Welcome everyone to UMC's 2022 first quarter 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 instructions given at that time if you would like to ask the question. 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.
Thank you, and welcome to UMC's conference call for the first quarter of 2022. I'm joined by Mr. Jason Wang, the 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 result, followed by our president's key message to address UMC's focus and second quarter 2022 guidance. Once our president and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website www.umc.com under the Investor 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.
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 2022 financial results.
Thank you, Michael. I would like to go through the Q1 2022 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, the first quarter of 2022, consolidated revenue was NT 63.42 billion, with a gross margin at 43.4%. The net income attributable to the stockholder of the parent was NT 19.81 billion, and the earnings per ordinary share were NT 1.61. In terms of capacity utilization rate, it remained at 100%+. For the wafer shipment, 2.5 million 8-inch equivalent in Q1 2022.
For income statement on a quarterly sequential comparison basis, revenue went up by 7.3%, mainly driven by a better ASP. Gross margin rate is 43.4% compared to 39.1% in the previous quarter. Operating income as a result has reached 35.2% for operating income margin rate or a number of NT 22.3 billion. The net income is about NT 20 billion compared to NT 15 billion in the previous quarter, which is about 25% quarter-over-quarter growth. The EPS is 1.61 NT per share. In terms of year-over-year comparison, our revenue grew up by 35% year-over-year, and operating margins grew up by nearly two times to 22.3 billion NT.
EPS also almost doubled compared to the same period of last year. In terms of our balance sheet revenue, cash remains strong at NT$172 billion, and the total equity is about NT$300 billion. As I mentioned, the Q1 catalyst, one of that is the stronger or better ASP, which continue on the rise. In terms of revenue breakdown, we see a little change on a sequential basis when U.S. represent 22% of our total revenue, and Asia is 54%. IDM and fabless ratio did not change much. Currently, IDM is about 13% of our revenue, and fabless is still remaining 87%. In terms of segment breakdown, communication still remain our largest segment of 45% revenue.
The others, which including auto and industrial, is about 12%. Computer and consumer are 17% and 26% respectively. Revenue from different geometry, the 14 nanometer and below revenue remain steady around 38%, almost identical to the previous quarter. We continue to see some capacity increase for quarter two of 2022. We are seeing 10,000 wafers per month additional capacity, mainly in 28 nanometers coming from our Fab 12A. So that will lead to about 4%-5% of capacity increase in the second quarter of 2022. After our announcement for the Fab 12i P3 expansion, our CapEx budget has now increased to $3.6 billion for 2022. The majority of which is 90% of that is twelve-inch related.
The above is the summary of UMC's result for Q1 2022. 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.
Well, thank you, Chi-Tung Liu. Good evening, everyone. Here, I would like to share UMC's first quarter highlights. We started 2022 with a solid first quarter as a strong wafer demand kept our fab operating at full capacity and higher average blended pricing lift our overall revenue. While we have observed general end market tapering of cyclical demand associated with COVID-19 pandemic, UMC's business continue to be well supported by structural trends that are increasing silicon content in devices and driving new applications. Specialty technologies such as a non-volatile memory, power management, RFSOI, and OLED display drivers are necessary for applications across 5G, AIoT, and automotive megatrends. Our strategy to focus on leading the specialty technology has been successful, which now contribute more than half of our wafer revenue. An increased number of customer are recognizing the value of our customized specialty process and forming long-term partnership with UMC now.
Looking ahead, we expect the positive demand outlook will remain unchanged despite some market volatility caused by the pandemic and geopolitical issues. The expansion at our Fab 12A P5 has come online in this current quarter, which will help us meet excess 28-nanometer demand that we haven't been able to fulfill. We are also actively adding capacity at our overseas bases to support our customers' long-term growth. For our Singapore site, we recently announced a new fab to address growing 22- and 28-nanometer demand that has already secured multi-year supply agreements from 2024. Meanwhile, our Japan subsidiary, USJC and DENSO, have agreed to cooperate on the production of a power semiconductor at USJC's 300-millimeter fab in order to serve the growing demand in the automotive market. The cooperation demonstrates our strong commitment to supporting our customer amid constraints in the automotive value chain.
