Q1 2021 United Microelectronics Corp Earnings Call

Umc's quarterly financial reports out of Apple.

All of Westpac trip with or without UMC Dot com.

Out of the investors financial section.

Two of these content we may make.

Forward looking statements based on the mens amendments that's kind of.

<unk> patients I believe.

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.

One of our web site.

Saturday on page three the first quarter of 2021 consolidated revenue was 47 point of 1 billion of N T with gross margin at 26, 5% the.

Net income attributable to the stockholder of the parent was 10.43 billion N P and the earnings per ordinary shares or 85 NT dollar.

In Turkey in the first quarter of the capacity utilization rate was 100 per cent.

The further improvement of 19, 9% of in the previous quarter.

And please go to page four.

For the sequential comparison.

Q1 revenue of 47 point of 1 billion represented about 4%.

The quarter over quarter, gross which country view of deposits from HP increase of 3% plus that's true.

With the shipment, which was also a strip of Sem plus and it was somewhat offset by the stronger NT dollars.

Gross profit margin continuing to grow to 26, 5% of 12.5.

5 billion N T.

And our operating income margin rate in first quarter was 15, 2% increased by 35, 7% sequentially.

So the net income of two reported what was the wrong point.

H five N T.

Four per ADR is about point of 149 U S dollars.

So on year over year comparison on page five revenue grew up by 11, 4%. Despite the stronger much much stronger NT dollar exchange rate gross margin improved by nearly 7% gross of.

Percentage point, the $26 five compared to 19 point to the same period of on.

Got you.

And gross margin operating margin income.

Improve too.

A 15, 2% from $8 one per cent in first quarter of 2020. So EPS are we show a pretty significant growth from point of one nine in Q1 2020 to 85 two of this quarter this past quarter.

On page six our cash is wrong, a hunger and 7 billion NT dollars and total.

Equities about a.

Closer to 50 billion NT dollars.

Like I mentioned earlier the cure.

Our revenue growth contributing both from a gross as well as our wafer shipment growth and on.

On page seven you can see there's a more than three per cent uptick.

Our blended ASP for first quarter of 2021.

In terms of the revenue breakdown on page eight Asia continued to grow and right now you're representing about 53 per cent of our total revenue.

And our Europe, and Japan also showed a mild growth in first quarter of 'twenty one.

On page nine our idea of SKU.

On the change of around 14%.

And on page 10, we.

And we see some more balance distribution among the three major segments. So consumer now representing about 27% in communications of about 46 per cent.

And.

On page 11 of 20 years of Slash 22 nanometer technology, representing about 20% of.

All four of our total pilot in Q1 2000.

'twenty one.

And the 40 nanometer represent another 20 per cent for Q1 two on 'twenty.

<unk>.

On page 10 of our capacity breakdown for quarter, two we will see some 4% quarter over quarter of capacity growth.

On the coming from 12 inch.

Capacity expansion at both the 12 eight.

Two of X and Sherman.

And on page 13, we revised up our annual Capex budget, mainly due to a new project in China of course, you will go into details later on.

And for the new update the Capex for 'twenty. One is now $2 3 billion U S dollars.

So the above is the summary of UMC result for Q1 2021 more details are available in the reported.

Which has been posted on our website I will now turn the call over to Pat him UMC instead of Jason Wong.

Thank you that you don't go evening, everyone. Yeah, I would like to update of the first quarter operating result of you on the fee.

The semiconductor component shortage, we are working with on our customer the play.

Iris and harness the deviate the capacity tightness across the supply chain in.

In Q1.

Robust wafer demand led to a full utilization.

I shouldn't say.

Bringing overall wafer shipments to 2.3 set of meetings eight inch equivalents.

For the quarter of gross profit grew 15, 2% quarter over quarter of two N. T 12, four 9 billion.

Holly reflected higher contributions on our 28 nanometer technology.

In the first quarter, we continued to see the increasing from 28 nanometer the shipments driven by strong wafer demand associated with video set.

Set top box and connectivity chips design in the smartphones.

The result, 28 nanometer revenue grew 18% quarter over quarter, representing 20% of of our wafer business.

Furthermore, we have started to ship 22 nanometer products to fulfill consumer demand.

Two of recognition of 22 nanometer wafer revenue first quarter 'twenty one.

We foresee a significant pickup in 22 nanometer product tape outs increased out of 22, 28 nanometer product pipeline optimize overall product mix and enhanced UMC foundry shifts.

Looking into the second quarter.

Market demand will continue to outpace the plate.

You will live later shipments in the blended ASP in the U S dollar.

Recent market dynamics have provided us and our customer and the opportunity to reinforce our capex strategy.

Xena ROI boundary, while trying to alleviate the loans and capacity constraint in the supply chain.

