Earnings Call: Q4 2015

Jan 27, 2016

Summary

Q4 revenue declined amid inventory correction, while gross margin improved on currency and yield benefits. FY2015 foundry growth and 28nm expansion supported a recovery outlook, but higher depreciation and macro uncertainty tempered margin prospects.

Welcome everyone to UMC's 2015 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, a 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. Bowen Huang, Head of Investor Relations at UMC. Mr. Huang, you may begin. Thank you, and welcome to UMC's conference call for the fourth quarter of 2015. I'm joined by Mr. Po-Wen Yen, the CEO of UMC, and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFOs present fourth quarter financial results, followed by our CEO's key message to address UMC's focus and the first quarter of 2016 guidance. Once our CEO 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. For this risk, please refer to UMC's filing with the SEC in the U.S. and the ROC securities authorities. I would now like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2015 business results. Thank you, Bowen. I would like to go through the fourth quarter 2015 investor conference presentation material, which can be downloaded from our website. Starting on page 3, the fourth quarter of 2015, consolidated revenue was TWD 33.85 billion, with gross margin at 20.6% and operating margin at 5.6%. The net income attributable to the stockholder of the parent was TWD 3.16 billion, and earnings per ordinary shares were TWD 0.25. For fourth quarter of 2015, the utilization rate dropped from 89% in the previous quarter to 83%, that also lead to a decline in revenue as reported of TWD 33.8 billion in Q4 2015. On page 4, revenue declined by 4.2%, mainly due to the decrease in shipment. However, gross margin increased to 20.6% from 19.6% in the previous quarter. Operating income as a result, also improved to 5.6% or equivalent of TWD 1.88 billion. Net income for fourth quarter of 2015 is 3.07 billion, with an EPS of NT$0.25 per share. On page five is our full year numbers. For 2015, revenue increased by 3.4% on a consolidated basis to NT$144.8 billion. Gross profit is in line with the number of 2014 at around NT$31.7 billion. With lower operating expenses, operating income has improved 7.5% year-over-year to NT$10.8 billion or an EPS of NT$1.08 per share. For year 2015, our balance sheet has a cash or cash equivalent of NT$53.3 billion, with a total asset of NT$337.3 billion. In terms of operating segment, we can see that the impact from our new business is getting smaller. Revenue in Q4 of 2015 is around NT$578 million with a loss of NT$310 million. We expect this performance will continue to be steady with improvement in terms of operating income for new business. For our main contributions still coming from wafer fabrication, which account for more than 98% of our total revenues. For ASP in Q4 of 2015, we see somewhat neutralization from NT dollar weakness with our ASP decline. The impact in NT dollars is flat. In terms of revenue breakdown in Q4, we see a U.S. market increased by around 2%, while Asia market declined by 4%. Japan continued to grow, and now it represents about 10% of our total revenue. For the full year, it's a similar situation, with Japan improved to 7% of the whole pie, and Asia declined by 4% to around 40%. IDM, at the same time, improved to 15% of our total revenue. For the full year, it's also in a similar situation from 9% to 12%. Communication still represents 52% of our total revenue, although it declined by 3 percentage points compared to the previous quarter, and consumer increased by around 2%. For the full year, communication actually grew to 54% from 51% in the previous year. We continue to see migration to the leading-edge node, especially for 28-nanometer, which right now represents around 11% of our total revenue. For 14 nanometer, we stay around 24%. For the full year, we see significant improvement from 3% in 2014 to 10% for 28-nanometer technology. For 14 nanometer, we also see 3 percentage point improvement from 21% to 24%. Due to annual maintenance, we won't see too much capacity increase in Q1 of 2016. We will stay somewhat flat compared to Q4 of 2015. But we do expect to see a steady growth in our capacity starting from quarter two of 2016. For 2016, our estimate CapEx is around $2.2 billion, which is an increase from $1.9 billion in 2015. This has included our Xiamen project. That concludes my presentation for our 2015 Q4 performance. I would like to now turn the call to Mr. Yen, CEO of UMC. Okay. Thank you, Chih-Do. Hello, everyone. I would like to update to everyone UMC's fourth quarter operating results. In the fourth quarter of 2015, UMC's foundry revenue declined 4.2% sequentially to TWD 33.59 billion due to the continued inventory correction within the semiconductor