Welcome everyone to UMC's 2018 fourth 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 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, you may begin.
Thank you, and welcome to UMC's conference call for the fourth quarter of 2018. I am 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 fourth quarter financial results, followed by our President's key message to address UMC's forecast and the first quarter of 2019 guidance. Once our President and the 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 will make forward-looking statements based on the management current expectation and beliefs. These forward-looking statements are subject to a number of risks and uncertainty that could cause actual results to differ materially, including the risks that may be beyond company's control.
For this risk, please refer to UMC's filing with the SEC in the U.S. and the R.O.C. security authorities. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss our fourth quarter 2018 financial results.
Thank you, Michael. I would like to go through the Q4 2018 investor conference presentation material, which can be downloaded from our website. Starting on page three, the fourth quarter of 2018, consolidated revenue was TWD 35.52 billion, with our gross margin at 13%. The net loss attributable to the stockholder of the parent was TWD 1.71 billion, and loss per ordinary shares were TWD 0.14. Capacity utilization rate in fourth quarter of 2018 was 88%, down 6 percentage points from 94% in the previous quarter. On page four, our quarterly revenue was TWD 35.5 billion, was down 9.8% quarter-over-quarter. About 5.2% was coming from a decline in wafer shipment. The rest is coming from product mix change and cost pricing decline. Gross margin, as I mentioned earlier, was 13% or TWD 4.6 billion.
Operating expenses went up 12.2% quarter-over-quarter, mainly due to a one-time book of our DRAM R&D-related project. About TWD 700 million-plus one-time expenses was booked in the Q4 of 2018. In terms of non-operating income loss of TWD 1.99 billion or close to TWD 2 billion, it was mainly due to the valuation of our stock holdings in the capital market, given the volatility of the stock market around the globe. Net income is a loss of TWD 3 billion, and net income attributable to stockholder of the parent was TWD 1.7 billion or an EPS of minus 0.14. For the whole year, our revenue grew 1.3% year-over-year to TWD 151.2 billion. Gross margin was down 15.6% to 22.8%. Operating expenses would have been a lower number if we did not include the one-time charge I mentioned earlier in Q4, which related to our DRAM R&D project.
Overall operating income in 2018 was TWD 5.79 billion or 3.8% operating margin. Net non-operating income, which mainly because of the valuation of our stock holding as well as some foreign currency losses in the third quarter, is around TWD 3.6 billion. The net income attributable to the stockholder of the parent in 2018 was TWD 7 billion or EPS of 0.58, a decline of 26% year-over-year. Cash has continued to increase, and now at the end of 2018 was TWD 83.6 billion. Our free cash flow alone in 2018 was a bit over $1 billion US. The stockholder equity in 2018 was TWD 206 billion. As I mentioned in Q4, the blended ASP decline in a more notable range, and mainly because of our 14 nanometer revenue has been suffering very weak demand from cryptocurrency related customers. For Q4, our geographic breakdown wasn't changed much.
North America went up to 38% from 34% in the previous quarter, and the rest of the region declined accordingly. For the full year, Asia still remain our biggest share of revenue breakdown, around 50%, and North America declined year-over-year to 38%. IDM stay around 7%, 8% in the both quarters. The whole year didn't change much. It's still around 8% to 9%. Communication is 44% of the revenue breakdown. Consumer is 30% in Q4. For the full year, communication declined by four percentage point to 45%, and computer and others increased marginally. Our 14 nanometer revenue, as I mentioned earlier, has come down significantly to 1% of the revenue from 5% in Q3, mainly due to the volatility in the cryptocurrency market. 20 nanometer also declined to 10% from 13% in the previous quarter.
The rest of the technology now remain relatively similar. For the full year, our 14 nanometer increased from 1% to 3%, and 28 nanometer decreased from 15% to 13%. For the quarterly capacity, we have factored in the annual maintenance in the Q1 forecast. Most of the fab, except for HeJian, will show a decline in available capacity, mainly due to the annual maintenance. Our expected or budget CapEx for 2019 is about $1 billion US. Our actual CapEx for 2018 was around $650 million US. That's the summary of UMC's results for Q4 2018. More details are available in the report, which has been posted on our website. I'm now turning the call over to our president, Mr. Jason Wang.