Therefore, our board of directors half of.

Approved.

It's on plan, which will expand the capacity at UMC Fab 12, 886 in Taiwan timeline Science Park through innovative win win partnership model with several leading global customers the <unk>.

The six expansion is scheduled for production in the second quarter of 2023 ways of total investment for the project are mop at <unk> 100 billion. In addition to UMC as previously announced the 2021 capex of <unk>, one 5 billion the bulk of of which is allocated towards the equipment for the <unk>.

That 12 eight <unk>.

<unk> site adjacent to <unk> six.

Total use of investment in the Tainan science part of it will reach approximately 150 billion over the next three years the.

The <unk> program is supported by our multi use product alignment between UMC in the inbound customers that includes on loading protection mechanism that will ensure the piece of capacity is maintained at a healthy loading level.

We look forward to of leveraging our number one worldwide foundry market precision in multiple areas such as 28 nanometer OLED driver IC production. So we may further strengthen UMC semiconductor industry relevance and capture new market opportunities down the road.

No.

Let's move on to the second quarter 2021 guidance, our wafer shipments will increase by 2%.

ASP in U S dollar will increase by three to four per se.

However, the surging and the dollar headwind may potentially offset benefits on the Q2 shipments increase and as fee growth.

Gross profit margin was 30%.

Half of the utilization rate will be 100%, our 2021 cash based capex will be budget at U S. $2 3 billion of Qi <unk> mentioned earlier.

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

Yes, Thank you president <unk> and ladies and gentlemen, we will now begin our question and answer session.

I have a question for any of todays speakers. Please present the liberal one on your telephone keypad and you went in to the queue.

After the U R announced please ask your question. If you find that your question has been answered before the initial turn to speak. Please press the zero to cancel the question. Thank you.

And now please present the real one to ask the question. Thank you.

Our first question is coming from Randy Abrams Credit Suisse go ahead. Please Randy.

Okay, Yes, thank you and congratulations on the results and margin improvement.

First question on <unk> cost on the capacity expansion.

Can you discuss the amount of capacity for the Fab 12, eight phase five with the Capex raise.

And also how much capacity is planned for the six with the 100 billion and T plan.

If there is a framework for total Capex. If you also expect.

Any spending to continue in China or other facilities. If there's a view of the current year's spend may continue around this level for the next couple of years.

So Randy of Walt Piecyk the alone. The total Capex is around 100 billion NT and it's likely the spending is likely to spread out through.

Over the next three years, so starting from the later part of this year.

Bulk of that in 2022 and also of nearly one third in the.

Our 2000 tiny suite, so that will be the key part of our capex over the next three years.

And for the original budget of $1 5 billion. The bulk of debt will go to the 10000 wafer plenty of nanometer capacity per month at five.

And that's the already ongoing and we are seeing the.

The contribution.

Yeah, maybe 30 next year.

Shannon we are also already reaching into the <unk>.

The closing to.

The target level of 25000 wafer per month, and if you recall you was the about 17 18000 wafer.

The above the same time last year about the through the extension now is close to the forecast of capacity right now so maybe just maybe run through.

At the tumor.

I think the the other data plan before the peak day.

Kind of facility.

After the <unk> will be about 90000.

Wafer capacity total for the tightening of the sites that 12, eight and by adding the <unk> six will be on top of the 90 day. So we are approaching about 100.

2020.

So think of it from a P five right now.

Okay.

And to clarify.

90, KC 10-K P. Five P. Six of 20, K, so that brings it to 120.

Okay.

The second question it gets back to the mechanism and this new expansion schedule.

If you could talk.

The the <unk>.

Rising.

And margins as you expand and grow the business with the new capacity how would that.

Impact relative to your current margins, where theyre getting the 30%.

And if you could give an updated view that the depreciation where it was.

Originally on that kind of nice.

Downtrend the next two years, but now you'll get more gross but how does the.

Depreciation profile change.

Well I mean the.

So without going to the city about the agile pricing I cant.

The.

First is our disciplined of our allied driven strategy did not change.

So this program, but not the effect that strategy starting in 2023. This program will support our top line growth like you said with the multiple multiple years of margin accretion. So financially we believe the justifiable.

As we stated earlier in the PC.

The press release.

The T six expansion of rent at second quarter of 2023.

And in the meantime, the near term downward depreciation trend remains unchanged, even post 2023, UMC total depreciation as a percentage of the revenue will be well controlled and managed it.

Mainly because after a few years the hour like Capex depreciation COVID-19 wrote off together with our gross margin improvement.

This app will have will have strengthened our financial position to capture of this market opportunity. So I think on a customer also recognized.

Positive market structural changes so they proceed.

This arrangement.

