Q3 2021 United Microelectronics Corp Earnings Call
For your information. This conference call is now being broken the life overdue Internet webcast replay will be available within an hour. After the conference is finished please visit our website www dot UMC com under the Investor Relations.
Astor's events section.
And now I would like to introduce Mr. Michael Lin head of Investor Relations at UMC. Mr. Lin Please begin.
Thank you and welcome to the Umc's conference call for the third quarter of plenty of 'twenty one.
I'm joined by Mr. Jason Wang President of UMC, and Miss that you don't do the CFO of UMC.
In a moment, we will hear all CFO presented third quarter financial results, followed by our President's key message to address Umc's focus and the.
Fourth quarter 'twenty to 'twenty one guidance.
Well I felt our president and CFO complete their remarks, there will be.
Thanks, Sean.
Umc's quarterly financial reports.
Apple at all with the triplet W thought UMC dot com under the investors financial section.
During this conference we may make forward looking statements.
On management's current expectations and beliefs.
These forward looking statements are subject to a number of risk and also.
Certainties 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 Umc's filing with the SEC in the U S and the policy security authorities.
Now I would like to introduce Umc's CFO, Mr. Qi Dong due to discuss third quarter 2021 financial results.
Thank you Michael I would like to go through that.
Two one tiny one investor conference presentation material, which can be downloaded from our website.
Starting on page three.
Third quarter of 2021.
Consolidated revenue was $55 91.
With gross.
Margin at $36 eight the net income attributable to the stockholder of the parent was 17.46 billion I N T.
The earnings per ordinary shares were 1.43 NT dollar.
And utilization rate in the third quarter of 2021 was a little over 100%.
Turning to page four.
Yeah.
So sequential comp comparison.
Income statement.
Revenue through.
Quarter over quarter.
Nine 8% to $55 9 billion.
Gross margin rate reached 76, 8% all the time.
Time to your 0.5 P M T.
And our overall operating income.
Is 15.1 billion of N T.
Seven 1%.
Operating puffy much in rate growing nearly five percentage.
Percentage point.
Non operating income because of the.
A better performance in the equity market.
Overall net non op is around $4 3 billion of N T.
Significantly growth compared to the 1.88 billion in the previous quarter.
Overall net income attributable to the parent is 17.46 billion.
Or 1.43 P M.
And Uh huh.
For U S. A D ours.
Our earnings per share.
0.25 Fabian.
Paul.
That stream.
The year on page five.
Can you grow by 17% to 153.9 billion mainly.
And then the base on higher wafer shipments better loading.
Higher blended ASP.
Gross margin rate is about 31.8% or $48 9 billion of N T.
Operating income.
Great.
Finally, 1% almost 34 billion.
Uh huh.
Net income for the first three months three first street.
Water after a year.
39 8 billion.
And our net income range is 25, 9%.
Our accumulated EPS for the first three quarters. It has reached six point to fix that for sure.
So page fixing our balance sheet.
Cash.
Hence, it's about 117 billion.
After their cash dividend payout total equity is about 252nd theater.
<unk> continues to rise both price increase as well it's a mix.
Improvement.
And the previous quarter or the third quarter increased nearly 8%.
Our revenue breakdown starting from page eight Asia represent about 55% of our total revenue in Japan Europe.
Europe and U S remained relatively defensive for the compared to the previous quarter.
Idea is about 14% and tablets.
It's about 86%.
How many occasions around 46% of the total revenue consumer its about 27% compared to the states about defense.
17%.
And the time they are actually they have almost every knowing it's running at nearly.
Nearly full capacity.
So the change has been minimal song a quarter over quarter basis.
90, 822 nanometer context up 19% of total revenue.
The revenue 14 nanometers, it's about 15%.
And we're continuing to see some.
Our capacity growth.
From both a capex and shot and then I'll throw out there.
And Japan, and a full H.
Some incremental increase.
Various that.
Specialty and in.
So it's all in China.
So for the time being the Capex budget for 2021 remains unchanged at two 3 billion.
Our U S dollars and majority, 85%, it's going to their capacity or tap into related expansion. So the buffet says summary of Umc's result for CQ2021 multi.
More details are available in the report, which can be has been posted on our website.
Now I'll turn the call over to President of UMC, Mr. Jason Wang.
Thank you Tito.
Everyone.
I would like to update us third quarter operating result of UMC.
In the third quarter, we continue to experience real.
But chip demand across computing consumer and communication and settlements.
12 inch wafer shipments in the quarter reflects ongoing product mix enhancement and partially contributed to the lift in blended ASP.
Overall wafer shipments grew two 6% quarter over quarter to $2 five median.
Equivalents.
Revenue from 28 nanometer technologies continue to rise well business engagement in 22 nanometer.
That to a growing number of customer tape outs across.
Wilders display and Iot markets.
Further diversifying our product pipeline.
Looking into the fourth quarter, we anticipate wafer shipment and ASB trends will remain firm.
Capacity utilization across eight inch and 12 engine for food. He will continue to remain fully loaded.
Gross margin continued to exhibit upward momentum thanks to our team's effort in optimizing capacity productivity and product mix.
The current business cycle provides an opportune time for UMC to strengthen customer relationships, along with our technology competitiveness and the incremental capacity growth to elevate our market position.
Our focus on growing our comprehensive logic and specialty technology portfolio has been welcomed by our customers and we continue to broaden our product range to fulfill their needs.
The <unk> expansion projects underway at our flagship 12, eight facilities in China and given the strong demand from our customers, we are well positioned to grow and capture additional market share in 2022.
In addition, the company and continue to make strides towards a greener future.
This month's UMC was honored to receive the Green chemistry application, an innovation award from Taiwan Environmental Protection Agency.
The award recognized our efforts to introduce introduce chemical substitutes that minimize the impact to the environment and the health of our employees.
At our outstanding supplier award this year.
Z also took the opportunity to reiterate our commitment to achieve net zero carbon emissions by 2050.
And two in by suppliers to work with us to build a low carbon supply chain.
That's a key semiconductor player you're going to see understand that we have a responsibility to proactively respond to climate change and to put more sustainable practice in our industry.
Together with our upstream and downstream partners, we will continue to work toward our net zero carbon emissions target.
That's a move on to the fourth quarter 2021 guidance.
Our wafer shipments will increase by 1% to 2%.
ASP in U S dollar will increase by 1% to 2%.
Gross profit margin will be in the high 30% range.
Capacity utilization rate will be at 100%.
Our 'twenty to 'twenty, one cash based capex will be budgeted at U S $2 3 billion.
That concludes my comments. Thank you all for your attention we are ready for questions.
Thank you presume, one and ladies and gentlemen, we will now begin the question and answer session.
If you have a question for any of the speakers. Please present zero one on your telephone keypad and you went in to the queue. After you are announced please ask your question.
If you find that your question has been answered it before it is still turn to speak please press zero to two <unk>. So the question now.
Now please press star one to ask a question. Thank you.
First question is coming from Randy Abrams Credit Suisse go ahead, please hey, yes. Thank.
Thank you and congratulations on the good results I wanted to ask the first question.
On capacity, just factoring you're running 100% plus.
Could you.
Go into timing for the phase five 10-K capacity.
Which quarter that capacity would be available.
And then for phase six.
It's a bigger amount the 27 quake five K would that all come on at the same time and would that be beginning of 2023, just trying to think of timing.
When the new capacity would come on and then just one follow up on capacity. There were some talks you may consider.
Further fab in Singapore or additional capacity.
Do you have plans.
Beyond 2023 for additional capacity on see that potential option.
Sure. So the first is for the ERP five 10-K extension.
28 nanometer will be come online Q2 2022.
Yeah.
The P six will be in 2023, but in the later years 2023.
Provide more specifics.
The rent schedule later day, keeping the current <unk> kind of availability update.
The a question about the.
The news about the Singapore.
We are unable to comment on any speculation as we always.
As we always do that we don't speculate and we don't comment on speculation, but we are always open to exploring new opportunities.
Hence all shareholders benefit and we say that before as well our strategy in a disciplined capex philosophy by March 'twenty thing has not changed.
Always try to drive our sustainable structural profitability based on the disciplined capex principal. So we so we have aligned with our customer as well as the market took even a relevance in the marketplace before were making any capex decisions.
Meanwhile, we continue with.
Our system, the cooperating with our customer regarding the long term.
Development plan, giving our diversified the product production side I think UMC has to have the luxury to evaluate different expansion option B young people I M. P. Six and we will discuss already expansion plan. Accordingly, what do we can we can we can deliver that.
Okay.
Two follow ups on that one.
You ran a few percent above 100%.
Do you think as we go into next year if demand is there.
That would be the level you could operator was was there anything specific this quarter.
Are you able to push out more so is that a level you could sustain and then the other follow up with it.
Since the peak fix will be later 2023.
The 10-K is there how much can you get from Debottlenecking or other areas, where I saw fourth quarter, you have a bit of that.
But if you have any other meaningful capacity.
Well I mean in 2021.
We have continue.
Our focus on the productivity improvement in addition to the incremental capacity and we will do so for 2022 us well.
And so we do expect that effort will continue and the current plan and I see India.
We are talking as way to that 100% right but.
What we guided we will guide on a fully loaded at 100%.
We will continue.
The.
Yeah, Yeah in terms of capacity.
Australia for the for the 2022, we currently estimate about 50% capacity increase versus 3%.
The increase in 2021.
And on eight inch is there any increase or is that all pretty much 12 inch.
It's pretty much all 12 inch now.
The Debottleneck team.
Part of that migration will probably continue but it's do we think the same pool.
Great.
Patrick on pricing.
You could get that.
Any look at how you are seeing pricing coming after this year it looks like it might be up close to mid teens.
For next year, if you see.
How youre seeing mature node and then off to have any chance to reset.
The 28 nanometer and if Theres no way to think about where gross margins could go.
Okay.
Well first of all we do foresee the A&P momentum will continue into 2022. However.
However, we are not taking advantage of our customers during the wafer shortage. So we kind of positioning all ESP in a in a in a more longer term partnership over the near term cyclical factors.