Thank you, Chi-Tung. Good evening, everyone. Here I'd like to update the fourth quarter operating result of UMC. In 2018, we started seeing the early fruit of our strategy with measurable results. Our disciplined CapEx approach helped to generate a free cash flow total of NT$31.34 billion for the year. In addition, we completed two rounds of a treasury share buybacks for cancellations, amounting to approximately NT$6.5 billion. Looking into the first quarter of 2019, we anticipate further deceleration in customers' wafer demand due to softer than expected outlook in entry-level and mid-end smartphones, as well as the falling cryptocurrency valuation. Although UMC's ongoing transformation will need time to reach its full synergy and potential, our progress so far has enabled the company to better endure this current headwinds.
Going forward, we'll continue executing our strategy of evaluating and pursuing return-driven investment while focusing on our technology strengths within specialty processes to on existing nodes. We are confident that our sustained effort and calculated global capacity expansion will strengthen UMC's resilience during the challenging market, while favorably position the company to take maximum advantage during strong demand cycle. Before I get into Q1 guidance, I will also like to update you on the ongoing legal cases involving UMC. To clarify UMC's position, UMC has and will continue to comply with all applicable laws and regulations, and we have suspended all R&D activities we are performing for Fujian Jinhua. Since being established 39 years ago, UMC has been an indispensable players in the global supply chain with the volume production technologies down to advanced 14 nanometers.
From 1996 to 2010, UMC accumulated nearly 15 years of experience in manufacturing DRAM products. At one point, UMC's internal DRAM team had well over 150 people. Thanks to its extraordinarily stable workforce, UMC has ever since possessed and preserved a wealth of DRAM knowledge and experience as an institution. The joint development project under which UMC agreed to develop the DRAM process for Jinhua, which was a standalone project entirely separated from UMC's pure-play foundry services, was nothing but a pure business transaction that made all the business sense for UMC at the time. It was duly submitted to the Taiwan authorities, which approved the project in its entirety in April 2016. Notably, that was a time when the US-China trade war was unheard of. UMC wants to ensure our customer and stakeholders that UMC will vigorously defend itself against all false charges and misconceived allegations.
Now let me move on to the first quarter 2019 guidance. Our wafer shipment will show a decrease of 6%-7%. ASP in USD is expected to decline by 1%-2%. Gross profit margin will be in the mid-single percentage range, and capacity utilization rate will be low 80% range. For foundry CapEx budget of 2019, it will be $1 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.
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 in 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. The first question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes, thank you. I wanted to ask the first question for the CapEx, where you spent below the budget at TWD 650 million for 2018. Could you talk for 2019, the budget's coming back up to TWD 1 billion, despite lower utilization to start the year. Could you go through a bit more on the driver for the increase and where you plan to spend or allocate that TWD 1 billion?
The allocation for the TWD 1 billion budget is about 75% in 12-inch and 25% in eight-inch. As you are aware, this is actually a small number in absolute terms. Last year, our budget was around TWD 1 billion as well, but end up some of the payment and some of the equipment delivery, et cetera. So it's a small absolute dollar being deferred into 2019 budget. In a sense, it's a trend down. It's a downward trend. But in terms of affecting the actual payment terms, there may be some kind of small magnitude of fluctuations.
Okay. Maybe a follow-up to that question, if you could talk the capacity now, I think you had the HeJian plan to add, but with that 25% to eight-inch and then also the 75% for 12-inch, is there any capacity for specific nodes, or is it more technology upgrades within that may not necessarily be net wafer capacity additions?
Beside the eight-inch in HeJian, the 12-inch is mainly spending in Fab 12i, Singapore facility and the technology node we are increasing is a 65 nanometer node.
Okay. Can you say like how much capacity in Singapore or is it just upgrading the line to more advanced or different process?
It is mostly upgrade and there is some automation involved in both Taiwan and Singapore as well. This is a small absolute numbers, so it is not much.
Yeah
capacity increase, say, in 2019.
Okay. I wanted to ask a question just on the gross margin and the cost structure. I guess for the gross margin, the decline for mid-single digit, maybe aside from the shipment, I think sometimes beginning of the year there is a step down in pricing, but your ASPs are only down slightly. I guess first, maybe talk about the driver to bring it to mid-single digit, and then if there is any mix change you are expecting, say, between nodes, like if advanced capacity may be holding up or how you see the relative mix between nodes.
The drop in the Q1 gross margin is mainly contributed to a lighter utilization, as you said, if we projected from 88% down to a low 80% range. If you break it down by the technology node, the 28 stays pretty flat and mainly drop is coming off from the 40 nanometers. In addition to the lighter utilization, the annual tool and equipment maintenance, which we normally execute in Q1, along with the fewer working days, that is also a reason contribute that decline in the Q1 gross margin right now.