industry. Wafer shipments reached 1.38 million 8-inch equivalent wafers, bringing overall capacity utilization rate to 83%. Our 28-nanometer technology constituted 11% of fourth quarter 2015 revenue. For full year 2015, our foundry revenue grew 9% over 2014, aided by a 5% increase in total manufacturing capacity and higher blended ASP due to increased advanced node contribution and overall loading of approximately 90%. Our 28-nanometer business tripled in 2015, propelled by strong demand from the communication sector. Furthermore, we have introduced refined 28-nanometer process variations on high K metal gate and polysilicon, called 28HPCU and 28LPU, targeted for communication ICs. These two new processes operate at the same speed range as industry's 28 HPC and 28 LP, but at a lower power level to considerably extend the battery life of mobile devices. UMC will continue to strengthen our 28-nanometer technology roadmap with enhanced processes that raise chip performance while lowering power consumption. Besides our 28-nanometer technologies, we have also observed strong demand for chips used in the automotive industry on both 8-inch and 12-inch manufacturing processes. The UMC customers are now migrating from consumer-grade products to more stringent Grade 1 and Grade 0 semiconductors designed for critical automotive safety functions. These products include power management, display driver, imaging sensors, and microcontrollers. As more products begin to rely on UMC's comprehensive automotive service package Our exposure in the automotive supply chain will help generate a new revenue stream for our foundry business. We are seeing signs of cyclical bottoming, as most of our customers' inventory has returned to reasonable levels. For the first quarter of 2016, we expect our foundry revenue to remain flat. UMC is optimistic on growth outlook for the foundry industry, led by communication and consumer products. We anticipate positive momentum for our 28 nanometer as new products scheduled to enter production throughout the year, provide additional business traction. To meet increased demand, we plan to expand our 12-inch operations, with Tainan Fab 12A phase 5 coming online and Xiamen 12X is currently under construction. UMC has budgeted 2016 CapEx at approximately $2.2 billion US dollars, which will mainly focus on adding 300-millimeter capacity. As a key upstream supplier, we look forward to expanding our involvement in exciting new applications, which will enable UMC to sustain our momentum across the industry. Now, please allow me some time to summarize the recent highlights in Chinese。接着向各位说明本公司现阶段的营运重点。受到半导体产业库存调整的影响，2015年第四季联电晶圆专工营收为新台币335.9亿元，与前一季相较减少4.2%。整体产能利用率83%，约当八寸晶圆出货量138万片。28奈米制程营收占比达到11%。2015年晶圆专工营收在总产能成长5%，先进制程营收而提升的平均售价，以及全年产能利用率90%的带动下，相较2014年营收成长9%。而且28奈米全年营收在强劲通讯产品需求的驱动下，增加至2014年的三倍。此外，我们也针对通讯晶片推出的优化28奈米 High-K Metal Gate 制程，28HPCU 以及 Polysilicon 制程 28LPU。它们和现有的28奈米制程比较，在相同的速度范围下有更低的耗电表现，可大幅延长行动装置的电池续航能力。联电将致力优化晶片效能与降低耗电，持续强化28奈米的技术蓝图。同时，我们也观察到汽车产业对于采用八寸与12寸制程晶片的需求日益增加，客户正逐渐将消费性等级的产品移转为更严谨用于关键车用安全功能的 Grade 1 与 Grade 0 车用半导体。产品应用涵盖电源管理、显示器、驱动IC、影像传感器以及微处理器等。随着更多产品开始采用联电全方位的车用服务套件，我们在汽车供应链未来将会越来越多的参与，这可为本公司晶圆专工服务带来新的营收。随着许多客户的晶片库存回到合理的水位，我们观察到景气落底的讯号，并预期本公司2016年第一季晶圆专工的营收将会与上一季持平。在通讯与消费性产品驱动下，我们乐观看待晶圆专工产业的成长。今年将会有更多28奈米产品导入生产，挹注联电成长动能。为了满足客户的需求，我们将扩充台南12A厂第五期的产能扩建，与正在建造中的厦门厂。2016年资本支出预算为22亿美金，主要用于提高12寸产能。作为关键的供应链上游厂商，联电期待扩展新的应用领域的触角。 [Foreign language] I've finished my remarks. Now let me go over the first quarter 2016 guidance. Our wafer shipments remain flat compared to previous quarter. Our ASP softness will offset by favorable U.S. dollar to NT dollar exchange rate. Our gross profit margin will be in high teens percentage range. Our foundry capacity utilization will be in low 80% range. Our foundry CapEx for 2016 will be approximately $2.2 billion U.S. dollar. That concludes my remarks. We are now ready for questions. Operator, please open the lines up. Thanks. Thank you. 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 01 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 02 to cancel the question. Thank you. Please press 01 to ask the question. Thank you. Our first question is from Randy Abrams, Credit Suisse. Please ask your question. Okay. Thank you. My first question may be more for Chih-Tung about the guidance, where you're guiding for ASP softness offsetting the FX. If you could quantify the magnitude of ASP softness and what you're factoring in for the FX rate, which would be the offsetting benefit. Maybe if you could talk about the softness, whether that coming from the annual price reset, or there's a technology mix factor. I think it's a conceptual guidance. Basically, we are looking for a flattish ASP in NT dollars. The positive driving force is NT dollar depreciation. However, the negative force is ASP decline. For your question, it's mainly due