UMC Reports First Quarter 2016 Results

Strong 28nm demand to fuel 2Q16 revenue growth

April 27, 2016 -- TAIPEI, Taiwan --United Microelectronics Corporation (NYSE: UMC) (TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the first quarter of 2016.

First quarter consolidated revenue was NT$34.40 billion, up 1.6% sequentially from NT$33.85 billion in 4Q15 and down 8.6% YoY from NT$37.65 billion in 1Q15. 1Q16 consolidated gross margin was 14.6%. Net income attributable to the stockholders of the parent was NT$0.21 billion, with earnings per ordinary share of NT$0.02.

Mr. Po-Wen Yen, CEO of UMC, said “In the first quarter of 2016, our foundry revenue grew 2.1% sequentially to NT$34.31 billion. Foundry operating margin was 0.5%. Overall capacity utilization was 82%, bringing wafer shipments to 1.43 million 8-inch equivalent wafers. Towards the end of 2015, we saw signs that the inventory cycle was hitting bottom. Since then, the inventory correction has completed its course, with normal seasonal patterns resuming for 1H16. On February 6, just as Chinese New Year was beginning, Southern Taiwan experienced a severe earthquake that impacted UMC’s 300mm Fab 12A in Tainan Science Park. However, due to UMC’s stringent safety protocols, efficient execution of our earthquake recovery SOP and dedicated personnel, we returned to normal production in just a few working days to sustain 1Q16 revenues within our original guidance. In compliance with our ISO 22301 certification, UMC’s business continuity practices ensured accountability on property damage as well as the safety & health of our employees. We will continue to ensure a state of readiness by implementing disaster protocols that introduce business continuity elements within our foundry operations.”

CEO Yen continued, “UMC recently announced an agreement with ARM to develop multiple physical IP platforms to accelerate customers’ implementation of ARM Artisan IP on our 55nm ultra low power, 40nm and 28nm technologies for mobile, embedded and IoT chip designs. The partnership will further strengthen UMC’s IP portfolio to deliver optimized design support solutions across a broad range of applications. Looking into 2Q16, new product launches in wireless devices will serve as a positive catalyst, leading to stronger end market demand. As a result, we foresee a significant increase in 28nm shipments for the second quarter. We also expect to receive many new 28nm tape outs during 2016 that include mobile and consumer applications, which will further diversify our 28nm product pipeline and contribute to 28nm revenue growth. While we continue to work towards business growth and market share expansion, the Board of Directors recently proposed to distribute a NT$0.55 per share cash dividend to achieve a balance between shareholders’ interests and company expansion. We continue to believe that our efforts in advanced and specialty processes will serve as a long-term catalyst to bring new prosperity and profitability for UMC employees, customers and shareholders.”

Summary of Operating Results

Operating Results

(Amount: NT$ million)	1Q16	4Q15	QoQ % change	1Q15	YoY % change
Net Operating Revenues	34,404	33,849	1.6	37,650	(8.6)
Gross Profit	5,034	6,979	(27.9)	9,155	(45.0)
Operating Expenses	(5,065)	(5,065)	0.0	(4,914)	3.1
Net Other Operating Income and Expenses	15	(34)	-	(142)	-
Operating Income (Loss)	(16)	1,880	-	4,099	-
Net Non-Operating Income and Expenses	46	906	(94.9)	255	(82.0)
Net Income Attributable to Stockholders of the Parent	210	3,160	(93.4)	3,980	(94.7)
EPS (NT$ per share)	0.02	0.25		0.32
(US$ per ADS)	0.003	0.039		0.050

Consolidated revenues in 1Q16 rose 1.6% sequentially to NT$34.40 billion, including NT$34.31 billion from the foundry segment. Gross profit during the quarter declined 27.9% QoQ to NT$5.03 billion, or 14.6% of revenue. Operating expenses remained at NT$5.07 billion resulting in an operating loss of NT$16 million. Net non-operating income decreased 94.9% QoQ to NT$46 million. Net income attributable to stockholders of the parent in 1Q16 was NT$210 million.