Okay. The final question, if I could just elaborate on the 40 nanometer. In the remarks, I guess you had talked some about smartphone, low and mid-end smartphone. Maybe within 40, is it more of a kind of short-term market weakness or more broadly, how you see sustainability or outlook for the 40 node, whether you are seeing customers migrate to 28, and if you expect to retain or capture that if you are seeing that, like where you will start to see the 28 ramp up?
Yeah. For the 40, we do see the technology continue to migrate. We expect 40 nanometer loading will improve due to the high voltage, ultra-low power logic, and the non-volatile memory will come in. As we continue seeing the 40 nanometer demand shift toward to this area from AMOLED display to IoT devices. As a result, if we look at UMC alone, our 40-nanometer penetration rate in AMOLED display and IoT area are increasing. Moreover, we have been working on the migration plan for the current 55, 65 larger application moving toward to the 40. So we have some application coming out from 55, 65 toward to 40. Therefore, we believe the 40-nanometer loading weakness will be a temporary issue. We are seeing more tape out on the 40 in 2019 from last year. There are some sizable increase year-over-year rate.
We're fairly confident that 40-nanometer loading will recover gradually.
Okay. Non-volatile memory, is that embedded flash, or do you have any standalone flash memory in that?
No. It's embedded flash memory. Non-volatile, the embedded one.
Okay. Great. Thanks a lot for the color.
Thank you, Randy.
The next one is from Gokul Hariharan from JP Morgan. Go ahead, please.
Yeah. Hi. Thanks for taking my questions. First of all, could you comment a bit on the shape of the inventory correction that you're seeing? I think we've probably had now two quarters of revenue decline. Where do you expect the inventories to bottom out? Should we expect that Q2 is also going to be a quarter where we continue to see some inventory correction? I think your larger competitor did mention that they're expecting inventories to bottom out only by the middle of the year. That's my first question. Could you also give us a little bit more color on the eight inch supply-demand situation, given we were pretty tight in first half of last year? What has been happening on the eight inch side from a supply-demand perspective?
Sure. Start out with the 2019 outlook. The entire year-wise, the market research is showing the foundry growth will be flat this year. Starting from this Q1, actually starting from the Q4, we already start observe market weakness and inventory correction within the entire semiconductor supply chain. On top of that, the US-China trade dispute has created additional uncertainty on the micro level. So we believe 2019 will be a challenging year. As far as going into Q2, I think at this point it's a bit early to comment. So for your second question about the 8-inch. The 8-inch market also experiencing smartphone demand weakness and inventory correction in the supply chain as a short term. Okay? Our 8-inch business was still running close to 100% utilization in Q1. So we do see some impact, but it's marginal. It's small.
We remain positive for the long-term 8-inch business as we see more diverse 8-inch demand from Power IC, MCU, automotive, IoT devices. With our more competitive specialty technology in those area, we are confident that we can address those 8-inch demand well.
Okay. Just to belabor the point a little bit. As you mentioned, we have been in inventory correction. Do you feel that exiting Q1, your customers would have largely worked down the inventory? Or you still think there is going to be some excess inventory for your customers exiting Q1?
Well, we see a certain stop in inventory, in building additional wafers, or we start seeing an inventory buildup in the entire supply chain. I think, to expect that Q1 would digest those buildup will be optimistic. At this point, given the microeconomy uncertainty, I think will last more than Q1. But again, beyond Q1, it's too early to comment at this point.
Okay. Great. Can I ask a quick question? Any change for the China subsidy that you get after the changes in the DRAM development program? Is there any impact to the China subsidies that we were recognizing and we expect to recognize over the next couple of years?
These are totally two different business. The DRAM is pure technology development. We are receiving NRE fees in return to develop DRAM for Fujian Jinhua. Our subsidiaries, including United Semiconductor (Xiamen) Co. in Xiamen and also the wholly owned subsidiary of Fujian Eight-inch, is part of UMC's foundry service. We serve the diverse foundry customers, try to focus on Chinese upcoming foundry customer, but also serve customer outside of China as well. So those are two totally different business models. The current issues with Jinhua has nothing to do with UMC's foundry business.
Okay. Got it. Thank you.
Thank you.
The next one is coming from Chi-Tung from China Renaissance. Go ahead, please.
