Q3 2020 United Microelectronics Corp Earnings Call

Over the Internet webcast replay will be available within an hour. After the conference is finished.

Please visit our website www dot you wouldn't see to come onto the Investor Relations investors events section and now I would like to introduce Mr., Michael Lean head of Investor Relations at U.M.C. Mr. Leanne. Please begin.

Thank you and welcome to <unk> conference call for the third quarter <unk> hundred 95.

I'm joined by researchers and walk the President of U.M.C.M. is that you don't do the Seattle, you and see you.

In a moment, we will hear our CFO present, the third quarter financial results.

Followed by our positive message to address you as this focus and the fourth quarter plenty plenty guide.

Well I saw our president and CFO company their remarks, there will be a Q a section.

You announced its quarterly financial reports are available at our website true, but other than that use the dotcom onto the investors' financial section.

During this conference we May make forward looking statements are 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 risks that may be beyond the company's control.

For these risks please refer to you haven't seen fighting with the FCC in the U.S. and the hours they security authorities.

Now I would like to introduce your sister <unk> CFO means that you don't do too.

With these skus, you're going to see is third quarter 2020 financial results. Thank you Michael I would like to go through the third quarter 2020, Investor Conference presentation material, which can be downloaded from our website starting on page three the third quarter of 2012.

Consolidated revenue was 44.87 billion NT.

<unk> gross margin at 21.8% then.

The night.

The income attributable to go stockholder of the parent was nine point 11 billion NT and the earnings per ordinary shares were 75 cents and Ti dollars.

HM Oh.

The.

Income statement quarter over quarter comparison.

Revenue grew 1.1%.

Oh sequentially to 44.87 billion.

Based on the combination of shipment increase that's where Ah hey speed increase however strength in NT dollars offsetting most of the.

Again from a shipment increase that's where I'm, sorry, I used to be increase gross.

Gross margin as a result.

Oh, so stronger and T.

Well I was the.

Higher summer utility costs.

Declined 4.8% quarter over quarter to 9.77 billion NT <unk>, 21.8% gross margin.

Operating expenses stay relatively flat to the two last quarter.

I've a this is a oh.

Two factors.

In fact, the operating expenses.

A positive one come from we have for a reversal of expected quite the loss.

Are we collect the.

Pair Bose sung by all customers, which you so wrong, a 500 million and Ti dollars also.

At the same time, given that we have to retain our Thailand ampyra issuing so its own equity base compensation.

The key employees and management so the.

Compensation costs.

Also increased by around 400 million plus and.

Of course that all.

He spent a quite the last piece so a one quarter event. However, the increased compensation based upon equity based us.

Scheme, its going to lingering for multiple quarters.

For the net other operating income and.

And expenses also we see.

Two one off factors.

Factors.

So you can see that most off our net other income and expenses per quarter is roughly about one beauty and <unk>, but.

But into secretary went up to 2.8.

Based upon one is the once a year and you think.

Interest expense subsidy.

Sham in fact, that's the wrong, a 500 million plus anti.

Also we sold that's power, one alfaro solar or solo subsidiaries or the factory. So.

We are.

Profit or wrong 1 billion.

In the third quarter.

Oh, that's a man race and we sold the net nonoperating income jumped through 3.8 billion in the third quarter.

Operating income that's a result increased to 7.1 billion or 15.9% fair.

<unk> operating margins.

But then net nonoperating expenses. Please refer to our paid Ah report quarterly report on page four its actually quite.

Clear that in the third quarter of 2000, and finally a.

Oh, we book Oh, nothing bad Snow again, all for around 3.9.

At N.P.B. cost off a strong financial market.

Also we also recognize.

The 50 million dollar fine, we set out which U.S.T.O.J. put yourselves already reflected in our third quarter non operating income numbers.

So.

That's yeah page four so on page five for the first nine months of the year.

Revenue growth or a 23.7% to 131.5 billion.

As our newly acquired Chinese fab contribute around 10%.

Oh, the 23.7 and the rest is really the organic was found unit sees a high Oh, you've had there shouldn't read out so that's where I saw better product mix.

Gross margin as a result jumped to 21.4% for the first three quota for the year to 28.1 billion operating expenses because of the combination of our 12 family in Japan. So the overall operating expenses side getting higher.

And ER the net operating income as I explained earlier than men deep friendships really the sale of our solar subsidiary subsidiaries and this power.

Oh for about 1 billion Ti so operating income almost five times to 15.3 billion or 12.5% gross margin operating gross margin.

And the net income attributable to the stockholder of the parent.

Around 18 billion.

He has for the first three quarter of 2020 is 1.5, which is three times of the same period last year.

So four page six.

Our cash level remained around 100 being also.

Total equity around 220 billion and T.

On page 788 job sites.

And Oh, so quota and we will give guidance slate for Q4 AC Aldo.

Oh, Hey, Hey, Paycheck on Asia, now is 57% of the.

Total revenue breakdown in Japan.

Because of a certain customer lost some high ambition is a declining from 5% to 7%.

On page nine.

We see some up and downs, among our idea customers and therefore, they offset each other.

And it remained at 12% as a total pie around in the so called off 2000 planes.

Full segment breakdown on page 10 communication now you said around 54% and a computer and consumer three men somewhat change.

