United Microelectronics Corporation, a global semiconductor foundry, has announced its unconsolidated operating results for the first quarter of 2006.
"Demand in first quarter was very close to our original expectations," said UMC Chairman and CEO, Dr. Jackson Hu. "In fact, it was even slightly better. Our performance in the quarter was at the upper range of our guidance, with revenue reaching NT$24.4 billion and profitability beating our earlier projections."
Dr. Hu continued, "For second quarter, as a whole, we believe that demand will be in line with seasonal norms. Computer sector demand will be relatively weak due to seasonal inventory adjustments. At the same time, we have seen handset demand start to accelerate, which is about one to two months earlier than typical seasonal trends. Our understanding is that demand for entry-level handsets in developing markets such as India, Africa, Indonesia and China will see very high growth this year. Therefore, handset related components should be in strong demand. In particular, our production of 90nm and 0.13um wafers for existing customers as well as new customers that have recently entered volume production will increase significantly. In addition, it is worth noting that we will start volume production for a graphic chip customer during the quarter. Therefore, our visibility looking beyond to the 3rd quarter is good, and we are expecting double-digit revenue growth and a large improvement in profitability."
"We are also seeing strong demand for 65nm technologies, and are progressing smoothly in the roll-out of this process. UMC led all foundries with the delivery of its first 65nm customer product back into June 2005. We are currently producing these 65nm chips at Fab 12A in small volume quantities and expect to receive eleven product tape-outs from eight customers by the end of this summer. We believe UMC's success at 65nm will lead the Company to continued growth in the coming years."
Revenue decreased 11.2% quarter over quarter to NT$24.38 billion, from NT$27.47 billion in fourth quarter 2005, and increased 20.2% year over year, from NT$20.29 billion in first quarter 2005. Gross profit was NT$3.26 billion, or 13.3% of revenue, compared to NT$4.97 billion, or 18.1% of fourth quarter 2005 revenue. Operating profit for the quarter was NT$85 million, or 0.3% of revenue, compared to NT$928 million, or 3.4% of fourth quarter 2005 revenue. Lower wafer shipments due to a seasonal order adjustment by several customers was the primary reason for the decrease in profits, and gross and operating margins during the first quarter. Non-operating income was NT$14.09 billion and net income was NT$12.29 billion in first quarter 2006. Both were significantly higher than those of fourth quarter 2005, mainly due to the investment disposal gain of Hsun Chieh Investments Corporation in January 2006.
Earnings per ordinary share (EPS) for the quarter were NT$0.67. Earnings per ADS (EPADS) were US$0.103. This compares with fourth quarter 2005 earnings per ordinary share of NT$0.16 and earnings per ADS of US$0.025. One ADS represents five Taiwan listed ordinary shares. The basic weighted average outstanding shares in first quarter 2006 were 18,454,530,476 shares, compared with 18,257,183,074 shares in fourth quarter 2005 and 18,502,837,168 shares in first quarter 2005. The diluted weighted average outstanding shares were 19,053,224,988 shares in first quarter 2006, compared with 18,545,963,971 shares in fourth quarter 2005 and 18,587,343,391 shares in first quarter 2005. The increase in the number of basic and diluted weighted average outstanding shares was mainly due to the reclassification of UMC shares held by Hsun Chieh Investments Corp, which were reclassified from treasury stock to outstanding stock after UMC sold 63.5% of Hsun Chieh Investments corporation on Jan. 27, 2006.
Detailed Financials Section
Depreciation and amortization expenses totaled NT$12.09 billion in first quarter 2006, compared to NT$12.73 billion in fourth quarter 2005. Depreciation within COGS was down by 3.7% to NT$10.57 billion, due to lower depreciation of 8" fabs. Other manufacturing costs within COGS declined to NT$10.56 billion, which reflected lower costs associated with a decrease in wafer shipments. Total operating expenses decreased by 21.6% to NT$3.17 billion. G&A expenses decreased to NT$532 million, largely because of the adoption of revised SFAS No. 25 starting on Jan. 1, 2006. Under the revised rule, goodwill is not amortized. Instead, it has to be tested for impairment at least annually under SFAS No. 35. The total R&D expense was 8.3% of revenue in first quarter 2006.
Net non-operating income during first quarter 2006 was NT$14.09 billion, which did not include the one-off NT$1.19 billion of cumulative effect on adoption of SFAS No. 34. Gains on the disposal of investments were NT$14.24 billion. This included gains from the sale of Hsun Chieh Investments corporation and MediaTek shares amounting to NT$13.15 billion and NT$565 million respectively. Net investment losses were NT$437 million, which included losses on valuation of financial assets under newly enacted SFAS No.34 and a NT$286 million loss from UMCJ in first quarter 2006.
The net cash outflow was NT$225 million in first quarter 2006. The decrease in operating cash flow mainly reflects lower revenue during the quarter. The financing cash outflow included NT$14.78 billion in cash outflow for share repurchases. Over the next 12 months, the company expects to repay NT$10.25 billion in corporate bonds.
The percentage of revenue from 90nm and 0.13um business decreased to 33% quarter over quarter from 38% in fourth quarter 2005, mainly due to soft demand for communication chips. The percentage of revenue from 0.18um and below was 66% in first quarter 2006, which was slightly better than the 65% level that was predicted in our original guidance.
The percentage of revenue from Fabless customers increased to 73% in first quarter 2006 from 67% in fourth quarter 2005.
Revenue from the communication segment decreased to 51% of total revenue in first quarter 2006 due to a slowdown of orders from both wired and wireless communication customers in fourth quarter 2005. The percentage of revenue from the computer segment decreased to 19% due to softness in seasonal demand for PC chipsets and peripheral components.
Blended Average Selling Price Trend
The blended average selling price (ASP) decreased by 2% during first quarter 2006 due to lower demand for leading-edge process technologies.
Shipment and Utilization Rate
754 thousand 8-inch equivalent wafers were shipped in first quarter 2006, which was a 6.9% decrease from the 810 thousand 8-inch equivalent wafers that were shipped in the previous quarter, but a 33.7% increase over first quarter 2005. Overall utilization rate for the quarter was 79%. This utilization rate includes a 5% loss in productivity due to scheduled annual maintenance.
Total capacity during first quarter 2006 was 985 thousand 8-inch equivalent wafers, which was an increase of 12 thousand 8-inch equivalent wafers compared to fourth quarter 2005. The increase was mainly due to capacity expansion at Fab 12A. The installed capacity in 2Q06 is expected to be 1,002 thousand 8-inch equivalent wafers. The increase in estimated capacity during 2Q06 is expected to come from additional 12-inch capacity expansion at Fab 12A and Fab 12i.
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