Oh, hi. Good afternoon, gentlemen. My first question is regarding the Fujitsu fab. When should we expect the fab to be fully consolidated into the group?
Well, the Fujitsu Mie fab, the acquisition, was still pending.
We both, between Fujitsu and UMC, are working toward closing this Mie fab. We are not consolidated yet.
I see. But when should we expect the closure to happen? Because previously, the company scheduled closure to be at the beginning of this year, in January.
Right. That was the original target of January 1st.
The current status is that our equity transaction was approved by the ROC government on September 26th last year. However, the transaction has been partially delayed, pending approval from certain relevant government authorities. As a result, that will push out to the next available date. Right now, we target it for April 1st.
Oh, okay. Got you. Okay. Thank you. Second question, when I look at the company's P&L, for the last couple of quarters, the company actually gets quite a big net other operating income. Should we expect similar things to happen going into 2019, at least?
Yes. For 2019, which is mainly coming from subsidies of our investment in both China and other areas, those likely to be in the same range for most of 2019.
Oh, okay. All right. Okay. Thank you very much.
Sure.
The next question is coming from Sebastian Hou from CLSA. Go ahead, please.
Hi. Thank you. My first question is, can you comment on your utilization rate for 8-inch and 12-inch in Q4 2018 and 2019?
The Q4 2018, the 8-inch is running over 100%, and the 12-inch is about mid-70s, and overall, it's about 88%.
Right.
For Q1 2019, we think the 8-inch will close to 100%, and the 12-inch will be in the low 70%. So overall will be somewhere in the 80% range.
Okay. Thank you. My second question is on the, I think Chi-Tung mentioned that you recognized one of OpEx related to the DRAM R&D. So can you get the subsidy or get NRE from Fujian Jinhua later on?
The one time increase in our OpEx of TWD 700 million, which related to the DRAM development project. About TWD 406 million is lost credit, which is, we're supposed to collect the money as we already reached the milestone. But the receivable appears to be in risk for the current status. So that's why we recognize TWD 406 million lost credit. So that's the one you refer to. In the future, there's no other things like this going forward. The remaining TWD 300 million plus is mainly due to the cost we already put into the project. Again, with the current status of the DRAM project, it's unlikely to recover. So we also recognize that as an expense at one time in Q4 of 2018. That's also unlikely to repeat again in Q1.
Okay. Got it. Thank you. Do you sense any change to your relationship with your U.S.-based customers? I'm not sure if you sense any of your U.S.-based customers may be concerned regarding your lawsuit you're involved with U.S. government right now.
No. For that legal case, well, first of all, UMC does not manufacture or sell any DRAM products. That is the reason while the U.S. case do not impact either our customer's production or our delivery schedule. We haven't seen any impact from that front yet. UMC business continue as usual for the pure-play foundry side.
Okay. My first question is, I recall there is a Fujian Jinhua at your DRAM project with Fujian Jinhua has also involved some R&D equipment that are placed in UMC factory in Tainan. How are we going to deal with those equipment, and where will those equipment be disposed or how to deal with them later on?
Well, right now, the project has been suspended as we reported.
Yeah
The two are not being used. In other words, all equipment dedicated for the DRAM has been suspended at this point, and we're just not touching it.
Okay. The two are just sit there idled. You don't have to be responsible for any depreciation of that either?
No. Not at all, no.
Okay. Can you resell it, or you just leave it there?
That's not ours.
Yeah, it's a customer equipment.
Okay, all right. They will be taken back at some point later, depend.
We don't know.
It's early in the process, in the judicial process, so it's too early to comment about the future of the equipment.
Right. The last question from me is on the dividend policy that, given you have generated a lot of the cash flow in 2018, what is the dividend policy? What will the dividend policy be like for this year?
We will continue with a very high payout ratio. UMC is really coming from a total shareholder return approach. Other than very high payout ratio in cash dividend, we also conduct two rounds of share buyback for cancellation. It is going to be a combination effort for UMC to hope for this maximum shareholder return approach.
Okay. Chi-Tung, when you mention high payout ratio, that means likely to be over 100%?
It is not impossible, but, again, we want a predictable and also steady flow, and hopefully, along with our enhanced increased earnings. It is not, again, only focused on the cash dividend. We want to come from several other means to enhance our total shareholders' return.
Okay. Got it. Thank you.
Sure.
The next question is coming from Charlie Chan from Morgan Stanley. Go ahead, please.
