Q2 2020 United Microelectronics Corp Earnings Call

There's event section and now I would like to introduce Mr. My co Ling head of Investor Relations that you MTV Amponsah Leanne. Please begin.

Thank you welcome to the U.S.

This call second quarter plenty of time.

I'm joined by Mr., Justin Walk you pass it then Oh yeah.

And Mr. Chu don't do you see I fall off.

In a moment we were here I'll see I hope is that the second quarter financial result.

Followed by I'll pass it is key message to address your this focus and the third quarter tiny tiny guidance.

Once Alpine then then to Seattle company their remarks, there will be QNX section.

You Mcs quarterly financial reports are available at our with that she bought out we've got you NC dotcom under the investors financial section.

During this conference we made we may make forward looking statements based on their managements current expectations and beliefs.

These forward looking statements are subject to a number of risk and uncertainties that could cause actual results could differ materially, including the risk that maybe beyond the company's control.

Well. These risks please refer to U.S. is filing with the FCC in the U.S.

And the hours the security authority.

Now I would like to introduce you don't see CFO Mr. Chu don't do to discuss U.S. second quarter plenty of tiny financial result.

Thank you Michael.

To go through that.

To do time Investor conference presentation materials, which can be downloaded from our website.

Starting on page three the second quarter of two Q.

Two zero consolidated revenue was 44.3 billion to.

<unk> gross margin at 23.1%.

Net income attributable to go stockholder off the parent was 6.6 billion NT <unk> earnings per ordinary shares all 55 cents NT dollar.

Yeah. This generated in the second quarter improved to 98% from 93 person in the previous quarter.

On the nice page page four hung over a quarter over quarter comparison.

Revenue grew 5% to 44.3 billion.

Sure it through a combination of a p. increase as well as the Chicago weight for shipment increase.

Gross margin, so reads out climbed to 23.1% or 10.25 billion and Pete.

Up 26% sequentially.

Ah, although operating expenses under control and therefore, we see all pack declined slightly 5.8% or the over quarter.

As a result operating income from 71% quarter over quarter to 5.8 billion and <unk>.

We sell reverse off our long.

Operating items from the.

Revaluation of our investments.

Our net income.

Attributable to that stockholder off the parent in order to rich 6.68 billion NT <unk>, 15.1% net income margin.

<unk>.

<unk> 0.55 in quarter, two compared to 21 night in first quarter of 2000 funky.

On page five the first six months comparison.

Revenue increase.

606%.

To 86.6.

86.6 billion and <unk>.

Oh, partially due to the combination of from U.S.J.C., which contribute around 10%.

I'll start, earning or the revenue top line and gross margin was 71.2% or 18.3 billion empty.

And.

Net income attributable to the stock holder of the parent.

It was 8.88.

And <unk> million NP in a first half first six months off 2020, <unk> 0.74 for the first two codelco here.

And then next page page six our cash has reached almost 200 billion and NT dollars and.

For the total equity in the first half.

Oh 2000 times he was a 209 billion on T.

On page seven.

Hey, see increased low single digit.

<unk> percentage, mainly due to the searching all time game revenue shipment.

On page eight the revenue breakdown.

Asia stay around 55% and Japan also remain around 9%.

Four page nine IDN and Fabulous remain on change at the tariff person at 88% respectively.

On page 10 communication declined <unk> percentage point.

<unk>, 51% and make that by computer and others segment.

And page 11, I mentioned ASP increased by low single digit a percentage point, mainly due to the surgery 28 nanometer shipment, which are now rich 13% of the total revenue in the second quarter compared to 9%, beating the previous quarter.

And capacity is still remain a minor increase quarter over quarter and Capex remained at 1 billion.

Dollar a U.S. dollar for the whole 2020.

So the Buffy so somebody off you wouldn't see $3 for second quarter off 2000 funding.

More details are available in the ripple, which has been posted on our website.

Were now tenneco over to you and Mr. Jason Wong.

Thank you and you don't agree evening, everyone, Yeah, I would like to update the second quarter operating results you see.

It wouldn't be second quarter consolidated operating margin reached 13.2%.

While utilization rate increased to 98%.

Lifting wafer shipments to 2.22 medium eight inch equivalent leases.

The increase in wafer shipments mainly reflected computing segment.

A full connectivity display driver and flash controller as well as an inventory replenishment <unk> computing market.

As we continue to fight to some.

Hi worldwide foundry services, our effort being appreciated by our customers in Q2, Texas instruments customer recognized you wouldn't see with a 2019 supplier excellence war for the demonstrating exemplary performance in the area cost.

A mental and social responsibility technology responsiveness, assurant or supply in college.

In addition to serving customers to them that I'll be able to teach you wouldn't see also increased 2019 cash dividend distribution to approximately <unk> year old 0.8.

Per share, reflecting the reason company buyback other treasury shares.

Looking into the surgical under current market demand remains strong we have experienced a surge in 28 now on the table during the first half a turn de 20 compared to the years ago.

And expect additional 28, <unk> and 22 now Anita Fatah tables in the sort of quarters.

We are also moving to 28 nanometer product into volume production, well wireless applications, such as the Fourg and Fiveg smartphones, which will enhance our dissonance traction and diversify you and sees customer exposure.