So we kind of.
Luckily for customers to earn their trust.
And you know instead of exporting the short term the opposite Mystic profit and we do believe the pricing will reflect our market value and position. So we we foresee the a CMO been to will continue into 2022.
At this point for 2022, we anticipate a capacity will remain full on both 12 inch and eight inch and our 2022 outlook.
Oh, all pet outpace the foundry industry growth and all that.
Overall for the growth will come from the capacity increase productivity improvement I mentioned earlier as well as the ESP and parts for the 2022 full year as well.
We'd be able to provide you some guidance in the Q4 2021 conference call.
And just a last question on <unk>.
Considering like a downturn protection if if we eventually ultimately go into a.
The next downturn.
Do you expect new price level or do you think the same kind of flexibility.
Where we'd see a reverse so like if it were to drop back to like 80, if utilization for an extended time. It could we go back to kind of a reversal where do you expect some firmness.
Well I mean, I think the pricing is reflecting your market position as I mentioned earlier so.
Forex for the downturn.
We have continuously strengthen the company's competitiveness right and that includes many many areas. One is we continue to prepare ourselves for the downturn.
And because it is a cyclical industry.
Well focus on the structured the maintenance in many mega trend.
E E D and Iot application.
We have a lineup with the key players.
In our first tier customer sued the technology offering that we have and so you won't see us the sole source.
And in addition to that the Capex approach.
We we deploy requires some of the risk mitigation with our customer commitments. In addition, we validate our customers' confidence you'll see here some of the increase in long term agreements.
For future capacity expansion arrangement.
And getting all those efforts that we have been in the past years.
In addition to what we just mentioned also financial wise.
We believe the company has become more resilient in the event of the microphones certainty. Therefore, I've seen is they will probably play a lesser role under such.
Conditions.
The environment.
Okay, great. Thanks, so much I think.
Sure. Thanks.
The next question is from Goku, how do you how long of Jpmorgan go ahead. Please.
Yes. Thanks, Congratulations on the good result, my first question is about <unk>.
Gross margins just leading on from what Randy asked.
We have seen a pretty strong gross margin expansion for UMC looks like it's still going to see further gross margin expansion could you talk a little bit about how you think gross margins settle down long term now that you have some visibility into some of the contracts that you've signed for the new capacity.
Lee I think one player that has had very high gross margins and everybody else has been the much lower box margin level.
How would you characterize this.
This Iraq given that you also feel a little bit more comfortable about managing any potential downturn breast as well. So could you talk a little bit about how you're thinking about gross margins over the next let's say one or two years not just on a quarter to quarter basis Thats. My first question.
Wow.
That's it.
Well first of all we.
Like you said from a short term wise. So we do expect the momentum in our business growth and profitability will continue beyond Q to Q4 2021.
Mainly due to the validation from our customers on our key markets and capture this structure demands.
And given the value proposition that you provide to our customer.
Putting our solutions.
<unk> capacity and the growth.
Hey, Paas.
And I.
Cindy our goal at this point, we will strike a balance between the profit and long term growth.
Along with all our Capex with disciplined capex.
We believe our approach will reflect all profitability result in the long run. So when you talk about long run I think that that requires something that balance at here. Okay. So if we look out in the next couple of years and while we announced in the past.
Six expansion and so obviously that some of the Capex will happen in the next couple of years.
Along with the.
A long.
A long term agreement that we have find out with the customer and we believe we'd be able to manage that balance and at a healthy level.
But as far as the.
The actual number.
Probably won't be able to provide at this time, but I think we feel pretty comfortable about our business model going forward.
Yeah, just to add on that we will.
Margin guidance on a quarterly basis.
And.
So so.
So fourth quarter.
Conference call certainly we will keep her.
Overall looking for their 2022.
Thanks, Susan.
So another question I had is could you talk a little bit the mode.
I think over the last few years, you have increased your mix of specialty processes automotive and other areas for 28, 40, and 55 could you talk a little bit about.
What percentage of these process nodes are already specialty.
Bad debt is a lot more sticky demand.
Compared to what percentage is still like VR digital that there could be potentially more fluctuation in terms of demand.
Okay.
I mean right now for the specialty technology is occupied.
The oldest 50% right now.
And they are unique.
Unique.
Customize it to the customer so it does give you a bit of more stickiness in terms of the customer relationship.
In addition to that are there.
There is also a socialist product that we have engaged it.
Combining with the specialty I think that number will reach up to somewhere.
The 70 above 70 range.
And along with the LTA protection so so.
Although our business model at this point.
We have southern competence that definitely have increased significantly on the stickiness.
Okay, and just to clarify so the 50% less and 70% plus is on the overall capacity.
Yes, yes.
Okay. Thank you very much thank you Sir.
And next we have Nick <unk> of UBS for questions go ahead. Please.
Yes. Good afternoon, thanks for taking my questions.
The first one is on your <unk>.
It's probably call it.
You mentioned last time, but you may start to receive a prepayment from customers.
In the third quarter for evoke.
Framework of that case.
We will have a capacity coming later.
He is about the case or should we expect to be used to come at a later stage.
And secondly.
I'm all right to confirm but your ramp up for the phase <unk> expansion.
He's effectively taught by one to two quarters versus what you said last time and if so.
What is the reason these weather related to equipment lead times or would you ever be stage.
And you have a venue of effect.
Are you, saying would you expect to ramp up more into another part of 'twenty versus Q2. Thank you.
Okay.
Pizza.
The income potential even though the.
Equipment some of the bottleneck women.
Lead time, maybe stretch it.
We're still.
Working closely with the equipment vendors.
If all into the pulp off schedule.
Have a great we saw PCT patent and a majority if not 100% of the P. Six.
Capacity is covered.
This so called long term agreements so he says.
100%.
Oh, Hey, Otas.
Yeah.
Great.
Complex, how 'bout to prepayments when you start to already to see but more.
So when should we start to see prepayments coming true. Thanks.
Oh, sorry about that.
In this year's Capex already for down payment.
It's a very small percentage a majority of the payment will come along with that.
Delivery of the tool, which will happen later 2022, and also first half off because oftentimes the street. So the Capex for 2022 and 2023.
I see the majority of the bulk of the specifics related to Capex.
Great.
So unless there is a bit of a technicality, but when we actually see that coming through.
No.
Basically our payables or would you do a mid singles Capex basically.
Yeah.
Sorry can you say that again please.
Yeah, just a bit of a technicality, but you won't see that coming through in payables in your balance sheet or would you actually just net capex if activity. So when you go to give us the capex guidance that would be it would that would be gross or net of those prepayments.
Our capex numbers on a cash basis, so it's already if.
If we paid then you will be coordinating their capex and their time.
Our payer Boswell.
Alright.
If it's falling either year the following year.
Not being included in this year's Capex.
Perfect understood. Thank you very much.
<unk>.
And next we'll have Charlie Chan of Morgan Stanley for questions go ahead. Please.
Yeah.
Thanks, Hi, good afternoon gentlemen.
So my first question is about.
Whats your observation.
Observation about the end demand trend because that for some specific subsectors like television.
See it panel pies chopped a lot and some consumer MCU market seems to see.
If you look at those spot prices et cetera.
I know you're a fabulous therefore, but you can you.
Kind of give us some comments about the demand or customer inventory. Thank you.
Sure.
We also observed some mild correction some selective market segments.
Cost base on the demand softness and nevertheless.
Do not affect the overall under supply situations just like you said.
And when should we expect this will continue through 2022.
I think we haven't seen a significant concern on the inventory build upsides and despite that they all come down some inventory increase.
B.
At this point, we continue to experience strong demands while sound a mild correction what immediate replaced by Sylvia unfulfilled demand, even a long queue of the customers.
Okay, and I think gogo.
Okay great.
Great question right if all your customers, it's taken me right. So.
Uh huh.
Is it right that the.
You said that 70%.
So you keep it seems to be some customization specialty with the LTA what was that.
Alright number 70%.
Yes. It is.
Above 70%, yeah about so okay.
Great Yeah. So my question is.
Hum.
How about the addressed 3% what would be your.
Our pricing and finish it by the way I mean.
You know the company.
Great.
To identify these are you know.
The prize HIFU potential earlier than your industry peers.
I'm curious about your pricing strategy for that.
Rich there 30% disease.
The assembly, the moral commodity and customer sat.
You know kind of like yourselves. Thank you.
Are we sort of touched that are live.
Earlier.
Our current focus is focused on some of the structured men and indeed, <unk> and Iot applications. We believe demand will continue in the year.
Year to state so Saudi Saudi are vulnerable, one and we have some protection and some of the mega trends associated with demand and we believe they are here to stay so giving somebody the market focus as well as well.
While we touched it on the Capex recent mitigation approach.
Along with that.
I think we clearly are.
We are less vulnerable to this.
So this is a cyclical issue and so we've seen the ASP at your payer less growth here. So.
So that's why.
We we actually feel very comfortable at this point.
If the market dynamics change, we will provide you with the update.
Okay. That's a fair enough so I guess the for some commodity.
Just a just a makes them example, right.
Drive IC in C U.
You know, meaning you you see.
Hum.
Potential risks.
Downturn, so when you kind of peg those elders you already have.
Protection and Mccann Nathan is that right way to interpret your.
That's one way to put it on the other hand, either within the within the driver IC segments and most of all a driver right.
Right.
Our momentum.
It is a combination dose and sounder requires some of the risk mitigation mechanism. So that actually is more aligned to the growth of the settlement. So so it is a combination of that yes, okay. Thanks.
One one.
Topic that.
Like people care is about the <unk>.
Those two.
Those are easy right I mean they.
Sorry.
You already said how is the U S chassis Justice Department, right, but I mean.
Six days ago, there was a news report about.
Some of them go we see both those suits.
Maybe Don can give us some updates.
There's going to be.
Provision or kind of a legal expense on this case.
Thank you.
Yeah. So first of all we don't comment on the.
News speculation, it's another completed complete story.