As a part of the industry megatrend, the accelerating adoption of electric vehicles will serve as a growth catalyst for our automotive business. We're excited to be selected as a foundry partner for many global leading customers as we aim to expand our market share in the fast-growing automotive segment. Next, I will also like to take a few minutes to share our view on the industry's outlook and where we see UMC's position in the industry going forward. I would like to take this opportunity to reiterate that UMC's growth strategy is aligned with industry's megatrend. As a leading specialty technology provider, our customized and highly differentiated solutions across 8-inch and 12-inch will minimize UMC's exposure to market seasonal fluctuations. The specialty technology will enhance customers' stickiness in prolonging our long-term business visibility.
In addition, the LTAs demonstrate our customers' long-term commitment and endorsement in cooperating with UMC, giving us the confidence to expand our capacity and grow cohesively with our customers and remain resilient during the industry downturns. As for 28 nanometers, we always align with the customer on 22, 28 nanometer new capacity expansion. With the P6 ramp in 2023, the demand supply balance will depend on the lead time of the tool and equipment delivery. In light of its recent equipment delay, supply chain disruption, the impact on prolonging 28 nanometer capacity coming on stream still remains to be seen. We believe 22, 28 nanometer will be a long-lasting node driven by applications such as Wi-Fi 6/6E, networking, and OLED driver IC. We are well positioned with diversified product portfolio to capture these market opportunities. Now let's move on to the second quarter 2022 guidance.
Our wafer shipment will increase by 4%-5%. ASP in U.S. dollar will increase by 3%-4%. Gross profit margin will be approximately 45%. Capacity utilization rate will be at 100%. Our 2022 cash base CapEx will be budgeted at $3.6 billion. That concludes my comments. Thank you all for your attention. Now we are ready for question. Yes. Thank you, President Wang. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Thank you.
Our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Yes, thank you. Yeah, I wanted to ask the first question, just about the environment. I wanted to see first, from the China COVID lockdowns if you've seen any market impact on orders, either from the factory shutdowns or consumption impact. I'm curious within your application mix, if you've seen cancellation or slowing in certain applications and then shift to other applications. If you're still in a position of unfulfilled demand or you see some applications still with demand you need to get capacity to meet.
Okay. Well, I mean, the China lockdown certainly have some effects to the market demand. The overall strong demand for auto, industrial server and networking segment have offset the softness in the smartphone and notebook and the PC to some of the market risk under the China lockdown. For the overall 2022, it still remains a challenge for us to meet the aggregate demand from our customers. Near term, whether it is the demand or inventory fluctuation among the selected customers has not impacted UMC demand supply imbalance situation.
Okay. I wanted to ask on the CapEx increase. It sounds like tied to Singapore, but that fab is a few years out. Are you having to prepay to secure tools quite early? Given the bottlenecks, if you could give an update on timing of when you're bringing up some of the capacity, like the additional phase in Tainan next year, if that's still ramping up, and how much is ramping up middle of next year.
First, for this year, the P5 is coming on this quarter, as we mentioned earlier. For the next phase is our Tainan P6 ramp. Given the challenges in the supply chain, including component and labor shortages, we have encountered industry-wide equipment delivery delays. We are currently working diligently with the suppliers to identify some of the critical tools and to shuffle the priorities and minimize the delay. Furthermore, we actually will shorten internally our tool installation and qualification schedule. The bottom line is, the goal is through those efforts, we will ensure our LTA commitment to the P6 customer in 2023 remains unchanged.
Okay. If I could just clarify again, for the CapEx raise, what was the factor that led to have that increase for the new fab? You mentioned securing LTA. Does that imply you still expect, even with delay, some of that capacity should ramp second half next year?
Well, I mean, we're managing the P6 ramp.
Okay.
We are experiencing some delays. We are aligning that with our base capacity to ensure the customer's commitment to be met. There are some dynamics, but we have to continue working that with both supplier and the customer.
The increase in CapEx budget, cash-based CapEx for 2022 is mainly for the share of construction for Fab 12i P3 in Singapore.
