UMC Reports First Quarter 2011 Results

TAIPEI, Taiwan, April 27, 2011 /PRNewswire-Asia/ --

First Quarter 2011 Overview (1):

• Revenue: decreased 10.2% QoQ to NT$28.12 billion (US$956.07 million)
• Gross margin: 27.5%; operating margin: 15.8%
• Capacity utilization: 90%
• Net income: NT$4.48 billion (US$152.33 million)
• Earnings per share: NT$0.36; earnings per ADS: US$0.06

(1) Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with ROC GAAP, which differ in some material respects from generally accepted accounting principles in the United States. They are un-audited, unconsolidated, and represent comparisons among the three-month period ending March 31, 2011, the three-month period ending December 31, 2010, and the equivalent three-month period that ended March 31, 2010. For all 1Q11 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the March 31, 2011 exchange rate of NT$29.41 per U.S. Dollar.

United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) ("UMC" or "The Company"), a leading global semiconductor foundry, today announced its unconsolidated operating results for the first quarter of 2011.

Revenue was NT$28.12 billion, a 10.2% quarter-over-quarter decrease from NT$31.32 billion in 4Q10, and a 5.3% year-over-year increase from NT$26.72 billion in 1Q10.  Gross margin was 27.5%, operating margin was 15.8%, net income was NT$4.48 billion, and earnings per ordinary share were NT$0.36.

Dr. Shih-Wei Sun, CEO of UMC, said: "In Q1 2011, shipments reached 1.12 million 8-inch equivalent wafers. Capacity utilization was 90%, with revenue in line with projections.  For Q2, we have tempered our expectations for revenue and profit, since more time is needed to accurately assess worldwide semiconductor demand due to Japan's March 11^th earthquake and its impact on the global supply chain.  With regard to UMC's own operations, the company's supply of raw materials and equipment components remained secure, while production at our UMCJ factory in Tateyama, Japan, recovered in minimal time.  Following the quake, we promptly allocated resources to support customers' demands, while also assisting suppliers and partners that sustained earthquake damage with needed materials and supplies to help accelerate supply chain recovery."

Dr. Sun emphasized: "The next several quarters involve several uncertainties, such as the schedule for supply chain recovery, inflation in emerging markets, European sovereign debt, and exit of the US quantitative easing program. These factors may potentially impact the global economy as well as UMC's performance in the second half of the year.  Nevertheless, UMC remains optimistic about mid to long-term foundry growth and will proceed rationally with financial discipline.  To ensure our core competitiveness, the company is moving forward as planned with R&D and capacity expansion for advanced technologies.  Revenue contribution from UMC's volume production 40nm technology is expected to continue growing in the second half of 2011.  28nm R&D collaboration with customers is also progressing smoothly and is scheduled for pilot production by mid-year.  To maintain favorable ROE, the Board of Directors has proposed for shareholder approval a cash dividend payout of NT$1.12 per share.  Going forward, we will further improve technology and service quality to enhance the company's performance for the maximum benefit of customers, shareholders, and UMC."

Summary of Operating Results

Revenue decreased 10.2% QoQ to NT$28.12 billion from NT$31.32 billion in 4Q10, and increased 5.3% YoY from NT$26.72 billion in 1Q10.  Gross profit was NT$7.74 billion, or 27.5% of revenue, compared to NT$10.05 billion, or 32.1% of 4Q10 revenue.  Operating income for the quarter was NT$4.44 billion, or 15.8% of revenue, compared to NT$6.60 billion, or 21.1% of 4Q10 revenue.  The QoQ decrease in revenue was mainly due to lower blended ASP, appreciation of the NT dollar, and fewer wafer shipments.  Net income in 1Q11 was NT$4.48 billion, compared to NT$6.42 billion in 4Q10.

Earnings per ordinary share for the quarter were NT$0.36.  Earnings per ADS (2) were US$0.061.  The basic weighted average number of outstanding shares in 1Q11 was 12,513,899,178, compared with 12,450,619,954 shares in 4Q10 and 12,638,040,544 shares in 1Q10.  The diluted weighted average number of outstanding shares was 12,810,053,573 in 1Q11, compared with 12,576,463,301 shares in 4Q10 and 12,834,956,316 shares in 1Q10.  The fully diluted share count on March 31, 2011 was approximately 13,695,580,000.  On March 31, 2011, UMC held 458 million treasury shares acquired from the 13th and 14th share buy-back programs.