Yeah.
Picture, So we don't comment on that.
Also bye bye Bye law, we cannot comment on this.
Ongoing litigation.
And we didn't have any provision.
First of all.
Legal effort still.
Walking this case, so it's still.
Ongoing so that's all we can.
Come in for the time being.
Okay.
In other words is there is no update on any of the default new development.
New developments on this case.
And if there is any new development I think we'll certainly disclose that inflammation accordingly.
And I think since both so it isn't so.
And just.
Think about another question that.
You are you supposed to be very confident that that.
Well I'll pass the foundry industry.
So is that because you are expanding capacity more aggressively or.
You you are going to high grade ASP higher than your peers.
Why you have such high confidence you can outpace your foundry peers.
Well given the given the current outlook.
The.
2022.
We proceed on structured catalysts will continue to dry.
Including the <unk> transformation.
E D N the AR and Iot devices and those those Mega travel is still representing significant growth on a year over year basis.
And we do anticipate those structures driver will continue to fuel our growth.
Including the OLED driver the ISP Wi Fi six RF switch MCU PMI C and so and which also lead to a higher standard on content right. So we are convinced that most of those demand surge argue to states largely.
Driven by those structures, so even though those catalysts and we have for that accomplishment.
And I mean.
In addition to that based on all that.
First in market position.
That gave us the confidence that the 2022 will be another strong year for UMC to gain market share.
Yes.
Convinces Tia.
TSMC is connected to grow 15% to 20%.
So do you think you can.
Peripheral similar or even better than these key foundry up here.
R R.
Our estimate on the foundry industry growth in 2022 at this point is about 12% right autofocus I'm sorry, Okay is that 12% Oh, okay. Yes.
Yes.
Okay and for our business outlook, I think it will be higher than that.
And the current industry projection.
Okay and lastly.
Variable costs I mean, there is a key reason why foundry peers one too.
Hiking the price right so.
Variable cost may differ.
Cynthia show per wafer numbers, Okay Tito.
Give us some.
Kind of kind of comment about the trend for tempo.
These year over year.
What was the growth for the favorable cost and what would be the variable cost of growth for the coming two years. Thank you.
Yeah.
Operating expenses you will be.
Growing along with our large revenue however, as a percentage of revenue we hope it will be flat to down under control.
O R.
The revenue growth, we all face.
Operating expenses.
As for raw material like throw away for them also.
Labor is that we're also on the rise.
Altogether I think we are commenting that because all of our production efficiency improvement are improved economy of scale.
And also we saw.
Our outlook for both.
The man, that's whereas pricing for 2022.
I think there is still further upside for margins.
Got you thank.
Thank you that's super helpful. Thanks, gentlemen.
Yeah.
Next question is coming from Rolling she of Citigroup go ahead. Please.
Hi, good afternoon.
Sherman Fab began potassium <unk> it.
It was loss, making last year and I think there's still a.
Making now so with that base oil pricing. Thank you.
Some of that is going to be wrong and also how many margin upside and the upsides to UMC once the Sherman fab is a breakeven.
Yeah.
How much you'd be able to be profitable in 2022.
Hello effect.
Perfect.
Quarters.
2021, so we are very close to it.
Neither I mean 2021.
We expect to be profitable.
In 2022, however, it was still below corporate average in terms of profit margin.
2000, and tiny true.
And there's still room for Sherman to catch up.
To the left off UMC corporate average.
Understood.
Do you have the time plan.
Time frame.
Yeah.
I'll, let Simon said the gross margin is going to.
Approach corporate average.
But no we don't have.
Frame, we all we can say.
I can give you a rough comparison currently our Singapore fab has higher gross margins than corporate average.
Japan Fab is catching up to almost <unk>.
Denticle towards.
Corporate average.
Sure.
As I mentioned.
And being out of lossmaking through nearly breakeven this year and you won't be part of the partnership I still away from the co Packers.
Okay, and then how 'bout Oh.
Husky, keeping our point of view.
How much can we.
Motto leaves a subsidized phone.
Partner in Sherman, So why is that.
Oh.
I'm going to be profitable.
Okay. Okay. Okay.
I think we still have this subsidy.
Our partner in Chalmette.
Because I know some of that still loss, making how about next year, how much our Lisa.
Uh huh.
We can all model yeah.
It will be similar to this year, except for the interest expense subsidy, which is already.
Expired.
And everything else will be about the same for 2022 compared to 2021, so it will be still around 1 billion per quarter.
Yeah.
Yeah.
Okay. Okay. Thank you and my second question is that you know.
No.
Yourself, a lot of the foundry peers announced new capacity expansion plans. So in your view, how soon will the industry too close.
And demand.
<unk> inch and I mentioned 12 inch foundry capacity.
The other key bottleneck of this the supply demand imbalance now.
I mean, we can't really comment about our peers and we don't know what their plans are we do monitor the market landscape and adjust ourselves.
The focus here is you know about our capacity growth and adult new capacity vulnerable or these isn't capacity vulnerable or not so getting our newly deployed capacity will be 28 nanometers. The majority of our 28 nanometer capacity has been reserved.
The LTA or singles those customer and therefore, we believe that capacity will be maintained at high utilization rates for very long time.
In addition, our mission to differentiate ourselves with our technology as well as the manufacturing excellence and handset speaking as you kind of touched on earlier as well so.
I think we will minimize the 28 nanometer profitability eating our efforts by the customer portfolio, along with our continuous reduction in the breakeven utilization rates.
I see.
That's possible to UNC relevant I think we feel comfortable about that and.
So as far as the landscape the market capacity worldwide foundry capacity landscape goes we'll continue monitoring that.
Understood Okay.
And my last question is for you.
Growth next year, you said you expected the overall foundry cause that to be about 2% and then you are going to outpace the foundry growth either for your own capacity increase nicely is about 6%. So I think.
So, let's say you are going to a fully loaded all piece of capacity so still all the COO.
Above to help us out and that you still need to rely on Lisa H P increase.
So what you see on the eighth.
The increase coming from many coming from Destocking, you're priced heiko.
You still will have some.
Product mix improvement this year.
We'll be boats and it was.
Both.
The AP.
Momentum will be a combination of the product mix improvement as well.
The pricing momentum.
The price increase yes, yes, but the things like <unk> three.
<unk> most of the capacity had been fully loaded. So you really did not have a too many product mix improvement.
According to <unk>.
By technology node.
So I think this probably will be still let's say next year, because you guys did on your own.
Your eight inch until each capacity will be fully loaded.
I spent lisa.
Product mix improvement probably wont be also their limit.
So that means that you know.
So next year, you'll probably be osteoarthritis C more than 6%.
H P.
The improvement can be found Lisa.
Price hike is that right.
No I mean, yeah, I mean first of all the 6% capacity increase for the year and that's mainly for the 10-K.
Uh-huh that will kick in the second quarter of 'twenty two.
And since the P value is <unk>.
<unk> contributed 28 nanometers, south on a product mix standpoint, he has a lift to the ESP as well.
Okay is really coming out from the new capacity and in addition to the productivity improvements and that we have demonstrated in this year. We expect there will be some coming from the funding side.
Factory site.
For the productivity improvements along with the Blender is the.
Improvement.
And we expect we will we will outpace the foundry push at the world.
Okay. It's helpful. Thank you.
Yeah.
Next question is from the home of China Renaissance go ahead. Please.
Oh, Hi, good afternoon, gentlemen, my first question regarding capacity expansion based on the current clean room space are very good at both Singapore, and Japan, how much more capacity.
We can act in those areas.
Sure.
While we have some.
Our footprint available one is in our Japan fab.
And we have some of the incremental footprint available in our 12 eight.
The P six and in addition to those two locations.
Our Shandong facility, we also have a second.
Second phase of our footprint available to us and Meanwhile, we continue open to the.
The other new opportunity as well and given the current market dynamics.
Oh, the future expansion footprint, it's always on our roadmap.
We'll continue to monitor it.
But outside Taiwan outside China.
Paul how much more capacity, we can act just based on their current capacity cranium space we have.
At this point, the Singapore is 100%.
Oh I see got you yeah.
Second question, maybe for it you don't have regarding to investment income actually the Companys plan to be quiet and alternative investment income tax for the last couple of quarter.
So for modeling purposes, how should we be and model with that.
Hi.
Alright is highly co related to the stock market performance given hour.
One thing investment portfolio.
So I guess.
Is it going to be related to the future performance of <unk>.
The market.
In the meantime for the third quarter, we actually receive.
717 million of empty of a dividend.
Hi, Steve.
Oh I'm sorry of course, there is always the peak season in terms of our dividend collection.
That's adding to the numbers for the third quarter.
Okay, Gotcha, and then I try to look at the breakdown definitely that corn dance on financial assets at fair value through profit or loss companies also dependent upon to equity market performance right.
Correct.
Okay. All right. Okay. Thank you very much congratulations I think it would be felt.
Yeah.
Next question is from Brett Simpson Arete Research go ahead. Please.
Yeah. Thanks, Thanks, very much I had a question on display drivers.
UMC has a high market share here. So can you maybe just help us understand what portion of current sales.
It's coming from display right display drivers at the moment. Thanks.
Well I mean, we actually don't do a breakdown by the applications.
So.
But for the high voltage process breakdown by high voltage profitable, which representing majority of the.
The display.
Segment.
The.
The high high voltage representing 30% of our specialty.
A portion.
Okay, Okay, great. Thanks.
No.
I know you include some of the customers in display drivers with long term agreements, but is this just sort of business that can commit to long term agreements and we've seen obviously some huge price hikes, but some of the customers and display drivers and some would say these are unsustainably high so I'm just keen to get your perspective on how you see.
Driver IC customers delivering on some of your contractual terms and to what extent you're insulated from volatile swings in display driver fundamentals. Thanks.
Well I mean, that's very good question and we are.
Since we have a larger exposure on the high voltage side and.
So we kind of become more selective so we've seen a high voltage space.
There are also different subcategory and full dose that they have alternative solutions.