Okay. Chi-Tung Liu, as for the overall CapEx framework, is there a rough way to think about next year and the depreciation where you've had a nice tailwind based on the new cash payment schedule? How do you see depreciation this year?
Similar to that of last year. However, the next year depreciation expense is likely to rise in a more meaningful way. We will discuss the numbers later this year. Overall, both P3 and P6 are increasing our not only absolute profits but also the EBITDA margins. There will be some short-term accounting depreciation impact in 2023, but it will quickly go back to a normal range.
Okay. One final question. The LTA, I think last quarter you mentioned NT 18 billion. For the baseline capacity, just wanted to inquire a little more. You mentioned in the prepared remark downturn resilience. If there were a sharp correction, just how much flexibility, like have you given on shipments for them to push out if they don't have the demand? How fixed is the pricing in the downturn? Like, have you kind of secured for baseline fixed pricing? Yeah, if you could clarify a little more on the way to think about the LTA in a downturn scenario.
Sure. Well, I mean, in general, the backbone of LTA is to serve the long-term compelling benefit of both customers and UMC. While we both parties focus on the target market to pursue business growth, UMC, along with our customers, share the contractual obligations set forth in the agreement. Given those obligations, both parties have considered the scenarios and factored in all the financial risks outlined in the LTA along with the market fluctuation. The commitments set forth on both parties in the LTA would not be deviated regardless of market dynamics.
Okay. Won't be deviated. It sounds like you do expect quantity and pricing then. There's some commitments on those in those obligations.
Absolutely. There is a commitment on both volume and pricing. Yes.
Great. Okay. Good. Thank you. That's my question.
Thank you.
Thank you. Next we'll have Brett Simpson of Arete Research for questions. Go ahead, please.
Yeah. Thanks so much. I wanted to just follow up on Randy's question there about LTAs. I think you mentioned NT$18 billion last quarter. Did UMC sign any new LTAs this quarter? If so, where is the cumulative LTA amount today? What's the prospect for signing new LTAs throughout this year? Or is the vast majority of these deals sort of in the rearview mirror now? Thank you.
LTA is a mechanism to give us the longer-term visibility and, yes, the LTA is a mechanism we'll continue to deploy throughout this year. In fact, we actually there are multiple LTAs still under discussion currently. You know, we do see this LTA serves, as I mentioned, a long-term compelling benefit for both customer and ourselves, so we'll continue to deploy that. There's still some-
Okay.
Ongoing one. We expect that number will continue going up. Yeah. In fact, the DENSO announcement we just did, it actually is part of the LTA as well.
Okay. That's helpful. Maybe just as a second question, I guess we've seen a sharp increase in your gross margins over the last couple of years, and I understand LTAs give you protection around the cycle, you know, market changes and market conditions. Can you share with us your thinking about how gross margins trend through the cycle for UMC? You know, if we looked at the sort of puts and takes of the cycle, where would you expect gross margins to sort of settle in long-term for UMC, given all the dynamics we've seen of late?
Well, I really maybe Chih-Lung can comment that, but if I can give you a bit of a background on this. The way we look at this gross margin in the long- term is, you know, the way that we throughout those past few years have transformed the company to resilient, and it's well-positioned to weather through the market fluctuation. A few things. One is the CapEx strategy via a stringent ROI-driven criteria, and backed with the customer's LTA commitment. The second is we have continued to closely cooperate with the core leading customer, which to have optimized our client portfolio. Third is we continue to grow our specialty technology business, which contain higher differentiation and customized process solution, which will provide a longer visibility and stickiness.
The fourth, the company will have more room to grow EBITDA margin via product mix refinements. The last is the company's healthier financial structure now that includes a much improved breakeven point. All this, I think, will contribute to allow UMC to weather through the semiconductor cyclicality. That means the margin will stay at a healthy level, and that's on a higher level, how we manage this margin going forward. Yeah.
Thanks very much.
Yeah.
Thank you. Next question is from Bruce of Goldman Sachs. Go ahead, please.