28 nanometer Maki segments.

Well all the we have observed efforts to minimize supply chain disruptions.

The Mitt.

He is doing the cold and 19 endemic well inventory replenishment is continuing across multiple markets settlement with the after its continuing to push customer adoption of you wouldn't see specialty technologies are all <unk>, Jude and hopefully strategy remains unchanged.

Good to see secure new business, we will closely examine returns on invested capital to optimize the company's capital deployment and further enhance our financial performance.

Let's move onto the third quarter 2020 guidance.

Our wafer shipment will remain flat.

AIDS you at all is expected to remain flat however, the accounting resolve will reflect.

Adverse effect in NT dollar appreciation.

Gross profit gross profit margin will be approximately 20%.

Capacity utilization rate will eat meat, 90% range, our 20, Twond capex budget will be U.S. $1 billion.

That concludes my comments. Thank you all for your attention now we are ready for questions.

Thank you presume once again, ladies and gentlemen, we will now begin now question and answer session. If it has a question for any of today's speakers. Please presence there were one on your telephone keypad and you willing to Q.

After you are now please ask your question. If you find that your question has been answered it before any short term speak police presence you wrote to cancel the question. Thank you.

And your first question is coming from Randy Abrams pretty please go ahead. Please.

Okay I'm, yes, good afternoon adjacent to talk on the a good results I want to task on the first question, where Jason when you were going through the prepared remarks.

Described.

The business remaining pretty strong and it it does sound like 20 eights ramping.

So I was I was curious the guidance where shipments in the U.S.P. for guided flat. So people could if you could discuss had been on if any areas of softness to offset that or I'm trends, you're seeing an application.

Should drive to flat guidance.

Sure.

Let me capture maybe capture the.

The.

I don't feel with the your questions. One is you you mentioned based on the remark.

We.

Cds <unk> demand remains strong and however, the we guided the shipment.

I see flat is that correct.

Yeah, that's correct, Oh, sorry, with 28, presumably ramping.

<unk> flat and yeah, so kind of factors for its soft and also maybe to add to it if any capacity constraints I, where there might be certain demand. If you just can't fell right now.

Okay, Let me see how to address that burst into C., we do for a sea change in the 28 nanometer product me.

Okay, but you will have a mild live of AIDS <unk>. So the B 20 to 28 now he has he met increases what will actually help us with the is he live. However, the blend is he's really depends on multiple factors such as a product mix or the other notes and shipping capacity utilization rate across the different.

So therefore that they are the therefore the topic.

Impact on the 28 is not that significant being chemistry at this time.

Okay and so your question I get that that's partially I guess then just for overall business. If you could maybe say by application or no. It's like if you have 28, improving maybe which areas might be coming down a bit I, either by application where technology area.

Okay. So for the Q3, if I look at by the application Oh, we see strong tsongas rebuttal.

Consumer.

And follow by the computer and and the communications, Okay, but 007 increase okay, we see a like increase Oh Oh.

And maybe the a sound is the the reason is we see and we're getting market share.

Results on the Oh.

The sounded the that higher penetration in a smartphone okay and that's was found to notes from the new customer also going to easing customer they getting market share on the communication area the computer salmon.

It's really a result of working from home in home schooling that Spurs become T is diminishing in both consumer and computer segment. So that so anyway, we coming from <unk> application point of view.

On the <unk> T O <unk> is really Mig I described earlier, even that 28 help TV pardon me, we actually a b and C of the said never them.

Okay, and if you could clarify you mentioned all segments up is it the other category, let's cut me I mean, just to be flat overall for shipments.

Is it then from that area, that's offsetting the others.

Besides those three out of this yeah. The honest assessment that we just continue to see weakness and so yes, a they compensate sound the girls founded three area yes.

Okay I'm at what do you know what I noticed has come off the last couple of quarters 80 nanometer me, maybe one of the other it's it's a bit underutilized, but came down from 18% to 13 over the last few quarters if they're on.

Okay since moving off that that you could backfill or or could you upgrade that capacity to serve some of the 40 or or 28 demand.

A weekend, removing 80 and 92 Soviet 40, and 28, but we are.

Mike lead that too for example, 55 or six feet by area. So in Q2 hour 80, 90 know that you come to you operate in 100% loading and the contribution lower is really just we shuffling around the different no supports.

Okay, and if I could ask just one final question on the Capex. The last couple years, you maintain 1 billion, but then under spend as we went through the year in it it looks that way through first half.

But I guess, where it maybe for cheating, but how do you see that capacity you had some 28 or shopping capacity set to ramp up so do you still see reaching that or or or could come in a bit light and then maybe as a a medium term with utilization this year getting up to mid to high Ninetys do you.

I need to start.

Ramping up a bit more on the Capex, just a satisfied that demand and continue to maintain a somebody growth.

The answer is yes, and the capacity expansion are called Act, which is shown on the inside is on track and is expected to reach a 25 K per month neat 2021, well that's part of all Capex already.

ER.

Eating the a the growing 22, and a 28 they'll need a customer demand.

Got you examine the options are you guys available full space, our kind and facility, which are 12 12, eight so few additional business opportunity in advanced technology, which will work was still subject to our our I just occasion, we've been mentioned many quarters.