Solutions and.
In all more vulnerable to the physical factors, we actually try to minimize those volumes. So we actually are more concentrated in the area.
The higher gross settlement and us wells had to mobile automotive segment has a longer life higher qualification requirements. So the they tend to have a higher stickiness. So we tend to be more selective wheezing or a high voltage space. So that's sort of it.
Give us the comfort that they'd be able to keep their contractual obligations.
Okay.
That's very helpful and just on just on <unk> can you maybe just help us what specific portion of sales.
Covered by LTA is at the moment and how might this change.
Next year and I guess.
Can you share with us.
Does the Lta's include is it wafer capacity guarantees or is it more pricing guarantees or both.
Under what conditions.
Are you setting LTA today and could these be renegotiated by customers at some point in the future. Thank you.
Yeah.
It's actually a pretty complicated and whether.
Whether or not to elaborate in details.
But in general sense.
It is really more capex related and then we have a bit of a longer.
Longer term LTA coverage.
But that's not in the Capex related and we have a.
More of the LTA.
LTA under such a colo capacity reservation approach.
And most of the LTA does have both the pricing and capacity.
Included and so so it's a combination of many and giving the condition of the AR.
The supply and the reservation situation, then we align with our customer.
Those LTA condition.
As far the percentage.
And earlier.
Nearly 100% off the T six related capacity covered by L. P E and the remaining capacity also what are you guys seeing the increasing trend.
The new orders I'll cover Barrick, yes, well Unfortunately, we don't disclose the percentage.
And Pete mentioned that.
L T E plus a single source.
Consider small dental sir.
Our overall capacity and it looks like the trend.
Continuing.
That's helpful. Thank you.
Next one is Bruce Lu Goldman Sachs go ahead. Please.
Okay.
Thank you. Thank you for taking my question. So I think I remember, Jason two quarters to go talk about light.
<unk> pricing is pretty much fully you know.
Reflective of value, but you need to work on the 12 inch so my going in assumption is for 2022 your pricing were fully reflected the orebody.
My question on that is that even with that.
So again that was my assumption that the gross margin is still have some gap with the industry leader even towards the fully depreciated age. So so my question is that.
Either the value is not fully reflected.
Or the productivity gap with the industry leader is still you know there is still some debt so.
Which one will be established.
It's to do with their productivity when can you narrow that gap and to see another level.
Profitability.
Well first of all I don't think we ever give a breakdown of the 12 inch and eight inch.
In terms of the age of profitability, we did comment about the other age ESP, but usually.
Usually we typically we don't giving a breakdown probabilities.
So in our internal data, we actually feel.
A little bit different we have a different perspective than what you just comment so are we.
Actually we feel fairly comfortable about our eight inch market positions.
Ah I see India the the.
Caps between us as a blender.
Compared to the peers I can comment on peers, but we believe there is a.
Uh huh.
Also a matter of the scale and and also the mix of the product. So it does.
Staffing have a difference between different companies and so we're going to continue.
<unk> solution competitiveness.
And along with our manufacturing site.
The incremental capacity that we have online with our customer. We believe we can continue to enhance our market position by bridging the gap.
I assume we are making good progress and I think theres still some room.
And I think we're fairly close yes.
I'm, sorry, let me clear clarify because in the past.
<unk> was trying to list in China.
Gross margin for the age fab was disclosed at demo at least for the Hood, yet now was somewhere around like below.
Industry peer or even below the industry leader, but what.
Jayson just mentioned is that the navy is internal data, suggesting that your H profitability, it's actually a very competitive because that really understanding.
Yes, yes, if you look at the O R.
Oral eight inch operation yes.
I understand.
Okay. So the next question is regarding to the compound semi I think UMC has a subsidiary for the come on CME.
So recently, we do see some.
Stronger than expected demand with that so can you comment on your strategy for that come with any are you are you going to expand it or what.
What's the key application.
The pocket for your I'll come back to me.
This is.
Well I mean this is definitely an area.
Area for Us and we have devoted to this market and we have a putting a resource and yeah.
The technology development.
On the project.
I think the market has significant potential.
Potential.
At this point, we're still relatively small at the beginning at.
At the early stage.
Yeah.
But the business development, and but we remain pretty confident about that.
We've seen the compound space.
At different market segments, and we are we are at this point we are.
In the process decided you know Sunday select the area that we believe we can be relevant and so and once we have concluded that we would you be able to share that with you. We're not going to go out to address the overall compound, but that will be selected area that we're gonna be focused on and and and.
Focus on those areas and continue executing our plan to make sure that we will be relevant and we think those space.
But where you turn upgrades are in terms of expanding your capacity for the Commvault Jamie.
I mean, given the compounds you know market outlook I don't see the capacity is critical at a critical juncture yet.
We had a we have a sufficient capacity to support our current activities and what the.
As the demand requires additional capacity was definitely on the aggressive pursuing okay.
Thank you.
Sure.
Next one frankly HSBC go ahead please.
Thank you guys.
Wanted to ask maybe a longer term question in terms of we've seen in the industry. Some of your peers are now talking about expanding and even maybe expanding in other countries.
See a lot of discussions at all.
Other geopolitically countries wanted to re establish the semiconductor supply chain is this something that you would consider as well in terms of expanding in other regions outside of Asia.
Well, we have been very diversified as you know we have.
Have facility in Japan, we have facility in Singapore.
China as well so we have been very diversified in the past and we will continue to do that and we'll come to you are exploring that.
You know given the the reason a heightened semiconductor market.
In many country or regions.
Regions.
Some of the incentive incentive plan for building a facility in those locations.
Certainly.
Evaluating those and.
The key of the.
We are building a new greenfield facility.
Not only the hour is also the customer engagement. So we are open to customer feedback and along with our ROI.
Iterations and in what timeframe.
Make sure that we follow are.
Disciplined capex philosophy so.
Given there is a decision on celadon location, we'll disclose that.
Yeah.
Okay. Thank you and then just a follow up question on I guess, the Capex and capital intensity based on your Capex for 2021, and $2 3 billion. It seems to suggest your capex to sales is going to rise to about 30% versus 15 last year.
As we go forward in the next.
A couple of years.
How should we think about this capital intensity business I know you haven't LTA for your pizza.
In general should we should be thinking at 30% as kind of a new norm or can you give us any kind of clues or indication of how we should think about it.
Yes.
You don't really too capital intensive keep banging away, we do monitor all.
Possibilities structures.
The abilities, but more importantly, Jason mentioned, he also related to customer engagement and our technology differentiation et cetera. So we want to be a relevant player.
I can stick with you.
See for longer time, so all the capex.
Capex is now really young.
Pure capital intensity point of view.
A combination of various reasons.
Okay, so, but I guess, so theres no real target that we should look at it in terms of what that capital intensity will look like because I think it's quite a big change in the past year, but going forward.
There isn't any explicit target we should think about.
It is a boundary internal boundaries I mean, we don't want to overspend.
For sure we don't want to be overly aggressive in terms of how far off of the ability right there.
We don't also.
Just for the sake of spending would we if we have money and we just suspended its not the case, where you really have to protect.
Okay.
Customers are risk mitigation.
Apologies.
The future.
The longer term.
Corporate development planning, so even though we can't afford it or we may not do it depends on what the customers' needs.
Customer engagement.
Yeah.
Okay. Thanks.
Told me at the capital intensity is more of the assets that national is right I mean.
The condition that we measure is really.
Invest at the right height at the right place with the right know and with the right customers, though so if we believe it is within the U N C affordability level and and and meeting all the conditions that we set out to do and follow our Capex a disciplined philosophy and then.
It will reduce the capex envelope.
Food that capex.
And then released it.
So the after the fed is definitely be able to come back and measure that intensity issue, but you know the intensive he wasn't the first level of concentration.
Okay, Alright, thank you very much.
Yeah.
Thank you and we are taking the last question because that's one goku honeymoon of Jpmorgan go ahead. Please.
Yeah. Thanks, I just wanted to delve into some of the demand related dynamics given that there's a lot of concerns about a cycle ending among investors.
The amount of your empty management look at.
And looking at S. S demand book.
And how do you get comfort about continued growth into next year, especially in your modeling foundry industry to grow double digit and UMC to grow even faster than that.
Could you share with us some of those like how are you kind of level of comfort around that fact.
And is there some kind of a book to bill or a non supported demand kind of expectation that you wanted to add which which you can chat to give some comfort to the market. That's awesome. Thank you.
Well, we did observe it sounded softness as we mentioned earlier.
D a.
But in in.
2022, despite a lower contribution in wafer demand.
Associated with the Wolff on home and home learning.
We still expect sandy.
The mill will continue and we call it structural demands.
<unk> Iot and those demand remained strong and deep.
We still have a significant unfulfilled demand.
We think of acceptance and.
And well we estimate in the growth of the market is at 12% along with our current alignment with the customer we seem we'd be able to outgrow that NDA.
So.
It's India and also we would have.
Tracking the.
Overall inventory situation, we see some rise of inventory, but we also see some of the shortage of components. You know there is some of the longer lease shorter Lake and then we have some triangulate that.
Along with the end customer customer.
And the direct dialogues that give us the confidence that you know the we still on the shorter side of the supply side and so a.
While we are still under the ketchup mall and it further validated that Saudi is softness being fulfilled with uncle through the main immediately and so we still do.
At this point, we still feel confident about the 'twenty to 'twenty two outlook.
Okay. Thank you very much.
Sure. Thanks.
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 for closing remarks.
Thank you everyone for attending this conference today.
We appreciate your questions.
Always if you have any additional follow up questions. Please feel free to contact you wouldn't see it.
Our adjusted Okay have a good day.
Thank you and ladies and gentlemen that concludes our conference for third quarter 2021, we thank you for your participation in Umc's conference there will be a webcast replay within an hour. Please visit www UMC com onto the investors events section you may now disconnect Goodbye.
Yeah.
Okay.
[music].
Welcome everyone to Umc's 2021 third quarter earnings Conference call.
