UMC Reports Second Quarter 2015 Results

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Jul 29, 2015 - we mentioned during our 1Q conference call is expected to continue. Current weakness ..... Dial-in number
Contacts: Bowen Huang / David Wong UMC, Investor Relations + 886-2-2658-9168, ext. 16900 [email protected] [email protected]

UMC Reports Second Quarter 2015 Results 2Q results meet guidance; inventory correction to continue through 2H15

Second Quarter 2015 Overview1:  Revenue: NT$38.01 billion (US$1.23 billion)  Gross margin: 22.9%; operating margin: 10.2%  Foundry revenue from advanced nodes: 11% from 28nm, 22% from 40nm  Foundry capacity utilization rate: 94%  Net income attributable to the stockholders of the parent: NT$4.60 billion (US$149 million)  Earnings per share: NT$0.37; earnings per ADS: US$0.060 Taipei, Taiwan, ROC – July 29, 2015 – United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the second quarter of 2015. Revenue was NT$38.01 billion, with gross margin at 22.9% and operating margin at 10.2%. Net income attributable to the stockholders of the parent was NT$4.60 billion, with earnings per ordinary share of NT$0.37. Po-Wen Yen, CEO of UMC, said “In the second quarter of 2015, our foundry business performed within expectations, posting NT$36.52 billion in revenues and gross margin of 25.1%. Wafer shipments reached an all-time high of 1.54 million 8-inch equivalent wafers, leading to an overall capacity utilization rate of 94%. Our 28nm shipments continued to increase as 2Q15 contribution reached 11% of sales, primarily from the communication sector. The New Business segment recorded NT$1.83 billion in revenue, with a net loss of NT$170 million. Topcell Solar Inc. officially merged into Motech Industries Inc. on June 1, 2015, resulting in UMC owning approximately 9% of Motech equity shares. As such, we will no longer consolidate its operating 1

Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with TIFRSs recognized by Financial Supervisory Commission in the ROC, which is different from IFRSs issued by the International Accounting Standards Board. They represent comparisons among the three-month period ending Jun 30, 2015, the three-month period ending Mar 31, 2015, and the equivalent three-month period that ended Jun 30, 2014. For all 2Q15 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the Jun 30, 2015 exchange rate of NT$ 30.85 per U.S. Dollar.

Page 1 of 12

UMC 2Q15

performance into UMC’s financial statements.” CEO Yen continued, “Looking into 3Q, the limited end-market visibility and inventory correction we mentioned during our 1Q conference call is expected to continue. Current weakness in overall demand, partly due to the uncertainties in economic outlook, will prolong the inventory adjustment through the second half of 2015. However, we continue to enhance our foundry services, such as our recently announced 14nm FinFET IP collaborations with Synopsys and ARM to accelerate process verification on our 14nm platform. UMC also announced the availability of a new 55nm ultra-low-power process from ARM, aimed to maximize battery life for IoT applications. For Through-Silicon-Via (TSV), we recently ramped to volume production our TSV and silicon interposer process used on AMD’s flagship Radeon GPU. These engineering efforts will strengthen our advanced and mature node offering and enhance UMC’s competitive edge in the foundry industry. In addition, shareholders have approved a dividend payout of NT$0.55 per share for fiscal 2014, balancing UMC’s commitment to shareholders while maximizing the opportunities towards business growth. UMC strives to provide enhanced corporate profitability by delivering the highest quality manufacturing services in order to ensure long term shareholder value.”