You know we will continue evaluate all contracts based on what we described a stringent ROI driven strategy to enhance our beaten shareholding <unk>. So that would not that would not change that's old <unk>.

Convenience that we don't change that Oh by the next phase we're looking at this morning, our high one Hainan facility.

If you get back to growth should do you think 1 billion still the level because you had the under utilization on 28, but now with that for this is it a bit higher level and now if you start to evaluate the gross out of Taiwan.

Yeah, I mean, I will examine the option right now so it's too too much premature to beating the guidance the of the contact numbers about four to 20 twond.

The 1 billion <unk> yeah, Okay, that's really the absolute dollar mom that the timing Ah Hey, <unk> Capex number is really the return.

Requirement and also the customer demand.

Multiple factor, where oh lead through our Capex decision.

That's really I will also mentioned being a decision to the a b cat accident.

Oh, Yeah, we we look at or our topline growth.

You know, we see the market applications, such as a fight GE, a handsets or the increase of silicon content you'd be a fourg evil don't female will continue driving so that's why we we see them in the option of a future capacity expansion. The mean Meanwhile, we also focus on product.

<unk>, Okay, and that will actually help as well in addition to that and beside the builds on the top line, we see more room for improvement or structural profitability, which will attain to enhance our earnings. So we we continue managing the balance of yes.

Okay that makes sense I guess, a good problem to have to have the demand to go and that's where I think I think it it would have to just the thing [laughter].

Thank you.

And this will have gokul hariharan from JP Morgan for questions go ahead. Please.

The banks and a valuation for the good results nice side could you talk a little bit about I think you bought my opinion you do you have any quite surprising oh, but jump in gross margin could you talk a bit about anybody we thought a depreciation did drop off by about 500 million by one dollar.

Oh, but even with some good I'd agree you can you talk about what was the these important <unk> why didn't come to mind.

I might lead to do but but then you fly fishing and maybe what I've done any [laughter] backfills made there too, but they have to get to the Bob.

Anything else, but kick the can we should be looking at.

Well I mean, yeah first of all thank you Andrea secondly in terms the a the better gross margin.

In Q2, we surely increased gross margin proppant <unk> primary due to the product mix improvement, which you live the a it's Pete that help.

And secondly, the Oh, even be the lower unit cost per wafer found a higher.

Loading at 98%. That's also a benefit that through the service is we have we do have ongoing cost reduction activities. So combining old three other resolved a week, we led to a grows up the a the Q2 gross profit.

Okay.

Oh, yes.

Let me talk a little bit about no good economy.

The main fab.

And audibly now badly.

Then update in terms of rock margin compared to the copper Guy bridge.

I'd be isn't a big right on the drag is much smaller than though.

Oh, that's oh here quarter to solve a synergy in pool right.

Oh, telfair offer but lucky I think improve.

Every quarter since becoming part of a young team.

Oh, we have a in from a integration I for in five operation in copper incorporated.

No actually having a thin line acumen.

So off is that for a higher impose their cost structure I'll try again.

The U.S.J.C. in Japan.

So you're seeing the question I for all resulting positive thing I came along we thought we'd like ocean.

So are you stuck with it as a financially country puberty throughout pipeline as well I saw a bottom line. So.

We think going forward Oh.

Public Berkeley off to help him or U.S.J.C.

Oh, well be larger depend like long occupies supply dynamics.

Okay any any thoughts you joined Eaton enemy, though given the capacities now filling up with a strong traction from London you'd be about Oh, how much of the I guess I'm 28 nanometer still well I'd be kind of do we have line of sight telephony gross margins and cooling closer to the copper.

I would love it.

Well I mean.

I, we actually don't look at the the 25 no basis.

On the margin drag or our expectation on the 28 now he is the is based on the progress of our 28 product pipeline.

The strong that's what we've seen today with the business attraction continue into the second I have a 2020, we foresee our 28 nanometer utilization will well world and and so we actually feel pretty confident about 20 email me to contributing to the company overall, we see a b the with the.

The product mix Goodman, and we believe that will help us with the agency live and in turn generating much better profitability for the company as a whole.

Okay.

Thank you and one last question for me you don't you talked a little bit football or any updated view on.

How would you think about depreciation or do we have a little bit more a lot in terms of how we see the depreciation idling old or whats. The next couple of years, you like getting a bigger golf balls and going do you really do.

Are you want to get into another bit more well.

I'm getting more.

Should we think about it that you did say, they're doing well, but if we see it shows a common it's kind of coming down.

It's a pretty much cooperated fat in the past.

I think some low single digit decline being overall depreciation expenses in 2000, thinking Oh, sorry, 2021, but that in 2022, whereas <unk> more than double digit decline overall depreciation expenses. So the to the major change.

Still remain on change.

Okay got it thank you very much.

And then that's question is coming from Z home, Ms., Chen and Renaissance they'll have please.

Oh, Hi, good afternoon, Jasmine and my question is regarding 28 nano it seems like that that you asked you speaking to you I hadn't quite I'd hate to capacity and Ratty, you don't Miss yet I had that shopping fat. So I wonder what would be as sad next expansion that happened at you.

I want.

He has to be at Ti and shopping.

