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United Microelectronics Corporation (NYSE:UMC) Q4 2023 Earnings Call Transcript

United Microelectronics Corporation (NYSE:UMC) Q4 2023 Earnings Call Transcript January 31, 2024

United Microelectronics Corporation beats earnings expectations. Reported EPS is $0.17, expectations were $0.15. UMC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome, everyone, to UMC's 2023 Fourth Quarter Earnings Conference Call. [Operator Instructions]. For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Michael Lin: Thank you, and welcome to UMC's conference call for the fourth quarter of 2023. I am joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results, followed by our President's key message to address UMC's focus and the first quarter of 2024 guidance. Once our President and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risk that may be beyond the company's control.

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For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2023 financial results.

Chi-Tung Liu: Thank you, Michael. I would like to go through the 4Q 2023 investor conference presentation material, which can be downloaded or viewed in real-time from our website. Starting on Page 4. The fourth quarter of 2023, consolidated revenue was NT54.96 billion with gross margin at 32.4%. Net income attributable to the stockholder of the parent was NT13.2 billion. Earnings ordinary shares were NT1.06 in Q4 2023. On Page 5, this is the sequential performance. Revenue declined 3.7% quarter-over-quarter to NT54.9 billion. Gross margin rate dropped roughly 3.5 percentage point to 32.4% or NT17.8 billion, with a net non-operating income of NT2.22 billion, the net income come to NT13.19 billion or EPS of NT1.06. This is compared to NT1.29 in the previous quarter of 2023.

For year-over-year comparison on Page 6. Revenue declined roughly by 20% year-over-year to NT222 billion. This is largely due to the lower capacity utilization rate as our wafer shipment declined roughly 27% year-over-year from 2022 to 2023. Gross margin rate as a result declined from 45.1% in 2022 to 34.9% in 2023. Overall, net earnings in 2023 was NT50.99 or close to NT61 billion. Net income rate was 27.4%, compared to 31.3% in the year of 2022. EPS as a result is NT4.93 million in 2023, compared to NT7.09 in 2022. On Page 7. Our cash on hand is still around NT132 billion and total equity of the company has come to NT359.5 billion. Book value per share is close to NT29 per share at the end of 2023. On Page 8, starting from 2024, we have changed our ASP unit as well as capacity unit to 12 inches and 12 inches equivalent to express the ASP number as well as the capacity number.

A close-up of a state-of-the-art semiconductor wafer foundry.
A close-up of a state-of-the-art semiconductor wafer foundry.

For the past five quarters, as you can see the trend chart here, the first three quarters was edging up and the last quarter was relatively firm on a 12 inches wafer equivalent ASP trend. On Page 9, for the revenue breakdown by geography, Asia is getting a little bit bigger to 62% of our total revenue, when North America is above 23% of our total revenue. For year-over-year comparison on Page 10, Asia actually declined from 51% in 2022 to 57% in 2023 and the rest of the three main regions didn't change much. On Page 11, IDM continued to increase HF to 22% and Fabless is around 78% in Q4 of 2023. On our year-over-year comparison on Page 12, the increase in IDM is more notable from 15% in 2022 to 2023 of 22%. In terms of application breakdown on Page 13, communication remained the biggest of 47% and the spread among different applications didn't change much quarter-over-quarter.

As far year-over-year change, computer declined from 15% in 2022 to 11% in 2023. And we continue to see bigger exposure to other segment, which is mostly Automotive and Industrial, around 20%, compared to 14% in the previous year. For technology breakdown, we are happy to see that, revenue come from 40 nanometer and below now represent 50% of our total revenue, and this is compared to about 45% in the previous quarter. And 22 and 28 is our largest share of revenue around 36% in the Q4 of 2023. For the full-year numbers, the trend is also similar. We see the 22, 28 revenue of 31% compared to 24% in the previous year. On Page 17, as I mentioned earlier, the unit of capacity wafer also changed to 12 inches equivalent. Right now, our quarterly available capacity is a bit over NT1.2 million a quarter in terms of 12 inches equivalent capacity, and we will continue to see some minor increase out of our 12 inch capacity given our P6 expansion is continuing.

On the last page of my presentation, CapEx for 2024 is currently budget at $3.3 billion with majority of that over 95% close to 12 inches capacity expansion in both Tainan and also Singapore. The above is a summary of UMC's results for Q4 2023. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang.

Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results. In the fourth quarter, challenging macroeconomic conditions continue to prolong the inventory correction in the semiconductor industry, as our wafer shipment decreased 2.5% quarter-over-quarter, while overall fab utilization rate slightly fell to 66%. As our Tainan 1286 facility continues to ramp, our 22/28 nanometer represented 36% of our Q4 wafer revenue, reflecting record high in revenue as well as percentage of the wafer sales. Overall, 2023 was a year, where UMC demonstrated its financial resilience in face of challenging external environment, we were able to achieve yearly 34.9% gross margin despite the utilization rates significantly in 2023 This resilience can be attributed to our relentless pursuit of technology innovation differentiation, customer synergy and stickiness enhancement and manufacturing quality excellent and cost reductions.

As a result, we have improved our product mix and customer portfolio, which led ASP by single-digit in 2023. Looking into the first quarter of 2024, we anticipate overall wafer demand will increase mildly. However, customer maintains a cautious approach in their inventory management. Moving forward, UMC will continue to navigate headwinds amid an increasing competitive landscape and swallowing geopolitical tensions. We have diversified the manufacturing base and differentiation in 12 inches specialty technologies. Our 12 nanometer FinFET collaboration is a step forward in advancing our strategy of pursuing cost-efficient capacity expansion and technology, no advancement in continuing our commitment to customers. This effort will enable our customer to smoothly migrate to this critical new note, and also benefit from a resiliency of an added Western footprint.

We anticipate 12 nanometer FinTech Cooperation will broaden our addressable market and significantly accelerate our development roadmap. Now let's move on to first quarter 2024 guidance. Our wafer shipments will increase by 2% to 3%. ASP in U.S. dollars will decrease by 5%. Gross margins will be approximately 30%. Capacity utilization rate will be in the low 60% range. Our 2024 cash base CapEx will be budgeted at $3.3 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

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