to the beginning of the year price reset and not so much for like to like price decline. Okay. The gross margin, you are guiding back to high teens, given the currency benefit. I guess, if you could give the FX assumption. You guided last quarter high teens and did a little better, but if there is a factor for guiding it back to high teens with flat shipments and the FX benefit. It is mainly due to the increase in cost. Our depreciation expenses in Q1 alone will show around 10% sequential growth. For the full year, we are actually looking for a 20% year-over-year depreciation increase. That is mainly coming from the cost side. We do expect the ASP to catch up gradually. For the first quarter, we see a more increase in cost than the ASP. Okay. No, thank you. I guess it poses the question, where you are bearing more depreciation, but it looks like you are taking a more optimistic view on CapEx. Could you discuss what is prompting the increase to go over to $2.2 billion versus the order range was closer to operating cash flow? How much capacity, like maybe give an update on how much capacity for 28 and how much capacity adds you are planning for China within that budget? Within that budget, a little bit more than 50% is for Taiwan, and a little bit less than 50% is for Xiamen fab. Xiamen fab won't be able to start production until the end of 2016, so it won't have any capacity contribution until end of this year. For Taiwan, like to like CapEx is actually lower than the previous year. Okay. The follow-up to that, for Taiwan, is it still the plan to go to, I think it was 29 or 30,000? If you could give your assumption on 28-nanometer contribution, say by end of year, like percent of revenue from 28, how much capacity on 28, and then how much contribution for that? Thank you. Yes. By the end of this year, our 28-nanometer capacity will increase to 29.5K per month from our current 20.5K per month. Okay. The revenue contribution from 28 for the second quarter, the next quarter, will be around 15%-20% range. Okay. A pretty big pickup in second quarter. Do you see further, I guess, in second half, I guess it's early to see, but, I guess, do you have a target yet for where that could reach by year-end? We don't have a specific target, but we do see that our 28-nanometer revenue contribution will be better quarter by quarter. Okay. All right. Thanks a lot. Thanks. The next one is from Michael Chou, Deutsche Bank. Please ask your question. Hi. My first question is for Qi Dong. What is your FX assumption for Q1, and what was the FX in Q4 last year? Yeah. Q4 last year, the conversion rate is at 32.81. For forecast for Q1, it currently stands around 33.5, but we do follow the major banks forecast for the Q1 and adjust accordingly. Okay. The second question is, CEO mentioned the new 28-nanometer product. When would the new 28-nanometer solution enter mass production this year? Sorry, your question again. Sorry. You mentioned you have a new 28-nanometer solution. When would that enter mass production this year? It's already taking place, starting from this quarter, but it will gradually increase the new solution, new enhanced version, in the coming quarters. Coming quarters. Okay. In terms of high K metal gate sales portion, what is the portion of high K metal gate as a total 28-nanometer, Q1 or end of this year? Yeah, Q- Capacity? Maybe capacity is fine. Yeah. Capacity-wise, since our high K metal gate version will, by the end of this year, be reached 21.5K, mainly on high K metal gate version, our capacity expansion. Capacity expansion. What is the high K metal gate portion now in terms of capacity? Yeah. Right now, it's 12.5K. 12.5K. 12.5K per month. Given- You will see our 28-nanometer capacity expansion is mainly on high K metal gate version. Okay. As a follow-up question for 28-nanometer sales portion. You mentioned 28-nanometer sales portion will increase quarter by quarter, am I right? Yes. That means in Q2, 15%-20% of total sales. In Q3, we can expect it could be higher than this range, right? Yeah. That is the trend. That is according our demand forecast. Okay. Given that SMIC is ramping their 28-nanometer as well, do you think the 28-nanometer pricing environment will be quite tough this year? And the follow-up question is, when do you expect the 28-nanometer gross margin to reach the corporate average gross margin? Yeah. Your first question is regarding our 28-nanometer competitiveness. Yes. We believe that our high K metal gate version, which UMC is only one of the two supplier on this high-performance technology. We see a less intense pressure on this technology node, and that is UMC's focus on high K metal gate version. And we believe the other competitor might have a gap to catch up this technology. Yeah. Your second question is regarding the- 28-nanometer gross margin trend, because it should be below the corporate average gross margin now, but when would that reach the corporate average gross margin? Yeah. Our trajectory, we believe that by the end of this year, our 28-nanometer gross margin will catch up our trend average gross margin. You mean end of Q4, right? Yes. Okay. You factor in the split pricing condition in 28 nanometer poly-SiON, but given that your 28 nanometer high K metal gate will be the only two alternatives in the market. You think that your 28 nanometer gross margin should be able to reach the corporate average gross margin by end of this year. Am I right? Yes, correct. No, corporate is 12. 