United Microelectronics : UMC Reports Third Quarter 2016 Results

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 2016.

Third quarter consolidated revenue was NT$38.16 billion, up 3.2% quarterly from NT$37 billion in 2Q16 and an increase of 8.1% YoY from NT$35.32 billion in 3Q15. 3Q16 consolidated gross margin was 21.8%. Net income attributable to the stockholders of the parent was NT$2.98 billion, with earnings per ordinary share of NT$0.24.

Mr. Po-Wen Yen, CEO of UMC, said, “In the third quarter of 2016, UMC’s foundry revenue increased 3.2% sequentially to NT$38.05 billion. Foundry operating margin was 5.5% as wafer shipments grew to 1.57 million 8-inch equivalent wafers, with quarterly capacity utilization remaining at 89%. During the quarter, our 28nm business exceeded 20% of quarterly revenue for the first time, mainly driven by strong chip demand within the communication segment. Our new high in 28nm contribution reflects customers’ robust wafer demand at our 300mm flagship Fab 12A in Tainan, Taiwan, which has demonstrated mature technology status with consistent yields to reach economy of scale. To further expand our 28nm market share into new applications, UMC has announced the availability of Faraday's 12.5G SerDes PHY on our 28HPC^u platform. The introduction of this IP highlights our ongoing efforts to introduce new features on UMC's 28nm process, including a wide range of high speed transfer interface IP for optical networking and other telecommunication applications. UMC also introduced Faraday’s PowerSlash^TM fundamental IP cells, which can be incorporated into our 55nm ULP (ultra low-power) technology to create an optimized low power operating environment for wireless applications such as those used in applications for Internet of Things (IoT).”

CEO Yen continued, “Turning our attention to the fourth quarter, we anticipate a flat outlook. We expect our Fab 12X in Xiamen, China to enter production for 40/55nm products to address the strong demand in China’s chip market. The production of Fab 12X signifies an important milestone as we enter China’s high growth IC supply chain to realize new market opportunities. Fab 12X’s location in Xiamen serves as an ideal manufacturing location for customers seeking to diversify their 12” manufacturing needs. We look forward to a successfully ramping production of our 12" Xiamen fab, which will strengthen UMC's global presence in the semiconductor industry. Fab 12X will continue to follow UMC’s core values and protocols in sustainable semiconductor manufacturing, which have been implemented throughout UMC’s global fabs. Through our green manufacturing, we hope to set positive industry examples through concrete actions in order to combat global warming, enhance resource conservation and save energy. UMC’s selection as a DJSI Global Component for the ninth consecutive year highlights our active participation in environment protection, community service and sustainable manufacturing practices, which reflects our commitment to attain higher corporate social responsibility goals.”

Summary of Operating Results

Net operating revenues in 3Q16 increased 3.2% to NT$38.16 billion, including NT$38.05 billion from the foundry segment, as 28nm contribution grew to 21% sales. Gross profit was NT$8.30 billion, or 21.8% of revenue. Operating expenses increased 8.8% sequentially to NT$6.37 billion. Net other operating expenses was NT$443 million, leading to an operating income of NT$1.49 billion. Net non-operating income was NT$466 million. Net income attributable to stockholders of the parent in 3Q16 grew 15.2% to NT$2.98 billion.

Earnings per ordinary share for the quarter was NT$0.24. Earnings per ADS was US$0.038. The basic weighted average number of outstanding shares in 3Q16 was 12,208,239,978, compared with 12,334,888,329 shares in 2Q16 and 12,524,504,594 shares in 3Q15. The diluted weighted average number of outstanding shares was 13,402,233,597 in 3Q16, compared with 13,460,073,526 shares in 2Q16 and 13,694,010,855 shares in 3Q15. The fully diluted share count on September 30, 2016 was approximately 13,818,312,000. On September 30, 2016, UMC held 400 million treasury shares acquired from the 16th and 17th share buy-back programs.