Oh, we we actually Oh mentioned this earlier after the Oh, that's funny by a in Sherman. The next phase of the girls will capacity expansion what happened during our Taiwan, Thailand facility.

So what we bring to a 12 eight facility.

India the available for all spacing that will be the that's ideal location for us to do the next venture.

Okay and book would be the size of expansion yeah in Taiwan.

[music].

Well, we do it at this stage of the examine that right now Oh E <unk>.

Based on different wrenching.

The size of the thing batsmen or give me no we havent not conclude that and due in the third quarter.

We we prefer not to comment at this point.

We think by entering this year.

How does that occurred.

Okay, That's yourself and my second question Oh, two given an update on the operation status Airport, it's Kevin.

Oh, I don't see operating.

Or possibly even.

The impact in the 2019 was a negative all high single digit percentage point, but this year because of the strong demand coming from Vietnam meter and also in lodging economy of scales.

Well, it's had significantly reduce and now the impact is mid single digit percentage point.

Certainly we see further improvement once we reach 95 okay.

In 2000 time do you want.

Okay, alright, okay. Okay. Thanks, very much congratulations on great yourself well thank you.

And then that's when news coming from Rolling She of Citigroup go ahead. Please.

Oh, Hi, good afternoon, <unk> Oh are you a penalty I know me to a utilization or feels that Oh, you took a quota actually know your although you can they seem kind of what's up 19% and are you still is bad times, you know me to utilization to well increase in Threeq Q.

So I just want to a asked I know what kind of the magnitude of Lisa a utilization well increase I thought I can tell me to and after that.

Are you guys. They should increase Oh the percentage points are the revenue contribution for thank you know me there will be in second half Oh. This is my first question. Thanks.

Well the overall company a utilization rate will be a 95.

Midnight, Okay me Nike's us, we we guided and.

On the Atlanta basis, <unk> eight eight inch we're running at full.

90, or 12 inch we're running at 90%.

So uh huh.

I will give us a problem yet.

HM Nike's, you that's Asian guidance for the Oh Cross old and no other company.

And we can do you think that's a room for the 28 millimeters increase.

And so we've seen that 28 millimeters utilization rate will.

Continue increase from quarter to quarter basis.

Yeah, understood, but second quarter, you up Oh culprits I reach our utilization was 98%. So what's the EUR 10, DNL media you'd I appreciate your second quarter.

So again or.

Overall capacity in third quarter or increased by approximately 1% fishing young person <unk> also in the second quarter or just to mention entries for.

Around hundred person and tell Finch is a nice age.

And.

So I'll try and dairy size.

I fear like I've ever happened trappings your average.

Okay. So you probably a in Threeq you were going to see maybe no single digit percentage point, you that they should increase our full turnkey and tell me too.

Well more than that.

Oh wait where do we think we don't give the numbers singling out there that vision, but were can give you a relative.

Ideas about how you compared to our corporate average.

HM Okay. So how about on the second half a dozen revenue contribution from time to you know me to.

Second quarter did was 13% and pop up in second half.

You should gradually trend up quarter over quarter.

Okay.

It's flighty change slightly increased 28 nanometer in the next.

Outside the increase in pretty cool all right.

Okay. Thank you.

<unk> yeah.

Yeah, sorry, we have been talking about our 28 known me to visit for multiple quarters I'd say most of the you know about that and.

He now in Q2, you know looking RV truly start seeing a meaningful 28 now because gross quarter over quarter. This is very much in line to our expectation and eat reflecting that materialization of alone couldn't game plan. So I just kind of want it at that you know I understand would be talking about this.

Well really long <unk> and I you know, we finally, we succeed and minimal growth coming in now yeah.

Yeah, Okay. Thank you.

My second question is on your phone the fold email me to I just look at your annual report you have a continued investing in 14 now meet that seems like technology and the U.S. faulty known me to FFC. It's my thought she found second hardly see a but oh for you you only have a very limited the 14th.

The capacity so could change that you are you can see there into the let you spend your 14 nominal capacity anytime soon and if you want to do that how much kept pass out you Dave yeah, well be by this case, though that's those are at least my.

Second question. Thank you sure I mean, the we also been talking about this for a long time with we will closely examined all the return on capital expenditure and optimize our capital deployment to elevate our financial performance. So every time when we start talking about Capex and we have to go back to that.

You had made sure that we we we haven't justified.

Decisions and well 14, you know if on the technology to evolve and point of view is important to us. So we have been continually investing and want to make sure that we'd see the old develop the technology, that's what the other technology or the area that will focus on right.

Right now.

Specialty area, we want to make sure that we find technology development standpoint, we've got relevant to that focus area and beyond that point as far as did the cat decision and that would go. We'll go ahead. The based on all right basis, So Oh, I never going to root out the chance other putting a new capacity on the 14.

But at this point is not on Oh.

Yes, the by what kind of a couple of criteria Oh, what kind of that no consideration you are going to expand a raise the capacity for 14 millimeter.

Actually I mean, you spend a.

Big money on R&D fold, Lisa 14, Finfet technology, but you don't have that they.

The capacity I didn't know how are you going to monetize thinking that's been on Lisa Finfet technology people had met.