It's meaningful to them the wholesale beneficial to them.

Okay.

Ask the question.

The blended pricing.

We started the year with I think the kind of a minimum 5%. If there is an updated view with the ASP.

Three to four in the second quarter, but also there's a line of tuck in the market. There's further rounds with the capacity tightness.

If you could give on view on pricing and is there an initial view, how 2022 of fear already contracting out and May see.

Some of some movement up on pricing into next year.

We will continue aligning with our customer.

On the reason the market dynamics, our forecast for the full year as the gross will be in the high single digit year over year now.

It could approach 10%.

Yeah.

Does the 10% of our pricing also includes a product mix improvement.

Therefore, the current ASC live mainly reflect the value of overall market position, but is more of aligning to the market price and market position. So the.

At this point, we see of the entire 2021 will be approaching about 10% year on year growth on the ASP.

Okay and is there any talk on 2022, yet or does that normally as scheduled in second half, but are you starting early given the constraints.

The ongoing discussion as I said already yes.

Hopefully, we can wrap up not only to the pricing wholesale capacity.

Support of alignment.

The.

Before mid of the ear.

And so that is ongoing at this point.

Okay, great. Thanks, so much.

Sure.

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

Alright, Thank you for taking my question.

Can you give us a little bit more color of ball Europe innovative business model for the new fab.

Okay.

I don't really see.

Any detail.

But the property the ambassador is there.

When TSMC, who dominate the 28 nanometers global capacity the chairman of just talking about like double booking that nobody has the client 28, and we are building a decent the upon EBITDA now let me thats part of how can we ensure that the capacity of the the newly added capacity is fully loaded.

What kind of the case, we can have.

We have seen so many long term kind of try and many many industries and a lot of the customer I guess the honor the contract at the end of the day.

How can we ensure that that we can get our.

Desired return on it.

Yes.

Very good question and it can be a short answer and let.

Let me see if I kind of maybe start off.

Giving a bit of the.

The background of the decision.

The recent market dynamics lead to the supply demand imbalance of everyone knows particularly in the in the mature nodes.

Some of our peers in the market also mention about that too in the past few years, we have seen most of the capex capacity expansion focus on advanced technology. However, the company did not significantly address the mature 12 inch and the eight inch capacity over the period of time due to a challenging market condition with.

Within those the mature 12 on eight inch nodes.

There are many critical components that plays a vital roles in the semi supply chain. Therefore, we believe this event had a structurally change of of ROE and precision of the foundry service provider.

And I think our customers recognize that.

And so at the.

At this time, the situation stopped providing us and our customers an opportunity to work closely and.

And we have the solve the supply shortage.

Together in the mature nodes so the behavior of the tour to the.

Agreement with the customer is different than just the recording of the Capex split.

And we call does the innovator wing wing cooperation model because of this.

This arrangement is supported by our multi years of product alignment. So there's multiple years of agreement between UMC in the customers and on.

I'll be the alignment there is also of loading protection mechanism to ensure the capacity to maintain in the healthy of loading level. So in other words. This piece of six pulled on is well protected with the commitment and obligation on both sides.

Now when you talk about the.

The cyclical risks this piece of <unk>, only about 10% to 13% of all.

Operations.

All of the result of <unk> six the rest of the other capacity offering will be more vulnerable to the industry's cyclicality of.

So I think the <unk> program itself is is set up well protected our focus is more on the base of the hour capacity.

And at this at the end of the day our goal to protect our base capacity is we have to continue on.

The lenders enhancement in the technology competitiveness.

And our manufacturing excellence.

And with the predictable yields the ability of our service and the sizable capacity offering. So those are the fundamental solution to cope with the industry cyclicality.

So the bottom line is I think the <unk> program itself is more well structured and well protected and but the the market ups and down.

Happen and but I think.

Our current academic methodology based on the best effort, we've seen the demand of supply imbalance situation with those mature now will stay for some time.

The the conventional concern on the inventory correction or the market ups and downs, probably won't happen within the.

One to two years and but beyond that we have to still go back to focus on our fundamentals. So that's sort of how we view about this.

So, but yes to the a bigger problem for somebody like <unk> right color on capacity by 50 to 60000 wafer per month. So. The addition of all of these all of that is well protected in 2023 on wood, but the remaining 50 is not protected.

So if the customer is having like capacity the both side the they will fulfill the P. Thanks Bob.

All of this on the key the.

The old regional please.

This 50000 wafer per month capacity is that right.

Yes, I mean, so what I'm, saying is upon the competitiveness of standpoint the.

The weather, we have a piece of the people we have the deal with the same situation.

And the <unk> in order to protect.

The tax or compete in that space.

Our competitiveness of da Vinci knock on the based on this.