Hello. Thank you for taking my question. Congratulations for the great results. I want to ask about, you know, sort of moving into the second quarter. I mean, the gross margin is guiding for 49%, you know, which is up from like 40%, last year, comparing the guidance to guidance. Even excluding the forex impact, you still see a massive margin improvement. The only difference between second quarter and the first quarter is P5, which is mostly 28 nanometers. Can we assume that your 28-nanometer profitability is already higher than the corporate average?
No. I think 28 nanometer margin is in line with our 12-inch operation, and that's from a accounting statement point of view. Of course, EBITDA margin, 28 may have the best EBITDA margin internally. I have to emphasize that Q1 guidance of 40% is somewhat lifted by this unexpected weaker NT. For quarter two, we already factor in this weaker NT scenario. There are certain headwinds in quarter two as well, mainly coming from a rising raw material cost and the increased labor cost, which pretty much evened out by this better ASP factor in the second quarter. So 45%, roughly, gross margin is the best estimate we can see for now for second quarter.
Thank you. I think the next question is that, you know, the investor concern is mostly on the end demand deterioration. Jason, can you provide us, like, you know, how much of your business right now is pretty much like single-source stable or like customized products? What is the revenue contribution from those of business, which is, you know, more difficult to move away, you know, even when you see the down cycle?
All right. Let me put it this way. For our overall product mix, the specialty technology consider a single source and customized product that probably representing more than 50% our current revenue now, and that is continued increase. At the current quarter, we're about over 50%. From the LTA arrangement for the 28 nanometer particularly, the coverage is about 80%. In addition to those, some of the non-specialty technology that's a single source that also has a good percentage of that in there. Net-net, I would say we have about 65% will consider as a single source and specialty technology. That will probably give you some ideas.
in addition to that, also have some overlapping with the LTA coverage.
Do you have a target for two years?
I think the number will continue to increase, as our specialty technology and the customer engagement momentum remains strong and robust. I think the number will continue to rise. You know, while we continue that progress, we can update on ongoing basis. Yeah.
I see. I think I want to switch one question for the R&D expenses, which is below 5%, you know, 5% of the revenue in first quarter already. Is that a new norm for the UMC? I think we discussed this like two to three years ago, but now it's getting to the level of 5%. Is that a new norm for UMC moving forward?
Given the current near-term projection, we will stay in a similar level while our revenue continue grow. Meanwhile, we continue developing in a different various technology in a specialty area. You know, I think that we're still within that ballpark. Yeah.
I see. Thank you. I'll go back to the queue.
Thank you.
Next one, Charlie Chan, Morgan Stanley. Go ahead, please.
Thank you. Hi, Jason. Hi, Chi-Tung Liu. Good afternoon. My first question is about your LTA or contract with customer, because right now, you see that some consumer or PC smartphone customer, their inventory keep going higher. Would you allow customers to trim or cut out some forecast even they have some contract with you?
Well, I mean, the customer forecast changes, but the contractual obligation stays. We sort of touched that earlier.
Mm.
The condition of that, of course, in the LTA will not deviate regardless of market dynamics.
Yeah. That is my concern, right? Because you want the customer to keep their obligation and their inventory keeps going higher. The problem is that those inventory cannot really sell through to the end market given the market situation.
Well, that.
Mm.
That's not entirely correct.
Okay.
If a customer is taking a position to reduce the loading-
Mm.
As long as they fulfill their contractual financial obligation, that is another alternative.
Yeah, if there is any kind of penalty, would that force customer to keep up producing?
Well, there are certainly some contractual obligations financially.
Mm-hmm.
You know, it's our belief, you know.
Mm.
Both parties have considered the scenario while we enter into that agreement.
Okay, thanks. Also, I kind of agree that some sub-segments are still pretty robust, right? Like automotive and networking, cloud, right? As you mentioned. But I think UMC's real revenue exposure to those so-called resilient segments is quite low, right? I don't think that in aggregate it exceeds 20% of revenue. Would you agree with that?
I didn't catch the last statement again. I'm sorry.
Yeah. Those exposure to automotive networking, cloud together, your revenue exposure shouldn't be more than 20%, in my understanding. Is that right?