Earnings per ordinary share for the quarter was NT$0.02. Earnings per ADS were US$0.003. The basic weighted average number of outstanding shares in 1Q16 was 12,408,239,978, compared with 12,407,897,412 shares in 4Q15 and 12,526,260,458 shares in 1Q15. The diluted weighted average number of outstanding shares was 12,492,270,589 in 1Q16, compared with 13,601,975,910 shares in 4Q15 and 12,660,046,525 shares in 1Q15. The fully diluted share count on March 31, 2016 was approximately 13,858,726,000. On March 31, 2016, UMC held 334 million treasury shares acquired from the 15th and 16th share buy-back programs.

Detailed Financials Section

Consolidated revenues increased 1.6% in 1Q16 to NT$34.40 billion, reflecting early year seasonality. Cost of goods sold increased 9.3% to NT$29.37 billion due to a 7.5% increase in depreciation and a 10.3% increase in other manufacturing costs including costs associated with the February 6, 2016 earthquake. 1Q16 gross profit decreased 27.9% sequentially to NT$5.03 billion, due to the increase in cost of goods sold. Operating expenses remained at NT$5.07 billion. R&D expenses represented 9.0% of operating revenues. Operating loss was NT$16 million for the quarter.

COGS & Expenses

(Amount: NT$ million)	1Q16	4Q15	QoQ % change	1Q15	YoY % change
Net Operating Revenues	34,404	33,849	1.6	37,650	(8.6)
COGS	(29,370)	(26,870)	9.3	(28,495)	3.1
Depreciation	(10,424)	(9,700)	7.5	(9,115)	14.4
Other Mfg. Costs	(18,946)	(17,170)	10.3	(19,380)	(2.2)
Gross Profit	5,034	6,979	(27.9)	9,155	(45.0)
Gross Margin (%)	14.6%	20.6%		24.3%
Operating Expenses	(5,065)	(5,065)	0.0	(4,914)	3.1
G&A	(970)	(916)	5.9	(953)	1.8
Sales & Marketing	(1,010)	(1,044)	(3.3)	(1,045)	(3.3)
R&D	(3,085)	(3,105)	(0.6)	(2,916)	5.8
Net Other Operating Income & Expenses	15	(34)	-	(142)	-
Operating Income (Loss)	(16)	1,880	-	4,099	-

Net non-operating income in 1Q16 was NT$46 million, including a NT$223 million gain on disposal of investment, which was offset by an exchange loss of NT$167 million.

Non-Operating Income and Expenses

(Amount: NT$ million)	1Q16	4Q15	1Q15
Non-Operating Income and Expenses	46	906	255
Net Interest Income and Expenses	(57)	(19)	(27)
Net Investment Gain and Loss	(14)	230	126
Gain and Loss on Disposal of Investment	223	376	190
Exchange Gain and Loss	(167)	(35)	(77)
Other Gain and Loss	61	354	43

Cash inflow from operating activities reached NT$11.45 billion. Net cash outflow from investing activities totaled NT$19.30 billion, including NT$20.48 billion CAPEX spending for the foundry segment, resulting in a free cash outflow of NT$9.04 billion during 1Q16. Cash inflow from financing activities reached NT$14.54 billion, mainly due to the acquisition of United Semiconductor (Xiamen), leading to the increase in other financial liabilities of NT$13.63 billion. Net cash inflow for 1Q16 was NT$6.25 billion. Over the next 12 months, the company expects to repay NT$4.34 billion in bank loans.

Cash Flow Summary

(Amount: NT$ million)	For the 3-Month Period Ended Mar. 31, 2016	For the 3-Month Period Ended Dec. 31, 2015
Cash Flow from Operating Activities	11,449	15,428
Net income before tax	30	2,786
Depreciation & Amortization	12,665	11,938
Gain on disposal of investments	(223)	(376)
Changes in working capital	(639)	1,340
Other	(384)	(260)
Cash Flow from Investing Activities	(19,303)	(17,065)
Capital expenditures	(20,487)	(13,350)
Acquisition of AFS financial assets	(45)	(2,004)
Proceeds from disposal of AFS financial assets	642	591
Proceeds from disposal of financial assets measured at cost	519	58
Acquisition of investments accounted for under the equity method	-	(2,364)
Proceeds from capital reduction and liquidation of investments	6	256
Changes in refundable deposits	459	(159)
Acquisition of intangible assets	(452)	(165)
Other	55	72
Cash Flow from Financing Activities	14,538	2,893
Bank loans	910	2,886
Increase in other financial liabilities	13,634	-
Other	(6)	7
Effect of Exchange Rate	(433)	(109)
Net Cash Flow	6,251	1,147