The imbalance or even people talk about geopolitical or trade issue on so on so forth.

Our core competence will resolve on our focus in our addressable market segments in which we have been doing for the past few years.

We and other simple where to put it is we are putting we focus on the selective market era.

Yeah.

The addressable market of seven and we did EBIT comprehensive technology, we think that settlement and then we start of aligning with the customer.

Strength in our portfolio and as a result, we actually start seeing that market again on debt as well, but we have the continued executing debt and to protect the baseline.

And so I think we march into the direction, we feel comfortable and we feel that we have been stay focused in the selected area. We have been executed and we become more relevance. So at this point and we think of wages at the continued executing debt and the market risks continues.

And we don't have the.

We don't have the competency of the market would never happen.

In this in the.

Yeah.

Cyclical situation, but you have to prepare yourself the competing situations.

I see okay, 111 clarification for that piece of the investment you mentioned that the O E pocket or return driven.

It's on changed but for me.

The current wafer price for the 28.

Cannot justify the return how can that how can this piece of <unk> 10, being the cure or.

How can we ensure that the you will not be margin dilutive for the this incremental on.

Sure.

Revenue or how can we ensure that all of you snap back.

I agree with you.

Because the current Poland has a pre determined the pricing.

The <unk> program and based on that the.

On the program not only support of top line growth. They also support our multi years of margin accretion.

I see.

So this piece of wafer price will be of.

Different compared to your existing 28 nanometer capacity.

It is different yes on the stand there, but can we just closed on all of the price premium.

What we can.

Okay.

Thank you I'll go back in the queue.

Perfect. Thank you.

And the next question is coming from Goku, how the how long Jpmorgan go ahead. Please.

Thanks for taking the question.

The board.

The new capacity arrangement.

Could we talk a little bit about.

What level of involvement with the customer.

You kind of Tinder.

The potential co investment from the customer.

And any thinking on why you exit co investment on why you don't accept an equal investment just wanted to understand that part.

And when you talk about other why boundary could we put some numbers around debt.

Good day.

Yeah for us to communicate to investors also in terms of what is kind of like the other way breed that those kind of like a hard stop in terms of UMC.

On the marketing metrics.

Well first of all the other.

In addition to what is mentioned earlier has the <unk>.

Determinant.

Pricing arrangement of six and then there's also a guaranteed two of their commitment.

By.

Committing to the.

The capacity of deposit as.

As well of the loading protections okay.

So there is of.

The structure of the.

The mechanism to protect.

The tax of <unk> six program and.

<unk>.

I.

Kind of highlight the earlier in the background of this current market situations because of the market dynamics of the.

There's a group of customer is weeding and recognize the deal possible structural changes. So they participated with us join the so I will say this.

Drawing program between us and some of the key customers and the of.

So the financially based on the arrangement will not affecting UMC.

On the bottom lines and also provides the umc's the top line growth.

India, we have been.

A lot of time discussing the ensuring many of the data and we both agree with.

Both of agreed this is the the right thing to do.

Two of solving does the shortage issues.

Without affecting umc's of disciplined ROI driven strategies.

I can elaborate more about the Pacific ROI numbers I can tell you that under our board of Directors review and our team's review and.

See the bottom line with the margin accretion and that meets our image of financial targets.

Yeah.

And again.

I also mentioned earlier the.

With the piece of X program.

On the near term downtrend downward depreciation trend remains unchanged even post the 2023 at the production stopped ramping so.

We feel this is a well structured.

Program for us.

Got it on those.

One of the question.

Any change in terms of the shipment outlook I think you did talk about when did the ASB being up maybe about 10% the C. R.

Compared to previous debt are you expecting a little bit more like mid single digits.

The shipman well.

The capacity growth outlook for this year.

It would be on.

Roughly.

Looking at 3% to 5% of capacity both with the at all of them.

On a little bit better now.

Yeah.

As a growth of the same for the year.

Yeah.

Understood. Thank you very much available that would be the case.

Alright, thank you.

And the next one news from Rolling share your Citigroup go ahead. Please.

Hi, good afternoon.

Got you out to Janssen J&J in your prepared remark you said the.

The.

First quarter gross profit growth was a part of the reflects a higher contribution from 20 nanometer revenue.

Could you use that.

How about the the turnkey and tell me the gross margin compared to the copay of average in the first quarter, we see plenty of not only the gross margin above corporate average already.

We don't we don't give out any breakdown by no. Okay. So the.

20, <unk> becomes the <unk>.

Meaningful notes to us now and on both sides both on the top line.

Margin contribution if I may the trend.

Saturated comparator itself.

Over the past few quarters. So the gross margin of current 10 nanometer is actually much better than the past few quarters.

Okay, Yeah and then.

How about on the overall.

