5.65 billion or 20.5% of Q4 2007 revenue. Operating profit was NT$190 million or 0.8% of revenue. This is compared to NT$1.33 billion or 4.8% of Q4 2007 revenue. Net income was NT$206 million in Q1 '08 compared to a net income of NT$1.36 billion in Q4 2007. EPS for the quarter was NT$0.02 and ADS was $0.003. You can look for more details within the financial data that accompany our press release today. Now, let me turn the call over to Jackson and he will provide you with the business update and outlook for the second quarter of 2008. Jackson, please.

[Jackson Hu:]

[Operator:]

Thank you very much. [Operator Instructions]. And our first question comes form Pranab Sharma of Dallar Securities [ph]. Please go ahead and ask your question Pranab.

[Unidentified Analyst:]

Thank you for taking my question. My first question is basically on your second quarter product mix. Could you give little bit of idea like how many percentage of your revenue are you expecting at 65 and 90-nanometer in second quarter? And how that is panning out with ASP, because you have given ASP decline guidance for second quarter?

[Jackson Hu:]

Just a second please. And combining 65 and 90-nanometer, the contribution would be around the 35%.

[Unidentified Analyst:]

Okay. Then how... why it's... why you see that ASP decline on second quarter?

[Jackson Hu:]

It's because of the mix again, the volume for the matured technology nodes increase.

[Unidentified Analyst:]

Okay. And secondly, could you also explain a bit about to your business model with Elpida, because you have two part of the business one is for DRAM related product and one is also technology licensing for foundry to Elpida. How it's going to benefit you on the long term. And in the DRAM business are you going to get similar type of returns whatever you are normally getting at logic operations?

[Jackson Hu:]

First of all it's not proper to go into the detail of the business terms yet however we do have license fee or technology license and we also... we have an option to produce DRAM whenever we....if we like to.

[Unidentified Analyst:]

Okay. And the last one is basically on the margin improvement on the second quarter. I think you have given a very decent improvement on the margin. Could you give what will be the depreciation on the second quarter and how many percentage point of the margin improvement has really come from cost cutting on the second quarter?

[Quidong Liu:]

Hi, Pranab. Depreciation for the quarter, from the first quarter of 2008 was around NT$9.22 billion. That's going to be the highest point of the whole year 2008. For the whole year 2008 we are looking for about 2.2% to 2.3% decline from that of 2007. And the whole quarterly depreciation is going to be trend down slightly on a quarterly basis throughout the rest of the year.

[Unidentified Analyst:]

Okay. Yeah, the last question is the pricing on the 0.12 micron and 0.18 micron side. You have also seen some weakness on the 8-inch fab, TSMC has also seen some weakness under 8-inch fab utilization rate. How do you see the pricing at 0.18 micron in second/third quarter going forward?

[Jackson Hu:]

Yeah, we don't see any meaningful job on...from 0.18 micron pricing.

[Unidentified Analyst:]

Okay. So, it's a normal environment that's what you want to try to tell right?

[Jackson Hu:]

Yeah. It's a pretty much a saturated.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

[Bhavin Shah:]

[Quidong Liu:]

The range of decline in '09 based upon today's CapEx budget is going to be greater than that of 2008.

[Bhavin Shah:]

Right. Okay. And just on the response Dr. Hu, on Elpida's question. You mentioned that you have a license fee for the, license for the metal interconnect and is there any specific... you have an option to produce DRAM but would there be any sort of royalty or something to be paid in case you do excise that option?

[Jackson Hu:]

I am not ready to get into the integrated [ph] details. But, it's a good arrangement for UMC.

[Bhavin Shah:]

Right. And on 45-nanometer you mentioned that you might have small production by year end. What are the one or two most likely products that might be sort of bit ahead in terms of development with you on that front?

[Jackson Hu:]

Okay. Yeah, let me give you a general and broad answer in this case that the applications that can embrace state of the art process technology, very few including GPUs and cell phones and high end consumer applications.

[Bhavin Shah:]

Right. Okay, thank you.

[Operator:]

There are currently no more questions in the queue. [Operator Instructions]. And we now have a question from Randy of Credit Suisse. Please go ahead.

[Randy Abrams:]

Yes, good evening. I wanted to ask a follow up on the gross margin to get to 20% even with depreciation following it implies pretty good savings and actually absolute costs going down. Maybe you can talk about some of the cost initiatives taking place and what's driving the big bounce aside from the depreciation again in second quarter?

[Jackson Hu:]

Yeah, that's a good guess. Yeah we have taken cost reduction measures, multiple of them since last year and we started to see the possible [ph] since Q1 and that effect will continue.

[Randy Abrams:]

Okay. So to just think about it through like after second quarter at the base, do you expect an accelerated rate of cost reductions of that level where we could see margins start to get back towards mid 20s into the back half of the year. How do you see it progressing beyond second quarter?

[Jackson Hu:]

I will have to wait for next quarter to answer your question, because as you know on the market is very dynamic and the product mix, the ASP mix can change.

[Randy Abrams:]

Okay. As I look at non-operating could you discuss what to expect for combination of dividends where equity sales and then interest go against the second quarter?

[Quidong Liu:]

Well we have several potential investments can be disposed in the open market and for the time being we don't have any concrete plan to do in larger scale. So you will have to follow our announcement after every tranche of our disposals. And that's pretty much I can answer for second quarter. As for cost reduction, I will say to see a significant jump in cost margin. This is much... as much as we can do on the cost saving side. And in order to see a bigger improvement, it had to come from better top line growth. Either the revenue should grow stronger in the second half in order to see a better profit margin.

[Randy Abrams:]

Okay. Andjust final question one of you can give an update on status of the relationship with Houjie [ph] and with the new government in Taiwan any chance for that the stake in Houjie [ph] back?

[Jackson Hu:]

Yeah, unfortunately at this point we don't have anything new to report. And we are waiting for the new government to become operational after May 20. And then we...at a proper time we will approach the proper organizations and solicit help to address the Houjie issue.

[Randy Abrams:]

Okay, thanks a lot guys.

[Operator:]

[Quidong Liu:]

Thank you very much. And that conclude our call today. Thanks for joining our conference call. If you have any further questions please do not hesitate to contact directly. And now back to you, operator.

[Operator:]

Thank you for your participation in UMC's conference. There will be a webcast replay within an hour. Please visit www.umc.com under the Investor Relations/investor events section. You may now disconnect. Good bye.