12-inch average, yes. Oh, 12-inch average. I'm sorry. 12-inch. Do you mind, you can tell us what is your 12-inch gross margin now? Yeah, we don't provide this kind of breakdown because our eight-inch is almost fully depreciated. Oh, okay. From a margin point of view, there is quite a difference. Oh, I see. Do you have a forecast for your 28-nanometer gross margin to reach the corporate gross margin, or it is too early to say that? No, we only compare it to our 12-inch operation. Oh, I see. Okay. Thank you so much. Back to the queue. Thank you. The next question is coming from Steven Pelayo, HSBC. Please go ahead. Yeah, I'd like to explore your comment about 28-nanometer being 15%-20% of revenues in the second quarter. If I assume a little bit of top-line revenue growth and I play around with an ASP, that really seems like you're going to be pretty much fully loaded, I would almost assume. It depends on what we assume for ASPs in here, but what kind of utilization rates of your 28-nanometer capacity, if you only have currently less than 21K, do you think you'll be at in the second quarter? Yeah, our 28-nanometer utilization rate in the second quarter will be. No, in the 28. Yeah, will be greater than 85% in the second quarter. Sorry, go ahead. Yes. Yeah. Our 28-nanometer capacity utilization rate in the second quarter will be greater than 85%. Yeah. What was it in the fourth quarter? The second half of this year will be greater than 90%. What was it in the fourth quarter last year? I am just curious, what are we starting from? Was it only 50% utilized in the fourth quarter last year? The fourth quarter 2015 is around 50%. Yeah. That's what I thought. If you go from a 50% to an 85% on 28-nanometer, I have to believe the leverage is pretty good and the margins are pretty good. What do we think about the incremental margin and the drop-through as you go into the second quarter if your mix richens up that much? Again, we have two forces racing with each other. One is our increasing depreciation. I mentioned QOQ growth increases around 10% in Q1, full year around 20%. Even though we are seeing pickup in our leading edge node revenue, the pace has to outgrow the depreciation increase in order to see improvement in corporate gross margin. Okay, fair enough. Just the last question from me. You were highlighting some excitement maybe in the automotive supply chain. I know your other revenues are, what, about 6% of revenues. I do not know, what would you consider your percentage exposure to the auto segment today? I do not know if you are breaking out some of the display in a car, might be in the consumer side. I do not know. What do you think your auto exposure is today? Yeah. So far, it is still very minimum numbers, less than 5% contribution from automotive. But we do see the growth rate, it will be better than other segments. You want to take a guess on maybe exiting this year? Do you think that could be as much as 10% of revenues? No, we don't have the numbers here. Okay. I'll get back in the queue. Thank you. The next one is from Gokul Hariharan, JP Morgan. Please ask your question. Yeah, hi. Thanks for taking my question. Just wanted to dwell a little bit on your comments on the inventory depletion getting over and starting to see some signs of restocking. Could you give us some color in terms of which of the supply chains we are seeing that happening the most? Given that you are guiding for Q2, the 28-nanometer utilization is also to start moving up. Should we expect that we get back to a normal seasonality for the foundry space going into the second quarter? TSMC commented that inventory days were pretty low, but customers were still holding back on reordering, given the macro situation. Could you comment on what you are seeing on that front? Yes. The semiconductor supply chain inventory correction was very intense since the second half of last year. After the inventory correction, based on the demand of our customers, now we are seeing our foundry business likely to begin a recovery starting in the second quarter this year. However, due to the uncertainty of macro economies, the supply chain will likely remain cautious in their inventory control. We adjust our 2016 semiconductor