All lines have been placed on mute to prevent background noise. After the presentation. There will be a question and answer session. Please follow the instructions given at that time, if you would like to ask two questions.
For your information This conference call is now being broken the life over the Internet web cast replay will be available within an hour. After the conference is finished please visit our website www Dot U M C dot com under the Investor Relations investors events section.
Now I would like to introduce Mr. Michael <unk> head of Investor Relations at UMC. Mr. Lin Please begin.
Thank you and welcome to the Umc's conference call for the third quarter of 2020 one.
I'm joined by Mr. Jason Wang President of UMC and Mr. Chi don't do the CFO of UMC.
In a moment.
Yeah, I'll CFO present, the third quarter financial results, followed by our President's key message to address Umc's focus.
The fourth quarter of 2020 one guidance.
Once all our president and CFO accompany their remarks.
Will be a Q&A session.
Umc's quarterly financial reports are available at all with that Triple W. Dot UMC dot com under the investors financial section.
During this conference we may make forward looking statements based on management's current expectations and beliefs.
These forward looking statements are subject to a number of risks and all.
Certainties that could cause actual results to differ materially, including the risk that may be beyond the company's control.
All of these risks please refer to umc's filing with the SEC in the U S and obviously security authorities.
Now I would like to introduce Umc's CFO, Mr. Qi Dong due to discuss U S. S third quarter 2021 financial results. Thank.
Thank you Michael I would like to go through that.
Two one tiny one investor conference presentation material, which can be downloaded from our website.
Starting on page three.
Quarter of 2021.
Consolidated revenue was $55 91 billion N T.
With gross margin at $36 eight the net income attributable to the stockholder of the parent was 17.46 billion of N T.
The earnings per ordinary shares were 1.43 NT dollar.
And our utilization rate in the third quarter of 2021 was a little bit over 100%.
Please turn to page four.
Yeah.
So sequential comparison.
Income statement.
Revenue grew.
Quarter over quarter.
Nine 8% to $55 9 billion and team.
Gross margin rate reached 36, 8% or 25 25 P O N T.
And our overall operating income is.
Is 15.1 billion N P or 27, 1%.
Operating profit margin rate grew nearly 5%.
<unk> point.
Non operating income because of the.
A better performance in the equity market.
Overall net non op.
Around $4 3 billion of N T.
Significantly grow compared to the one 8 billion in the previous quarter.
And the overall net income attributable to the parent is 17.46 billion.
Or 1.43 P. P S.
For U S. A D ours the AR earnings.
Earnings per share for eight years. This 0.257.
Paul first stream.
Quarter after year on page five.
Revenue grow by 17% to 153.9 period.
Based on higher wafer shipment loadings.
Higher blended ASP.
Gross margin rate is about 31, 8%.
$48 9 billion of N T.
Operating income.
It's 2.1% or 74 billion empty.
Uh huh.
Net income for the first three months for the first three quarter of the year is $39 8 billion.
And the net income rate is 25, 9%.
Accumulated EPS for the first quarter has reached 6.2 of 670 per share.
So page sexy our balance sheet, our current cash on.
Hence the dot 117 billion.
After their cash dividend payout total equity is about 257 billion.
<unk> continues to rise both price increase as well, it's a mix improvement.
The previous quarter or the third quarter as the increase of nearly 8%.
On revenue breakdown, starting from page eight Asia represent about 55% of our total revenue in Japan.
Europe and U S remained relatively defensive for the compared to the previous quarter.
Idea is about 14% and tablets.
It's about 86%.
How many occasions around 46% of the total revenue consumer its about 27% compared to a state about defense and Theyre wrong a 17%.
And the time they are actually they have almost every now it's running at nearly.
Nearly full capacity.
So the change has been minimal quarter over quarter basis.
90, 822 nanometer constant fell 19% of total revenue.
The revenue 40 nanometers, it's about 18%.
And we're continuing to see some lyle capacity growth coming from both a capex and shot and then I'll throw out a trough here.
In Japan and a full.
<unk> made some incremental increase.
But the specialty and in a switch.
So it's all in China.
So for the time being the Capex budget for 2021 remains unchanged at two 3 billion.
Right.
And majority, 85% is going to cut capacity or tap into related expansion. So the buffet says summary of Umc's result for CQ2021.
More details are available in the report, which can be has been posted on our website.
Now I'll turn the call over to President of UMC, Mr. Jason Wong.
Thank you Tito.
Everyone here I would like to update our third quarter operating result of UMC.
In the third quarter, we continue to experience real.
But chip demand across computing consumer and communication and settlements.
12 inch wafer shipments in the quarter reflects ongoing in front of them makes it enhancement and partially contributed to the lift in blended ASP.
Overall wafer shipment grew two 6% quarter over quarter to $2 5 million eight inch equivalent.
Revenue from 28 nanometer technologies continue to rise well business engagement in 22 nanometer.
That to a growing number of customer tape outs across.
Wilders display and Iot market.
Further diversifying our product pipeline.
Looking into the fourth quarter, we anticipate wafer shipment and ASB trends will remain firm.
Capacity utilization across 812 engine for food he will continue to remain fully loaded.
Gross margin continued to exhibit upward momentum thanks to our team's effort in optimizing capacity productivity and product mix.
Current business cycle provides an opportune time for UMC to strengthen customer relationships, along with our technology competitiveness and be incremental capacity growth to elevate our market position.
Our focus on growing our comprehensive logic and specialty technology portfolio has been welcomed by our customers and we continue to broaden our product range to fulfill their needs.
Please repeat buy in P 60 expansion projects underway at our flagship 12 eight facilities in China, given the strong demand from our customers, we are well positioned to grow and capture additional market share in 2022.
In addition, the company and continue to make strides towards a greener future earlier.
Earlier this month UMC was honored to receive the Green chemistry application, an innovation award from Taiwan Environmental Protection Agency.
Award recognized our efforts to introduce <unk>.
Introduce chemical substitutes that minimize the impact to the environment and the health of our employees.
At our outstanding supplier award this year, you're going to see also took the opportunity to reiterate our commitment to achieve net zero carbon emissions by 2050.
And two in by suppliers to work with us to build a low carbon supply chain.
As a key semiconductor player you, obviously understand that we have a responsibility to proactively respond to climate change.
And to put more sustainable practice in our industry.
Together with our upstream and downstream partners, we will continue toward our net zero carbon emissions target.
Let's move on to the fourth quarter 2021 guidance.
Our wafer shipments will increase by 1% to 2%.
ASP in U S dollar will increase by 1% to 2%.
Gross profit margin will be in the high 30% range.
Capacity utilization rate will be at 100%.
Our 2021 cash based Capex will be budget at U S $2 3 billion.
That concludes my comments. Thank you all for your attention and now we are ready for questions.
Thank you presume, one and ladies and gentlemen, we will now begin our question and answer session.
If you have a question for any of the speakers. Please press one on your telephone keypad and you went in to the queue. After you are announced please ask your question.
If you find that your question has been answered it before it is still turn to speak please press zero to two kinds. So the question now.
Now please press star one to ask a question. Thank you.
First question is coming from Randy Abrams Credit Suisse. Go ahead. Please hey, yes, thank you and congratulations on the good result.
Wanted to ask the first question.
Capacity, just factoring you're running 100% plus.
Could you go.
Go into timing for the phase five 10-K capacity.
Which quarter that capacity would be available.
And then for phase six.
It's a bigger amount the 27 quake five K would that all come on at the same time and would that be beginning of 2023, just trying to think of timing.
When the new capacity would come on and then just one follow up on capacity. There were some talks you may consider.
Further fab in Singapore or additional capacity.
Do you have plans beyond.
Beyond 2023 for additional capacity on and see that potential option.
I'm not sure.
The first is for the ERP five 10-K extension the 28 nanometer will be come online Q2 2022.
And.
Yes.
The P. Six will be 2000, twenty's fee, but in the later years 2023.
To provide more specifics.
The rent schedule later, they are giving the current Ah <unk> kind of availability update.
The a question about the.
The news about the Singapore.
We are unable to comment on any speculation as we always.
As we always do that we don't speculate and we don't comment on speculation, but we are always open to exploring new opportunities as well.
Hence all shareholders benefit and we played out before well our strategy in a disciplined capex philosophy by March 'twenty thing has not changed we always try to drive our sustainable structural profitability based on a disciplined capex clean simple. So we so we have aligned with our customer as well.
The market took even a relevance in the marketplace before were making any capex decisions.
Meanwhile, we continue we consistently cooperating with our customer regarding the loan currently developed.
Development plan.
Our diversified the product production side I think UMC has to have the luxury to evaluate different expansion option B young people I M. P. Six and we will discuss already expansion plan. Accordingly, what do we can we can we can deliver that.
Okay.
I've got two follow ups on that one.
You ran a few percent above 100%.
But do you think is as we go the next year if demand is there.
That would be the level you could operator was was there anything specific this quarter.
Are you able to push out more so is that a level you could sustain and then the other follow up was since that peak fix will be later 2023.
Besides the 10-K is there how much can you get from Debottlenecking or other areas, where I saw fourth quarter, you have a bit of that but.
But if you have any other meaningful capacity.
Well I mean in 2021.
We have continue.
Our focus on the productivity improvement in addition to the incremental capacity and we will do so for 2022 as well.
And so we do expect that effort will continue and at the current plan and I see India.
If we are talking to greater than 100% right, but that's what we guided we will guide on a fully loaded at 100%, but the effort will continue.
The.
Yeah, Yeah in terms of capacity.
Sorry for the for the 2022, we currently estimate about 50% capacity increase versus the 3%.
The increase in 2021.
Okay.
Eight inch is there any increase or is that all pretty much 12 inch.
It's pretty much all 12 inch now.
The Debottleneck team.
Part of that migration will probably continue but it's do we think the same pool.
Great.
And perhaps comment on pricing.
You could get that.
When you look at how you are seeing pricing coming after this year it looks like it might be up close to mid teens.
For next year, if you see.
How youre seeing mature node and then off to have any chance to reset.