Cash and cash equivalents increased to NT$59.54 billion, mainly due to the capital injection for United Semiconductor (Xiamen). The days of inventory decreased 6 days to 52 days.

Current Assets

(Amount: NT$ billion)	1Q16	4Q15	1Q15
Cash and Cash Equivalents	59.54	53.29	53.63
Notes & Accounts Receivable	19.65	19.33	20.62
Days Sales Outstanding	52	53	52
Inventories, net	15.84	17.64	15.64
Days of Inventory	52	58	49
Total Current Assets	101.92	94.82	101.03

Current liabilities decreased to NT$41.63 billion, primarily reflecting the decrease in payable on equipment. Long-term investment liabilities increased to NT$19.28 billion. Total liabilities increased to NT$116.49 billion, leading to a debt to equity ratio of 51%.

Liabilities

(Amount: NT$ billion)	1Q16	4Q15	1Q15
Total Current Liabilities	41.63	48.25	44.44
Notes & Accounts Payable	6.32	5.95	6.38
Short-Term Credit / Bonds	11.74	12.11	10.85
Payable on Equipment	8.25	14.66	7.41
Liabilities directly associated with non-current assets held for sale	-	-	4.45
Other	15.32	15.53	15.35
Long-Term Credit / Bonds	48.72	47.52	34.89
Long-Term Investment Liabilities	19.28	6.06	6.03
Total Liabilities	116.49	108.55	91.80
Debt to Equity	51%	47%	40%

Analysis of Revenue² for Foundry Segment

Revenue contribution from Asia Pacific increased to 45% in 1Q16, as the region showed an increase in computer segment revenues.

Revenue Breakdown by Region

Region	1Q16	4Q15	3Q15	2Q15	1Q15
North America	48%	47%	45%	46%	47%
Asia Pacific	45%	37%	41%	42%	40%
Europe	3%	6%	6%	6%	7%
Japan	4%	10%	8%	6%	6%

The earthquake on February 6, 2016 disrupted UMC’s Fab 12A operations, decreasing 28nm revenue contribution to 8% in 1Q16.

Revenue Breakdown by Geometry

Geometry	1Q16	4Q15	3Q15	2Q15	1Q15
28nm and below	8%	11%	10%	11%	9%
28nm<x<=40nm	29%	24%	25%	22%	24%
40nm<x<=65nm	19%	23%	21%	21%	23%
65nm<x<=90nm	4%	4%	4%	6%	5%
90nm<x<=0.13um	12%	12%	14%	14%	13%
0.13um<x<=0.18um	13%	11%	11%	12%	12%
0.18um<x<=0.35um	12%	12%	12%	11%	11%
0.5um and above	3%	3%	3%	3%	3%

Fabless customers accounted for 91% of revenue in 1Q16.

Revenue Breakdown by Customer Type

Customer Type	1Q16	4Q15	3Q15	2Q15	1Q15
Fabless	91%	85%	88%	89%	90%
IDM	9%	15%	12%	11%	10%

Revenue from the computer segment increased to 15% during 1Q16, primarily driven by the increasing demand from storage and display applications. Sales from the communication segment declined to 48%.

Revenue Breakdown by Application ⁽¹⁾

Application	1Q16	4Q15	3Q15	2Q15	1Q15
Computer	15%	11%	11%	12%	13%
Communication	48%	52%	55%	55%	56%
Consumer	30%	29%	27%	28%	26%
Others	7%	8%	7%	5%	5%

⁽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) slightly decreased in 1Q16.