and foundry outlook to 3% and 4% growth, respectively. We estimate our full-year foundry growth will be around 4%, and we target our growth will be in line or a bit outpace the foundry industry. Okay, that is great color. So 4% is on USD terms, right? Given the currency is swinging around quite a bit. Yes, that is for the whole industry. UMC, of course, hope to outgrow that. Okay. Just a follow-up question on the CapEx itself and the plants in China. Looks like from a spend perspective, still more than 50% of the advanced geometry CapEx is going into Taiwan. Could you update a little bit on the China plans? Are they pretty much on schedule? Are we likely to see some wafer out in Q4, or is it going to be in Q1? Which node are we going to start with in the first place? Yes. Our China fab constructions are on track, and we are targeted to move our tools to this new fab facility in the second quarter this year and wafer start in the third quarter. We expect to see some wafer products out in Q4. We are expecting some revenue contribution by the end of this year. Okay. Is that all 55 or 40? It is mainly on 40 nanometers. Okay. Product. The expansion in Taiwan is all 28, right? Yes, correct. Okay, thanks. Thanks. The next question is from Zi Hong Ng, BNP Paribas. Please ask your question. Hi, good afternoon, gentlemen. My first question is, could you talk about the foundry gross margin for Q4? Foundry gross margin, I think the whole corporate is around 5%. As I reported, our new business had a minor loss of around TWD 300 million. So pretty much you add back. Oh, I mean at the gross level, not at the operating level. Well, our gross level was again, similar, 20.8% margin. Okay, got you. Thanks. Moving back to the China JV Fab 12X, what will be the accounting treatment for that? That is going to be actually accounted? Yeah, that's a little bit complicated. Maybe you can spare me a few minutes. UMC has the control of the board, so according to the IFRS, we have to consolidate the operation even though we're only holding 30% of the equity. The remaining of the 70% interest will get back to the other investors at the bottom line level or the EPS level. Before the 12X go into mass production, all the costs will be put under the operating expenses item instead of allocating to each appropriate cost item. Only until the end of 2016, when it starts mass production, then we will see all the costs being fully consolidated into each item. Before that, all the expenses will be under operating expenses. Okay. All right. For Fab 12A, what will be the maximum design capacity? 12A or 12X? 12A. The Taiwan one. 12A, we are having a new phase five, which can accommodate around 25K per month. We will only start with around 10K of 28-nanometer. Okay. All right. Thank you very much, Qi Dong. Thanks. The next question is from Rick Hsu, Daiwa Securities. Please ask your question. Yeah, hi. Thank you so much for taking my questions. My first question is probably for Qi Dong. Why was your Q4 gross margin so high? Because I remember you guide around high teens, right? High teens gross margin for Q4. Why it turned out to be like 20 point something percent? Well, it is mainly due to some impact or help from the NT dollar weakness, but also there is quite an improvement from our production yield. That helped the overall gross margin in Q4. Can I refer to your yield improvement to your 28-nanometer? Some of the impact is really a combination of weak NT dollars and a better production yield. Okay, great. Thank you so much. Second question. I am not sure if someone asked a question about this before, but could you give us some number about your 2016 capacity increase? Like by how much, the total capacity? The total capacity is year-on-year increased 6%, around 6%. Okay. It is fair to assume that majority of the increase coming from 12-inch, right? Yes, 12-inch is increased by 8% and eight-inch by 3%. Lovely. Thank you so much. Okay. Yeah. Those are my questions. Yeah. The next one is from Roland Shu, Citigroup. Please go ahead. Hi. Good afternoon, gentlemen. First question to me is, look at your 28-nanometer last year, actually, revenue have been expanded by 3 times. The overall revenue increased about 4% year-on-year. However, if I look at non-28 nanometer revenue, in absolute dollar amount actually, have been declined. Also we always know, I think for most of time, for your 14 nanometer and even for your eight-inch capacity actually have been loaded at a very high utilization. So why are the absolute dollar amount for this non-28 nanometer revenue still declined last year? Was that due to the competition or was that due to this pricing pressure? It's mainly due to our 12-inch mature node. The utilization rate declined last year, especially on 65-nanometer technology node. This node, we see the customer is migrating from 65 