On page 11, where you can see that 20 nanometer continuing to grow from 13% last quarter to 14% this quarter and we expect the trend will definitely continue into Q4 and 55, New army very strong with 19% off the breakdown.

I'm in 19 army to a weaker came down to 10% in the so called off to something fun.

On page 12. This is the I'll call it 30 capacity table.

Do we expect to see a more capacity coming on stream for the Alf X in Sherman and last page on 13 page 13, our Capex for year 2000 time D. the wrong way Oh I'm also the goal whatever remaining around $1 billion and change and that's.

Yeah summary for the whole year and see result for the quarter after 2020.

No details are available in the report, which can be done which has been posted.

Ah website I will now turn the call over to President of young Mr., Jason Wong.

Thank you that you don't.

Good evening, everyone here I would like to update a third quarter operating results you can see.

During the third quarter consolidated operating margin reached 15.9%, while utilization rate remained burnt and 97%.

Wafer shipments reached 2.25 median eight inch equivalents waitress doing.

During Q3, well from home and home schooling trends.

Revenue to contribute to stable end market demand appetite.

Application being Wildcats connectivity power management, IC using smartphone as well a high speed interface idle controlled it falling in the computing devices.

In addition to diminish their ability across various end markets. Our 28 nanometer revenue grew quarter over quarter customer product tape.

Continued throughout the quarter.

Going forward, we expect to see a sustained increase in the number 28 millimeter tape out.

Which will further diversify our 28 now me 28 millimeter exposure to end markets and customers.

Looking into the fourth quarter demands on consumer and computer related applications will lead to a minor increase in wafer shipments will tell that by I'm going home initiative and home schooling.

Furthermore, we have seen an uptick in semiconductor demand due to the more silicon content in particular applications such as newly adopted the point of Fiveg smartphone aiotv devices and other consumer products.

Therefore.

<unk> industry landscape appears to show favorable supply demand dynamics tours to foundry and you and he will pursue a delicate balance being strengthening our customer relationships, while securing interest for our shareholder to ensure our long term growth.

That's cool down to the fourth quarter Twentytwenty guidance.

Our wafer shipments will increase by 1% to 2%.

A's Pete in U.S. dollar is expect to increase by 1%.

However, surging NT dollars to offset all that benefit from Q4 shipments and Ace peak world.

Gross profit margin to remain flat despite adverse currency impact.

Capacity utilization rate will be in a mean, 90% range.

2020, Capex budget will be you with $1 billion.

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

Yes, Thank you presume, one and ladies and gentlemen, we will now begin now question and answer session. He said I have a question for any of today's speakers. Please press <unk> one on your telephone keypad and you wait until the Q.

After you are now please ask your question. If you find that your question has been answered it before 80, so to speak. Please press your route to to cancel the question. Thank you.

Now please friends, even one to ask a question. Thank you.

Our first question is coming from Randy Abrams creates please go ahead. Please okay. Yes. Thank you and congratulations on the good results I wanted to test the first question.

A two part on the pricing outlook.

If you could give the outlook for A.S.P. use over the next couple of quarters factoring in.

The rising foundry pricing on some mature nodes and.

And also you talked about further 28 ramp [laughter] I'm.

And then the second part of it is I think the last slide in your remarks.

We're about balancing the strengthening relationships, while also securing shareholder value.

So I'm curious just [laughter] there the risk you are seeing in terms of if you are lifting pricing versus other foundries string of stable pricing model if any risk on.

On market share or pricing, if we do had entered a downturn.

Okay.

Sure first of all thank you Randy and be a as far as the the pricing question.

Despite what we mentioned this on last quarter end and just earlier, but despite that you wouldn't see some pricing power. We believe has been much improved especially on the eight inch business. However, Lee we always try to keep our commitment to Arlington customers.

We have been taking advantage of this opportunity to strengthen the customer relationship and hence the product portfolio pipeline, which will aim show that you wouldn't see long term hockey position.

And at this time, we have settled the the 20 twond piece pricing.

And allocation with our customer the ALD for eight inch business appears still favorable for foundry like the 12 inch ASP will remain firm based on the normal pricing scheme.

Well the overall blended ASP improvement is still subject to actual product mix.

For the near term the Q3 in Q4.

Plus.

The pricing adjustment was only applicable to customer that require incremental capacity support.

So that will probably give you a failure of the near time Q3, Q4, as well as some some with sort of the outlook for <unk> and <unk>.

21.

You you talk about the you mentioned the yeah.

Yeah, the effect on the 28 nanometer contributions.

In Q3, the higher 28, <unk> fee contribution wasn't mainly offset it by the changing the product mix, we actually see some benefit I mean, the benefit of the B. The problem is on 28, but you still got offset by some other product makes <unk>. An example is the decline in our 90 nanometer proud.

Would you what design into the high end market.

I live via a if he was not up here and even with some of the.

In boom and only 28 revenue contribution.

So.

For that for the pricing.

Yeah, well when we talk about the they tried to seeking oh the balance between <unk>.

The shareholder inches this will be a long term customer relationships strengthen the company reagent, we mainly talking about that you know as we go into detail.

Few quota as well so the outlook for 2021, we continue to see India business. The older. Written then free first we expect the business fashion will continue into the 2021. So the overall this is all it is.

Hello.

Oh, so that means to the utilization situation I'm worried net carry for.