Well, that's that's really good question, Andy if you if you look at the the investment.

Perspective.

When the R&D investment and the capacity investment the RMB <unk> as you read and he was more is a much much smaller than <unk>.

Mhm.

So so but if you look at the addressable market.

At this point wed consider considering anything 14, Oh I'll addressable market. So we always have to examining our addressable market, whether the men valid and they would come back and look at the application that makes sense was to invest into capacity. Meanwhile, we do have.

Our two to three capacity in place and so we're not going to complete ways.

In terms our R&D.

Investment so we always into the more more prudent pool for well OCIO all stakeholders. So we're going to continue to follow that strategy.

Honestly, you said that to Teekay capacity, both 14, they'll need that right. He's got additional two competing.

Total two to three care, what we have right okay.

Okay. Thank you sure. Thank you.

In the next one is coming from <unk> from Nomura Securities Go ahead. Please.

Oh, Thank you for taking my question.

Hi, just.

A question about competition landscape.

I didn't hear me too and Oh somebody out of mature and talking to note.

I think I think I didn't hear me to I think these questions being asked.

A few times.

One just these days, it's an oversupply.

Hi, Foton didn't hear me to for a foundry industry, but you are able to manage New York I didn't hear me it had to do better and better every quarter.

So I wanted to know your view on a computer Netscape entered enemies and almost all the out of mature know what you're talking to know thank you.

Sure.

Let me start off with the that 28 millimeters well first of all week, where we are unable to comment on our peers and Oh, we don't know much at Boston internally. So I understand what they said, but you know we we shouldn't be commenting about that but that's look at you and see.

We do believe our 28 and 22 and they'll need to solution have minority.

Finally provided competitive advantage for our customers.

Like I said 30 or the the progress of our 28 nanometer product pipeline remains very strong.

Surge or be a the 28 and a 22 tape outs.

So shows that and we'll continue to increase our exposure to two or more diversified at 28 customer base and product portfolio, So and we.

We are expecting or 28 on either revenue or contribution in Q3 will continue and to increase and a you know eating while also mentioned earlier she doesn't buy at a higher penetration rate of smartphone and continued <unk> computing segment.

So we expect is 28, no that business momentum will well then idled okay.

If you look at other 12 inch a mature notes a 44 to 40 now and meters.

We.

We will see a possibility men in the second half swill.

And due to the increase of the the customers for email me to option in the logic the by.

Oh Gee than by the wireless application. So they are another application coming into the 40 now because as well.

And looking beyond the 2020 animals, we occupancy doing to migrate portion of the 40 millimeter capacity to support.

Our <unk>.

28 nanometer he meant to enhance our agency and probability so even though.

I think there will be a demand supply balance almost 14 features so we oncology into migrating salmonella fortys to 28.

And then if we coming down to Oh 50 by end of 65.

Our 50, a buy in 60 by business for the second half of this year, we I'm very confident that or demand will remain strong.

Many coming out from the a Muslim seven again associate with our F. switch and the T.D. I would you will be it. She then by the higher adoption of the.

120 hurts display panels. So we think those applications moving into the 55 and we we start seeing a very there's strong momentum and 55 six by and we think E ink in the foundry landscape. The 55 and 65, Oh, we'll have a very strongly met over.

Over the supply and and you know of course, we talk about 80 to 90 RIDEA you know we right now we Ronnie operates 100% loading for Q2, you know the.

<unk> for the second half we do see something then we see no immediate nightie applications are stronger than the other sounds stronger some weaker body overall 80 or 90 female Aldo is due in line with our 12 inch corporate average. So I think that will give you a favor of no our view on the.

Oh, no no we serving today.

Thank you again.

Yes, Oh, it's a conclusion, which probably I don't know if we can offer and so.

It's about a lawsuit and I think a a few maybe.

A few months ago, Oh, we saw in October.

Things that a general counsel at the U.M.C.

Committees that down and then also will not be concluded in two or three as timeframe.

So just wanted to know.

How should we think about a 10 friend and I don't know an update on this topic. Thank you.

Well I mean the.

The right now the losses in the legal proceedings.

So is really knocking on our control.

Hi in light of the process, but we do we do follow that a web that core require us okay. We remain.

You know, we stay ALDA, leaving ourselves and so we don't believe any any awful wrongdoing, Cindy you and <unk> and so all we know we staple eating that and we just have to trusted the core system will eventually he was a fair result, okay Uh huh.

The so it seems is in the legal proceeding is to be knocking opposition to common.

Thank you I won't go back to acute thank you very much.

Thank you.

And the nets to ask a question news from especially in Hosea Wednesday go ahead. Please.

[noise] [noise]. They are good afternoon. Thank you.

For taking my questions Alright, I my questions, we'll probably four Oh, just focus on the eight inch I'm sorry, So our thing the company has been running at very high utilization rate for many quarters already so I wonder what's your strategy here that into in terms of expansion and.

So youre.

What are you have more a priority we're selection selective on the product you do going forward.

Thank you.

Well I mean, you're right and the Oh, we do see the inches inconvenient fulfil for many quarters and and it's our belief will remain for and throughout the second half.

One.

And so we are constantly looking into options to further expanding our eight inch capacity.

Even the a b H T situation.