Detailed Financials Section

Consolidated revenues increased to NT$38.16 billion. COGS rose 4% to NT$29.86 billion, as depreciation remained flat at NT$11.27 billion, while other manufacturing costs increased 6.5% to NT$18.59 billion, mainly from higher wafer shipments. Gross profit was NT$8.30 billion. Operating expenses grew 8.8% to NT$6.37 billion. G&A and Sales & Marketing grew to NT$1.77 billion and NT$1.21 billion, respectively, which included expenses related to the initial production at Fab 12X. R&D expenses increased 5.3% to NT$3.40 billion or 8.9% of operating revenues. Higher operating expense and a NT$455 million impairment loss from a solar subsidiary company, Nexpower, resulted in an operating income of NT$1.49 billion in 3Q16.

Net non-operating income in 3Q16 was NT$466 million, including a NT$834 million net investment gain, which was mainly offset by a NT$338 million in exchange loss and a NT$326 million loss from net interest expense.

Cash inflow from operating activities reached NT$13.89 billion. Cash outflow from investing activities totaled NT$15.40 billion, including NT$19.86 billion in CAPEX spending for the foundry segment, resulting in a free cash outflow of NT$5.97 billion. Cash inflow from financing activities was NT$8.89 billion, mainly due to a cash inflow of NT$13.45 billion in bank loans, the capital injection from United Semiconductor (Xiamen) leading to the increase in other financial liabilities of NT$2.35 billion and a cash dividend payment of NT$6.91 billion. Net cash inflow for 3Q16 was NT$5.84 billion. Over the next 12 months, the company expects to repay NT$3.73 billion in bank loans.

Cash and cash equivalents increased to NT$55.27 billion, mostly due to bank loans of NT$13.45 billion and the capital injection for United Semiconductor (Xiamen), which was offset by NT$6.91 billion in cash dividend payment. Days of inventory remained at 53 days.

Current liabilities increased to NT$83.44 billion, primarily reflecting an increase in short-term credit, offset by cash dividend payment. Long-term investment liabilities increased to NT$20.54 billion, mostly reflecting the capital injection for United Semiconductor (Xiamen) from non-UMC shareholders which increased long-term investment liabilities due to the share buy-back agreement. Total liabilities increased to NT$155.96 billion, leading to a debt to equity ratio of 71%.

Analysis of Revenue² for Foundry Segment

Revenue from North America and Asia Pacific accounted for 52% and 42% of 3Q16 sales, respectively.

Revenue from 28nm technologies accounted for 21% of 3Q16 revenue, reflecting strong wafer demand within the communication segment. 40nm constituted 27% of sales.

Fabless customers continued to account for 93% of revenue in 3Q16.

Revenue from the communication segment stayed unchanged at 55% of sales, while consumer business was 26%. Computer related applications rose to 12%, partly fueled by tablet computing products.

⁽¹⁾Computer consists of ICs such as CPU, GPU, HDD controllers, DVD/CD-RW control ICs, PC chipset, audio codec, keyboard controller, monitor scaler, USB, I/O chipset. Communication consists of handset components, broadband, WLAN, bluetooth, Ethernet, LAN, DSP, etc. Consumer consists of ICs used for DVD players, DTV, STB, MP3/MP4, flash controller, game consoles, DSC, smart cards, toys, etc.

Blended ASP Trend for Foundry Segment

Blended average selling price (ASP) increased during 3Q16.

(To view ASP trend, visit http://www.umc.com/english/investors/3Q16_ASP_trend.asp)

Shipment and Utilization Rate³ for Foundry Segment

Wafer shipments increased 3.6% to 1,569K in 3Q16. Quarterly capacity increased nearly 3.0% QoQ to 1,774K, leading to an overall utilization rate of 89% for 3Q16.

Capacity⁴ for Foundry Segment

Overall capacity in the third quarter increased to 1,774K 8-inch equivalent wafers. Estimated capacity in the fourth quarter will slightly increase to 1,794K 8-inch equivalent wafers, from the initial production ramp at Fab 12X.

⁽¹⁾One 6-inch wafer is converted into 0.5625(6²/8²) 8-inch equivalent wafer; one 12-inch wafer is converted into 2.25(12²/8²) 8-inch equivalent wafers. Capacity total figures are expressed in 8-inch equivalent wafers.

