聯華電子 (UMC) 2002 Q2 法說會逐字稿

Please stand by.

We are about to begin.

Good day everyone.

Welcome to the UMC second quarter of 2002 conference call.

Today's call is being recorded.

At this time, I would like to turn the call over to the director of investor relations.

Please go ahead, sir.

Thank you, operator.

Good day everyone.

Thank you for joining us today for Q2 '02 earnings conference call.

As always, we appreciate your interest in umc and especially thank those of you who are at the office late in Asia to listen to our conference call.

And to those who got up extra early on the west coast.

Here with me in taipei to tell you about a very strong quarter two and more importantly, our return to our pricing profitability.

Mr. Peter chin Vice Chairman and Mr. Stand Holmes, CFO.

As custody to marry, following a brief overview of the results reported earlier today, we will be available to answer Q4 yes, sir..

Before we begin let me remind you all certain statements made during the course of our discussion today may constitute forward-looking statements which are based upon management's expectations and belief and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond the company's control.

For this reason, please refer to umc's filings with the SEC in the U.S. And roc sfc.

Let me turn the call over to Peter.

Please go ahead.

Thank you.

Today everyone and thank you for your interest in umc.

I am assuming that most of you have already had time to go over our press release and financial statements released several hours ago.

Since then, we also held our custom quarterly investment meetings in taipei during which we went over our performance in great detail.

Therefore, during this conference call, I would like to focus on just a few things.

We share with you, all of you umc management is seeing our performance for the second quarter before we move on to take your questions, I would like to first talk about the strength of our Q2 performance.

Follow that with a few words of comments on gains in market shares in during the second quarter and our expectation of continuing to see that into the coming quarters.

Then talk about our decision to lower our Cap Ex program for 2002.

And for that very important decision in perspective for everyone.

Finally, I will conclude by sharing with you a few words on our outlook for the third quarter.

First of all, we are all very pleased with the strength of our quarter-on-quarter improvement in top line which grow 53% sequentially.

We have participated during our last quarterly conference call, and we expected this quarter to show significant growth.

Nevertheless, we are extremely pleased with the result that topped our forecast.

The strong revenue growth came from a combination of wafer shipment growth, as well as asp increase.

Wafer shipment growth 52% quarter-on-quarter to 467k in Q2.

Strong demand from our customers, in particular from the customers -- from the consumer in the communication sectors was the Main drivers behind the wafer shipment growth for the quarter.

Capacity utilization rate in Q2 was 72%.

Additionally, our blended average selling price benefited from the accelerated ramp-up schedule and of our customers favor our products adopting umc's most advanced technology process increased by 7.7% in terms of U.S. Dollars.

Contribution to our profitability would have been a few percentage points more if not dollars had not appreciated such rapidly.

Our opening profit -- our operating profit margin was 5% in Q2 while night margin was 24%.

Earning per ordinary shares.

EPS for the quarter where not dollars.35 or earning per ads of U.S. Dollars is .052 now, let me give you the third quarter of year 2000 looks of guidelines.

Asp per wafrs in not dollars for the third quarter of 2002, would improve quarter-on-quarter by 7% or 10% plus in U.S. Dollars.

As a result of unexpected improvement in the same mix -- in the sales mix.

Wafer shipments for third quarter of '02 are expected to decline by approximately 5% from 467,0008" equivalent wafers for the year -- for Q2 year 2002.

Operating margin for the quarter is expected to be high single digit percentage.

Thus operating income for the period should continue to show sequential growth.

Wafer shipment slowdown is mainly due to the weak PC demand, as well as inventory issue at some of our consumer customers.

Slow demand recently, we have decided to lower our Cap Ex budget to U.S. 1.3 billion from the original 1.6 billion.

We see the need to Main taib the spending level for fab 12a and 139 nanno meters copper modules that hold the parts for 8" wafer capacity for fab af.

Before I turn the call back over for the Q&A session, I would like to spend a few minutes talking about the corporate governance at umc.

Recently, corporate governance raised discussion and public attention after financial scandal happen in other companies.

Umc had been the pioneer of setting disciplines and has continuously improved its corporate governance policies.

Here are a few examples of what we have done so far.

Prohibiting from hiring family members or relatives of middle management level and above.

No ads aversion allowed for umc management.

Fewer listings on new York stocks exchange and taiwan stock exchange and super advised by both roc sec, and U.S. Se:both roc GAAP and financial statements and U.S. GAAP remember con soiled statement are available on umc website.