to 40 nanometer, faster cadence than our expectation. We can see our 40-nanometer momentum is very strong last year up to now. Our 65 utilization rate since second half last year is coming more weakening. Understood. How about this year? This year, we also have a very strong growth on 28 nanometer. How about the other non-28 revenue? Is this going to increase or it will be pretty much like last year, probably being still decline slightly? We certainly are managing to improve our 12-inch mature nodes capacity utilization rate, especially on 65. We are engaged to broaden our applications, especially on high voltage. We do see there are some technology migration from legacy nodes to the 12-inch technology nodes. For example, 55 and 40 nanometer high voltage technology and some are power management IC on 40, 55. Also the embedded flash on 55 technology node. We see there are some improvement in the second half of this year on our 12-inch mature node technology. Okay, that means that we are very likely to grow all of this non-28 nanometer revenue this year. Can I assume that? Yes. Understood. Okay, thanks. For your CapEx spending, $2.2 billion this year, I think that this probably is the record high. So, how are you going to fund this CapEx spending? Are you going to raise money on that? Well, first of all, it is not a record high. We had bigger spending before. Okay. Second- My mistake. Yeah, sorry. No problem. Secondly, in reality, we will only spend a little bit more than 50% out of UMC pocket. The other less than 50% is out of the Xiamen pocket, which UMC owns 30% only. If you calculate cash flow, it will not cost UMC that much money or $2.2 billion. Basically, we are likely in the cash positive position in 2016 due to the shareholding structure of the Xiamen fab. Eventually, of course, we are going to buy back the remaining shares, but that is about seven or eight years later. Mm-hmm. Okay. Understood. For this year, the overall depreciation is going to increase about 20% year-on-year. That probably will impact the gross margin by two percentage points. Are you going to see the overall gross margin this year to continue to increase or that probably will be on the downside because of this increased depreciation? All we know is on the cost side, there is already a 20% increase from last year in depreciation. Of course, I will try our every best to offset that or even outpace that, as I mentioned earlier. For the time being, we cannot give forecast for our profitability, but the cost side is already almost determined because of the depreciation schedule. The rest is really on how much we can strive ourself to enhance our ASP combination. Understood. Thank you. These are all my questions. Thank you very much. Thanks. The next one is from Sebastian Hou, CLSA. Please ask your question. Hi. Good afternoon, gentlemen. Thanks for taking my questions. The first one is to follow up on the 28-nanometer utilization rate. Earlier you mentioned that the second quarter will reach over 85%. I wonder, can you give the numbers for this quarter, first quarter 2016? Yeah. This quarter is around 62%. Fifty-two? Yes. Okay. Thank you. Earlier, you also mentioned in second half, you expect the utilization rate to reach over 90%, but I also remember that you are going to add 9K of incremental capacity. So that also includes those incremental capacity. Yes, correct. We already factor in this capacity. Okay Incremental, yes. Okay. Thank you. My third question is also on the 28-nanometer, on the pricing environment. Earlier you made a comment that the high K metal gate has not seen the competition from another, because so far it is pretty much you and TSMC. Are you seeing any fierce pricing competition in high K metal gates as well? We cannot forecast that, because the pricing pressure is always intense. But your quote depends on our customers, their supply chain management strategy and our competition, their pricing strategy. So I cannot comment on this. Okay. The reason I ask this question is that because your competitor also see their 28-nanometer utilization rate up from 80% to 90% this quarter, and your utilization rate also increased. So, it seems like a lot of the 28-nanometer high K metal gate capacity utilization rate is already running at a high level. So, I just wonder if you might need to lower your price to get more order, or actually this demand is very strong that automatically they just flow in. My observation is actually due to, we see that more and more customers and products, they are moving from 28 low power version to high K metal gate version. So the demand on the high K metal gate version is increasing. UMC, we continue to improve our yield and our performance. So we are gaining the traction on high K metal gate demand. So that is why we still see, even we expand our 28-nanometer capacity, but we