No, it's actually higher than 20%. I will say we were probably one-third of that is already within the automotive, industrial and the other area, even within the PC networking, the way that we categorize that, the part of that is actually belong to networking, which has much stronger.
Mm-hmm.
demand.
Mm-hmm.
because if you go into each subcategory, including
Right.
PC notebook, and then you have to segregate by different applications again.
Mm-hmm.
And so-
Mm-hmm.
They are some of the stronger segments under
Mm-hmm.
some subcategory versus
Mm-hmm.
-some of the weaker one. So the-
Okay.
The exposure wasn't exactly on a very high service level. Yes.
Okay. That's the data very helpful. I think all those try to get a sense, you know, first of all, your current fab utilization or next quarter fab utilization, whether it really reflects the consumer tech inventory correction. Whether UMC has a sufficient backlog from industrial to mobile networking to offset that weakness. I think that's a very helpful. But lastly-
So maybe-
Mm-hmm.
Maybe I can give you another example, for instance.
Mm-hmm.
on the smartphone space.
Sure.
We're more exposed to the 5G phone in a OLED space on a high voltage versus the TDDI, because we don't do much of the TDDI in the smartphone area.
Mm-hmm.
We do quite a bit of automotive in the TDDI display.
I see. That's super helpful.
Even with the high voltage, there's a mix of applications within there.
Yep.
The mix is quite different. Yeah.
Yep. Lastly, is there any concern that, given you have the LTA is like two-way, right? You have to deliver, customers need to stick with the order for P6, right? If there is any kind of schedule delay, would you need to pay a penalty to your customer?
Well, again, there is a mutual contractual obligations.
Right.
We both calculated that, and we have considered all the scenarios and factors into that. At this point, from UMC's perspective, our goal is to ensure, you know, our commitment to meet.
I see.
Even with the delay. Yes.
I see. You want to put the customer's demand as the first priority, right? Okay, I get that. Which tool is in the biggest shortage? I mean, the bottleneck for entire production line.
Well, that's quite a bit of detail there. That's a long list, but to list. It's hard to go into detail.
Okay.
There, yeah.
Okay. Understood. Good luck. Thank you. Thanks, Jason.
Thank you.
Thank you. Bye.
Thank you. Next question, Gokul Hariharan, JPMorgan. Go ahead, please.
Yeah. Hi. Good afternoon, and thanks for taking the question. First of all, on LTA, Jason or Chi-Tung, could you remind us how much of your 12-inch capacity and 8-inch capacity is now covered by LTA? I guess phase V and phase VI, P5 and P6, will probably be 100% covered. For the existing capacity, could we have a reminder on how much is covered by LTA?
Yeah. We don't break down by 12-inch and 8-inch, but obviously all the newly built capacity or the new capacity come off stream, as we mentioned, P6 in Tainan and P3 in Singapore are all covered by multi-year LTAs. All the new capacity are 100%. The new DENSO project is covered by LTA. I think the overall ratio, as Jason mentioned, the overall business covered by LTA is close to 30%-40%.
Yeah, 40%.
Yeah.
Yeah.
Understood. Let me ask, I think you mentioned that you saw some demand weakness in some of the cyclical areas, related to pandemic shutdown or lockdown, et cetera. Could you talk a little bit about what are the customer conversations you're having in these areas? Is your backlog reducing as a result? Is there still a lot of unsupported demand for these segments, that you still can't fulfill? Is that unsupported demand coming down? Just wanted to understand what are the dynamics that are happening, between you and the customers, given some of this end demand weakness.
Well, in general, we remain challenged to meet the aggregated demands from our customers. We still severely undersupplied to our customers. Mainly if you break it down by different segments. The PC notebook and the smartphone area has shown some of the softness, while the automotive and industrial server networking still escalating with the shortage. I think that at this point the unfilled demand remain at fairly high level to us, okay, for us. The conversation with-
Understood.
The conversation with some of the customer is we are diligently mitigate or modulating some of the soft area. Hopefully that, you know, giving the higher inventory or the softer demand, if we can modulate those capacity, support those on the severe shortage segment. That is ongoing process for us and effort on that area.