The organic growth in eight inch will be very limited.

We will continue looking for those options and which we did in the past years, we actually increase our 18th capacity organic organically as well Oh My can you might leading sound a lot of fat to support our coverage in the other than eight inch area, particularly so we go.

The company doing that and.

Sometimes inorganically.

You know it has to be you had to combine those opportunity I'd have to go all search for it so and we will convene a as well.

And so and.

Meanwhile, in terms the the.

The tightness of the 80 situation it does affect.

Sound, the Oh prototypes Asian Ah you mentioned about allocation. So so our are focusing the in she's also on the area that product mix.

So we'll continue a migrating sound our legacy to the other then some he knew migrating sound better product mix to help enhance our 80 plus wells profitability of the age and that is ongoing basis.

Yeah the.

Eating that we see the strong man.

And continued eating into the supply tightness, okay, not only or by the way not only to the age but also on sound of Pacific swapping Snow I talked about earlier.

We we would actually.

We're seeing that it's going to be a market pricing situation with older will probably become a more in favor of the foundry. So now.

Okay. Thank you and I will probably help as well yeah yeah.

Got it. Thank you I'm just a follow up on given that we are powerful we have a privilege you were more flexibility about the are doing things that those is more problems earnings accretive to us.

So how do you see it about the overall pricing now look 48 inch or going forward. Thank you.

Oh, I'm, sorry, I didn't catch the question again and you know the question is that given that you can be more selective and prioritize the business the product application that.

More favorable to our profitability and how do you see that recently to eight inch foundry price.

Oh Oh.

Well I mean.

The pricing discussions ongoing right now well first of all we do value our long term customers sponsorship. So we need to you know seeking full a win win cooperation with them.

So we need to convenient lines of customer for 40 years. When he 21, we already have ongoing discussion on this.

Okay, and so the pricing will be a result.

And I would it not giving a specific at this time, but I.

I will probably say this at this point eating that demand supply situation I.

I think the the pricing situation, although this morning favor funky right.

Got it got it but just one last follow on this I remember the last time, we either the age phones reprise has a we were able or any cleanup here is able to raise the price that was back in our into 2018.

And also clears the way there also are the cost increase from the railway for so we have a very good reason to where did it goes your we're confident we can pass caused to their customers. So they justify or the reasoning for for raising the or just the probably the higher.

How about this time I'm in the looks probably that you'd be wafer wafer Pars me, we haven't heard there will be some especially yet I'm not sure we're going to happen next year, but.

Given that we don't have become the cost of vacation, but when you negotiate is with customers at the customers still pretty a separate secretive about how is pricing.

Probably the negotiation thank you.

Oh, Yeah first of all you have a very good memory.

Ah, Yes, you're right last time, the price increase and lead me to them either the raw material cost increases and so wouldn't ball passed down to the customer. This time is is a different that's design is mainly because the demand.

The situation.

See a very strong remain a age.

No area, so eating the a the tightness of the situation we have to.

Well it ties our resources.

And along with our partnership relationship. So we are managing the balance of that Oh again, I think some as appreciate I understand it so they'll discussion is ongoing.

Okay. Thank you.

Sure.

And then next question is coming from Bruce enough Goldman Sachs don't have please.

Hi.

Taking my question on a very very good result, I have a question on again the 28, no what I mean, the profitability I'm actually very surprised [laughter] does the management did not take Oh no possibility.

Well, it's because companies mainly goes on mentioned are you a new investment.

Based on a better returns, which means that when you try to increase your 20 nm Alameda could possibly you believe that incremental capacity can give you a bit.

So then Jill my questions that you know.

What do you expect that 28 on me, though should be above company average probability on margin.

Yes, that's the way the reason why we want to increase it seems like 28 nanometer kubacki.

Oh, so for increasing incremental time getting out to meet their capacity sometime you helps the overall pick up fixtures. So if we don't have great capacity our economy ourselves.

It's difficult to reach our long term or go in terms of a possibility. So so well just cannot look at the incremental per se.

It's really the overall resolving our longer time time span is probably I really consider so yes. If we are considering through an all time getting army theres going to fulfill our requirement for a longer time picture.

Well I thought that maybe we can somehow release the U.S.P. tours to improve the margin hope. They did they then we do the capacity expansion or you know any other ways to.

For the budget well since anyway follow your.

Our view as well, but sometimes it just in reality doesn't come in the prefer sequence and so forth. For example, our age today I saw there are other than just finishing the pricing environments you reading the favor our foundry. So hopefully we believe we saw competitiveness and also the readiness alpha.

Technology.

Oh, the pricing bargaining power will return to the foundry side as well so.

Yes, we were something they follow your solved and or what are your wish that to happen as well, but them more important thing really.

To fulfill the missing part trying to reach the economy of scale and to have a adequate capacity for our key customers.

Oh, I just love to follow up on the sort of 28, so moving into the second that you know what point, yet I know me that given how do you sense is slightly below 12 each every.

[laughter], which means that incrementally you guys you're right.

Might not be a big moving factor for your 28 nanometer profitability.

Okay, and we expect that you know you know how can we see a better profitability for 28 and thinking about maybe we'll use the tool pulled that don't yet know always we you know any other ways. We can see that you know or how should we see the popular bidding into my second that forethought yet.