(2) One ADS represents five Taiwan-listed ordinary shares.

Detailed Financials Section

Gross margin dropped to 27.5%, mainly due to a combination of lower ASP, softer loading, and the strengthening NT dollar. The total R&D expense was 7.8% of revenue in 1Q11. Depreciation within COGS decreased slightly in Q1, and will start to increase starting in Q2.

Net non-operating income during 1Q11 showed a slight increase QoQ to NT$432 million. The gain from other items includes valuation gain from embedded options of exchangeable bonds. The net investment loss can be attributed to investment loss accounted for under the equity method.

Operating cash inflow was NT$12.67 billion. Free cash flow(3) for 1Q11 was negative NT$90 million, as CAPEX spending for the quarter was NT$12.76 billion. Net cash outflow was NT$1.90 billion in 1Q11.

(3) Free cash flow = Operating cash flow - Capital expenditures

Cash and cash equivalents decreased to NT$31.03 billion. During 1Q11, inventory turnover increased to 53 days to accommodate customers' quarter-end adjustments and UMC proactively increasing raw materials inventory to buffer against Japan's earthquake impact.

Current liabilities decreased to NT$38.37 billion. Total liabilities decreased to NT$42.66 billion in 1Q11.  UMC's debt to equity ratio decreased to 19%.

Analysis of Revenue(4)

The percentage of revenue from Asia grew to 35%, reflecting the relative strength of Asia-based communication and computer customers.

Revenue from 65nm and below remained 35% of total revenue, with 40nm accounting for 6% of UMC's Q1 revenue contribution as demand remains steady for advanced process nodes.

The percentage of revenue from IDM customers increased to 28% in 1Q11 due to increased IDM outsourcing.

Computer sector revenue contribution grew from 11% to 14% QoQ to reflect strengthening demand in PC related areas such as optical storage devices.

(4) Revenue in this section represents wafer sales.

Blended Average Selling Price Trend

The blended average selling price (ASP) decreased in US dollar terms during 1Q11, mainly due to the annual price adjustment that occurs at the beginning of the year.

(To view ASP trend, visit http://www.umc.com/english/investors/1Q11_ASP_trend.asp)

Shipment and Utilization Rate(5)

Wafer shipments decreased 1.1% sequentially to 1,120K in 1Q11, compared to  1,132K 8-inch equivalent wafers shipped in 4Q10.  As wafer capacity increased in Q1, overall utilization rate for the quarter was 90%.

(5) Utilization Rate = Quarterly Wafer Out / Quarterly Capacity

Capacity(6)

Capacity during the first quarter was 1,259K 8-inch equivalent wafers.  The increase in total capacity is mainly due to advanced capacity expansion at 12" fabs.  The estimated installed capacity in 2Q11 will increase to 1,330K 8-inch equivalent wafers.

(6) 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.

CAPEX

The capital expenditure budget remains unchanged.  By the end of the first quarter 2011, UMC's year-to-date CAPEX totaled US$432 million.

Recent Developments / Announcements

Second Quarter of 2011 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer shipments and ASP: Flat
• Capacity utilization: Mid 80% range
• Gross margin: Low to mid 20% range
• Segments: Consumer and computer segments will outpace the communication sector.

Conference Call / Webcast Announcement

A live webcast and replay of the 1Q11 results announcement will be available at www.umc.com under the "Investor Relations \ Investor Events" section.

About UMC

UMC (NYSE: UMC, TWSE: 2303) is a leading global semiconductor foundry that provides advanced technology and manufacturing services for applications spanning every major sector of the IC industry. UMC's customer-driven foundry solutions allow chip designers to leverage the strength of the company's leading-edge processes, which include production proven 65nm, 45/40nm, mixed signal/RFCMOS, and a wide range of specialty technologies. Production is supported through 10 wafer manufacturing facilities that include two advanced 300mm fabs; Fab12A in Taiwan and Singapore-based Fab12i are both in volume production for a variety of customer products. The company employs approximately 13,000 people worldwide and has offices in Taiwan, Japan, Singapore, Europe, and the United States. UMC can be found on the web at http://www.umc.com.

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

Safe Harbor Statements

This release contains forward-looking statements.  Thes