And in that sense, a we we are you know here 40 evaluate our capex.

And incomes, you know whether or how should we expanding our capacity in supporting them are but in the same time, we need to watch the balance for the shareholder interest. So that's what we're referring to.

Okay no. Thanks I appreciate the color on maybe a couple of follow ups to that first.

For the pricing, where you mentioned this year, it's only on the incremental business, if there's a way to to get a feel on how it's looking at this stage for the pricing for next year and the second part of that would be on gross margins.

Just on your view that you'll be near full capacity I. Good pricing on 28, rising and also maybe depreciation down how do you feel that the gross margin maybe trending.

Well first of all you know we look at the gross margin or the a little bit of a disappointment for Q3, because the other QC was largely affected by the appreciation of the dollar right. So the NT dollar. The point you enjoyed that that may have some impact to our gross margin.

Well, we're expecting we're competing training no beside the the NT dollar impact.

And that is you know, it's our expectation and goal to continue to see that was not in train going Oh, okay.

And following me a better product mix and volatility continues to be.

The utilization high utilization.

Okay, and then if I can ask a question then you caught up to 90 node words, I think down a good bit from where it was a year ago.

So that pocket I assume is the one with under utilization I'm is.

Is there a new application to backfill or with capacity tight you can.

Migrate some of the tools to other nodes.

[music].

Oh, okay.

The the major reason for the night Emailed me two or.

The decline or impact was due to.

A decrease in wafer demand from our Japan region.

And particular disputes that does impact affects our 12 and the that you're that.

And as you know one of the important customer I think is experiencing some deteriorating business conditions would you beginning in Q3.

You add you know, whether we'd be able to backfill with other devices no and we've already started.

Well, we we we've got we started at mitigation a program and be a or B you know E.

This quarter.

And the and the expected 12, m. loading will gradually improve.

We can't really improve immediately because we had to bring profit older.

We have to make some sung sung some modification to it so the loading will gradually improve each quarter in Q4 2020, the next quarter or 12 and building will be a.

Let's.

Lets walk up to you and see has begun to leverage our other customer base.

And so we expect the duration of this recovery mode, we'll probably that's around three quarters coming down current quarter. So when she was nothing sounds sounds kinda rikabi from Q1, and and continually carving that much the normal level.

Okay, and just one other follow up because you mentioned, though the the Capex you're doing a consideration now.

But your full should we view base case, it's been around 1 billion. That's the level, we're looking at when you're expanding or where potential at high utilization.

I could start to advancing and how are you thinking about like a build versus buy.

On some of the mature nodes where capacity is tighter.

Both are important Oh side, you know option to us the <unk> you know for the Capex decision. We are confident he is got the night and Tony but since we going into the Q4 2020.

Now we're going to quickly you know finalizing all the 2021 Capex plan. So so the 2021 Capex will be this girl's due in the next quarter conference call.

And you know just a just a note each all capex, that's always do exam to carefully through our you know the stringent Oh aegis vacation so as we promised our shareholders a salary.

In general policy, So we'll continue managing onto that principle.

Okay, great. Thanks, a lot Jason sure. Thanks, Andy.

And the next question is coming from Gokul Hariharan of JP Morgan go ahead. Please.

Yeah, Thanks, and congrats on the good results first question I had is how should we think about margins, especially gross margins over the next a year or so obviously as such you pointed out in the Bostco on 2022, we are expecting a meaningful drop off in deposits.

<unk>, but been mint between now and then given that you can only running at about 95 or 97% utilization should we think that gross margin is likely to stay in this early 20% level and then we kind of get to a meaningful drop off in depreciation and an improvement in gross margin in 2022.

That's my first question.

Okay, I see are difficult to predict the gross margin rate, but I saw the kissinger earlier. It is certainly our goal of continuing to find opportunities and.

Optimum position a process to.

Our gross margin.

Of course, we are heading we have some headwinds from the currency for this quarter and also a likely nice quarter. So that time kinda eat eat up about at least 1.5% to 2% of our gross margin. So currency certainly play a quite a important role.

In the near term and longer time, we do expect to see.

But S.P. coming from our part I I'm missing enhancement.

So on the 10-K now meet them.

So we do see a quiet.

Few factors will help our overall gross margins and so to me. It's I'll go back just a we cannot really predict.

Oh, what that number for gross margin for the for the longer term.

Understood.

If we think about going into next year, given the very tight capacity that you're seeing in especially in mature nodes.

Do you plan.

Plan to go down the acquisition route again on some of these major known one is the thinking regarding capacity expansion I think you talked about some selective expansion in 28 nanometer, but could you talk a little bit about what are your plans on the metro north side as well.

Well I mean, we also you know touched on earlier, we continually exploring both options.

Organically and Inorganically.

The.

So the answer is yes, we will Oh, we are always open to exploring new opportunities that will help the company growth okay on both ways.

So even if the buyback.

No they will do both.

You know, we we think that this years Capex you know we are putting additional capacity in 12.

Shannon facility, we had an acting up to 25 K for month run rate.

We have Oh, we feel confident comfortable about that capacity and we we have confidence that will happen.

Good momentum into two though that fat so that although remained pretty foreign to us at this point and then how would you explain audits and four that's well for that additional capacity AWP I'm, mainly for the F 22.

