UMC(UMC) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2023 consolidated revenue was NT $57.1 billion, with a gross margin of 35.9% [5] - Net income attributable to shareholders was NT$ 16 billion, with earnings per share (EPS) of NT $1.29, slightly better than the previous quarter's NT$ 1.27 [5] - Shipments declined by 2% sequentially, and capacity utilization was 67% in Q3 2023 [5] - Revenue for the first nine months of 2023 was NT $167.5 billion, a 20.5% YoY decline, with gross margin dropping from 45.8% in 2022 to 35.8% in 2023 [6] - Cash on hand was NT$ 140 billion, with total assets exceeding NT $547 billion [7] Business Line Data and Key Metrics - Communication segment revenue increased to 46% in Q3 2023, while consumer segment revenue dropped from 26% in Q2 to 23% in Q3 [7] - Revenue from 49nm and below technologies reached 45% of total revenue in Q3, up from 41% in the previous quarter [8] - P6 facility capacity increased by more than 1% in Q3, with an expected 2% sequential growth in Q4 [8] Market Data and Key Metrics - Asia remained the largest revenue segment at 58%, growing 2 percentage points from the previous quarter [7] - Europe and North America revenue remained unchanged, while Japan declined by 2 percentage points [7] - Revenue from 22nm and 28nm technologies is expected to grow further in 2024, driven by the P6 facility [11] Company Strategy and Industry Competition - The company is focusing on product mix optimization and specialty technologies to maintain profitability [10] - UMC plans to introduce new specialty technologies to strengthen customer competitiveness and market positions [10] - The company expects demand to stabilize in Q4 2023, with cautious inventory management by customers [11] - UMC is expanding its 22nm and 28nm market share, particularly in applications like OLED drivers, Wi-Fi, and SoC processors [18] Management Commentary on Operating Environment and Future Outlook - Management noted a gradual stabilization in demand for PCs and smartphones, but automotive business conditions remain challenging [11] - For Q4 2023, wafer shipments are expected to decline by 5%, with flat ASPs and gross margins in the low 30% range [12] - The company anticipates increased revenue contributions from 22nm and 28nm technologies in 2024 [11] Other Important Information - CapEx for 2023 remains unchanged at$ 3 billion [8] - The company is monitoring market dynamics and adjusting pricing strategies, particularly in the 8-inch market [16][91] Q&A Session Summary Question: Factors affecting Q4 gross margin [13] - Answer: Q4 gross margin is expected to be in the low 30% range due to a decline in utilization rates and a 5% drop in shipments [14] Question: Pricing environment and competition [15] - Answer: UMC is aware of market dynamics and will adjust pricing for some segments, particularly in the 8-inch market, while maintaining pricing for 12-inch business [16] Question: 20nm competition and product opportunities [17] - Answer: UMC remains resilient in 22nm and 28nm markets, with plans to expand market share in applications like OLED drivers and Wi-Fi [18] Question: Segment-specific shipment decline in Q4 [20] - Answer: The decline is primarily attributed to the automotive market, while PC and smartphone demand remains stable [21] Question: Depreciation outlook [24] - Answer: Depreciation expenses are expected to increase in 2024 due to P6 expansion and new facility construction [25] Question: Long-term pricing strategy and LPA coverage [28] - Answer: UMC will maintain competitiveness through technology innovation, diversified capacity, and manufacturing excellence [29][30] Question: Capacity expansion plans [36] - Answer: UMC is ramping up P6 capacity and expects to reach design capacity by September 2024, with adjustments based on market dynamics [37] Question: 2024 revenue growth outlook [38] - Answer: UMC expects loading and wafer shipments to increase in 2024, but will provide quarterly guidance due to cautious customer behavior [39] Question: Gross margin outlook for 2024 [55] - Answer: Management aims to maintain profitability despite headwinds like rising depreciation and utility costs [57] Question: AI-related business opportunities [76] - Answer: UMC is preparing solutions for AI applications, including interposer technology, with capacity expected to double by Q1 2024 [77][78] Question: Wafer-to-wafer technology [81] - Answer: UMC is developing hybrid bonding technology for RF front-end modules, with expectations of future benefits [82] Question: Medium-term gross margin targets [85] - Answer: UMC aims to achieve gross margins in the high 30% to 40% range in high-loading situations [86] Question: 8-inch market evolution [89] - Answer: UMC expects 8-inch loading to improve with market recovery, but competition remains intense, particularly from 12-inch suppliers [91]