United Microelectronics (UMC) Q4 2016 earnings summary

Executive summary

• 4Q16 revenue was NT$38,306M, up 0.4% QoQ; gross margin was 22.9%, operating income NT$2,276M, and parent-attributable net income NT$2,548M.

• FY16 revenue grew 2.1% to NT$147,870M, while operating income fell 42.8% to NT$6,194M and parent-attributable net income declined 38.2% to NT$8,316M.

• 1Q17 guidance called for lower shipments and ASP, mid-teens gross margin, and ~90% utilization; 2017 CapEx was budgeted at US$2.0B.

Financial highlights

• 4Q16 gross profit was NT$8,759M, up 5.5% QoQ; operating expenses were NT$6,627M, up 4.0%.

• 4Q16 consolidated net income was NT$449M, down 74.4% QoQ, amid NT$1,210M in net non-operating expenses versus income of NT$466M in 3Q16.

• FY16 gross profit was NT$30,379M, down 4.4%; operating expenses rose 19.8% to NT$23,922M.

• Q4 gross margin included an insurance claim exceeding NT$1B, recorded entirely in cost of goods sold.

• 4Q16 impairment loss was NT$1,070M, including NT$819M in wafer fabrication and NT$251M in new business.

Outlook and guidance

• 1Q17 shipment guidance was down ~1% QoQ, TWD ASP down ~3%, gross margin in the mid-teens, and utilization ~90%.

• 28nm revenue contribution was expected to fall from 22% in 4Q16 to the mid-teens in 1Q17, then recover; the 4Q17 share target exceeded 20%.

• 2017 revenue was expected to show mild growth, in line with projected semiconductor industry growth of ~5%; foundry growth excluding memory was estimated at 7%-8%.

• 2017 depreciation expense was forecast to rise 5%-10% YoY; 1Q17 was expected up 1%-2% QoQ.

• 1Q17E total quarterly capacity was 1,749 thousand 8-inch-equivalent wafers, versus 1,794 thousand in 4Q16.