Initiating in lower board of director bonus ratio by reducing compensation for all board directors and supervisors from 1% to .1% of earnings in year 2001.

Initiating in the continuously and continuously lowering the employee bonus share payment percentage.

Umc lowering the employee bonus shares from 12% of distributable earnings to 8% in year 1996.

And again lowering it from 8% to 5% above in year 2002.

Duluthing from employee bonus is lower than industry average and rivals.

The average share in delusion rate is about .91% for last five years.

Now, let me turn the call back to chitong.

Thank you, Peter.

Operator, we are now ready for Q&A.

Please give the instructions.

Operator: Thank you.

Today's Q&A session will be conducted electronically.

In order to pose a question, please press the star key followed by the one on your touch tone telephone.

Once again, if you would like to ask a question, please press the star key followed by the one.

We'll go first to David wu of wedbush, morgan securities.

Good evening, gentlemen.

Can you elaborate a little bit more on the -- you mention about consumer electronic companies having excess inventory, are they in the DVD players area, or what specific areas are they in?

And what is the outlook for, you know, these -- how fast do you believe these inventory issues will be dealt with?

Will we still have any lingering problems as we enter calendar fourth quarter?

Um -- as far as -- yeah, we do mention that consumer areas slowdown factors.

And the -- as far as exactly which kind of application there, in general that DVD was a strong force in the beginning of Q2.

We see the slowdown.

I think the inventory in this area still is a general problems.

We see, also we see some slowdown on the lcd driver market.

That is probably two major areas we think is on the consumer as some inventory issues.

As far as how long it would take to drive out their inventory, Q3 feel in the Q4 period time, they should have demand picking up again because it's the regular season.

We believe by that time the inventory should dry up.

This situation is still unclear, that we cannot get the message very clear from our customers.

That is star one if you do have a question.

Please limit yourself to one question initially.

If you have additional questions, please resignal.

We'll go next to Michael McConnell of pacific crest securities.

I was wondering listening to one of your competitor's comments last week what your expectations are in terms of the ramp you are seeing with respect to 300 millimeter.

If you are expecting that to has had somewhat to the rest of the year?

Thank you.

Our 300 millimeter plan will be according to plan will be continue to expand.

Toward the end of this year, we plan to have 10,000 wafers -- 12-inch wafers each month available by that time.

That will be on schedule of the time.

Next speaker prumanic of Prudential securities.

Hi.

Good inc.

Just a couple of questions.

First in the jv cap ex, you know I think on the q2, the jv -- earlier end of the Q1 I think jv Cap Ex was at 800 million.

Is there any change going on there?

No.

Our jv Cap Ex did not change.

Most of the jv are 12-inch wafers.

Cap Ex will be according to plan continuous as usual.

Next dan hayley of merrill lynch.

Thanks.

Good evening, guys.

I had a follow-up question on the wireless area.

Since that's the Main area of strength, I presume that that's predominantly hand set related.

First, is that true?

Second, since this is new products, and I do presume it's mostly for new generation phones, is it fair to say this is an inventor any build process for launch of those phones?

And how long do you think that this build will last?

To answer your first question, yes, it is our means to growth strength area in the second half would be wireless area.

As far as this advanced process for the wireless phone, we believe this, according to our customers, the demand will be continuous through the end of this year.

So far we have seen the demand continue as very strong.

The others on today's market on the consumer area, also the PC area slowed down.

Next Greg canekney of piper jaffray.

Hi.

Thank you very much.

A couple quick questions.

First can you comment briefly on how the yields are doing for .13 micron with copper?

If they are not up to acceptable levels, when they might be?

Also when we could expect you to provide 2003 capital expenditure forecast?

Thank you.

To answer your first question about the copper line of .13 micron yield.

We believe our yield is reasonably good because our customer tell us that our yield is the equivalent.

Especially the idm companies.

Our customers tell us our yield is after least equivalent or better than their own fabs.

But this high volume pro fux will be produced high volume is by the third quarter.

We do not have contribute a big number in the 2002.

-- Q2.

It's only 1%.

We are expecting about 2% of the revenue will come from this .13 copper in the Q3 period.

Q4 our expectation is 5% of all.

The second question related to the Cap Ex in the copper line.

We haven't have that number yet because there's so many uncertainty in the market.

So we probably by the end of next quarter can give you some guidelines.

Next we'll go to ali irani of cibc world markets.

Good morning, gentlemen.