<unk> gross margin I've been the.

Previously you also state that's helping the gross margin was below corporate average the absenteeism.

Adjustments how about you.

The temp gross margin look like.

The price adjustment is really a reflection of all of the market value come from both absolute price increase that's the way I was part of that mix the increase.

No.

It doesn't really change too much about the dynamic between earnings and payout range.

Any chance that you can.

I understand that you.

Represent much less carry much less the depreciations Gong on.

I'm getting point of view of the number.

Always higher than that of top range by the if we're talking about EBITDA margin and then on there.

The other case.

We were happy with the progression debt.

Especially at the time doing that.

The <unk>.

The improved profit margin point of view.

On the yeah.

And you also talk about the U S.

The starting to ship the.

Two nanometer product because of customer demand. So for these 28 to 22 nanometer migration hop out of the.

The margin or pop up but the change.

If these are 22 nanometer.

Is that carry a much higher ASP and the carry a beta of gross margin.

The mill meter.

I mean.

Typically we provide the blended gross margin number without breaking the detail so.

It is hard to pinpoint on each nuts.

But I also like to add the the <unk>.

Gross margins of the result, not just the the.

On the product mix you know the 12 inch wafer shipment contribution eight inch pricing you know just the.

Justification as well as the.

Continuous cost reduction efforts and our productivity improvement.

This is the more of a blended result on.

Everything and it's not just associated with the one particular notes or.

Or fat so the.

We are happy that we stopped challenging the 30% in the upcoming quarter.

I say Nino gaining what we have done and we have confidence we will continue to improve on that true.

Okay.

Last question of on me.

I think of a couple of months ago, you were comfortable of the.

The total wafer supply and.

Have you changed your view.

The recently due to lease income.

The wafer demand so are you able to the Q enough raw wafer.

On your suppliers.

Yes.

You know we have that issue a while back and we have been diligently working on debt and closely aligned with our supplier of managing managers of <unk>.

Assurance, so we havent see any problem right now.

Okay. So you have the cure all because of the wafer so how about for the wafer price change, but the other thing.

A meaningful of wafer price change.

The recently.

We see the pricing dynamics.

Across the supply chain.

And I you know I can tell you whats going to happen tomorrow, but.

At the current stage with the phase on the alignment with our supplier.

We.

We okay with the current pricing structure.

So do you see the pricing.

Oh.

You know I don't have the visibility going up.

But.

I don't know what that change tomorrow.

Okay. Okay understood. Okay. Thank you.

Sure.

And the next one is from the home Channel Renaissance go ahead. Please.

Oh, Hi, good afternoon, gentlemen, I have two questions. The first one regarding their 14 nano strategy from.

Some of the 28 nano proud of and have plans to go into the Fortinet I'm not sure you've had UMC, which kind of staffing and assessing the 40 nano.

Expansion possibility.

Yes the.

Yeah the.

Piece the piece of fixed program.

On the.

Yeah, the arrangement with option to migrate into 14 and the possible timeframe will be sometime in 2024.

But there is of no plan before that.

I see got true and regarding the collaborate.

Spansion if the customer.

The comment on we have some sort of on loading protection mechanism. So I just wanted to how long would kind of depth.

Protection Cross the last part in general.

E less interest the program.

Oh, Okay, alright, Okay, alright, thank you very much.

Sounds good.

And the next question comes from Charlie Chan Morgan Stanley Go ahead. Please.

Thanks, Hey, good afternoon, gentlemen, and congratulations for a very strong result.

So my first question on yourself.

The peak six.

Jack So I saw some news flow too so just wanted to clarify.

Is there any.

<unk> kind of thing consignment free.

From customers can you.

Clarified the points.

No. The answer is no. There's no two consignment of on customer Kuzma will guarantee their commitment by providing.

On the capacity deposit.

Okay. So you said.

Oh, almost all from your guidance.

Balance sheet.

Yes. It is okay. So with that the do you need to.

The increase the kind of the debt ratio or do some fone racing to sponsor of the.

The the future Capex.

Our current cash on hand, it's about a library of more than 100 billion all of them.

As well and we just announced.

Change of profound.

Our project, which we're all likelihood of raised another 600 million of U S dollars for us by disposing of non core assets.

The final financial standpoint of view of we've even can maintain our current high dividend payout ratio in line.

It's a new piece of the projects all of this.

Pretty much no impact on our financial structure.

Okay. Thanks, Don.

Back to the P P picture.

This is for you you mentioned that there are.

Several of type of demand to the OLED driver IC.

Well this kind of activity set up of T V.

And of et cetera. So.

So that the.

Kind of.

T six or kind of a long term.

Met with.

Which are <unk>, which are part of the type.