Okay understood. One last question on Opex, how should we think about Opex I think opex ratio has been coming down.

The last year or so but in terms of Opex and R&D expenses, how do we basically going to stay at that on these levels over the next couple of years. So I'd say, it's I mean increases for automobile specialty products in 20 nanometer expansion.

Yeah other than the white house or impact in the third quarter of 2020.

Which I mentioned one is the reversal of a respected by the loss so that once again of around 500 million.

Same time, we also increased our equity based compensation schemes are strong for each so dallas or increase all packed by another 400 plus.

That's going to last for multiple quarters. So he absolute dollar terms or where you expect the opex to increase starting from Q4 of 2025 golf course for their longer term, that's up <unk> percentage of revenue we hope.

It is our current duty to.

Keep the ratio somewhat flat or even come down slightly.

Okay.

That's very clear. Thank you very much. Thank you. Thank you. Thank you.

And the next question is coming from Bruce F. Goldman Sachs Go ahead. Please.

Hi, good afternoon. Thanks [laughter].

Thanks for the great results, so I want to ask more about the 20 years. So what is the current nutritional right for 28 nanometer in so called on the fourth quarter.

The Uh huh.

I mean, I can look at the <unk> or the 28 millimeter right is the me.

A balmy night.

Oh for the quarter.

And we expect 28 that they'll either loading watch it.

The increase.

Quarter over quarter, So part D and all I mean is it it's already and 90 plus thing you guys already.

Yes in the a in a Q4 point <unk>, our but our current projection is at midnight, yeah, it's over 90% utilization.

Oh, what was in the quarter.

So I bought a is also over 90.

But it's not reaching at midnight.

I see so given the high utilization rates. So what is the capacity expansion plans for the 28 nanometer because he sees.

C. We already had.

Very good how are you guys you know 80.

The capacity will be in a 28 will increase you know thought.

Starting from Q2, a 2021.

And the.

The number was.

Reach about how.

Hi, Andy or end of a 2021, we'll probably see about 40 42.

Following the end of the Q4 2020 is a 34.

So there was a 0.8 increase on a year to year basis.

And the the nimble without written in Q2.

Anyway.

I see okay.

Okay, because because the purpose I just saw that you know you only spend about 500 meeting a year to date. So we didn't really see the spike in terms of cap as compared to last year and given the high utilization rate. So we do I just so I'm just surprised that they now Oh, we do not see a more aggressive oh capex or coupon.

I said expansion brand for the 28.

Well I mean, we we have you know being.

Leveraging while the easing pool and Weve been cautiously deploy our Capex plan.

And the falling falling today's Oh bore resolution I think you will see a number of things that you know along with today's kind of act as you know.

Although the number actually going up quite a bit today.

Understood. So oh. Another question is for the gross margin. So what is the forex impact for the gross margins, though quarter and what would be the gross margin guidance, assuming the sample X. I mean, I just want to.

No what is the real gross margin improvement excluding the full expectation.

Back to our Q4 guidance, we are guiding 1% to 2% shipment growth and 1% it's pretty close so that's all going to be you wipe out <unk>.

Fourx so that's the magnitude.

The.

Forex impact for gross margin Q4.

And how about for the metric during the third quarter, who started it would be less than that of Q4.

I know the last and what what's the impact the quarter is that right.

Uh huh.

Total less than that in Q4.

I see I understand thank you.

And next question is coming from the holding of China Renaissance go ahead. Please.

Hello, and trying to make and my first question you speak gotten good non controlling stake in Q3 that number actually came down quite a bit I just want to know if it's one off or any specific reason for that trial.

You mean noncontrolling interests.

The minority interest.

That's because.

So the key operation, whose father Shabnam fat.

And they are all in the third quarter is a a much less.

Cost of a one off or in your life a year interest expenses subsidy received for the third quarter.

Oh, Okay got you and or AG interests subsidy would continue for next couple of years after that in Q3 I figure.

Oh, either Q2 or three.

Work on TGR for a couple of years, but.

That outstanding should gradually come down as we gradually pay off the debt.

Okay, Okay and second question her attitude of gross margin actually is it possible to talk about the gross margin difference between eight and 12 eat and I believe that top each well gross margin will be lower.

Yeah, we don't really Ah, so with that kind of break down and so.

So you can imagine the overall depreciation you any cause for entry is much lower than that.

Robbins you saw all conquering margin wise. This chart eight inches are based upon our full loading a condition right now is certainly higher than that top 12 inch.

Okay, Okay and last question on the how should we model again, I guess going forward it should be pretty flat study after I actually thought that at all.

I'm, sorry, I said again I think the R&D, how should we model that going forward should it, especially if it's going to be kind of stable yeah on absolute dollar basis would be for you will remain stable for the foreseeable future.

Okay. All right. Okay. Thank you very much and congratulations.

Good.

And next we'll have Charlie Chan from Morgan Stanley for questions go ahead. Please.

Hi, Good afternoon stands for taking my question and.

Congratulations for a great results so.

So I I got a couple of questions. You know first of all a it's more about that short time, because Oh, you know there seems to be try and some customer so I'm to transfer the project to to your foundry Akiva and comes in at about the same I see it.

We continue to see that.

So thats the management.

Let's see that's similar.

It'd be a phone customers and how how long do you think they can oh, so stan thanks.

