UMC Reports Third Quarter 2019 Results

UMC Reports Third Quarter 2019 Results

UMC fully acquires USJC, which will enhance company’s market share by 10%
3Q19 EPS jumps 67% QoQ to NT$0.25 per share  Third Quarter 2019 Overview1:

Revenue: NT$37.74 billion (US$1.22 billion)

Gross margin: 17.1%

Foundry revenue from 28nm: 12%; Foundry operating margin: 6.9%

Foundry capacity utilization rate: 91%

Net income attributable to stockholders of the parent: NT$2.93 billion (US$94 million)

Earnings per share: NT$0.25; earnings per ADS: US$0.040

TAIPEI, Taiwan–(BUSINESS WIRE)–United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the third quarter of 2019.

Third quarter consolidated revenue was NT$37.74 billion, up 4.7% QoQ from NT$36.03 billion in 2Q19 and down 4.2% YoY from NT$39.39 billion in 3Q18. Consolidated gross margin for 3Q19 was 17.1%. Net income attributable to stockholders of the parent was NT$2.93 billion, with earnings per ordinary share of NT$0.25.

Jason Wang, co-president of UMC, said, “In the third quarter, foundry revenue grew 4.8% QoQ to NT$37.73 billion, leading to a foundry operating margin of 6.9%. Utilization rate increased to 91%, bringing wafer shipments to 1.81 million 8-inch equivalent wafers. The increase in wafer demand was primarily driven by inventory restocking in the wireless communication markets, which included products such as WiFi, RF switch and power management ICs. On October 1st, UMC also completed the full acquisition of MIFS, a 300mm fab based in Japan that is currently manufacturing 90nm, 65nm and 40nm products. The fab, which fits our specialty technology focus and long term growth projections, has been renamed United Semiconductor Japan Co., Ltd. (USJC). USJC will increase our foundry market share, provide business synergies and benefit from economies of scale while broadening UMC’s comprehensive specialty and logic technologies to serve Japanese and international customers.”

Co-president Wang further commented, “Looking to the fourth quarter, based on customers’ forecasts, the overall business outlook appears to remain firm primarily due to sustained wafer demand from new product deployment across communications and computing market segments. These product rollouts include RF ICs and OLED driver ICs found in 5G smartphones and power management ICs designed into computing and solid-state drive applications. We expect these product releases to enable UMC to further gain market share in 5G wireless devices as well as in non-volatile memory applications. We will continue to pursue our corporate strategy of focusing on business expansion in mature specialty and logic technologies while delivering world-class service to our customers. With UMC’s economy of scale and our core strength in foundry technologies, we look forward to securing new business opportunities by delivering a variety of differentiated manufacturing solutions in the semiconductor industry.”

Summary of Operating Results

Operating Results

(Amount: NT$ million)

3Q19

2Q19

QoQ %
change

3Q18

YoY %
change

Operating Revenues

37,738

36,031

4.7

39,387

(4.2)

Gross Profit

6,433

5,652

13.8

6,922

(7.1)

Operating Expenses

(5,131)

(5,578)

(8.0)

(5,702)

(10.0)

Net Other Operating Income and Expenses

1,207

1,687

(28.4)

1,215

(0.6)

Operating Income

2,509

1,761

42.5

2,435

3.0

Net Non-Operating Income and Expenses

(532)

(617)

(13.9)

(1,606)

(66.9)

Net Income Attributable to Stockholders of the Parent

2,929

1,740

68.3

1,720

70.2

EPS (NT$ per share)

0.25

0.15

 

0.14

 

(US$ per ADS)

0.040

0.024

 

0.023

 

Operating revenues in 3Q19 grew 4.7% to NT$37.74 billion, including NT$37.73 billion from the foundry segment. Revenue contribution from 40nm and below technologies slightly increased to 38%. Gross profit increased 13.8% quarterly to NT$6.4 billion, or 17.1% of revenue. Operating expenses declined 8.0% to NT$5.13 billion. Net other operating income declined to NT$1.21 billion, leading to an operating income of NT$2.51 billion. Net non-operating expense was NT$532 million. Net income attributable to stockholders of the parent was NT$2.93 billion.

Earnings per ordinary share for the quarter was NT$0.25. Earnings per ADS was US$0.040. The basic weighted average number of outstanding shares in 3Q19 was 11,708,239,978, compared with 11,817,657,562 shares in 2Q19 and 12,053,892,152 shares in 3Q18. The diluted weighted average number of outstanding shares was 13,049,025,428 in 3Q19, compared with 13,079,662,179 shares in 2Q19 and 13,354,955,886 shares in 3Q18. The fully diluted share count on September 30, 2019 was approximately 13,065,104,000.