The 28 nanometer and if there's a way to think about where gross margins could go.
Okay.
Well first of all we do foresee the A&P momentum will continue into 2022.
However, we have not taken advantage of our customer doing the wafer shortages, so we kind of precision.
S P.
No.
More longer term partnership over the near term cyclical factors.
So we will work with our customers to earn their trust and Inc.
Instead of exporting the short term the opposite Mystic profit and we do believe that pricing will reflect our market value and position. So we.
We foresee D. The <unk> momentum will continue into 2022.
And at this point for 2022, we anticipate a capacity will remain full on both 12 inch and eight inch and our 2022 outlook.
Oh, all pet outpace the foundry industry growth and OLED.
Overall for the growth will come from a capacity increase productivity improvement I mentioned earlier as well as the ESP and parts for the 2022 full year as well.
We'd be able to provide you some guidance in the Q4 2021 conference call.
And just a last question on <unk>.
Considering I'd like a downturn protection if we eventually ultimately go into AE.
The next downturn.
Do you expect new price level or do you think that same kind of flexibility.
Where we'd see a reverse felt like if it were to drop back to like 80 for utilization for an extended time liquid we go back to kind of a reversal where do you expect some firmness.
Well I mean, I think the pricing is reflecting your market position as I mentioned earlier so.
Far as for the downturn.
We have a continuously strengthen the company's competitiveness right and that includes many many areas. One is we continue to prepare ourselves for the downturn.
Because it is a cyclical industry.
Well focus on the structural demand.
Many mega trend.
<unk> Iot application.
We have a line that we've been key players.
In our first tier customer sued the technology offering that we have and so you won't see us the sole source.
And in addition to that the Capex approach.
We deploy required some of the risk mitigation with our customer commitments. In addition, we validate our customers' confidence you'll see here some of the increase in long term agreements for future capacity expansion arrangement.
Given all of those efforts that we have been in the past years.
In addition to what we just mentioned also on financial Wise.
We believe the company has become more resilient in the event of the microphones certainty. Therefore, I seen the ASB will probably play a lesser role under such conditions.
The environment.
Okay, great. Thanks, so much I think Chi Tung.
Sure. Thanks.
The next question is from Goku Honey whole lot of Jpmorgan go ahead. Please.
Yeah. Thanks, Congratulations on the good result, my first question is about the gross margins just leading on from what Randy asked we have seen a pretty strong gross margin expansion for UMC looks like we are still going to see further gross margin expansion.
Could you talk a little bit about how you would think rosemont didn't settle down long term now that you have some visibility into some of the contracts that you have signed for the new capacity.
Historically I think one player that has had very high gross margins and everybody else has been not that much lower gross margin level.
How would you characterize this.
This is a rough given that you also feel a little bit more comfortable about managing any potential downturn breast as well. So could you talk a little bit about how you're thinking about gross margins over the next let's say one or two years not just on a quarter to Bordeaux basis. That's my first question.
Wow.
That's it.
Well first of all we like.
Like you said, it's on the short term wise. So we do expect the momentum in our business growth and profitability will continue beyond Q2, Q4, 2021.
Mainly due to the validation from our customers on the key markets and capture this structure demands.
And given the value proposition that you haven't seen provide to our customer.
Putting our solutions.
<unk> capacity and the growth path.
Yes.
Uh huh.
Cindy our goal at this point, we will strike a balance between the profit and long term growth.
Along with all our Capex with disciplined capex.
We believe our approach will respect all profitability result in the long run. So when you talk about long run I think that that require some of that balance at here. Okay. So if we look out in the next couple of years and you know, while we announced in the past.
Six expansion and so obviously some of the Capex will happen in the next couple of years.
Along with the.
That long term agreement that we have final with the customer and we believe we'd be able to manage that balance and at a healthy level.
But as far as the.
The actual number will probably won't be able to provide at this time, but I think we feel fairly comfortable about our business model going forward.
Yeah, just to add on that we will.
Margin guidance on a quarterly basis.
And.
So so.
So fourth quarter.
Conference call certainly we will keep her.
Overall look for their 2022.
Thanks, Susan.
So another question I had is could you talk a little bit the mode. I think over the last few years you have increased your mix of specialty processes automotive and other areas for 28, 40, and 55 could you talk a little bit about.
What percentage of these process nodes are already specialty.
Bad debt is a lot more sticky demand.
Compared to what percentage is still like VR digital where there could be potentially more fluctuation in terms of demand.
Okay.
I mean right now for the specialty technology is.
The occupy it up a little bit over 50% right now.
And they all use.
Unique and customized it to the customer so it does give you a bit of more stickiness in terms of the customer relationship.
In addition to that.
There is also a socialist product that we have engaged it.
Combining with the specialty I think that number will reach up to somewhere.
The 70 above 70 range.
Along with the LTA protection so.
In terms of the overall business model at this point, we have southern competence that definitely have increased significantly on the stickiness.
Okay, and just to clarify so the 50% less and 70% plus is on the overall capacity why you haven't seen yet.
Yes, yes.
Okay. Thank you very much thank you Sir.
And next we have Nick go to all of you.
UBS for questions go ahead. Please.
Yes. Good afternoon, thanks for taking my questions.
The first one is on your <unk>.
It's part of a color.
You mentioned last time, but you may start to receive a prepayment from customers.
Third quarter was four.
Framework was at Tas.
C coming later.
He is about the case or should we expect to be used to come at a later stage.
And then secondly.
I'm all right to confirm but your ramp up for the phase <unk> expansion.
He's effectively taught by one to two quarters versus what you said last time and if so.
What is the reason he's got it.
To.
Lead times or would you ever be stage.
And you have or are there any factors.
Factors influencing.
What do you expect to ramp up more into another part of 'twenty versus Q2. Thank you.
Oh for Pizza.
<unk> currently is on schedule, even though the.
Equipment some of the bottleneck women lead time may be stretching it if I were still.
Working closely with the equipment vendors and.
If all into the ballpark schedule, where you have a grid, where you saw six patents and a majority if not 100% of the pieces.
Capacity is covered.
This so called long term agreements so he says.
100%.
Oh, Hey, Otas.
Okay.
Great.
Complex, how 'bout to prepayments when you start to already to see buy more.
So when should we start to see prepayments coming through thanks.
Oh, sorry about that.
In this year's Capex already for down payment.
It's a very small percentage of a majority of the payments will come a long way.
Delivery of the tool, which will happen later 2022 and also first half of 2023, so the capex for 2022 and 2023.
I see the majority of it the bulk of the basics related capex.
Great.
So unless there's a bit of a technicality, but when we actually see that coming through.
Uh huh.
No.
Basically our payables or would you do a knitting of Capex basically.
Yeah.
Sorry can you say that again please.
Yeah, just a little bit of a technique.
Thank you.
You won't see that coming through in payables in your balance sheet or would you actually just net capex if activity. So when you go to give us the capex guidance that would be it would that would be gross or net of those prepayments.
Our capex number is on a cash basis. So it's already.
We paid then you will be coordinating their capex and their payable.
Payer Boswell.
Is.
He is falling in either year.
The following year.
Not be included in this year's Capex.
Perfect understood. Thank you very much.
<unk>.
And next we'll have Charlie Chan of Morgan Stanley for questions go ahead. Please.
Okay.
Thanks, Hi, good afternoon gentlemen.
So my first question is about.
What's your answer.
Vision about the end demand trend because that for some specific steps to actually like a TV you see its panel pipe dropped a lot.
Some consumer MCU market seems to see a weakness if you look at those spot prices et cetera. So I know you're a fabulous therefore, but you can you kind.
Kind of give us some comments about the demand or customer inventory. Thank you.
Sure.
We also observed some mild correction some selective market sentiment.
Costs based on the demand softness and nevertheless.
Do not affect UMC overall under complex situations, just like you said.
And when should we expect this will continue through 2022.
I think we havent see a significant concern on the inventory build upsides and despite that they are down some inventory increase.
The.
At this point, we continue to experience strong demands while sound a mild correction will immediately replaced by salvia unfulfilled demand, even a long queue of the customers.
Okay, and I think gogo.
Okay.
So great question right about your.
It's taken me right so.
Uh huh.
Is it right that you said that 70% or so.
We keep it seems to be some customization and specialty with the LTA what's at the.
Right number 70%.
Yeah, I'd say is above 70% yeah.
Okay great.
Great. Yeah. So my question is that.
How about the addressed 3% what would be your.
Pricing and finish it by the way I mean.
You know the company gets a great.
Great.
To identify these are you know.
The prize HIFU potential earlier than your industry peers.
Curious about your pricing strategy for that.
Risks that 30% disease.
The assembly the more commodity end customers.
You know kind of a dealer shows thank you.
Are we sort of touched that.
Earlier.
Our current focus is focused on some of the structured men and indeed, <unk> and Iot applications. We believe those those female will continue in the adhere to state so Saudi Saudi are vulnerable one and we have some protection and some of the Mega trend.
Located with cement and we believe they are here to stay so.
Giving somebody a market focus as well as the.
While we touched it on the Capex recent mitigation approach.
Along with that.
I think we shared we are less vulnerable to this.
So this is a cyclical issue and so we've seen the ASP agile player less role here so.
So that's why.
We we actually feel very comfortable at this point.
If the market dynamics change, we will provide you with the update.
Okay. That's fair enough so I guess the for some commodity.
Just a just a makes them example, right acre.
Drive IC in C U.
You know, meaning you you see.
Hum.
Potential risks right down.
Downturn, so when you kind of peg those elders you already have some protection and Mccann Nathan is that right way to interpret your.
That's one way to put it on the other hand, either within the within the driver IC segments and most of all a driver which is right on the hour momentum.
It is a combination dose and sounder requires founder risk mitigation mechanism. Some of that actually is more aligned to the growth of the segment. So so it is a combination of that yes, okay. Thanks.
111.
I'll take that.
It seems like people carries about the micron.
Uh huh.
The doses.
Those are easy right I mean, they the.
Sure Yeah, I mean the.