So well first of all.

You know, it's our policy that we not commenting on or a competitor.

Yeah, and as far as the the the question you're referring to is more of a geo geopolitical tensions that a you know it's our belief that did have some impact to the foundry landscape you know particular to the the customer sourcing strategy.

Yeah.

And you know and we we are sort of sound the customers happy.

Happy side to diversify their bumpy sourcing strategy and started some of the ER visits explorations or maybe not only with U.S.T., but the studies.

These we ceased activities associated with that.

In due course, you know we will strike to capture those opportunities if we could and it's not only is it will be a subject to our capacity available availability. That's wells are coming on line, but based on that their wafer requirements. So the current parity, but ours at this time is still sorting out.

He says in customer first because you know we are running every fall and it's our job to supporting our current customers and strengthen that partnerships and you know, but continue enhancing our market position based on available technology and capacity is always our goal so but oh.

He is serving our existing customers.

Okay. Thanks, Yeah, I know Theres Ritchie to today, it's I know you're.

SAP is a a very easy.

And I understand that [noise].

Your your your pricing for 2020, he's already said, except for sound that Russia would actually.

Hey, Matt.

And we have a a kind of a new start over for a day or two cents. When you won a.

Ah pieces, you know discussion do you plan to be a kind of a yeah.

You guys have your liver price.

<unk> for the customers. So there's no discrimination, Joe said, because the it's all about the demand supply and you've been too you know.

No.

Hi, good surprise to all your customers seem to be one.

Well di di di Yes, I mean, we like I mentioned earlier, we are seeing we haven't you know the landscape has changed the landscape has changed it and Oh, we you know, particularly in eight inch event no area. So yes the.

The answer is yes, you know the a four to eight inch.

The business.

You know, we we are not holding those 2021 pricing now and there isn't any language adjustment. Okay. Okay. Okay. Yes, there is India and but we still are limiting at the eight inch business. The 12 inch is Pete will remain burn you know based on the normal pricing skin. So.

Okay, Yeah. So <unk>, we haven't we haven't making any adjustments on the talking point, but maybe on it on the age.

Okay, sorry, I missed that so can you.

Quantify they make need to do a bit better.

Slide pricing change for age.

Well.

The part they.

Yeah. The message is you know because the Oh, we always look at on the blended ASP standpoint.

Very hard to quantify that either modified that you're not you know you can imply what the end result, the little Glenda is p. improvement was due subject to actual product mix.

Right.

Based on the loading for example, we have better eight inch productivity hooman means easily shipping I pretended your eight inch wafer there's the 12 inch.

Despite the baseline age prices increase that we're still going to drag down the.

The overall blended ASP so is it difficult for us.

Oh, yes, better to referring to on a quarter to quarter Guy you know because of.

<unk> as he guidance on a quarter to quarter basis.

Okay, and lastly, anything sort of that lastly, Ah I think he is already a good oh.

So that you are playing safe <unk> said hell with the.

The U.S. Department of Justice.

So can I confirm he's he's already say told and there is no longer.

Compensation expense afterwards, and no so.

Between you and a microphone Oh dude.

Do you think there is oh, so a lot of two to two saito or are you seeing use oh so.

Already a complete a along with these Ah U.S.D.O.J. settlements. Thank you.

The criminal case was a year or two years sets out and $50 million fine he doesn't like to in the third quarter financial statements.

Yeah for the civil case ways, Mike long.

That's still.

I'm, calling and we don't speculate on.

Every job, we will try our very best to defend a shareholder.

Sure how are they all companies Oh, right and shareholders have a right.

Okay. Thanks, I think you guys have great great.

Oh strategy that the big overhang is now almost every month. So congrats shape <unk> said about that that's probably.

My question I will get back to the queue. Thank you. Thank you.

And the next question is coming from Rolling She Citigroup go ahead. Please.

Hi, Yes, Oh, congrats on a very good result, and my first question is this all the time T.N.L. needs. It so as I look out your attention and now me to I believe in Threeq are you a capacity potentially allow me to a should be much bigger than your capacity in full Q 16.

Which wasn't that peak all for your attention only to revenue and also you come in in Threeq. You you locate a you tend to see a nominal capacity at above 90% utilization.

So I think though and you know me the weight per shipment in Threeq. It would be yes, you'd be much bigger they are sold at least 16, hi, but I look at the revenue I know you thought you'd see Q 10, Vietnam. Each other revenue Oh, probably I was on the 83% Oh yeah.

Same period in full Q 15. So so is this I know or more wafer Shimon hi, but with Lisa yahr much in a way by revenue coming from the product mix change and can you.

Give us more color on why is that the change in the pardon me I'm thinking they'll need to thank you.

Well first of all five years. These are very long time for pricing trends in the foundry business. So if we compare to all the.

Yeah, Tommy is probably about five years ago, I think you will be very very different as far as not only foundry.

We're just compare this kind of.

Distributors, we are fine.

Five year interval and suddenly there.

Our products are also are different.

Compared to five years ago, So I think it's a difficult way to.

So even try to compare it to 2015 I think always trying to do here is to fully utilize our time here now meet their capacity and moving to a higher then as much as we can and we're also diversifying different clientele fall time here now let me turn we I'll move.

During our time here to Tony to us well to increase it.