Detailed Financials Section

COGS & Expenses

(Amount: NT$ million)

3Q19

2Q19

QoQ %
change

3Q18

YoY %
change

Operating Revenues

37,738

36,031

4.7

39,387

(4.2)

COGS

(31,305)

(30,379)

3.1

(32,465)

(3.6)

Depreciation

(10,707)

(11,424)

(6.3)

(11,549)

(7.3)

Other Mfg. Costs

(20,598)

(18,955)

8.7

(20,916)

(1.5)

Gross Profit

6,433

5,652

13.8

6,922

(7.1)

Gross Margin (%)

17.1%

15.7%

 

17.6%

 

Operating Expenses

(5,131)

(5,578)

(8.0)

(5,702)

(10.0)

G&A

(1,344)

(1,251)

7.5

(1,386)

(2.9)

Sales & Marketing

(970)

(953)

1.8

(987)

(1.8)

R&D

(2,813)

(2,787)

0.9

(3,329)

(15.5)

Expected Credit Losses

(4)

(587)

(99.4)

100.0

Net Other Operating

Income & Expenses

1,207

1,687

(28.4)

1,215

(0.6)

Operating Income

2,509

1,761

42.5

2,435

3.0

Operating revenues grew 4.7% to NT$37.74 billion. COGS increased 3.1% to NT$31.31 billion, as depreciation declined 6.3% to NT$10.71 billion while other manufacturing costs increased 8.7% to NT$20.60 billion primarily due to higher wafer shipments. Gross profit grew 13.8% to NT$6.43 billion. Operating expenses declined 8.0% to NT$5.13 billion. R&D expense represented 7.5% of 3Q19 operating revenues and net other operating income was NT$1.21 billion. In 3Q19, the company realized an operating income of NT$2.51 billion.

Non-Operating Income and Expenses

(Amount: NT$ million)

3Q19

2Q19

3Q18

Non-Operating Income and Expenses

(532)

(617)

(1,606)

Net Interest Income and Expenses

(503)

(497)

(507)

Net Investment Gain and Loss

736

69

(126)

Exchange Gain and Loss

(752)

(182)

(961)

Other Gain and Loss

(13)

(7)

(12)

Net non-operating expense in 3Q19 was NT$532 million, mainly resulting from NT$752 million in exchange loss and NT$503 million in net interest expense, partly offset by NT$736 million in net investment gain.

Cash Flow Summary

(Amount: NT$ million)

For the 3-Month
Period Ended

Sep. 30, 2019

For the 3-Month
Period Ended

Jun. 30, 2019

Cash Flow from Operating Activities

(3,080)

12,268

Net income before tax

1,977

1,144

Depreciation & Amortization

12,050

12,185

Expected credit losses

4

587

Share of profit of associates and

joint ventures

(109)

(201)

Income tax paid

(99)

(135)

Changes in working capital & others

(16,903)

(1,312)

Cash Flow from Investing Activities

(3,968)

(4,188)

Acquisition of PP&E

(3,550)

(3,904)

Acquisition of intangible assets

(732)

(247)

Others

314

(37)

Cash Flow from Financing Activities

4,137

(6,467)

Bank loans

11,168

(1,197)

Redemption of bonds

(2,500)

Treasury stock acquired

(2,641)

Cash dividends

(6,914)

Others

(117)

(129)

Effect of Exchange Rate

(692)

10

Net Cash Flow

(3,603)

1,623

Beginning balance

90,356

88,738

Changes in non-current assets held for sale

2

(5)

Ending balance

86,755

90,356

In 3Q19, the company set aside an amount of JPY 54.4 billion as other current assets in order to complete the acquisition of USJC. As a result, cash outflow from operating activities was NT$3.08 billion. Free cash outflow was NT$7.27 billion due to the PP&E spending of NT$3.55 billion and NT$732 million in the acquisition of intangible assets. Cash inflow from financing activities totaled NT$4.14 billion, primarily from NT$11.17 billion in bank loans, partly offset by NT$6.91 billion in the payment of cash dividends. Net cash outflow in 3Q19 was NT$3.60 billion. Over the next 12 months, the company expects to repay NT$3.13 billion in bank loans.

Current Assets

(Amount: NT$ billion)

3Q19

2Q19

3Q18

Cash and Cash Equivalents

86.76

90.36

81.52

Notes & Accounts Receivable

23.41

24.39

25.61

Days Sales Outstanding

58

60

61

Inventories, net

19.99

19.63

17.59

Days of Inventory

58

58

50

Total Current Assets

163.49

150.51

140.15

Cash and cash equivalents decreased to NT$86.76 billion. Days of inventory remained at 58 days.

Liabilities

(Amount: NT$ billion)

3Q19

2Q19

3Q18

Total Current Liabilities

70.33

77.06

51.43

Notes & Accounts Payable

6.63

6.91

6.89

Short-Term Credit / Bonds

40.08

39.43

20.33

Payable on Equipment

3.00

2.60

2.59

Dividends Payable

6.92

Other

20.62

21.20

21.62

Long-Term Credit / Bonds

55.23

45.39

67.46

Long-Term Investment Liabilities

20.17

20.83

20.16

Total Liabilities

169.00

167.84

160.11

Debt to Equity

82%

83%

75%

Current liabilities decreased to NT$70.33 billion. Total liabilities increased to NT$169.00 billion, leading to a debt to equity ratio of 82%.

Analysis of Revenue2 for Foundry Segment

Revenue Breakdown by Region

Region

3Q19

2Q19

1Q19

4Q18

3Q18

North America

33%

31%

32%

38%

34%

Asia Pacific

59%

59%

57%

51%

52%

Europe

6%

7%

7%

8%

11%

Japan

2%

3%

4%

3%

3%

Revenue from Asia Pacific remained at 59%, while revenue contribution from North American customers climbed to 33%. Revenue from Europe and Japan was 6% and 2%, respectively.

Revenue Breakdown by Geometry

Geometry

3Q19

2Q19

1Q19

4Q18

3Q18

14nm and below

0%

0%

0%

1%

5%

14nm

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