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UMC 2Q15

Summary of Operating Results Operating Results (Amount: NT$ million)

Net Operating Revenues Gross Profit Operating Expenses Net Other Operating Income and Expenses

2Q15

1Q15

QoQ % change

2Q14

YoY % change

35,869

6.0

38,012

37,650

8,723

9,155

(4.7)

8,207

6.3

(4,864)

(4,914)

(1.0)

(5,280)

(7.9)

17

(142)

1.0

(10)

-

-

Operating Income

3,876

4,099

(5.4)

2,917

32.9

Net Non-Operating Income and Expenses

1,304

255

411.4

937

39.2

Net Income Attributable to Stockholders of the Parent

4,600

3,980

15.6

3,482

32.1

(NT$ per share)

0.37

0.32

0.28

(US$ per ADS)

0.060

0.052

0.045

EPS

During 2Q15, higher wafers shipments led to NT$36.52 billion in revenue from the foundry segment. New Business recorded NT$1.83 billion in sales, resulting in a consolidated revenue of NT$38.01 billion, up 1.0% from 1Q15. Net income from the foundry business reached NT$4.67 billion, while New Business segment posted NT$170 million in net loss. On a consolidated basis, gross profit reached NT$8.72 billion, or 22.9% of revenue, while operating income was NT$3.88 billion or 10.2% of revenue. Net income attributable to the stockholders of the parent was NT$4.60 billion, compared to NT$3.98 billion in 1Q15. Earnings per ordinary share for the quarter were NT$0.37. Earnings per ADS were US$0.060. The basic weighted average number of outstanding shares in 2Q15 was 12,572,497,200, compared with 12,526,260,458 shares in 1Q15 and 12,489,095,718 shares in 2Q14. The diluted weighted average number of outstanding shares was 13,222,544,584 in 2Q15, compared with 12,660,046,525 shares in 1Q15 and 12,607,860,758 shares in 2Q14. The fully diluted share count on June 30, 2015 was approximately 13,810,979,000. On June 30, 2015, UMC held 134 million treasury shares acquired from the 15th share buy-back program.

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UMC 2Q15

Detailed Financials Section Foundry revenue grew 1.5% to NT$36.52 billion and New Business segment recorded NT$1.83 billion, leading to a consolidated revenue of NT$38.01 billion. Depreciation increased 3.2% from 1Q15 to NT$9.40 billion, mainly from 28nm capacity deployment. Other manufacturing costs was up 2.6% QoQ to NT$19.89 billion, mostly due to higher wafer shipments in 2Q15. Operating expenses stayed almost flat at NT$4.86 billion. Net operating income was NT$3.88 billion.

Net non-operating income in 2Q15 was NT$1.30 billion, primarily from the gains recognized in the reclassification of available for sale financial assets into investments accounted for under the equity method and the merger of UMC’s solar subsidiary Topcell into Motech.

COGS & Expenses

Net Operating Revenues COGS

QoQ % change

1Q15

38,012 37,650 (29,289) (28,495)

Depreciation Other Mfg. Costs

Gross Profit Gross Margin (%) Operating Expenses G&A Sales & Marketing R&D

Net Other Operating Income & Expenses Operating Income

YoY % change

2Q14

1.0 2.8

35,869 (27,662)

6.0 5.9

3.2

(8,662)

8.6

(9,404)

(9,115)

(19,885)

(19,380)

2.6

(19,000)

4.7

8,723 22.9% (4,864)

9,155 24.3% (4,914)

(4.7)

6.3

(1.0)

8,207 22.9% (5,280)

(919)

(953)

(3.6)

(857)

(7.9) 7.2

(930)

(1,045)

(11.0)

(1,097)

(15.2)

(3,015)

(2,916)

3.4

(3,326)

(9.4)

17

(142)

-

(10)

-

3,876

4,099

2,917

32.9

(5.4)

Non-Operating Income and Expenses (Amount: NT$ million)

Non-Operating Income and Expenses Net Interest Income and Expenses Net Investment Gain and Loss Gain and Loss on Disposal of Investment Exchange Gain and Loss Other Gain and Loss

Page 4 of 12

2Q15

(Amount: NT$ million)

2Q15

1Q15

2Q14

1,304

255

937

(46)

(27)

(149)

(247)