Hence our competitiveness for boats alfalfa and all customers. So we're pretty happy with the progress we made for a lot of time here and he has been we're seeing our plan.

And for the next coming quarters with respect to that.

Thank you your person pardon me an army does that percentage of revenue to show a meaningful increase.

Oh look quarter over quarter.

Okay, and then you said that you and obviously the 10 P.A. capacity will be reached 34000 with a mouse and the least actually above the <unk> economic Oh skillful 20 allow me to so I inspecting a U.S. and Vietnam, either gross margin or to reach corporate average.

In Ah. Thank you all in full Q anytime soon.

Yeah, we don't really have a detailed breakdown our geometries, but ah, yes, when the 10 year on year or nearly 95% capacity utilization rate.

Oh, we do see a similar corporate gross margin compared to the rest of the 12 inch I know, but.

We also are you spending we are putting new capex in Shanghai fab.

Moving front 18000 wafers right onto the 25000 by meet Alpha pennies Twentytwenty, one oh, the newly increased Capex and also depreciation well certainly put a pressure on the gross margin florsheim in fat. So I'm in fact, even though we have seen performance to improve.

Compared to year 2019 buyers margin steer or they are in their in red in terms of margins. So overall, if you blend waste a new capex and depreciation.

12 inch chindia nanometer is not going to be at the corporate average because I'll chime in fact.

Understood. Thank you Oh my last question.

Full year low so to us. That's my you I think in Fremont that go up all up before you believe they want no wrong billion falling you envy of all these case, but now you have to meet these delays or widen our trade secrets breach. So can you elaborate thoughtful the change out putting a wide pretty busy you saw a nice.

There was no I'll run through inside but now you would think on maybe it's the one trade secrets breach. Thank you.

Hey, so very clearly stated in our news release that under U.S. law.

Company has to be responsible for employee behavior, and ER and probably take a break the law.

Oh.

Oh did violate the company policy and also for phone without the knowledge of top management. So.

Oh, that's where there are one kind of come from.

That's a different scenario under the tylenol.

On this day. So these these are mainly you paid you think Pete a mailman meaningful employees.

Oh, Oh, Oh in place around do we.

It's very curvy fit in your city Oh, <unk> is our position to pleading guilty means you then you'd recognize they are setting the liability of the action of the setting.

HM Okay understood. Okay. Thank you yeah.

And the next question is coming from Nicholas Brett Macquarie Go ahead. Please.

[laughter], yes, I'm, though.

Boring question somehow fourth Cetone.

Ooh. So you explained a lot of detail. Thanks, you've got to really loves the Oh there.

Operating income and expenses, which going to 2.8 billion right.

On the on the operating side you also have the wiki <unk> numbers. They are 2 billion.

The other thing thank you.

And secondly, maybe I didn't hear what you said about tax where you also happens then he knows that striking this sorry Walter.

Oh for then I'm afraid no not the.

Other operating.

Income, we sell Oh Uh huh.

Our subsidiary NAC power facility for again, all about 1 billion. So that's included in the a 2.8 billion of numbers for the other operating income.

Well the non operating times many of the valuation gains from our strong capital markets, which you can see you recognized about 3.9 billion.

Again from the financial markets are kept them back again.

Got it offset by about $15 million fine, we paid two or three years okay.

So the 10 million dollar or U.S. not assign easy nonoperating.

Costs.

Yes, that's right nominal pricing okay.

Yeah.

Okay.

Thank you very much and then the tax rate cycle.

Thank you.

[laughter].

What about the tax rate that's varies a little bit complicated or [laughter] tax break for some of our overseas operations. So blended [laughter] Bobby.

Bobby let them.

The fight for 10% this year and a very nice I say the lower for the third quarter were.

<unk> for the whole year.

We expect to see about 5%.

Sorry, South Funky body work, you venture to be somewhere between 10% to 15%.

Sure the pets right, Oh, I thought okay quite hear the mature.

Oh, okay.

No. The two questions if you don't mind [laughter].

Number one is that.

He's oh, what do you expect either the [laughter].

Hi, Oh, the Japan Sam on.

On my all genes and the Opex for next year, you know does it tend to lower amount gene or increased margene.

Increase opex lower opex, well, what should we think about here.

Japan favour in terms of impactful opex will be stable.

For the next few quarters.

It's a president just mention.

One of the major customers are.

Having a.

ER morphine deteriorating business outlook for the wind up the high end product so that in a recovery mode right now so.

Q4 would be the trough of the loading oh, so their margin.

Be below corporate average in Q4 and gradually to pick up over the next couple of quarters.

[laughter] distance.

Understood.

He if you don't mind. Your last question is about 28 nanometer actually seen looks like are these are very interested in that.

28 nanometer.

ER revenue has been increasing you know the 28 node revenue in U.S. dollar has been increasing [laughter] in the first half of the year request, 25% and three Q E 75% year on year.

Right.

ER and a Q on Q. So so very big increase also [laughter] like.

So oh, how many new products on new customer HM stuff do you have any place you are from a suite to suite you're going to take.

Uh huh.

There's a.

There's no specific numbers here, but yeah in Q3, our 28 now me too.

From the revenue standpoint, we are experiencing a many new products.

Following wireless application as well as the computing related products and the.

You know, we see more and more diversification on our product line in the 28 millimeters and which.