Hi, good afternoon. My first question is to follow up the U.S. case. Does the company need to prepare any provision loss for the potential results, and whether it would impact the coming quarters' OpEx?
Well, the case is at a preliminary stage where all amount at this point is speculation. For the fine or the damages is premature.
Okay.
Even the current process, we have not booking anything yet.
Okay. For full year, I know visibility is quite low even to second quarter, but does company set any full year target in terms of revenue and also the gross margin?
We are not allowed to give full year revenue or gross margin guidance according to the local regulators. However, UMC certainly will try to defend and enhance our position in the foundry sector. We hope we will be able to grow in line with the foundry sector for 2019.
Okay. That's it. I guess 28 nanometer is a kind of a big wild card, right? It's been slow for past three quarters. Does company expect that 28 nanometer utilization can improve in the coming quarters?
Well, right now in Q4, we continue seeing the weakness of smartphone and automotive SEMIs, kind of touched earlier, so we do not anticipate will improve in Q1.
Mm-hmm. Okay. But at the same time, there is a kind of over capacity issue for 28 nanometer. How do you think about the coming competition in the coming quarters? Even the demand comes back, does company have confidence to maintain the current market share?
Well, our current market share is not Our goal is to grow, not to maintain a current market share because market share is relatively low. But if you look at the 28 nanometers, we observe the evolution of the 28 and 22nm High-K derivative technology are reaching to industry standard now. In the past, we've mentioned we've been seeing quite a bit of derivative for the past couple of years.
As they start reaching to the industry standard, which will significantly help us to capture better business opportunity and the market shares. In long term, we're actually seeing positive growth in this area, both on demand and our readiness point of view.
Mm-hmm. Okay. Yeah. Maybe also a question about the cost structure. The part one is about your depreciation trend in 2019. Also, I think recently lots of chairs talking about foundry should cut cost at those raw wafers, et cetera. Can the company give us some colors about the raw wafer price trend in 2019?
To answer your first question, UMC's depreciation trend is down about 5% plus in 2019 versus 2018. 2018 itself declined about 2% compared to the previous year.
Yeah.
For your second question, in terms of the raw wafer pricing situation. Last year, in 2018, the importance of the raw wafer is to secure long-term contract agreement with the suppliers. Although we have secured that long-term contract agreement with the raw wafer supplier, we will continue negotiating with the supplier to achieve a better cost saving. This is ongoing efforts, yeah.
Yeah. Again, can you clarify, is this kind of negotiation for 2019 contracts or for those contracts in the following years?
Well, it depends, but I think the effort of negotiation will continue. Whether it is going to apply to the current contract or the next year contract, we are still in the negotiation with the suppliers.
Okay, thanks. Sorry for those tough question. Actually, I see one kind of bright spot is about your 8-inch business. Can management help us to understand? Because, essentially, lots of 8-inch end markets like automotive, industrial, even smartphone show weakness, right? Those IDM customers tend to do an in-source during a downturn. Can you give us some color why UMC can still maintain such high utilization for 8-inch? Can you give us some kind of a long-term demand supply perspective for the 8-inch business? Thanks.
Well, for the 8-inch long term, we are optimistic about the outlook in the long term. There is still going to be many application drives the 8-inch needs, demands. Power IC, MCU, automotive, IoT devices. I think there is still going to be a very diverse application drives the 8-inch demand. Worldwide overall, 8-inch is still under constraint. We think it will remain healthy for the 8-inch. The key focus here is to provide a competitive specialty technologies. That will be our focus.
We will be focused on delivering those specialty technology in RF-SOI, BCD, embedded, non-volatile. As long as we can deliver those competitive solutions, we have confidence to address those 8-inch demands in the long term.
Okay. How about the big segment, the large panel drive ICs are kind of a big end market for 8-inch. How does it look for 1Q for the wafer demand?
Well, the overall market is showing some weakness.
Mm-hmm, okay.
But I don't like to comment specific each applications.
Right.
But for the Q1, we see across the segment, weakness.
Okay. And let me just one very last question. So Chi-Tung, can you give us OpEx range for 1Q? Because I know there were some one-time items. But what is the 1Q OpEx range?
Yeah, I think it should be the Q4 number, but exclude the one-time charge.
Okay. Got it. It's clear. Thank you.
Thank you.
Thank you.
The next one is coming from Julie Tsai from UBS. Go ahead, please.