still see the demand is coming there. Okay. Thank you. Another question is on the margin of your 28-nanometer. Earlier, you mentioned about you have the two new products, which is the 28HPCU and LPU. I wonder, if you look at comparing the margin of these two new products versus the existing version, how is that in terms of the margin? Is it better or still in line? It will be a kind of improved version for our customers. The main purpose is gaining the traction from our customers. It's not to defend our demand. It's not to pay or for improve the ASP. Okay. How about the cost? Is it the same? Yes, cost is same. Yes. Okay. My next question is on your yield rate. Can you update us on your yield rate for poly-SiON and high K metal gate on 28 nanometers respectively? Yes. Actually, both our poly-SiON version and high K metal gate version, our pioneer products, the yield is around 90%. So both are 90%? Okay. Yes, both are in 90% range. Okay. I remember last quarter, the high K metal gate was still 88%, so improved by 2 percentage points, if I can say that. Yes. Okay. Last questions from me. Can you give us a detailed breakdown of your utilization rate for 8-inch wafer and 12-inch wafer for first quarter? Yes. For the first quarter, our 8-inch utilization rates are in the high 80% range, high 80, and the 12-inch is mid to high 70 percentage range. Okay. You expect these two will all be higher in second quarter? That in 12-inch, yes. How about 8-inch? Yes. Okay. 8-inch also, yes. Okay. Thank you very much, gentlemen. Ladies and gentlemen, we are running out of time, so we are taking the last question, and the last one is from Randy Abrams, Credit Suisse. Please ask your question. Okay. Yeah, thanks for squeezing me in. On the 28, just wanted to clarify, in first quarter, I think second quarter, 15%-20% of sales, the percent ramp, you expect in the first quarter. For the second stage of the ramp, if you could talk now, how broad the customer base is for 28, if it is a few customers driving that, or how it is broadening out, and then which applications, if it is mobile or any other applications. Yeah. We have more than 15 products in production in this and second quarter, on the 28-nanometer technology. Mostly are on the baseband and integrated AP and baseband, and also the DTV, digital TV, and Wi-Fi connectivity. Okay. If you could say, I guess, number of customers tied to that 15 products, like how broad the customers and percent of revenue, if it is going to start to jump up in first quarter or it is more second quarter. Yeah. Our first quarter, so far, we have 20 customers engaged on 28 nanometer. Okay. With the Yes? Okay. Will the percent of revenue already start to increase in the first quarter, or is it holding about 10% now in fourth quarter? Yeah. First quarter, 28 will contribute actually around 10%. It's flat compared to previous quarter. Okay. Could you talk about the applications or end markets? You are guiding flat overall, but is there any relative strength or weakness or end market outperforming that overall flat guidance? Anything declining in first quarter? Yes. On this quarter, in communication, we decline. We have some decline. However, among the communication, the Wi-Fi and switch router, there are some increase. On the ISP, image signal processor, and SDI, small display interface chips, they were going down. For the computer segment, flash and LCD ICs and tablet were going up, and the power IC were going down. Okay, great. The last question I had on the ramp-up of China, if you could talk about the OpEx, if you will be adding expense, how we should think about the expense growth through this year, and also on non-op, where you had some disposal gains, what was the benefit in fourth quarter? What drove that higher non-op, and if we should expect that to continue. Well, for Q4, it is really one-off. We recover our debt from a high-speed railway in Taiwan through a lawsuit. So that is really one-off. As for the sharp end in the OpEx, we are talking about one percentage point in operating margin, negative impact. This number will go up to maybe around 4% or even 5% by the end of this year. Okay. That is at the operating level, a few more percent. We should assume R&D then or SG&A grows a few percent as a percent of sales to factor that. The rest of the OpEx will be in line with our revenue. The ratio will remain the same. Okay. Thanks a lot. Thanks. Thank you for all your questions. That concludes today's Q&A session. I will turn things over to UMC Head of Investor Relations for closing remarks. Thank you everyone for joining us 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. Ladies and gentlemen, that concludes our conference for fourth quarter 2015. 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 Investor Relations Investors Event section. You may now disconnect. Goodbye.