You said of major driver for it is the P. Six both the demand comes from even the phone on the current current set.

Project.

Oh, well I mean first of all all of the all of it then a global leading semi companies and I cant reading them dams.

And of customers products, and our technology roadmap has being well aligned it and it's also our users and customers.

At the same time does the customer along with the demand outlook in the addressable market seven.

In the RV will outpace the semiconductor industry projections. So is in the high growth area and so we believe this will well position the program to secure the PC sales.

The capacity as well as a few of their future growth.

Hmm, Okay. So it seems like the.

The future of dimming, Ken Krause for front of the you're feeding CASM is not.

It's a single or a few.

The products you said right. The interpretation, yes is the multiple customer with multiple products. Yes. Okay. Thanks, and then a minor question instead of <unk>.

You know the the trend of the age.

The <unk> project.

Migrates towards range I'm not sure if the <unk>.

That is happening within your fab.

You see the trend of those for example.

Panel driver IC power IC.

The sensors on this.

You you used to use the HSN major.

Foundry Soc.

But going forward.

I do think that those may.

Micro to like a 12 inch.

And maybe a year or two you say or do you think.

Toffee and she is more efficient.

So those kind of of specialty semi products.

Well I mean every applications the.

The most of it is migrating from the eight inch to 12 inch due to like you said the.

The performance of reason on cost of the vantage, so theres a continual product pipeline.

The.

We think it's the applications and including what you mentioned and we continue to align with the customer that we don't we don't see we don't zone.

The eight inch demand over flow to 12 inch.

Because the overflow because of eight into the Thai and so.

We haven't really see that but we continue.

Seen that on the buy.

By application basis.

Because of the product performance reason because of the cost reason and the continue migrating to evolve each and we even within the 12 inch of the continue migrating into the different no.

Okay. Okay.

Thanks, very much so I think does that mean that the.

H foundry supply.

You didn't see of sort of the structural shortage I mean, because he is the kind of.

The turnkey ready to use that's healthy and she said the rights.

Sandy.

I've seen the advance <unk> has the structural shortage issue.

The demand continue all of them.

Being very strong.

However, due to the market challenges on building a greenfield.

The facilities very difficult so.

We see that come on line of US you know not not all facets of the demand growth.

You know at the lease for the foreseeable couple of years I think the eight inch will remain challenging.

We're still on the structural constraints.

Okay and last question, maybe back to cheat on.

So can you help.

Help us to understand your.

Gross margin.

Into into the next few years I know I know you don't give the next year's margin guidance I thought was just the.

Based on our management's comments just now you use seems to sit.

You said the the P. Six.

We then.

I do see the gross margin, even though the capacity of strong your on balance sheet right. So the can.

Can you help me to understand why what gives you the the confidence you can do.

The next years of gross margin will continue to go up you said.

Because of the.

For the price hike or the.

Of the O Deli, Cleveland depreciation going down a.

Because I feel like now you are running as you know one inch per cent.

Utilization of already right so they depend on fees.

The <unk> benefits on the.

Hi, Richard I changed the television.

I shouldn't the sense seems to be.

The answer to that how can you kind of close to two I understand. Thank you first of all we didn't say the gross margin will go up sequentially. In 2022, we didn't say that okay. We say the gross margin is the collective effort of cost reduction.

The refract, reflecting the market and also a part of that means of adjustments.

Adjustments. So we are doing all of that and hopefully we can continue to improve our gross margin, but we will keep of our gross margin guidance quarter by quarter and for the piece of it.

Moving to represent about 10% to 15% of overall overall.

Russian and are we sort of pre fixed price and other.

All right.

Exempt target so if we plug in to our current base.

The the basic assumption to me.

Mentioned that we're going to buy this piece of the project work dilute our gross margin and because of its going to be profitable from the very beginning.

That's really going to be adding a driving force to our overall of our performance.

Hmm.

Yeah. So I remember last quarter of you give us some oh depreciation trend right.

Yes, the depreciation tailwind for 2021, and that's where all of us.

2022 of we are still looking for somewhat less than 5% annual decline in the four year depreciation expenses and beyond 2023, when the piece of number start to kick in.

In the in the midst of 2010 day three of the number still will be well under control in the.

The trend of will not be reversed.

Oh, Okay, so true and I missed that so so one last one.

Auto semi production I mean, how.

How much of you said revenue contribution of I'm not sure why you start to disclose their debt. So I don't see me.

Exposure and I guess, the global the message really.

The break into two to give you a sense of about when does the auto semi output will go up from here.

The aside then and also when do you think the the.

The shortage will release.

Well I mean the.

The shortage right now is across the board and we just have to work with all cuts of customer closely.

All of the onwards, the product productivity improvements wells the other new capacity expansion the alto seven yourself.

