Q2 GM climbs to 46.5% as 1H 2022 operating income reaches NT$50.5bn

Second Quarter 2022 Overview¹:

• Revenue: NT$72.06 billion (US$2.43 billion)
• Gross margin: 46.5%; Operating margin: 39.1%
• Revenue from 22/28nm: 22%
• Capacity utilization rate: 100%+
• Net income attributable to shareholders of the parent: NT$21.33 billion (US$718 million)
• Earnings per share: NT$1.74; earnings per ADS: US$0.293

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 2022.

Second quarter consolidated revenue was NT$72.06 billion, increasing 13.6% QoQ from NT$63.42 billion in 1Q22. Compared to a year ago, 2Q22 revenue grew 41.5% YoY from NT$50.91 billion in 2Q21. Consolidated gross margin for 2Q22 reached 46.5%. Net income attributable to the shareholders of the parent was NT$21.33 billion, with earnings per ordinary share of NT$1.74.

Jason Wang, UMC co-president, said, “In the second quarter, we delivered results in line with guidance, thanks to continuous strong demand for UMC’s differentiated processes across our end markets. Overall wafer shipments rose 4.3% from the previous quarter, while higher average selling price and a favorable foreign exchange rate lifted second-quarter gross margin to 46.5%. Revenue from our 22/28nm portfolio increased 29% sequentially, driven by the additional capacity at Fab 12A P5 that came online during the second quarter. We are confident in the long-term growth prospects of our 22/28nm business, which now represents 22% of UMC’s overall wafer revenue, and has demonstrated solid traction for OLED display drivers, image processors, WiFi, and automotive applications. As structural trends drive semiconductor content increase in end devices from smartphones to automobiles, it is our conviction that 28nm is a long-lasting node that will be important for many existing and emerging applications for years to come.”

Co-president Wang said, “Going into the third quarter, we expect our business to remain firm. While cooling demand for smartphones, PCs, and consumer electronics may pose some short-term fluctuations, we are actively working with customers to adjust their product mix. Coming off a super cycle over the past two years, the semiconductor industry is now in a period of inventory correction. We believe UMC’s comprehensive portfolio of differentiated, leading specialty technologies and strong partnerships with leading customers will help us navigate the cyclical macro environment.”

Co-president Wang added, “Moving onto our progress in sustainability, we are pleased to become the first semiconductor foundry globally to have emissions reduction targets validated by the Science Based Targets initiative (SBTi), the leading body that independently assesses emissions targets of companies and ensure they align with the latest climate science. This reflects UMC’s commitment to accountability and confirms our roadmap to achieve our net-zero pledge. According to our roadmap, we will systematically lower direct emissions from our operations, indirect emissions from our electricity usage, as well as emissions from our value chain in order to minimize the environmental footprint of our operations and products.”

Summary of Operating Results

Second quarter operating revenues increased by 13.6% sequentially to NT$72.06 billion which was lifted to higher wafer shipments, increase in wafer pricing as well as favorable foreign exchange rate. Revenue contribution from 40nm and below technologies represented 40% of wafer revenue. Gross profit grew 21.7% QoQ to NT$33.47 billion, or 46.5% of revenue. Operating expenses grew 3.0% to NT$6.71 billion. Net other operating income remained relatively flat at NT$1.40 billion. Net non-operating loss amounted to NT$2.59 billion primarily from non-cash based items recognized as marked-to-market assets. Net income attributable to shareholders of the parent amounted to NT$21.33 billion.

Earnings per ordinary share for the quarter was NT$1.74. Earnings per ADS was US$0.293. The basic weighted average number of outstanding shares in 2Q22 was 12,283,479,334, compared with 12,283,479,334 shares in 1Q22 and 12,206,292,756 shares in 2Q21. The diluted weighted average number of outstanding shares was 12,553,373,552 in 2Q22, compared with 12,534,728,721 shares in 1Q22 and 12,382,592,798 shares in 2Q21. The fully diluted shares counted on June 30, 2022 were approximately 12,553,374,000.

Detailed Financials Section

Operating revenues increased to NT$72.06 billion. COGS increased to NT$38.58 billion, which included 1.9% sequential decrease in depreciation, mainly reflecting higher wafer shipments. Gross profit grew 21.7% QoQ to NT$33.47 billion. Operating expenses slightly increased 3.0% QoQ to NT$6.71 billion, as G&A grew 15.8% to NT$2.58 billion while R&D was up 5.8% QoQ to NT$3.21 billion, representing 4.5% of revenue. Net other operating income was NT$1.40 billion. In 2Q22, operating income grew 26.1% QoQ to NT$28.16 billion.