Does that give you already said who is the U S. Chelsea Justice Department, right, but I mean.
Six days ago, there was a news report about some.
Some of them go we see both those suits.
Maybe Don can give us some updates.
It's going to be.
A provision or kind of a legal expense on this case.
Thank you.
Yeah. So first of all we don't come in.
There was speculation it's another completed complete story.
Yeah.
Picture, So we don't comment on that.
Also bye bye Bye law, we cannot comment on.
Ongoing litigation.
And we didn't have any provision.
Based upon our.
Legal effort still.
Walking this case, so it's still.
Ongoing so that's all we can comment for the time being.
Okay.
In other words is there is no update on any of the new development No new development on this case and if there is any new development I think we'll certainly disclose that inflammation accordingly.
And I think since both so so so Jason so just.
Just a.
Think about another question that you.
You are you supposed to be very confident that that.
<unk> two will I'll pass the foundry industry.
So is that because you are expanding capacity more aggressively or.
You you are going to higher ASP higher than your peers.
Why you have such high covenants, you can outpace your foundry peers.
Yeah.
Well given the given the current outlook.
2022.
We proceed on structured catalysts will continue to dry.
Including the <unk> transformation.
The EV and the AR and Iot devices, and those those mega trend will still representing significant growth on year over year basis.
We do anticipate those structures driver will continue to fuel our growth.
Including the OLED driver the ISP Wi Fi six RF switch MCU, PMI, and so and which also lead to a higher standard on contracts right. So we are convinced amongst those three minutes search are here to stay largely.
Driven by those structured meet so even though those catalysts and we have for that accomplishment.
And I mean.
In addition to that based on our efforts and market position.
That gave us the confidence that the 2022 will be another strong year for UMC to gain market share.
Yeah.
Consensus T.
TSMC is connected to grow 15% to 20%.
So do you think you can.
Peripheral similar or even better than these key foundry up here.
R R.
Our estimate on the foundry industry growth in 2022 at this point is about 12% autofocus I'm sorry, Okay is that 12% Oh, okay. Yes.
Yes.
Okay and for our business outlook, I think it will be higher than that.
And the current market industry projection.
Okay and lastly.
Variable costs.
That is a key reason why foundry peers one too.
Hike the price right so.
Variable cost may differ.
Cynthia show per wafer numbers okay.
Give us some kind.
Kind of kind of comments about the trend for example.
These deals are year over year.
What was the growth for the favorable cost and what would be the variable cost growth for the coming two years. Thank you.
Yeah.
Operating expenses you will be.
Growing along with our large revenue however, as a percentage of revenue. We hope you will be flat to down under control.
We'll see.
The revenue growth, we all face.
Our operating expenses.
As far as raw material like throw away for them also.
Labor that we're also on the right.
Altogether, I think without commenting that because of our production efficiency improvement are.
Improved economy of scale.
And also we saw.
Our outlook for both.
Demand, whereas pricing for 2022.
I think there is still further upside for margins profit margins.
Got you Okay. Thank you that's super helpful. Thanks, gentlemen.
Sure.
Yes.
Next question is coming from Rolling she of Citigroup go ahead. Please.
Uh huh.
For your Xiamen fab became pathology of <unk>.
It was still a loss, making last year and I think it is.
Just making no so with that base oil pricing.
You had some effect is going to be wrong and also how many market upside and the upsides to UMC why does the Sherman fab is a breakeven.
So that should be able to be profitable in 2022.
Yeah.
Profitable single quarters.
2021, so we are very close to it.
And even in 2021.
We expect to be profitable.
In 2022, however, it was still below corporate average in terms of profit margin.
2000, and tiny true.
There's still room for Sherman.
To catch up.
Two the level of UMC corporate average.
Understood.
Do you have the time playing.
Time frame.
Yeah.
I'll give some insight, but gross margin is going to.
Approach corporate average.
But no we don't have.
We all we can say.
I can give you a rough comparison currently or think about that.
Higher gross margin than corporate average.
Japan Fab is catching up to almost.
Identical.
UMC corporate average.
As I mentioned.
Uh huh.
A loss, making to nearly breakeven this year and you won't be part of the partnership I still away from the copper average.
Okay, and then how 'bout Oh for a.
Husky kept me, putting my view or how much can we motto leaves a subsidized phone.
Your partner in Chalmette.
Why is that.
It's going to be profitable.
Yeah.
Okay say that again.
I think we still have the subsidy.
Our partner in China.
Because I know some of that still loss, making.
Next year, how much well Lisa.
We can all model yes.
Europe is similar to this year, except for the interest expense subsidy, which is already.
Expired.
Everything else will be about the same for 2022 compared to 2021, so it will be still around 1 billion per quarter.
Yeah.
Okay. Okay. Thank you and my second question is that you know.
No.
Yourself, a lot of the foundry peers announced new capacity expansion plans.
In your view, how soon will the.
To close on the supply and demand.
Eight inch and nitrogen 12 inch foundry capacity.
What are the key bottleneck at least the supply demand imbalance now.
Well I mean, we can really comment about our peers and we don't know what their plans are we do monitor the market landscape.
And adjust ourselves.
The focus here is you know about our capacity growth and adult new capacity vulnerable or these isn't capacity vulnerable or not so getting our newly deployed capacity will be 28 nanometers. The majority of our 28 nanometer capacity has been reserved by the <unk>.
Or single source customer and therefore, we believe that capacity will be maintained at high utilization rates for very long time.
In addition, our mission to differentiate ourselves with our technology as well as the manufacturing excellence will enhance that stickiness.
That area as well so I.
I think we will minimize the 28 nanometer vulnerability eating our efforts by the customer portfolio, along with our continuous reduction in the breakeven utilization rate.
I think you know.
That's possible to you in seed relevant I think we feel comfortable about that and.
So as far as the landscape the market capacity worldwide foundry capacity landscape. Those we'll continue monitoring that.
Okay.
And my last question is for Europe.
Next year, you said you expected the overall foundry cause that to be about 2% and then you are going to outpace the foundry growth either for you or a capacity increase nicely is about 6%. So I didn't know.
So, let's say you are going to a fully loaded all piece of capacity.
Oh the growth above helped us I think that you still need to rely on Lisa <unk> increase.
So so what you see on the <unk>.
The increase is coming from is it mainly coming from this on your price hike or are you still will have some.
Product mix improvement this year.
What would be boats.
It was both.
The AP.
Momentum will be a combination of the product mix improvement as well.
Pricing momentum.
The price increase yes, yes, but the things like you are three Q most of the capacity that had been fully loaded. So you really did not have the two men meat product mix improvement.
According to <unk>.
By technology node. So I think this probably will be less and less because you guys did on your own.
And Toby inch capacity will be fully loaded so I spent lisa.
Product mix improvement probably wont be also very limited.
So that means that you know.
For next year, you'll probably ask the Oct when do you see more than 6%.
You know as well.
The improvement can be found Lisa.
Price hike is that.
That's right.
No I mean, I mean first of all the 6% is a capacity increase of four at year end.
And that's mainly for the 10-K.
Mhm.
I'll kick in the second quarter of 'twenty two.
And since the <unk> is all contribute 28 millimeters south on a product mix standpoint, he has lived through the ASD as well.
Okay that is really coming out from the new capacity and in addition to the productivity improvement and we have demonstrated in this year. We expect there will be some coming found them from them got it.
Factory side.
For the productivity improvement along with the Blender is the.
Improvement.
And we expect we will we will outpace the foundry for chapter for us.
Okay. It's helpful. Thank you.
Yeah.
Next question is from the home of China Renaissance go ahead. Please.
Oh, Hi, good afternoon, gentlemen, my first question regarding capacity expansion based on the current clean room space, both in Singapore, and Japan, how much more capacity.
We can asking dose.
Yes.
While we have some.
Our footprint available one is Japan.
Japan Fab.
And we have some of the incremental footprint available in our 12 eight.
The pieces.
In addition to those two locations for our Sherman facility. We also have a.
Second phase of a footprint available to us and Meanwhile, we continue to open to the.
The other new opportunity as well and given the current market dynamics.
The future expansion footprint is always on our roadmap.
We'll continue to monitor that.
Oh, sorry, Taiwan outside China, and Singapore, how much more capacity, we can pack extra.
Based on their current capacity cranium space, we have at this point that Singapore is 100%.
Right got you and second question, maybe for you don't have returning to investment income actually the Companys brand to be quiet about their from their investment income tax for the last couple of quarters.
So for modeling purposes, how should we be and model with that.
Hi.
Oh, it's highly co related to the stock market performance given hour.
One thing investment portfolio.
So I guess.
It's going to be related to the future performance of the equity market.
In the meantime for the third quarter, we actually receive it.
About 717 million of N T.
Our dividend.
I see.
Hum COO there is always the peak season in terms of small trial dividend collection.
Adding to the numbers for the third quarter.
Okay got you and when I try to look at the breakdown like corn dance on financial assets at fair value through profit or loss, Kevin you've also dependent on the equity market performance right. That's correct yes.
Okay. All right. Okay. Thank you very much and congratulations on your very stout.
Yeah.
Next question is from Brett Simpson Arete Research go ahead. Please.
Yeah. Thanks, Thanks, very much I had a question on display drivers.
UMC has a high market share here. So can you maybe just help us understand what portion of current sales is coming from display right.
Play drivers at the moment thanks.
Well I mean, we actually don't do a breakdown by the applications.
Uh huh.
So.
But for the high voltage process and when we break down by high voltage process, which representing majority of the.
Display.
Settlement.
<unk>.
The high voltage representing 30% of our specialty.
Sure.
A portion.
Okay, Okay, great. Thanks.
No.
I know you include some of the customers in display drivers with long term agreements, but as this is sort of business that can commit to long term agreements and we've seen obviously some huge price hikes, but some of the customers and display drivers and so I would say these are unsustainably high so I'm just keen to get your perspective on how you see them.
Driver IC customers delivering on some of the contractual terms and to what extent you're insulated from volatile swings in display driver fundamentals.