I was hoping you could break down your joint venture Cap Ex spending for 2002 and 2003 and perhaps add some color as to how much capacity you expect this will bring on in '03?

And what this does to your expectations of investments elsewhere in the umc assets?

Okay.

As far as the cap ex, jv cap ex, year 2002 we did not change any.

It's 800 million so far.

2003 we do not have that number as well.

What's the third question?

Oh, okay.

Is umci.

That we were 300 million for umci.

100 million for umcg.

That's a separation for year 2002.

Operate operate we'll go next to Bernard sama of dieward securities.

Good afternoon, gentlemen.

Would it be possible to give us a little bit of color on sensitivity in terms of bottom line with respect to appreciation of not dollar?

And do you see some price increase of .18 micron technology given the thing that some of your competitors capacity to utilize in that segment is relatively low?

Appreciation versus not dollars?

Yes.

not dollar appreciation versus what is called impact on your bottom line.

Negative impact.

The second question?

The second question related to the pressure -- the price pressure in the .18 micron because it related to our customers.

Our competitor has some empty capacity available.

To ourself the .18 micron and below majority are long-term customers.

The capacity some of the process very unique.

It's not transferable directly to our competitor immediately overnight happening.

We don't see any price pressures so far.

As far as the next question.

In terms of sensitivity, 5 percent also of appreciation of not dollars were resulting in about 1.2% reduction in gross margin.

Operate operate next Leo Lee of Credit Suisse First Boston.

Hi.

Good afternoon.

Congratulations on the second quarter and also the guidance for third quarter.

Just a quick question on the idm outsourcing in the third quarter.

Are we seeing the ids outsourcing in terms of revenue growth will continue to -- as a percentage of sales will increase in the third quarter?

Does this ids give us the guidance or rolling forecast for first quarter?

Thank you.

As far as idm, yes, our percentage of revenue in terms of idm, we believe the third quarter will increase.

The second quarter did not increase as we indicated in our conference, because the contribution in idm wasn't at peak.

But in the third quarter, it will be significant improvement in the idm percentage increase.

The second question --

Q4.

Idm, in general, just like any other customers, I think on the wireless communication we have very clear picture in Q4 it is a strong demand.

If idm, any idm seem off in the consumer area or PC areas, still unclears pictures.

Customer in general is more hesitant if very far away forecast, especially in these two sectors.

Operator: We'll go next to ashish kumar of Credit Suisse First Boston.

Good evening to you.

If you could throw some color on your percentage of revenue from North America has increased significantly from 39% first quarter to 35% second quarter.

You know, some sort of reasons for that?

And what is your expectation of revenue break-up in the third quarter from North America and from Europe?

I think this North American increase is due to two factors.

One is included at the pld sectors increased their demand from Q1 to Q2.

Also as we mentioned in the wireless communication areas, is mainly from the idm company from North American areas, their contribution big from quarter-to-quarter basis.

We while see this trend continuously in the third quarter, also.

Operator: Next we go to shalis jatley of new mora.

If you could explain about the I remember pairmt on long-term.

[ indiscernible ].

And what exactly it is about?

Could you repeat your question, please?

I ras referring to the impairment of the long-term investment.

If you could explain what exactly it is about the billion not?

I -- .

[ indiscernible ].

It is about 1.

[ indiscernible ].

So we write-off.

This is a major portion.

Operator: Next we go to Nick tashimco of fulcrum global partners.

One question.

What is the remain capital spending budget for the seconds half of this year?

Second half of this year?

1 billion.

1 billion?

1 billion.

Yep, 1 billion.

Thank you very much.

Operator: Lee meyer of cosa.

Yes.

Thank you very much.

Looking at your second quarter results and looking, particularly at the gross margin, it appears as though if we were to strip out depreciation, that the other costs as a percentage of sales has risen fairly sharply on a quarter-over-quarter basis.

Can you explain a little bit about what's going on in your cost of goods sold and your gross margin?

Yes.

There are two effects to answer your question.

First of all, the depreciation expenses in the cash flow payment is not necessary exact depreciation in the P&L.

Because some of the inventory will also carry depreciation as well.

Secondly, because we start to have more wafer volume coming out from fab 12a which hasn't really reached the full economy of scale yet, as a result, even you take out the depreciation the cost structure hasn't reached the most optimal level of the 8" wafer facility yet.

That's the reason why you see the increase in the non-depreciation item for the cost of goods sold.