I think for all I find this person may be Jason can jumping later I find this person.

The depreciation kind of a need to come down so that's exactly.

The situation for Shannon.

It took another.

A couple of years, so see the kind of stupid I.

After a decline to help overall can you offer biloxi are tough and Thailand has pretty much reached a inflection point.

Oh by year 2022 overall company, we won a significant decline in depreciation expenses, which is largely related to all telfair Tenda expansion. We did acting few years ago, So depreciation will come down and hopefully our product mix.

Oh, I'm, a tiger I mean.

But I'm missing hence we also help overall blended ASP for the time getting out of me yes.

Oh, no one last question well they manage a mentioned that the pricing environment, but I thought the so called the guidance for the ER and he is still not saatchi. So when can we expect some walking all improving trends though.

Oh I'm getting HP.

Yeah.

I I mentioned the.

Many of the discussion about that is for the year 2021, so that alignment only and all our 2020 twentys he meant the.

Oh, it's being aligned previously and so.

And with weak considering the London partnership.

We have and that will be only so that's an area with the upside with a better pricing, but in general we do not the pricing 2024, 2021 TV demand.

Oh situation change and is more up to the.

The discussion today is for 2021, Meanwhile, <unk> Monday old old he already a pricing adjustment is getting on the upside.

Oh I see on this and so we think cycle I, you know much but oh speech in 2021.

At least Lynch.

Well I buy them, we actually will give you a much better [laughter] understanding that you know I just getting laid [laughter] every share the things up but.

Yes.

Uh huh.

I will give you a really clear guidance on that.

I understand that thank you very much sure.

And then next question is coming from Charlie Chan from Morgan Stanley Go ahead. Please.

Oh, Thanks, Hi, gentlemen, good afternoon, and congratulations for a very good results. So I also have a follow up question on gross margin.

And ER eat it seems like New York I didn't think what he moved into a decline.

I think inquiries that Oh due to the example about 28 nanometer.

Nick and I'm, not really sure it because the close of the higher each division should mean that better margin wise.

Well I'd imagine with declining instead of <unk>. Thank you.

Okay for Q3, the next quarter gross margin guidance, we are expecting yeah, we'll be the module will be challenged by idea the foreign exchange markets.

The the strong <unk> dollar NT dollar what I do have profitability. That's one of a reason in addition.

Everybody in the summer section so every year a annually.

That will lead to a higher utility cost during that time. So we are factored into the.

The the calculation as well.

Okay.

And that is that ball your Oh topline I mean, oney nanometer it goes up and ER.

You mentioned that across segments. The men begins to be very strong.

He said that case why why these revenue, it's only a flat what I'm quoting.

Well again, yeah, the given the the product mix that we we are projecting today.

We we do see there will be somehow, but there's there's going to be.

Sounds good I didn't know that compensated with the outside of the 28, so that will either the.

Faddish outlook.

Point, the somewhat on the on the utilization rate point of view are there for the kills me there will be an overall capacity increase above what.

Although there will be over 1%.

And the no it's ideally, India and me, Nike, which I say night utilization rate guidance, we can see that that's.

Very high already so HM.

We feel this is probably a.

Reasonable guidance it.

Thank you and I think you and the next is that all your education right.

All right so.

Hey, Matt can bring you did expand that Ah that low Sue will then conclude in that come into the two years He said really.

The Euro Peugeot comments.

And actually my my own opinion, or you know you said that maybe.

It is still and overhead and your thesis fundamentally is quite strong why not a.

Hey, Jim I know comedy How's he does she.

How about ways that you guys or micron earlier, he then there'll be some.

So oh.

Welcome to patient thank you.

Expenses.

Again.

The into it in a in a legal proceeding.

Appropriate for us to comment or our legal thinking about the strategies. So HM.

Well, you know will be pool accordingly.

And by the regulators you know toward these policies so.

And on the tiny basis, but you know we weathered the within you know not to comment.

All right now.

I see that was done the findings that perspective I'm not sure you eat a well need that took a little good sound Oh come company James.

Well I remember you know when I won't be in college is that something I've come pumping didn't see.

And so you know a vendor has not surety Oh, maybe this question to cheat on whatever we need a.

Okay, I can see stance on bad Daddys occasion issue.

Well you I'm speaking of violated are basically act, which we are already passed that appeal to the appeal poetry in Taiwan. So it's a it's a young jerky appeal. So there's no reason for us yeah.

So if there was that our contingency estimate.

And however, I want somebody book, that's always so kudos on small percentage I rather than you have legal related expenses. So those two thing I'm not right linked to each other but where do I applaud or legal reserve, if you're well fall.

Also as all the general legal related expenses.

I caught everything and my last question Yeah.

Oh lighter ads.

The.

You wouldn't see.

We have a point of finest legal counsel and we'll regas respond to the <unk> is a both litigation U.S. and Taiwan.

And so and that's fine we will make every effort to enhance our profitability and preserve the best interest for our shareholders. So.

In pace, maybe that that potential risk but.

As far as the that's them for the risk we truly not not what now like to respond or because it at this point is the related more of a speculation hypothetical. So so that's why is that that difficult for us to common right now.