Okay. Understood. The last question is on your 2Q wafer price increase. I think you talk about roughly 3%-4% increase in wafer ASP on U.S. dollar basis. Is that primarily coming from your increased 20-nanometer mix, or are you still seeing wafer price increases to customers given the unfulfilled demand?
It has both. It's the results of both pricing increase as well as the better product mix.
Okay. Thank you very much. One last question is this, DENSO JV on IGBT. Congratulations on that. Could you talk a little bit about what kind of capacity of UMC Japan would you be allocating for that? Is there any details in terms of the plans for this?
Sure. Under the program, UMC, we, through USJC, will provide 12-inch IGBT manufacturing service to DENSO. The program is while DENSO will bear the CapEx for the tools, and USJC will bear the CapEx for cleanroom and facilities. The production run for DENSO will start in 2023, and the target capacity run will reach 10K per month by 2025.
Understood. Okay. Thank you very much. Thanks.
Sure. Thank you.
Thank you. Next question Sunny Lin of UBS . Go ahead, please.
Hi, Jason, Chih-hung. Thank you for taking my questions. Congrats on the steady performance. My first question is also to follow up on LTA. I wonder does your LTA engagement could sort of limit your flexibility to push out the capacity expansion if customers continue to pursue the demand?
Um, see like-
It's a contractual obligation, including the timing. We are managing the equipment delay. We are doing our best effort to fulfill our contractual obligation and not to impact our commitment to all the LTA customers. The timing is fixed.
Got it. Maybe a broader question or a high level question on the January earnings call, share your thought on the supply and demand outlook for the overall foundry for next couple of years. Now, after a quarter, lots of changes on the demand and also on the supply side. Wonder if you could share with us your latest thought on the supply and demand outlook.
Well, I mean, see, for 2022, our view on 2022 remains solid. In Q1, I think we revised up the foundry industry growth will be about 20% and plus. That view has remained unchanged. UMC's target to grow in line or higher than that foundry industry, I think that also firm. For 2023, if we look into the outlook, we remain cautiously optimistic on the market demands. The overall mega trend that UMC is focused on, I think that will continue grow. Given the current market situation, we now we are more cautiously optimistic on that.
Over the past few years, through the proactive market positioning and closely working with our, you know, the overall global leading customers with our ROI-driven CapEx, and I think all this effort will help us to enhance our position financially, and will continue enhance the company profit even with this market dynamic. At this point, for 2023, we are cautiously optimistic about it. Yeah.
Understood. That's very helpful. Any expectation on the industry-wide, supply demand, going to 2023 and 2024?
Well, I mean, you know, we touched that earlier as well. Given the challenge in the supply chain, including all the shortage, whether from component or labor, there will be some equipment delays, and I think some of the announced CapEx capacity may not come online on time. You know, right now, instead of commenting about the overall market in 2023, in terms of supply and demand, we feel comfortable about our situation. Given what I just mentioned earlier, given what we have changed in these few years, along with our targeted market, the market mega trend, along with the customer alignment, and, you know, we feel comfortable about our 2023, regardless of the supply dynamics. Yeah.
Got it. Thank you very much. My other question is on pricing. I think in January, you guided that for 2022 pricing to go up by about 18% on a quarter basis. If based on second quarter guidance, that may imply a limited upside into second half. Would that be a fair assumption?
Well, we guided that, and based on the margin and ASP expansion in both Q1 and Q2, we're promising approaching our annual target right now. Yeah.
Got it. No further update on the full- year pricing guidance? Should we anticipate a bit of upside into second half?
No, we'll probably do that on ongoing basis, on quarterly basis. Yeah.
Got it. Thank you very much.
Thank you. Next question, Szeho Ng of China Renaissance. Go ahead, please.
Oh, hi, gentlemen. I have two questions. The first one, in future, we are going to have three fabs running the 22, 28 nano process. Just wonder how we are going to allocate the capacity. Would that be based on customer or based on technology platform or based on the region or countries, the products are being shipped?
Well, they are multiple considerations.