Operator: We'll go next to noah freeman of brookside capital.

I'm sorry my question has been answered.

Thank you very much.

Operator: Thank you.

We'll go next to teddy tie of Morgan Stanley.

Hi.

I basically have a quick question.

Can you provide further details on your nonoperating items including exchange gain or loss, if you have any?

And interest expenses or interest income?

The first half is 56 million not dollars.

That's for the first half.

And for Q2 was 126.

And net interest expenses was 20 million not.

And the major item was just mentioned is the long-term investment loss.

Operator: Next we go to perari of deutsche banc.

Thank you.

I have two questions.

One is why do I see.

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The second question is your wafer capacity growth for 2003, what would be a good kind of presumption?

Hello?

Hello?

Hello?

Yeah.

My question was first, is why do we have shares outstanding activity coming down in 2 q?

Wafer capacity growth for 2003, what kind of presumption is a good presumption?

Because.

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R.

[ indiscernible ].

So we decrease is about.

[ indiscernible ].

Yeah all the trigger stock hold by our investment company has to be taken out from the share outstanding.

And for your second question, for capacity on 2003.

The capacity on the year 2003, we haven't given a guideline for.

Haven't given a guideline yet.

But you can ex trap late some in the first quarter of the -- by the fourth quarter of year 2002, we give the guideline year 2002.

It's posted in the website on the -- we have updated that already.

The quarterly active for Q4 this year is rough bye about 741,000 and the increasing capacity coming for next year will be many coming from our fab 12a which we haven't decided what the ramp up rate yet for 2003.

Operator: Next we go to David wu of wedbush morgan securities.

Yes.

Can you talk a little bit more about the outlook for the computer segment?

Because we see early signs of back-to-school seasonal built in both mother boards and da.

Ram orders.

What's the outlook for your computer business in Q3?

Our outlook in the computer industry in the Q3 is not very good.

Q4 is uncertain at this moment.

Operator: Next Mark bokman of Thomas weisel partners.

Hi, gentlemen.

Good morning.

Could you ex -- on your Cap Ex expenditures for the rest of the year the 1 billion can you tell me how that will be split between Q3 and Q4?

Second question on your top line revenues for question, can you tell me what you think the linearity will be between the three months?

Thank you.

I think majority of rx spending in the second half of capital expenditure will be focused on the Q3 period.

It will be very limited to beginning of Q4.

We want the capital expenditure upper line getting stored as fast as we can.

repeat your sengd qae, please.

Operator: We'll proceed with dan heiler of merrill lynch.

Thanks.

I had a follow-up question.

Excuse me, with regard to your expectations on the consumer side of the business, and whether -- when you would expect to see a pick-up there given that should happen earlier in the fourth quarter and late third quarter.

The other question was with regard to your technology ramp, what would you expect to be the major technology driver on 0.13 for next year?

I know you have a number of products in the pipeline right now.

I'm wondering what do you think is the most promising there?

Thanks.

As to the question as the consumer, we believe that it goes up, theoretically it should go up because we believe the inventory dried up in Q4 should bring up certain degree.

Right now at this moment it is not quite clear yet.

Give us about a month or two and we can add more picture.

Our customer is very conservative in this timeframe.

Also, as far as the technology driver on the .13 micron for next year, in the first half we believe still the wireless communication still probably the Main driver.

In the second half going it will be on the pod, and the cpu.

Continuous support -- continues to support the momentum to push it going at the higher volume in the .13 micron.

Operator: We'll return to Mark bockman of Thomas weisel partners.

I was trying to follow-up on my second question.

Q3 revenues, where do you see your monthly revenues for the months of july, August and September in if you can explain the linearity there.

We, at this moment, we prefer not to comment in that because there's still certain uncertain in there.

By the end of -- by the end of -- by the end of october, we are planning to give a quarterly review and we will state it and give you detailed numbers.

Operator: We'll go to Greg less co of delta asset management.

On the wireless strength you are seeing or visibility you are seeing for the fourth quarter, is that primarily a hand set or infrastructure build S&P.

Primarily hand set.

Operator: Ivan doe of dkw.

I have three questions.

Earlier you said you don't have a good perception of PC strength in the third quarter.

Can you just, perhaps break it down into what applications are perhaps strong and what applications are weak?

My second question regards to your Cap Ex expense for the third quarter.

Where you said most of the 1 billion would be spent in the third quarter.

Just wanted to find out how much of that is actually for copper and how much of that is 300 millimeter?