126

188

190

792

1,319 11 267

UMC 2Q15

(77) 43

(4) 110

Cash inflow from operations was Cash Flow Summary NT$11.46 billion. In 2Q15, CAPEX spending was NT$12.03 billion, (Amount: NT$ million) including NT$11.94 billion for the foundry segment, resulting in a free cash Cash Flow from Operating Activities Net income before tax outflow of NT$575 million. Cash inflow Depreciation & Amortization from financing was NT$13.82 billion, Bad debt reversal primarily from NT$18.43 billion in the Gain on disposal of investments issuance of convertible bonds. Over the Impairment loss on financial assets next 12 months, the company expects to Exchange gain on financial assets repay NT$3.94 billion in bank loans. and liabilities

Changes in working capital Income tax paid Other

For the 3-Month For the 3-Month Period Ended Period Ended Jun. 30, 2015 Mar. 31, 2015

11,459

16,870

5,180

4,354

11,194

10,748

(173)

(9)

(1,319)

(190)

416

63

(204)

(13)

(2,066) (1,305)

2,315 (366)

(264)

(32)

(14,757)

(16,498)

(12,034)

(14,893)

assets

(665)

(1,897)

Disposal of subsidiaries

(835)

Cash Flow from Investing Activities Capital expenditures Acquisition of available-for-sale financial

-

Proceeds from disposal of non-current assets held for sale

-

Changes in refundable deposits

(1,286)

(1)

Changes in other assets-others

(54)

(517)

Other

117

168

13,824

8,155

Bank loans

(5,253)

1,716

Bonds Issued

18,425

-

-

6,108

Cash Flow from Financing Activities

Increase in other financial liabilities Treasury stock sold to employees

677

-

Other

(25)

331

(443)

(776)

10,083

7,751

53,632

45,701

331

180

64,046

53,632

Effect of Exchange Rate Net Cash Flow Beginning balance Changes in non-current assets held for sale

Ending Balance

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642

UMC 2Q15

Cash and cash equivalents increased to NT$64.05 billion, mainly due to NT$18.43 billion from the issuance of convertible bonds. Days of sales outstanding decreased by 2 days to 50 days. Days of inventory remained unchanged at 49 days.

Current Assets (Amount: NT$ billion)

Cash and Cash Equivalents Notes & Accounts Receivable Days Sales Outstanding

Inventories, net Days of Inventory

Total Current Assets

Current liabilities decreased to NT$43.49 billion, mainly from a NT$5.52 billion decrease in short term credit and a NT$6.94 billion increase from the accrual for 2014 dividends. Long-term credit and bond increased to NT$50.75 billion mainly due to the issuance of convertible bond, increasing debt to equity ratio to 48%.

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2Q15 64.05 21.44

1Q15 53.63 20.62

2Q14 49.63 21.62

50

52

52

16.05

15.64

13.84

49

49

47

109.22

101.03

98.37

Liabilities (Amount: NT$ billion)

Total Current Liabilities

2Q15 43.49

1Q15 2Q14 44.44 49.68

Notes & Accounts Payable

6.47

6.38

6.85

Short-Term Credit / Bonds

5.33

10.85

15.75

Payables on Equipment

9.30

7.41

7.19

Dividends payable

6.94

-

6.25

15.45

19.80

13.64

50.75 5.98 106.87 48%

34.89 6.03 91.80 40%

31.92 88.69 41%

Other

Long-Term Credit / Bonds Long-Term Investment Liabilities Total Liabilities Debt to Equity

UMC 2Q15

Analysis of Revenue2 for Foundry Segment Revenue contribution from AsiaPacific increased to 42% in 2Q15, partly from higher consumer demand from Asian customers.

Revenue Breakdown by Region Region

2Q15

1Q15

4Q14

3Q14

2Q14

North America

46%

47%

45%

45%

43%

Asia Pacific

42%

40%

42%

44%

46%

Europe

6%

7%

8%

6%

5%

Japan

6%

6%

5%

5%

6%

Revenue Breakdown by Geometry

28nm business grew to 11% of revenue in 2Q15, while 40nm accounted for 22% of sales.

Geometry

The consumer segment showed the strongest sequential growth, accounting for 28% of sales in 2Q15, while communication revenue contribution decreased by 1% to 55%.

4Q14

3Q14 2Q14

11%

9%

7%

3%

1%

22%

24%

21%

24%

21%

40nm