We haven't really break it down in our pipe.

Is category under the others, so right now not as a kind of about 11% so.

Our automotive market is with the net numbers.

Okay. Okay.

Okay understood.

Very much for your time thank you.

Sure.

And the next one is from Sunny Lin UBS go ahead. Please.

Hi, Thank you for taking my questions and congratulations for your Great results. My first question is.

On your PC expansion I think just put out a press release, saying that the factual has been completed.

But the mass production will only start from second quarter of 2020 suite. So wonder if that's the cost of the equipment supply contract that we announced the index.

Or is there any possibility that the mass production could actually start earlier than expected.

Well I mean, we are working with all of the suppliers and the.

At this point, we'll see the.

The lead times for the the overall equivalents so we project.

Yeah the.

Six we are ready for production on skin circa.

Quarter of 2023.

That's what we're targeting but we still are confirming with all the supposed to ensure that that would happen.

So thats the current plan.

Got it.

Maybe a follow up to your 28 Sunshine.

Thanks, most of your capacity is built several years ago, and therefore depreciation start to come down.

If we compare the production cost for.

For the new capacity for instance, you of current capacity.

One of if you could share with us any color in terms of the cost increase.

Let's see.

Well first of all I don't think there is a cost increase.

So once you reached the southern economic scale.

The overall cost of it.

Coming down so we don't see building in the factory now compared to what we believe.

The capacity of.

Six of six years ago, it's higher than it is.

It's actually in fact, it's actually lower okay.

Yeah.

And we in terms of the Capex budget that we presented we don't generally as you know the speaker's eating the hour.

Our PC.

The pro but has the flexibility that converting into 22 nanometer as well as the 14th.

That was the earlier question, if we consider the 14th.

And the answer is yes. So so the entire program has certain flexibility converting into the ER.

On the <unk>.

14 nanometers, and so we want to make sure of is you know when we planned this we have that flexibility okay.

And so.

We can't really generalize the speaker to was six years ago, but in general the current cost is lower than what we built six years ago.

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

My second question is on the overall supply demand imbalance.

That's now on I think driving several foundries to accelerate the capex for the trailing edge. So just wanted to get your sense is in the medium power on this could be too all of the expansion or more of volatility for the whole industry. Thank you.

Well I mean the.

I kind of touched as earlier as well, but once the annuity capacity become available we anticipate the supply imbalance.

As you will be addressed okay.

But nonetheless, the structural shortage in the mature nodes.

Leasing will remain unchanged until 2023, okay.

Given India given the.

On the lead on consideration okay.

You know.

The based on our research and study.

We don't even we've seen the a good chance they won't have any as of the capacity, okay, you're probably not likely to happen within the next one to two years okay.

In addition to that of consider the of the besides of the time.

Ore of the time and also the uncertainty of the geopolitical tensions.

We have pretty good companies as the China's will probably competing for at least one to two years.

Got it thank you very much.

The next question comes from Stephen Chin at least the capital go ahead. Please.

Hi, Thank you for taking my question I have two questions here first.

I'm just wondering because we see for some of that.

The <unk> technology, we don't release E coli product.

Product using the deal. So I'm just wondering if you look at the 28 nanometer now do the client usually use only was unreasonable.

On this important also for the same product.

Equally steel you're still sort of the metro question.

Uh huh.

Well I mean this is the Uh huh.

This is the simple different perspective on what this okay. One is.

On the customer's perspective.

On the continent.

The leaf they need multiple sourcing strategy to ensure their supply.

To ensure their supply again.

And they have the design resources.

The I've seen the the customer.

As of capable to do so to enable more doable.

Okay.

Yes.

If they believe the single source of earnings.

Abel there.

On the supply of assurance and result in double of the design effort. They probably don't need to so you know one of my perspective is on the.

Cost of the perspective on the supply chain.

And the.

On the design and the product Pacific and that's a different.

A different consideration for some of the product is it the.

Very customized so they pay on.

Very hard to pass.

Of multiple source, so because of the characteristics of the product itself. So you talked about the advanced node.

Because of we don't serving on the of very bleeding rate.

Edge nodes, so I can't really give you a comment about you on the seat specifically.

Bob.

I can tell you is a general sense.

On into other than the very costly. So if you want to enable the legal source that will be of very it will be of significant estimates, so I sort of balance.

Is the one of the important factor here.

Yes, yes.

The question was asked.

If you'll come on you just made almost of titled <unk> nanometer.

If you look at the 28.

Our capacity the.

The I think.

Most of the product they'd be able to enable multiple source of ice.

On a slowing of the customer wants to do it.

There will be a.

There will be some differentiation and on the technology side.

You know for UMC, we have a few of the.

Leading market position on some of the metrology solutions and both of those I'd say.