The last question is in regards to your fab 8 swhere you said you are extension of 8" capacity.

Should I expect that the extension of flab 8 fs would continue in 2003?

That's the three questions.

As far as the PC as far as the which sector is we are thinking is weak and which sector is strong, but in general, we feel that Q3 the PC market is not as strong.

We don't see any other -- any particular sector in PC sector will be stronger than the others as a whole industry in general, they are weak in our point of view.

As far as the capital expenditure, 1 billion divided is about 40%.

And also the -- for 8" copper line about 30%.

And --

30%?

The other is 30%, yes.

Okay.

And 8" about year 2003.

We have no plan, yet, because this is too far away.

By that time we are not sure the market demands.

If the market demands still high and the .15 micron and .is 8 micron, we may continue to expanding in the remaining of 8".

Otherwise we may have to think about converting it to the copper line or somehow to partially .13 my krons.

So that hasn't decided.

The space in 8" we would be utilizing.

That's always our philosophy trying to fill that space.

Operator: We'll go next to ken hoe of goldman sachs.

Just a very quick question.

I just want to ask how the Cap Ex in Q3 is going to be funded?

Would it be just mainly from your cash balance?

Q3?

All from internal funds.

Operator: We'll go next to mash custody kwong of goldman sachs.

Good evening, gentlemen.

Congratulations on a solid third quarter.

I have two questions.

The first question comes in two parts.

Could you, the first part is could you give us some guidance in terms of your tax expenses for the third quarter?

And the second part of that question is, what are your total tax credits available at the moment?

And the second question is related to the year-end production.

I see in the presentation you guys handed out earlier the um is a percentage of sales was 3% in the second quarter and the second quarter.

Do you expect that ratio to hold in the second half, or do you expect that to rise?

Thanks.

.

[ indiscernible ].

Right now we have.

[ indiscernible ].

Is around 11 billion not.

Q3 income is almost.

[ indiscernible ].

Oh production in Q2 is 3% range.

The third quarter we don't see any difference compared to the Q2.

In general we are maintaining close to 3%.

Operator: Next we go to Michael McConnell of pacific crest securities.

Yes.

Was just when you were saying the drivers of .13 micron next year were expected to be wireless, should we infer the asp improvement you will be seeing next quarter should also be driven primarily below .18 micron from your wireless customers as well?

This is contribution from two area.

One is pod, the other one is wireless.

So that contribution from both sides will be help us get the asp upward.

Great.

Thank you.

Operator: We'll go next to dan heiler of merrill lynch.

Yes.

Just one more question, guys and I'll let you go home.

Could you talk about how we should model the disposal gains going forward?

Whether or not, given that your pretty substantial sales of your affiliate companies in the first half, if you anticipate anything in the second half?

And any preliminary thoughts on 2003 would be appreciated.

Thanks.

Right now we have no plans to dispose of any stock.

Operator: Prudential securities.

Hi.

Couple of questions.

Q1 is, what's a cycle time today?

And based on that, let me -- do you see wafer stocks improving at this point so that it's Q4 seasonably better?

Q4 is sequentially better than Q3?

Also, my last question is on jv cap ex, I know 700 million for umci, does that include any kind of tool movement?

Or this is pretty much structural Cap Ex to build a clean room?

Are you still on track for tool move in by end of December first set of tool move in?

Thanks.

As far as the cycle time, first question about cycle time.

The cycle time depend on what sector.

For example the.

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Cycle time is very short.

The capacity mt capacity there.

For advanced technology .13 micron and .15 my krons and below, in general, are still very tight.

The cycle time is relatively long.

The cycle time the second question related to cycle time of the Q3 and Q4.

We believe that situation will be continuous with the next two quarters.

That situation will be continuous unless the dramatically changing improvement in PC or consumer area or Q4 area were tied up in -- because of demand is much, much higher our expectation.

And the cycle time will obviously will be longer than today's situation.

As far as the jv cap ex, 700 million -- yeah.

700 million Cap Ex for umci is only for capacity for 2k.

Including all the others too, clean room, everything in there.

That also provided 2ks of capacity.

For your second question, right now we don't have the wafer start for Q4 yet.

The visibility is still very limited for Q4.

So we cannot come if Q4 will be better than Q3 or not.

Operator: Next ashish kumar of Credit Suisse First Boston.

Thank you.

Sir, if you could comment on what would be your target to return on the.

[ indiscernible ].

Normalized earnings?