Oh, we got to see and ER and this momentum that you will continue you know continuing into Q4, we will see the 28 nanometer contribution will continue to grow.

Well.

Oh, Yeah, I mean, we don't have a person to profit no.

Comp, but they are many products ramping starting on Q3 already.

Thank you [laughter].

And the next question is coming from Sunny Lean Yes go ahead. Please.

Hi, Hi, Jason Cheat on my call. Thank you for taking my question.

And congrats on a very good result, so I have two questions number one is on your age management has been we are writing to focus on improving the technology capability. So much work process and therefore, that's why not make so now that your age is basic.

Before anything you could be a bit more selective so wondering how would your mix evolve.

In the next two to three years.

My second question is regarding no way, sorry, well I think Dick's flotation by the industry is that 2021 should be a better year with end market recovery in constituting a that will weigh sorry had been almost up on their supply.

In the past I, just wonder how would you do differently this time around.

Fine go away fish.

That's all from me thank you.

Sure so into the eight inch Thunder product mix and the the mix improvement standpoint or is the continuous effort.

You know, especially wages the eight inch other than no area eight inch other than no qualify anything under <unk> 0.18 micron.

So anything.

That will come to see the the other events.

And we see many application coming into the <unk> or the eight inch event.

Area. So we see a mix improvement after his continued.

For the <unk> 18 that greater than 0.18 is behave a little different.

They are different application coming into that.

So one can see that that actually does that help.

Mix because as many of the <unk> then that show a injection migrating to the advanced age so.

The key focus the mature eight inch is twofold. One is we tried to upgrading our facility, we can convert Saudi mature technology capacity into other than.

And sorry, the Ah Ah.

Hi, Ben.

Each area.

Second is developing a new technology to adapting to new applications.

So found yet from a mix standpoint, I think the materials I would stay pretty flat and goal is to try to continue 40 Molina area. This.

This is the the other that's the engine will continue to improve mix and to also enhance the blend is <unk>.

So that's sort.

So to respond to your age question 40 for the wafer substrate materials Uh huh.

After the last experience, we we haven't exactly our relationship with the Oh suppliers. So now that we have a long term contract arrangement in place now and for Oh suppliers and be able to continue the ongoing discussion with the world.

Suppliers suppliers.

The second time that we we tried to.

Qualifying multiple source different product line.

By doing that we actually be able to secure also supply with more of a competitive solution. So that is why maybe adapt after the after lasik soon that we have Uh huh.

We so far we feel comfortable about that but we'll let you know the result that we had to read into this.

Got it a very quick follow up so will it be fair to assume that for 2021 I'm. Most all of you are not on contract should have been finalized.

And with maybe reasonable price.

I, let's say, so I see it sounded at the Institute sound to their Asaf already settled they all sound still under negotiation, but yes, hi, Cindy the skin of the thing I say, India is.

Is it meets our expectation.

Got it. Thank you very much that's very helpful.

And the next question is coming from Sebastian Hou C.L., They say they'll have please.

Hey, Thanks for taking my questions first one is to follow on the 28 nanometer is so I think she didn't really mention about or would you expect your 28 nanometers could be a good.

Okay God the margin higher from here. So can you explain further.

Details about what could drive the.

Well, we drilled 20 nanometers profit.

I'm here given that is really running I mean, 90, 490, 90% plus utilize usually think.

And many are finally Saar Sam in fact currently is that that I've got a big loss and the loss has been reduced year over year, and we do expect to see.

Oh, the structural possibility for some in fact true.

Be meaningfully improve after they reach the 25000.

Economy of scale of operations, which is a quite a meat off 2017. So that's.

A smaller loss coming from China, and lumpy or weight tons, an hour meter margin enhancement.

And of course, where you will continue to see upgrade funky it certainly true at all so that's the part that makes.

For the time here and that will also help.

Got it so you're showing them thought right now is the 17, Okay you got right.

About 18 out already.

18, so for 18 to 25, you can make a big difference in terms of economies go. After we raised revenue fire right before we decide how we want to see a potential.

The event for the <unk> in terms of a loss.

Okay.

Thank you.

Second question is on the even three are thinly or some of your peers on producing being there there'll be even pre situation of your customer side. Although there has been a boat shoes above average for multiple quarters already I'm curious about how you would be wrong on the Imagers feature on your customers and how do we.

See what what's your view on this.

Everlasting higher inventory situation.

Yes, it would be the usual <unk>.

Oh, well I mean first of all you're right I mean, ER and also found other.

Observation that you see the inventory was at a high level. We are what we things we have seen quarter over quarter decline inventory given the the end market has started to recover but the data yes. It does.

The data they show the inventory level at the times do at a higher than normal level.

So despite that we see some quarter declining, but the current inventory level remains at a higher level.

No whether if this situation is will become a new norm that remain to be seen we you know we.

We believe in a higher level, but we see because the higher content and Oh hi. This is on compounds on the devices.

And because the pandemic situation, whether the you know high level inventory can be a new norm that is a possibility.

You know, it's still too early to judge at this time.

And but you know, we we will continue money doing that.

Okay. Thank you one follow up on that is it.

Given the good housekeeping is pretty tight right now is everywhere and leading edge foundry and also true in age.

Yes everywhere. So will you communicate you were with your customers.

Do you see any gap between your customers older any behavior versus your internal forecast on the demand.

