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United Microelectronics Corporation (NYSE:UMC) Q1 2024 Earnings Call Transcript

United Microelectronics Corporation (NYSE:UMC) Q1 2024 Earnings Call Transcript April 24, 2024

United Microelectronics Corporation  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 2024 First 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 two hours 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 first quarter of 2024. 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 first quarter financial results, followed by our President's key message to address UMC's focus and the second quarter 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 first quarter 2024 financial results.

Chi-Tung Liu: Thank you, Michael. I would like to go through the first quarter 24 investor conference presentation material, which can be downloaded or viewed in real-time from our website. Starting on Page 4. The first quarter of 2024, consolidated revenue was NT$54.63 billion with gross margin at 30.9%. Net income attributable to the stockholder of the parent was NT$10.46 billion. Earnings ordinary shares were NT$0.84. Utilization rate in first quarter of 2024 was 65%, similar to 66% in Q4 of last year. However, the shipment has increased by about 4.5% sequentially. On Page 5, for the sequential financial comparison, revenue declined slightly to NT$54.6 billion. Gross margin was down 5.1%, to 30.9 percentage point, or NT$16.899 billion.

The operating expenses normally in first quarter is seasonal low point. Therefore, we can see the operating expenses was down 13.4% to NT$5.7 billion in Q1 of 2024. Our other operating income mainly is subsidies from governments, declined quite a bit to NT$513 million in Q1. This is largely coming from our shipment operation. Their government subsidies recognition is in line with their depreciation curve, which has come down significantly in 2024. And overall, net income attributable to the shareholder of the parent was NT$10.4 billion in Q1 versus NT$13.1 billion in Q4 of last year. EPS was NT$0.84 for first quarter. On Page 6, the year-over-year comparison, revenue also stayed similar range, almost slight increase of 0.8%. And gross margin, however, declined from 35.5 percentage point to 30.9 percentage point in Q1, many due to increasing cost, such as depreciation expenses.

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

And for the non-operating income, there's also a big difference, many due to our portfolio holdings, investment holdings. This is the mark-to-mark again. It's only about $1 billion in Q1 versus $4.6 billion in the same period of last year. On Page 7, our cash is now about NT$119 billion, and our total equity is NT$378 billion. Most of the increases in the PP&E property plan and equipment, which right now stands at NT$254 billion. On Page 8, there's a one-time annual adjustment in our ASP in Q1 of 2024, which also the main reason offset the 4% to 5% increase in wafer shipment in Q1. So the magnitude is quite similar to that in first quarter ASP. On Page 9, the original [ph] breakdown of our revenue stay relatively similar quarter-over-quarter.

Europe declined 3% from 11% in Q4 last year to 8% in first quarter this year. On next Page, page 10, there's also a big change in the IDM compensation versus fabulous revenue. So this quarter is 18% versus 82%, while last quarter was 22% versus 78%. On Page 11, the application breakdown remain relatively stable. On Page 12, we see a seasonal downward adjustment in some of our customers, which lead to a small decrease in our 20 to 28 revenue percentage point of 33%. And the rest of the technology geometries are relatively stable. On Page 13, our capacity breakdown in 12-inch equivalent capacity, most of the increase is coming from 12A in our Tainan [ph] fab, which is our P6 expansion. And there will be some spotty areas of efficiency improvement for some of our other FABs. Total 12-inch equivalent capacity is 1.2 million in Q1 this year.

Our CapEx for after first quarter remain unchanged, still stay around NT$3.3 billion cash base CapEx for 2024. Majority of that will be attributed to 12-inch capacity expansion. So the above is a summary of UMC results for Q1 2024. 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 Wong.

Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here I would like to share UMC's first quarter results. In the first quarter, our wafer shipments increased to 4.5% quarter-over-quarter, as we saw a pickup in the computer segment. Despite a slight drop in the utilization rate to 65%, we were able to maintain relative healthy margins due to a continuous cost control and operational efficiency effort. Contribution from our specialty business increased to 57% of total revenue, driven by demand for power management ICs, RFSOI chips, and silicon interposers for AI servers. During the quarter, our team continued to make good progress on key pipeline projects, both customized solutions for customers as well as new technology platforms to serve high-growth segments within the 5G, AIoT, and automotive markets.

This includes embedded high-voltage, embedded non-volatile memory, RFSOI, and 3D IC solutions. In line with our policy to provide a stable and predictable dividend to our shareholders, UMC's Board of Directors recently approved a shareholder cash distribution of approximately NT$3 per share, which will be a higher payout ratio than the previous years. This is subject to approval by shareholders at an Annual General Meeting in May. Looking ahead to the second quarter, we expect to see an increase in wafer shipments as the inventory situation in the computing, consumer, and communication segment improves to a healthier level. As for the automotive industrial segment, demand remains muted, as the pace of inventory digestion has been slower than anticipated.

While we still expect some lingering impact on macro uncertainties and cost headwinds in the near term, UMC will continue to invest in technology, capacity, and people to ensure UMC is ready to capture the next phase of growth driven by 5G and AI innovations. Now, let's move on to the second quarter 2024 guidance. Our wafer shipments will increase by low single-digit percentage. ASP in US dollars will remain firm. Growth margins will be approximately 30%. Capacity utilization rate will be in the mid 60% range. Our 2024 cash-based CapEx will be budgeted at a US $3.3 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

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To continue reading the Q&A session, please click here.