Net non-operating expense in 2Q22 was NT$2.59 billion, primarily reflecting NT$3.68 billion in net investment loss, offset by a NT$1.36 billion in exchange gain.

In 2Q22, cash inflow from operating activities was NT$35.09 billion. Cash outflow from investing activities amounted to NT$11.72 billion, which included NT$11.63 billion in capital expenditure, resulting in free cash flow of NT$23.46 billion. Cash outflow from financing reached NT$13.42 billion, primarily from NT$11.62 billion repayment in bank loans and NT$2.48 billion in redemption of bonds. Net cash inflow in 2Q22 totaled NT$11.55 billion. Over the next 12 months, the company expects to repay NT$ 4.18 billion in bank loans.

Cash and cash equivalents increased to NT$183.72 billion. Days of inventory increased by 1 day to 62 days.

Current liabilities increased to NT$131.81 billion, mainly from NT$97.04 billion in other. Long-term credit/bonds decreased to NT$45.70 billion. Total liabilities increased to NT$216.51 billion, leading to a debt to equity ratio of 76%.

Analysis of Revenue²

Revenue from Asia-Pacific increased to 65% while business from North America remained at 22% of sales. Business from Europe was 8% while contribution from Japan decreased to 5%.

Revenue contribution from 22/28nm grew to 22% of the wafer revenue, while 40nm contribution stayed at 18% of sales.

Revenue from fabless customers accounted for 86% of revenue.

Revenue from the communication segment represented 45%, while business from computer applications decreased to 16%. Business from consumer applications was 27% as other segments remained at 12% of revenue.

(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, WLAN. Communication consists of handset components, broadband, 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

Blended average selling price (ASP) grew in 2Q22.

(To view blended ASP trend, please click here for 2Q22 ASP)

Shipment and Utilization Rate³

Wafer shipments grew 4.3% QoQ to 2,622K in the second quarter, while quarterly capacity grew to 2,528K. Overall utilization rate in 2Q22 remained above 100%.

Capacity⁴

Overall capacity in the second quarter increased to 2,528K 8-inch equivalent wafers. Capacity will grow in the third quarter of 2022 to 2,539K 8-inch equivalent wafers, driven by the capacity expansion taking place at 12X and 8N.

⁽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. Total capacity figures are expressed in 8-inch equivalent wafers.

CAPEX

CAPEX spending in 2Q22 totaled US$395 million. 2022 cash-based CAPEX budget will be US$3.6 billion.

Third Quarter 2022 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To remain flat
• ASP in USD: To remain flat
• Gross Profit Margin: To be in the mid-40% range
• Capacity Utilization: 100%
• 2022 CAPEX: US$3.6 billion

Recent Developments / Announcements

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

Conference Call / Webcast Announcement

Wednesday, July 27, 2022

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

A live webcast and replay of the 2Q22 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. The company provides high quality IC production with a focus on both logic and specialty technologies to serve every major sector of the electronics industry. UMC’s comprehensive technology and manufacturing solutions include logic/RF, embedded high voltage, embedded flash, RFSOI/BCD and IATF-16949 automotive manufacturing certification for all its manufacturing facilities. UMC operates 12 fabs that are strategically located throughout Asia with a maximum capacity of approximately 850,000 8-inch equivalent wafers per month. The company employs approximately 20,000 people worldwide, with offices in Taiwan, China, United States, Europe, Japan, Korea and Singapore. For more information, please visit: http://www.umc.com.

Safe Harbor Statements

This press release contains 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. These forward-looking statements include, but are not limited to, statements regarding anticipated financial results for the second quarter of 2022; the expected wafer shipment and ASP; the anticipated annual budget; capex strategies; environmental protection goals and water management strategies; impact of foreign currency exchange rates; expected foundry capacities; the ability to obtain new business opportunities; and information under the heading “Second Quarter of 2022 Outlook and Guidance.”

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 risk factors is included in UMC’s filings with the United States Securities and Exchange Commission, including its Annual Report on Form 20-F. 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.

- FINANCIAL TABLES TO FOLLOW -

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¹Unless 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 June 30, 2022, the three-month period ending March 31, 2022, and the equivalent three-month period that ended June 30, 2021. For all 2Q22 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the June 30, 2022 exchange rate of NT$ 29.71 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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