Do you.

You know in the market, so we probably will enjoy it.

That's the customer stickiness of that.

Yeah.

Understood. Thank you.

Another question you said, although just very quickly so.

Understood on the mature in the.

200 millimeter de minimus on return on their own.

The initial now.

Moving on to do we'll come back with some between the two.

The tighter on the big issue.

200 millimeter or 300 millimeter.

Okay.

Okay.

Well it is.

This is the interesting question, okay on our view.

What we see on.

They know the.

They severity on kind of strength.

Both the 200 millimeter of as well as the 300 meters on which one.

But he is there is a possibility also the customer is a double booking on debt to ensure they they'd be able to secure supply.

No.

How the judge in the.

The other.

It's very difficult, but I can tell you at this point.

I think on the industry wise.

We are on the CPU.

Shortage across the pool.

On the mature on them.

Yes. Thank you so just a very quick follow on.

The last comment so you mentioned about total.

The probably due to.

Possible over of bouquet, but you've previously automation you you'll see the mix will continue probably equal in the other one three years. So can we assume when you made.

Made the comment regarding supply tightened the east of the ability you already try to exclude the <unk>.

Do you have to consider the possible all of them.

Oh, absolutely I mean this is the.

Our planning one on one so we have the complete of that.

And we actually are based on our research of study, we actually going back all the way to the end market and higher pipeline interest.

By channel to analysis.

I.

I think the Theres a few mega trend in.

In the space is driving the demand.

On <unk> smartphones.

On the automotive EV adoption.

The options of swell as the.

The the length on the home phone call space.

And so those demand on a real okay. So and if you look at the day.

Past years.

You know the.

Lack of the Capex in the mature in those spaces.

So you know the structurally they just not enough and so that's why we believe.

Even with the P six or even with any of announced the capacity today.

The foundry space, we still believe this.

You know the the structural shortage will probably remains.

Thank you very very clear on very good results. Thank you.

Thank you.

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

Okay. Thank you for taking my questions I can I have of questions of other ASP.

For the first quarter Asps.

The base improved by one 3% only.

Which pretty much driven by in line more 28 nanometers.

A part of that makes the equivalent so where is the price hike.

I was talking about I mean also for the second quarter the.

The capacity is growing by 4%, but your line is growing by 3%, but I'm assuming that the new capacity addition is mainly for 28 nanometer capacity, which supposedly the have a much bigger of Wal.

Much higher ASP.

The ASC guidance for the second quarter as all of them by three 4% only which is again putting them on driven by 28. So at the lie to life base of ISP do we see any improvement.

Well theres a lots of correct.

The first quarter gross was that true more than 3% not the one point something.

As I mentioned.

More about.

Some of that come from price increases sort of less than three 2% on some of that come from product mix improvement overall quarter one gross.

With more than 3%.

What is the Forex assumption in the first quarter.

Using line.

Uh huh.

Total tons of area three so the there was the.

The nearly 2% negative impacts on Forex.

On the Saturday.

On this data.

So.

For the for the second quarter.

The.

The ASP.

What is the assumption for the ASP.

The expansion was driven by the product mix improvement.

There are similar I would say those are key factors, which contribute nearly.

The 50 50 each.

We normally don't give the detailed numbers, but you should expect to see a similar driving force for the 4% gross.

Quarter two.

I see okay.

Last question I, just did a very quick math for the PC 28 nanometer wafer price. It seems to me that you do want to have the seemingly returned.

On the wafer price for that party has to be like 50% plus are higher than the current market price.

It seems too good to be too far on my simple math. So is there any sort of anything I'm missing or is that math sounds correct.

Yeah.

I can't really comment on precision percentage, but there is of preterm pre determined the pricing of regimen with the customers.

Is it.

It's actually a very diversified our customer portfolio.

So.

Yeah.

Well I mean the.

Bottom line of the mechanism works.

The methodology I mean, the the mass work okay.

That's the main line.

[laughter] so.

Yeah, I can comment on about the percentage of that is the only one aspect of the total of all right population. We also affecting the beneficiary of the.

Economy of scale and also the cost reduction of half of Angola and.

I think price I tried the all of the fact that dollar price of it just mentioned so.

Again two of collective effort.

On the day. Thank you.

Thank you.

Thank you and ladies and gentlemen, we thank you for your questions that concludes today's Q&A session I will turn it over to UMC head of IR of for closing remarks. Thank you.

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

UMC dotcom half of <unk>.

Good day.

Thank you and ladies and gentlemen that concludes our conference for first quarter 2021. The thank you for your participation you Umc's conference there will be a webcast replay within an hour. Please visit www UMC to come on to the investors events section you may now disconnect Goodbye.

Yeah.