Are you whether there could be some overbooking behavior because your costs are just.

Great I'm not getting enough capacity.

Yeah, I mean does the compensation. This topic is the composition is happening on a daily basis.

The interesting thing is if you look at the inventory.

He he he may not be we've seen our customer base.

It could be the either children and you know he could lay out.

You know sour in the supply chain.

'cause it isn't level electronics level, not necessarily on the sort of <unk>.

So you know we have been counseling check you know, we've always said our customer and well you know the holding day checking with their customer and this type of conversation is ongoing.

People are concerned about this you know whether there is a couple of booking a situation, but at this point as you know we you know I would say that no people that we've been talking to US was how itself a week.

We you know we no one can Josh you know whether this is the new norm or is it going to be an inventory correction coming off. So you know because you. Just you know we we have the convenient seen seen this thing through now are they asking for caution matches that we can we can we can do.

Oh, you know hopefully, we putting more resources on the area that really liking shortage and so maybe how to hire how how would he visited the office and again. It is delegated process, it's not a straightforward, but I mean, we I think you know not just the entire supply chain find it that type.

Maybe gay to the <unk>.

Situation here.

We just have to we have to see.

See what's going to happen, but.

But I mean, right now I mean, the demand coming off on customer remains very solid and very strong.

And we are doing our due diligence and hopefully we'd just making a good decision here.

Got it got a little here and thank you for that Jason.

I mean right.

All right. Thank you.

Ladies and gentlemen were running out of time. So we're taking the last one and then last question is coming from Bruce of Goldman Sachs Go ahead. Please.

Hi, Thank you my opinion my question again, I want to I want to double check my understanding about the gross margin for the Forex impact so for the fourth quarter.

Oh, I see is going up by 1% to 2% if somebody is 1% to 2%. So the total revenue is like 2% to 3% by the Forex eat it all for the goes one is like so does that mean that gross margin by 2% to 3% is time is my understanding correct.

So two or 3% on the topline and ER every 1% increase of NT dollar against your thought to eat up about 25 percentage points off our gross margin.

So that's about 1% to 1.5% of course money back in fourth quarter.

Oh, Yeah, I know you said that yeah, [laughter] faded away the AMC inquisitive called at 1% and I wanted to Oh, okay. Okay.

Okay.

Okay. Thank you that's probably a quick follow up is that for many will keep on saying that you know the campaign will you know we'll consider that are we oh I see so you know what I try to hold up which is great for the investors Hollywood, we have like a a longer time capital intensive <unk> intensity guy.

Such as tightly or what kind of more like 20%, which is the reason why I guess can we expect that or you know our capex were maintained at a lower then the depreciation which is around like 1.5 feet and Oh the years something like that.

Oh, we don't commit something like that I mean are we really don't see how much money, we cannot afford to spend we don't look at it that way, it's really kinda repair and we kinda chief.

And how much capacity needed in order to trigger that kind of project and also our president just mentioned.

We are looking at opportunities both organically and Inorganically salaries more complicated for your answers case compared to the average foundry, which probably only relies on Marty mostly on the organic growth. So we look at our combined basis.

And to see what kind of.

Our capacity expansion is the best solution for customer I swear to our shareholders.

Well, maybe I can add a couple here or.

Three years ago, we actually adopt this strategy that first our first priority is reshaping our financial structure.

So our goal is try to improve our financial structure first and then then the second strategy was focused on coffee factory capacity expansion that is the combination of the mi and buy and and which is what are we doing it right now I think we're at a level that we we'd gone so the first phase and we feel comfortable with where we are.

At right now and Oh looking into the second phase and the ultimate goal is we try to striking a balance between shareholder interest as well.

The growth of the company. So you enter the legit and but the question is you know, we we ought to count on a holistic view and maybe at the time that mature and we'd be able to quote you. Maybe there is a reference in terms of the cat you know Oh affordability level, so, but we still going so that's it.

<unk> phase one and we at we'd reaching that probably at least they built the phase. One then we come to your salary.

Second strategy.

Oh, it does help to.

Yeah about that how soon I think this is fully appreciate that the we can pull find pull them for the last two years I think the one of the major concerns is funny Investor would you I got is that you know people worry about that do you know how you see my trigo, a major massive capex for the 28, because if you want to increase your 28 by 10.

No 20000 with a month last night, you see beat and all that.

So I mean, that's a one off or one major you know, okay, Capex hurdle, which is Oh no concerns right now so I went to see whether we have some you know upper limit or is some some kind of why you know guide as well.

Well at this point or you don't need to worry about that and I guess, it's been [laughter], having pretty good disciplined here tried to manage that so.

We're going to stay that way.

Okay, Thanks to any tangible electorate, though [laughter] dang.

And at this point thank you.

[music].

We thank you for all your questions that concludes today's cumin names session and I will turn things over to U.M.C. head of IR for closing remarks.

Thank you for attending this conference today, we appreciate your questions as always if you have any additional follow up questions. Please feel free to contact you and C. <unk> C. Dot com has a good day. Thank you.

Thank you and ladies and gentlemen that concludes <unk> first quarter 2020, we thank you for your participation in U.M. Ses countries. There will be a webcast replay within an hour. Please visit www dot U.M.C. to come onto the investors events section you may now disconnect Goodbye.