(To view ASP trend, visit http://www.umc.com/english/investors/1Q16_ASP_trend.asp)

Shipment and Utilization Rate³ for Foundry Segment

Wafer shipments increased 3.5% to 1,432K in 1Q16. Quarterly capacity increased to 1,692K, resulting in an overall utilization rate of 82% for the quarter.

Wafer Shipments

	1Q16	4Q15	3Q15	2Q15	1Q15
Wafer Shipments (8” K equivalents)	1,432	1,384	1,467	1,536	1,481

Quarterly Capacity Utilization Rate

	1Q16	4Q15	3Q15	2Q15	1Q15
Utilization Rate	82%	83%	89%	94%	93%
Total Capacity (8” K equivalents)	1,692	1,690	1,685	1,659	1,583

Capacity⁴ for Foundry Segment

Overall capacity during the first quarter increased to 1,692K 8-inch equivalent wafers. Estimated capacity in the second quarter will increase 1.8% sequentially to 1,723K 8-inch equivalent wafers, mainly due to capacity deployment at Fab 12A and Fab 8F.

Annual Capacity in thousands of wafers

FAB		Geometry (um)	2015	2014	2013	2012
WTK	6"	3.5 – 0.45	311	-	-	-
Fab 6A	6"	3.5 – 0.45	111	448	448	481
Fab 8A	8"	0.5 – 0.25	813	813	813	815
Fab 8C	8"	0.35 – 0.11	347	347	347	360
Fab 8D	8"	0.13 – 0.09	341	358	382	371
Fab 8E	8"	0.5 – 0.18	418	418	418	449
Fab 8F	8"	0.18 – 0.11	388	388	388	389
Fab 8S	8"	0.18 – 0.11	335	335	335	348
Fab 8N	8"	0.5 – 0.13	667	547	469	-
Fab 12A	12"	0.18 – 0.028	793	700	651	579
Fab 12i	12”	0.13 – 0.040	572	573	550	537
Total(1)			6,617	6,323	6,107	5,514
YoY Growth Rate			5%	4%	11%	4%

Quarterly Capacity in thousands of wafers

FAB	2Q16E	1Q16	4Q15	3Q15
WTK	106	105	99	99
Fab 8A	207	206	204	204
Fab 8C	87	87	87	87
Fab 8D	86	85	86	86
Fab 8E	105	104	105	105
Fab 8F	100	97	98	98
Fab 8S	84	84	84	84
Fab 8N	188	187	183	178
Fab 12A	214	205	206	206
Fab 12i	144	144	144	144
Total	1,723	1,692	1,690	1,685

2012 figures account for UMC parent company only.

⁽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 1Q16 totaled US$612 million. Full year 2016 CAPEX plan is budgeted for US$2.2 billion, with 95% deployed for 300mm expansion

Capital Expenditure by Year - in US$ billion

Year	2015	2014	2013	2012	2011
CAPEX	$ 1.9	$ 1.4	$ 1.1	$ 1.7	$ 1.6

2011~2012 figures account for UMC parent company only.

2016 CAPEX Plan

8"	12"	Total
5%	95%	US$2.2 billion

Second Quarter of 2016 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To increase by approximately 5%
• ASP in NTD: To increase by 1-2%
• Profitability: Gross profit margin will be in low 20% range
• Foundry Segment Capacity Utilization: Approximately high 80% range
• 2016 CAPEX for Foundry Segment: US$2.2bn

Recent Developments / Announcements

Apr 18, 2016	UMC Files Form 20-F for 2015 with US Securities and Exchange Commission
Apr 15, 2016	UMC Standardizes on Industry-Leading ARM Artisan Platform for Physical IP
Apr 15, 2016	UMC Holds 2016 China Technology Forum
Mar 16, 2016	UMC Board of Directors Announces Proposals for its Annual Shareholders Meeting
Feb 6, 2016	UMC Statement Regarding Recent Taiwan Earthquake
Jan 27, 2016	UMC 4Q 2015 Financial Results

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

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

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 Mar 31, 2016, the three-month period ending Dec 31, 2015, and the equivalent three-month period that ended Mar 31, 2015. For all 1Q16 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the Mar 31, 2016 exchange rate of NT$ 32.22 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.