CAPEX for Foundry Segment

CAPEX spending in 3Q16 totaled US$627 million, bringing the spending for the first nine month of 2016 to US$2.14 billion. Full year 2016 CAPEX plan is budgeted for US$2.2 billion.

Fourth Quarter of 2016 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To increase by approximately 5%
• ASP in NTD: To decrease by approximately 5%
• Profitability: Gross profit margin will be in the low 20% range
• Foundry Segment Capacity Utilization: Approximately 90%
• 2016 CAPEX for Foundry Segment: US$2.2bn

Recent Developments / Announcements

Please visit UMC’s website for further details regarding the above announcements

Conference Call / Webcast Announcement

Wednesday, October 26, 2016

Time: 5:00 PM (Taipei) / 5:00 AM (New York) / 10:00 AM (London)

A live webcast and replay of the 3Q16 results announcement will be available at

www.umc.com under the “Investors / Events” section.

About UMC

UMC (NYSE: UMC, TWSE: 2303) is a leading global semiconductor foundry that provides advanced IC production for applications spanning every major sector of the electronics industry. UMC’s robust foundry solutions enable chip designers to leverage the company’s sophisticated technology and manufacturing, which include volume production 28nm gate-last High-K/Metal Gate technology, ultra-low power platform processes specifically engineered for Internet of Things (IoT) applications and the automotive industry’s highest-rated AEC-Q100 Grade-0 manufacturing capabilities for production of ICs found in cars. UMC’s 10 wafer fabs are strategically located throughout Asia and are able to produce over 500,000 wafers per month. The company employs more than 17,000 people worldwide, with offices in Taiwan, mainland China, Europe, Japan, Korea, Singapore, and the United States. UMC can be found on the web at http://www.umc.com

Note from UMC Concerning Forward-Looking Statements

Some of the statements in the foregoing announcement are forward-looking within the meaning of the U.S. Federal Securities laws, including statements about introduction of new services and technologies, future outsourcing, competition, wafer capacity, business relationships and market conditions. Investors are cautioned that actual events and results could differ materially from these statements as a result of a variety of factors, including conditions in the overall semiconductor market and economy; acceptance and demand for products from UMC; and technological and development risks. Further information regarding these and other risks is included in UMC’s filings with the U.S. Securities and Exchange Commission. UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Safe Harbor Statements

This release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended, and as defined in the United States Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of UMC to be materially different from what is stated or may be implied in such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, but not limited to: (i) dependence upon the frequent introduction of new services and technologies based on the latest developments in the industry in which UMC operates; (ii) the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets; (iii) the risks associated with international business activities; (iv) dependence upon key personnel; (v) general economic and political conditions; (vi) possible disruptions in commercial activities caused by natural and human-induced events and disasters, including natural disasters, terrorist activity, armed conflict and highly contagious diseases; (vii) reduced end-user purchases relative to expectations and orders; and (viii) fluctuations in foreign currency exchange rates. Further information regarding these and other risks is included in UMC’s filings with the United States Securities and Exchange Commission. All information provided in this release is as of the date of this release and are based on assumptions that UMC believes to be reasonable as of this date, and UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

The financial statements included in this release are prepared and published in accordance with Taiwan International Financial Reporting Standards, or TIFRSs, recognized by the Financial Supervisory Commission in the ROC, which is different from International Financial Reporting Standards, or IFRSs, issued by the International Accounting Standards Board. Investors are cautioned that there may be significant differences between TIFRSs and IFRSs. In addition, TIFRSs and IFRSs differ in certain significant respects from generally accepted accounting principles in the ROC and generally accepted accounting principles in the United States.

This presentation is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

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 Sep 30, 2016, the three-month period ending Jun 30, 2016, and the equivalent three-month period that ended Sep 30, 2015. For all 3Q16 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the Sep 30, 2016 exchange rate of NT$ 31.36 per U.S. Dollar.

² Revenue in this section represents wafer sales

³ Utilization Rate = Quarterly Wafer Out / Quarterly Capacity

⁴ Estimated capacity numbers are based on calculated maximum output rather than designed capacity. The actual capacity numbers may differ depending upon equipment delivery schedules, pace of migration to more advanced process technologies, and other factors affecting production ramp-up.

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