Hi. Thank you. I have two questions. One is, just want to clarify, Q1 guidance of gross margin. Did you say mid single digit? This is compared to Q4's 13%, correct? The utilization rate doesn't seem to drop so much, and wafer and ASP decline in Q1 also doesn't seem to be that bad. Could you give us a little bit more guidance on that kind of gross margin indication?
Well, first, yes. The answer is yes. We are dropping from 13% to mid single digit. The low utilization from the 88% drop down to low 80. You can probably roughly looking at is about 4% impact, four point impact to the gross margin. When we see a utilization drop of 8% or in the, as I reported earlier, they are annual tool and equipment maintenance, which we normally execute in Q1. That will probably give you another point and as well is the fewer working days. So combination of those will probably impact us that much.
I see. Okay. Second question is that it seems like UMC is still aiming to develop more advanced technology, for example, 14 nanometer. Are you still keen to stay at more mature nodes where you are quite competitive compared to other foundry player? Could you give us a bit of guidance on that?
Well, our strategy is focused on the mature technology, specialty technology, and our strategy is try to be focused and be relevant in those area. So we see many of different application drives the technology needs, in a specialty area. So not particularly in the 14. Our current R&D resources will mainly focus on the diversity of the technology area. Okay? So we will continue developing our solution across the multiple technology nodes to address, for example, Power IC, or as mentioned earlier, the display driver, RF switch, MCU application. We believe to provide competitive specialty technology solution to our customer will improve our product mix and sustain our overall utilization rate in line with our capacity expansion plan. We do not really highlight the events of 14, in the past few reports already.
But we already developed the 14 and we will finish the 14, but we would probably stop at 14 and we have no plan to go beyond 14 at this point.
Hmm. I think that's much clearer. Can we also assume that maybe a CapEx of TWD 1 billion, that's probably fairly high or good enough for maybe this year and next year beyond, will be lower than this?
No, we don't give CapEx guidance beyond 2019. 2019 is about TWD 1 billion. Last year's CapEx, some of them, part of them fall into this year. We believe this is currently a good number for us, and we continue to accumulate cash on back of this disciplined CapEx approach.
Okay. Thank you, Chi-Tung.
As a reminder, please press zero one on your keypad if you would like to ask the question. Thank you. Next we'll have Randy Abrams from Credit Suisse for questions. Go ahead, please.
Yes. Hi, thank you. I just wanted to see with the Fujitsu now planned April 1st, if you could give maybe a rough range for sales, and profitability or an OpEx run rate, just to factor in, once you do get the closure.
It's a part of Fujitsu affiliate. We are not allowed to comment on their outlook, unfortunately.
Okay. I guess we'll have to wait until next quarter. A follow-up then on the OpEx or I think ex the charges, it's running flat. I think medium term with some of the move now to do more of like a CapEx light and a more approach on returns. Could you maybe discuss kind of your view on OpEx if stable is the way to think about it or there's still areas you need to invest and grow or kind of direction we should think about OpEx kind of over the next one to two years?
In the next one or two years, our goal is to have a stable percentage ratio of revenue. Longer term, of course, is the management job to utilize those resources more efficiently. So hopefully, longer term, we will have it under control. But in the near term, in 2019, given the challenging outlook in terms of the whole market, our goal is to maintain a stable percentage as revenue for the OpEx ratio.
Okay. The final question on the 28, it came down a bit more to 10% of revenue. I think in the past couple of quarters you mentioned it is now kind of a larger range of tape-outs but smaller volume. When you look at those into production, if you could give a sense how we should see the 28, if those tape-outs start contributing to grow that as a percent of sales to improve loadings or may remain kind of in this range for a little longer.
Well, yes. The number of the 28 tape-out continues to grow, in both communication and computer segments. If I break down the ratio, we are just seeing 70% of tape-out become a High-K solution. You can see that is a big improvement. However, just like you said, the 28 nanometer High-K still compose the fragment in slow volume customer, from the second and third wave application. So the ramp-up time will still take much longer. I think we definitely see the tape-out momentum now.
Okay. I guess the meaning by taking longer, probably stable, like we are at a level now, it probably stabilizes for a while and then, probably later in the year can start to grow, can start to get back to growth again.
That will be our expectation, yes.
Okay, great. Thanks a lot.
It appears to be no further questions at this point, so that would be the end of our Q&A session. I will turn it over to UMC head of IR for closing remarks. Go ahead, please.
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.
Thank you. Ladies and gentlemen, that concludes our conference for fourth quarter 2018. We 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 Investors Events section. You may now disconnect. Goodbye.