Hmm.
It's not a simple answer to that.
Right.
You know, not only from a customer alignment standpoint, you also have to think about each side's economic scales. You don't want to run the product too fragmented in each side. We're carefully examining our capacity profile as well as the customer demand and to align that. It's quite dynamic.
Hmm
Complicated, but sophisticated as well.
Yeah.
I actually don't have a simple answer to that, but I can assure you it's a very, very sophisticated process.
I see. Good. Can we assume that basically the three fabs can basically support one another, that means, the capacity can be fungible?
Ideally, they are fungible. Again, the higher flexibility or fungibility that will actually increase the cost of operating it.
Mm-hmm.
You have to seek a good balance of that. You know, while you mitigate the demand risk, and you have to also achieve a better financial result. It is a balancing act. Yeah.
Okay. Fair enough. Yeah. Second question, equipment delay, I think, is pretty much, well-known in the market, but would you consider, let's say, the mature node, photomask and other area of concern that may limit the, final wafer output?
Well, I mean, yes. I mean, the answer is yes. It's actually a lot more than that.
Yes.
You know, we constantly working on productivity improvements from both base capacity as well as the new capacity and accelerating the ramp-up. There are multiple efforts and activities. Meanwhile, we're working with the two supplier to shuffle in the priority and some of the different critical tools to minimize that as well. It is, you know, quite a bit of effort there. Yeah.
I see. All right. Okay. Keep up the good work. Thank you very much.
Thank you.
Thank you. Next question, Nicolas Baratte, Macquarie. Go ahead, please.
Yes. Hi. Good afternoon, UMC. Could you give us an idea or a range of capacity increase by end of 2022, end of 2023? What I mean is, I understand there is equipment delivery uncertainty. I understand there is matching with customer capacity schedule. But if we think about, you know, P6 and P3, let's say that in both those fabs, you're going to add 30K wafer in each. All right? Two times 30K, right? When do you think reasonably is the timeframe when we see those 30K in productions? You know, you've mentioned previously for P6, beginning of revenue in 2Q 2023. Is it still the case? And then for P3, what could it be? Thank you.
Well, I mean, that. You know, we kinda touched that for that, you know, a lot of effort to address that ramp-up schedule for the 2023 PP6.
Yeah.
You know, the original plan is try to have the initial production in Q2 2023, and toward the end of the year, we can reach the full capacity. That profile is still under alignment with the supplier. Our goal, you know, based on those assumptions and the support that we have aligned with our customer is also under evaluate. We continue moving to that same direction. However, I think the priority at this point is to ensure our customers' commitment first.
For 2022 capacity increase is rather firm. We are talking about 6% year-over-year increase, which increased by 8% in 12-inch and 4% in 8-inch. Our 20-nanometer capacity in 2022 will increase about 20% year-over-year. Because the P5 ten additional 10,000 wafer is coming online as we speak, this is a more firm answer for this year.
Understood. Hope that answers. Thank you. Thank you very much. Second to last for me is, I understand that the product mix can be difficult to quantify. You know what you said, there are PC notebooks, smartphone weakness, I guess it's what everybody is seeing. I also guess that you know, it really depends on customer specific, client specific. When you look at your 20% revenue growth, 20%+ revenue growth, I'm sure you have you know, smartphone PC model that could indicate some downside to that 20%. What do you think is the range?
If I can recap your question. Your question is, given our current forecast, what do we see about the decrease of PC demand in relation to PC notebooks?
What I mean is you said you feel pretty confident to have 20%+ revenue growth this year, right?
Yes.
Then you said smartphone demand is weak, but because you make more 5G OLED and the 5G OLED and 4G TDDI, the impact for you actually, I guess, to me, it's not that big inasmuch as OLED and 5G volumes are growing. I understand that. Nevertheless, you know, I suspect there is some disconnect between a lot of the semiconductor expectation and very poor consumer spending data or macroeconomic data that most of us are seeing in terms of, you know, COVID lockdown in China, inflation in Europe and the U.S., and so forth, which are reaching, you know, especially the consumer inflation in some parts of the world is extremely high. Do you have a range around this 20% revenue growth?