Yep, that's that that that is reasonable and that's what I mean, it either or Jason O'donnell, while you can help me.

You said a comedy or does the foundry overall seems to be.

Still very healthy into second half, how I do recall Saturday.

Penn D'amico health care crises.

And we touched on like the man versus your.

He sends or you know a good good.

Second half I'll look thank you.

Oh this is oh, we definitely very interesting time right now.

Oh previously yet.

Though we actually talking about the inventory correction potentially impacting demand during the beginning of the Colin I haven't.

However, no we actually have thing or the inventory level increase semiconductor vendors Oh, yes have kept pre beauty in order to avoid supply chain disruptions.

And and and also business have Kerry public inventory to accommodate rebound of opportunity a rising.

Economic E com. So we do see people viewed as a little bit different it could be a new no. Okay.

So we we have a much better clarity now and given that and and our our view on the overall demand outlook, we're not seeing a significant older <unk> at this company and <unk> <unk> was well we'll be at cautiously optimistic in a second half.

Okay.

Yes, I'm more opportunity would you then by hygiene headset and the and the PC Nobody men.

You know because socialism, <unk> home and mobile home schooling Trent.

He's by despite the a the smartphone.

Shipment actually decline this year overall smartphone.

We are we expecting capture higher smartphone market, you see them like <unk> and they launch.

Uh huh.

Yeah, we see about 200 million units on 20 meeting units.

I think it's silicon content of identical will also increase such a P. M. I see an art speech this will actually precision and taking advantage of that market trends.

Beside the yep.

The significant viju functions or our capital mostly fighting to begin.

My phone Maki share this year, so a little more than offset a decline of the smartphone units that we see so that's why we actually have a higher competency in the second half Aldo.

Yeah that that's very very helpful.

That's will be Oh, My question, where do you agree appreciate your time Anda Anda insight. Thank you.

Welcome.

And the next question, it's coming from Julie tie a few P.S. go ahead. Please.

Oh, Thank you Manish nice there's lots of discussion about 28, just now looking at your life huge.

Todd its way down it's not anything yet [laughter], where I'd be 28 application that's coming from could you give us in more detail on bank. Thank you.

You talked about in the Q2.

The increase in the <unk> 28 nanometer demand in Q2 is attributed to a communication and consumer Interconnectivity 80 days, then and in them.

You know I T phone and as well the wolf on home application.

That's where the mix of the 28.

You too.

[laughter] and then also you can mention that.

Q2, you close my changes could be adversely impacted because it sounds good yen to dollar appreciation, we already seen God [laughter] in Q2, but are you owe shelf machine data.

That's going to be a.

Lee impacted in keeps Nathan.

Yeah, and there might be cure without NT dollar appreciation appreciation saturating Maureen third quarter, then backing a second quarter. So yes, we're doing four so you got to have some.

Negatively impact for both <unk> and button.

Okay got it okay. Thank you.

Sure.

Ladies and gentleman Blue Rhino time, so we're taking the last one last question is coming from Randy Abrams Crdit Suisse. Go ahead. Please okay. Thank you for squeezing me in at the end, maybe just a follow up to that last question on the 28, if you could give maybe a forward view you mentioned a another surge of tapeout.

I'm just talk a bit more about the new applications that you have coming onto that node over the next few quarters.

Well I mean, it's very similar to the Q2.

We will see the Oh.

The Q3 was driven by the you know I mentioned, many times already Oh the smartphone.

Andy continued de making a computer settlement.

And so Oh, 28 will need to them by those two settlements and and not much of changes on it sounded to it's very similar.

Okay.

Second question, whether that's because maybe the direction you talked about actually fairly good strength.

I'm curious fourth quarter just center, we look at it sometimes hasn't been a seasonal decline, but just factoring your comments if it looks like this year based on your demanding customers wanting to carry inventory if it looks like it's holding firm as we go toward year end and I'm curious the other product, which I presume its auto industrial which is the weaker area.

If you're seeing any signs of stabilization bottom out or for recovery in that area.

Oh, well I mean the.

You know he said talking about Q4, that's look at the the Uh Huh.

Although the Q3 <unk>.

He knows the areas besides the communication consumer and computing Oh, we do so the other areas being up and down throughout the year. So far we see a slow down with here a rebound and then we see a slow down again.

So I think the.

Eating the Oh, the discussion with a customer we do see the market stuff stabilizing and stop he to sign up a recovery, but given the past history.

Up you know being down and up and down we just have to cautiously look it and Oh, you know I think even talking about Q4, Oh, well, we'll give you a much better coty. After he then Nick.

Yeah.

Okay, great no appreciate that take care.

Right.

And ladies and gentlemen, we thank you for all your questions that concludes today's cumin names session or turn things over to U.M.C. head of IR for closing remarks.

Thank you everyone attending this conference today, we appreciate your questions as always if you have any additional follow up questions. Please feel free to contact you and I.

Hey, good she thought.

That's a good day.

Thank you, ladies and gentlemen, the conclusion with some friends for second quarter 2020. Thank you for your participation in U.M. sees conference there will be a webcast replay with thing in our please visit www to U.M.C. dotcom onto the Masters event section you may now disconnect Goodbye.