Well I mean, that's very good question and.
Since we have a larger exposure on the high voltage side.
So we kind of become more selective so we've seen a high voltage space.
There are also different subcategory and full dose that they have an alternative.
Solutions and all more vulnerable to the physical.
Physical factors, we actually try to minimize those volumes. So we actually are more concentrated in the area.
The higher growth segments, and us wells has a more of a automotive segment has a longer life higher qualification requirements. So the they tend to have a higher stickiness. So.
We tend to be more selective with our high voltage of space. So that's sort of it.
Gave us the comfort that they'd be able to keep their contractual obligations.
Okay. That's very helpful and just on just on <unk> can you maybe just help us what specific portion of sales is covered by lta's at the moment and how might this change.
Next year and I guess.
Can you share with us.
Does the L. T. A's include is it wafer capacity guarantees or is it more pricing guarantees or both.
What convictions.
Are you setting LTA today and could these be renegotiated by customers at some point in the future. Thank you.
Uh huh.
It is actually a pretty complicated and our iron ore whether or not to elaborate in details.
But in general sense.
It is really more capex related and then we have a bit of a longer.
Longer term LTA coverage.
But that's no capex related and we have a.
More.
LTA under such a colo capacity reservation approach.
And most of the LTA does have both the pricing and capacity.
Included in the US so it's a combination of many and giving the condition.
Yes.
The supply and the reservation situation, then we align with our customer.
For those LTA conditions.
As far the percentage.
Earlier you heard.
100% off the T six related capacity covered by L. P. A.
The remaining capacity also where are you guys seeing the increasing trend.
The new orders I'll cover priority, yes, well Unfortunately, we don't disclose the percentage.
And Keith mentioned that.
LTA Paas.
Single source.
Consider smoke and two third of our overall capacity and it looks like the Iot.
Trend is.
Continuing.
So that's helpful. Thank you.
Next one is Bruce Lu Goldman Sachs go ahead. Please.
Okay.
Thank you. Thank you for taking my question.
So I think I remember, Jason two quarters to go talk about pricing.
Pricing is pretty much 40, you know.
Reflecting a value, but you need to work on the 12 inch. So my assumption is for 2022 your pricing were fully reflected the orebody.
My question on that is that even with that.
Again that was my assumption that the gross margin is still have some gap with the industry leader even towards the fully depreciated.
So so my question is that either the VAT is not fully reflected or.
Or the productivity gap with the industry leader is still you know there is still some debt so.
Which one will be steady.
Decides to do with their productivity when can you narrow that gap and to see another level Oh.
Profitability.
Well first of all I don't see we ever give a breakdown of the 12 inch and eight inch.
In terms of the age of profitability, we did comment about the age ESP, but usually.
Usually we typically we don't give me a breakdown probabilities eight inch.
So in our internal data, we actually have a few.
A little bit different we have a different perspective than what you just comment so are we.
We actually feel fairly comfortable about our Asia Pacific market positions.
I said, India the.
The gap between us as a blended reads.
Result, compared to the peers I can come at all peers, but we believe there is a.
Yeah.
Also a matter of the scale and and also the mix of the product. So it does staffing have a difference between different companies and so we're going to continue.
<unk> <unk> solution competitiveness.
And along with our manufacturing site.
The incremental capacity that we have online with our customer. We believe we can continue to enhance our market position by bridging the gap.
And I assume we are making good progress and I think theres still some room and and.
I think we're fairly close yes.
I'm, sorry, let me clear clarify because in the past.
<unk> was trying to list it in China.
Gross margin for the eight inch fab whats disclosed at demo at least for the Hood, you're now with somewhere around like below.
Industrial peer or even below the industry leader, but what it.
Jayson just mentioned is that the navy is internal data, suggesting that your H profitability, it's actually very competitive.
Is that really understand it.
Yes, yes, if you look at it.
Oral eight inch operation yes.
I understand.
Okay.
The next question is regarding to the compound semi I think UMC has a subsidiary for the come on CME.
So recently, we do see some.
Stronger than expected demand with that so can you comment on your strategy for to come on with any are you are you going to expand it or what.
What's the key application.
The pocket for your I'll come back to Amy.
Yeah.
I mean this is definitely an area.
Area for Us and we have devoted to this market and we haven't put in our resource and yeah.
The technology development team on the project.
I think the market has significant potential.
Potential.
At this point, we're still relatively small at the beginning.
At the early stage.
Yeah.
Business development, and we remain pretty confident about that.
We seem to come home space. They are different market segments and we are we are at this point we are in.
The process decided you know some of the selected area that we believe we can be relevant.
And so and once we have concluded that we actually be able to share that with you. We're not going to go out to address the overall come down but that will be selected area that we're going to be focused on and and and.
And focus on those areas and continue executing our plan to make sure that we will be relevant within those space.
But where you tend to upgrade them in terms of expanding your capacity for the compound Jamie.
I mean, given the compounds you know market outlook I don't think the capacity is critical at a critical juncture yet.
We haven't we have a sufficient capacity to support our current activities and once the EBIT.
As the demand requires additional capacity was definitely an aggressive pursuing okay.
Understand thank you.
Sure.
And it's one frankly HSBC go ahead please.
Thank you guys.
Wanted to ask maybe a longer term question in terms of we've seen in the industry. Some of your peers are now talking about expanding and even maybe expanding in other countries.
See a lot of discussions about yeah.
The other geopolitically countries wanted to reestablish the semiconductor supply chain is this something that you would consider as well in terms of expanding in other regions outside of Asia.
Well, we have been very diversified as you know we have facility in Japan, we have facility in Singapore.
China as well so we have been very diversified in the past and we will continue to do that and we will come to you to explain that.
You know given the the reason a heightened semiconductor market.
In many country or many regions adopt.
Adopting some of the incentive incentive plan for building a facility in those locations.
Suddenly.
He knows and the key of.
The building a new Greenfield facility is not only the hour is also the customer engagement. So we are open to customer feedback and along with our ROI.
Iterations and what's happening.
Make sure that we follow are.
Disciplined capex philosophy, so and if there is a decision on certain locations, we will disclose that accordingly.
Okay. Thank you and then I have a just a follow up question on I guess, the Capex and capital intensity based on your Capex for 2021, a $2 3 billion. It seems to suggest your capex to sales has been arrived to about 30% versus 15 last year.
As we go forward in the.
The next couple of years should how should we think about this capital intensive business. I know you have an LTA for your P. Six but just in general should we should be thinking at 30% as kind of a new norm or can you give us any kind of clues or indication of how we should think about it.
We don't really too capital intensive keep banging away, we do monitor all.
Possibilities structures.
Affordability, but more importantly, Jason mentioned.
So related to customer engagement, and our technology differentiation et cetera, So we want to be a relevant player.
Customer can stick with UMC for longer time, so all the capex.
Capex is now really young our COO.
Pure capital intensity point of view.
A combination of various reasons.
Okay, so, but I guess, so theres no real target that we should look at it in terms of what that capital intensity will look like because I think it's quite a big change in the past year, but going forward.
There isn't any explicit target we should think about.
I think there's a boundary internal boundaries I mean, we don't want to overspend.
For sure we don't want to be overly aggressive in terms of our affordability.
We don't also.
Just for the sake of spending would we if we have money and we just suspended its not the case, where you really have to.
Okay.
Customers are at risk mitigation.
The allergy as well as the future longer.
A longer term.
Corporate Department planning so.
Even we can't afford it or we may not do it depends on the customers' needs.
And customer engagement.
Yeah.
Okay. Thanks.
At the capital intensity is more of the assets that measurement right I mean.
The the.
The condition that we measure is really.
We invested in the right high at the right place with the right know and with the right customers. So so if we believe is.
We've seen the UMC affordability level, and and and meeting all the conditions that we set out to do and follow our Capex a disciplined philosophy and then we will release the capex envelope will approve.
Prove that Capex and then released it.
So the after the fact, it's definitely be able to come back and measure that intensity issue, but the intensive he wasn't at the first level of concentration.
Okay, Alright, thank you very much.
Thank you and we are taking the last question. The last one Goku Honey Harlan of Jpmorgan go ahead. Please.
Yeah. Thanks, I just wanted to delve into some of the demand related and it makes it even though there's a lot of concerns about a cycle ending among investors.
The amount of UMC management look at and looking at S. S demand book and.
And how do you get comfort about our continued growth into next year, especially in your modeling foundry necessary to grow double digit and UMC to grow even faster than that could you share with us some of those.
How are you kind of level of comfort around that fact.
And is there some kind of a book to bill or a non supported demand kind of expectation that you monitor, which which you can chat to give some comfort to the market and also thank you.
Well, we did observe sounder softness as we mentioned earlier.
D.
Uh huh.
In 2022, despite a lower contribution in wafer demand associated.
Associated with the Wolfram home at home learning.
We still expect R&D team.
The amount will continue and we call it structural demands.
<unk> Iot and those demand remained strong and deep.
We still have a significant unfulfilled demand.
Within those segments and.
And well we estimated the growth of the market is at 12% along with our current alignment with the customer we've seen we'd be able to outgrow that NDA.
So.
It's India and also we have.
Tracking the AR the overall inventory situation, we see some rights of the inventory, but we also see some of the shortage of components. You know there is some of the longer lease shorter Lake and then we have some triangulate that along with the end customer our customer and that right dialogues.
The competence.
We still on the shorter side of the supply side.
So.
While we are still under a catch up mode and is further validated that Saudi is softness being fulfilled with the unfulfilled demand immediately and so we still do.
At this point, we still feel confident about the 2022 outlook.
Okay. Thank you very much.
Sure Yeah.
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 for closing remarks.
Thank you everyone for attending this conference today.
We appreciate your questions.
Always if you have any additional follow up questions. Please feel free to contact UMC.
I usually have a good day.
Thank you and ladies and gentlemen that concludes our conference for third quarter 2021, we thank you for your participation in Umc's conference there will be a webcast replay within an hour. Please visit www UMC com onto the investors events section you may now disconnect Goodbye.