Oh, well, first of all, yeah, we didn't really say 20. We were talking about.
I'm sorry.
Capacity increase, coupled with meeting ASP growth. Yeah, of course, that, according to calculation, should be about 20%.
Okay.
As our president just mentioned, we still cannot fulfill our aggregate demand, and there are still some areas are showing very strong demand for our capacity.
Okay. Clear.
We've been able to fulfill any of the fluctuations for now.
Okay. Chi-Tung Liu, thank you. Very clear. Thanks.
Thank you. Next question, Frank Lee of HSBC. Go ahead, please.
Okay, great. Thank you. Sorry, I just wanted to follow up on, I guess that 20%, implied 20% growth. I think one of your foundry competitors have already talked about, you know, similar type of growth for their niche, but or they're gonna exceed that. But they've kept the overall industry growth of foundry relatively unchanged. Given their market share and given you're also sort of maintaining your forecast for the full- year to be relatively unchanged, does that imply there's more share gain that you're expecting this year? I mean, relatively speaking, 'cause unless the overall industry growth actually is gonna expect an increase. I know you guys never gave an explicit industry growth, but just trying to understand, I guess, you know, the numbers that we're seeing right now.
What is that, is it more implied share gains that you expect this year?
Well, you're right. Given what we have implied is that our target is to grow in line or higher than the foundry industry. That means, yes, it is a share gain. Yes. That is aligned to our target.
Okay. All right. Thank you for that. The second question I have is, I think you had mentioned in the past that 28 nano node potentially can be a little softer into next year, in the past previous analyst meetings. Is that still a view that is being shared right now by management or is there any change to that?
Well, I think our past message was that we believe the 28 will be a sweet spot for many applications, as well as some of the new products which will migrate to 28. We do believe 28 demand will continue to grow. Our strong 28 product pipeline, we have aligned with our technology with the industry's mega trend. Along with the endorsement from the global leading customer on the LTAs, you know, we have confidence that our 28 nanometer capacity expansion are well protected. You know, I think we actually feel pretty comfortable with that. Yeah.
The protection is more company specific on 28 because of your product mix and in terms of your agreements. That's the relative company have.
As well as the focus on the market that we're addressing. We believe-
Okay.
Those are linked to the mega trend. Yes.
Okay, great. Thank you.
Sure.
Thank you. Ladies and gentlemen, we are running out of time, so we're taking the last question. The last question would be , Patrick Chen of CLSA . Go ahead, please, Patrick.
Hi. Thank you for taking my question. Can you talk a bit about this DENSO partnership, aside from the fact that they are based in Japan and 12-inch is in, you know, what you have in Japan? What are the key differences of producing this IGBT on 12-inch instead of 8-inch? What are the benefits and challenges? That's number one. And number two, can you talk about the first quarter non-GAAP component? What is the main contributor to the non one Q non-GAAP? These are my two questions. Thank you.
Sure. For the first question, yes. The program that we have with DENSO is under the 12-inch IGBT. It's our belief, you know, given our diligence shows the moving into a 12-inch is serving multiple purpose and benefits. One is performance and cost, as well as the supply. The 12-inch is just giving out the alternative solution to current supply constraint in the IGBT space. As we expect, the auto market will continue to grow, and we think this will serve that and will be beneficial to both DENSO and UMC. On the other hand, the specialty technology is what UMC's focus. We do believe there will be more specialty technology required to fulfill the automotive application.
This DENSO cooperation is more a highlight to our ongoing effort in providing the support to the automotive market with our specialty technology. Yeah. Maybe Shih-Dong can help with your second question.
Yeah. In terms of non-GAAP in Q1, about NT 900 million is forex gains, and NT 500 million is mark-to-market value gains from our investment. There's also NT 300 million interest expenses. That's the bulk of non-GAAP in Q1.
Thank you very much.
Thank you. Ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks.
Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir@umc.com. Have a good day.
Thank you. Ladies and gentlemen, that concludes our conference for Q1 2022. We thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors Event section. You may now disconnect. Goodbye.