What is the company aiming to achieve?

<m>

20% or above.

20% or above?

Above 20% that's our target.

This would be post tax?

Once you start paying taxes?

Post tax.

Thank you very much.

Operator: We'll go to shalish jetley of numora.

Hi.

Could you please help explain your comment on depreciation?

You mentioned part of the depreciation comes from some of the inventory, so what kind of inventory is this?

That's work in process with wafrs.

Even.

[ indiscernible ].

They are already start carrying certain level of depreciation already.

Only when they have been sold become revenue the depreciation power become part of the cost of goods sold.

Operator: Nathan baboni of J.P. Morgan.

Hello.

I had two questions.

First one was could you just tell us a little bit about how much flexibility you have to change Cap Ex in the second half?

And what will that decision depend upon?

What kind of levels will you be looking to achieve to change the forces downward of Cap Ex and then I have a follow-up.

The first question, we believe the Cap Ex in the second half will be have to reviewed by the close to the end of the week.

Unless the Q4 the demand is dramatically improved for Q4 or the Q4 demand, all of a sudden dra maltic changing on the demand situation.

By that we should be make some decision on the change on Cap Ex.

Otherwise we will be maintaining our continuous Cap Ex plan.

Okay.

Operator: Bavin shaw of J.P.

Morgan.

Yes.

Could you talk about what sort of capacity, at this point, you are planning for next year?

And is there any plans still to expand 8 inch capacity, or are you primarily focus on 300 millimeter?

Also if you can comment on recent -- results you might have seen with results to 3 puz millimeter in terms of how it's coming along versus your original expectations?

Thank you.

First the Cap Ex plan for next year with the capacity we haven't give a planet.

As far as the 8 inch capacity for next year, whether expansion or not, if we are expansion, is we were eventually fill up all the 8 inch.

Still we need capital expenditure 8 inch.

It may be go to copper major is probably that the future plan by next year could be.

As far as the 300 millimeter, we are according to our plan it's going very smoothly, especially recently we have a break through on our deep side reductions on the .15 micron area.

So it's a mass production plan according to your plan.

We plan to have the copper .13 micron of manufacturing for our 12 inch way the Q4 of this year.

And that plan is working out very well, too.

We'll good to branaw sarba of darwin securities.

I have a small question regarding customer concentration.

Would it be possible to give us sidians like how much your top five customer accounted in Q2 and going forward, how do you look at them to account?

Top five customers account around 43% of total revenue.

Operator: Ivan --

We think this trend will be continued.

Operator: We'll proceed with Ivan go.

Drkw.

Hi I have two additional questions.

The third question is what percentage of the capacity by the end of the fourth quarter would be capable of .18 micron and better?

The second question is can you give some details as to the utilization rates for the leading edge and the lagging edge in the third quarter?

How was it in the second quarter?

First question related to the capacity in .18 micron and below.

By end of this year it's about 50%.

What was the second question?

The lagging edge capacity.

We are in the at Q3 time frame, our estimation on the legacy technology in .25 and those are capacity utd sdaigs rate fairly low.

But the leading inc. Is continues to filling up.

And as a matter of fact, at this moment we are short of capacity .15 micron and below.

We are -- that's why our hurry up to get the capital expenditure continue to expanding in that areas.

Operator: We'll go to Nathan bomani of J.P. Morgan.

Yes.

Just to finish up that question of mine.

Could you give an idea of how much you are spending in Cap Ex for Q3?

That is confirmed.

And next generation process, I just want to know at this point in time, what sort of map to extend the die shangs down further on 200 millimeter and what point to do you shift between 300?

Die shrinks to 200 millimeter.

As far as the Cap Ex in the third quarter that we described the majority of Cap Ex for the rest of the 1 billion, we plan to expanding the q3, of course it depend on the economic situation toward the end of q3, we will make the wise decision whether the po issued out there.

As far as the geometry is nothing to do with the wafer side.

At this moment, most of the R&D on the 90 nanno meter is all done in 8 inch.

We haven't done anything in the 300 millimeter yet because of the nature of the difficulty of the technology on the 300 millimeter is still there.

So with the advance technology to working in a 300 millimeter at this time is I am proper.

Operator: Greg kanasny of piper jaffray.

Hi.

Thank you.

Could you comment on your recent announcement that you had a break-thru with low cade dial yet tricks, the question is are you in production with using that with acceptable yields?

And if not, when could we expect that?

Thank you.

I think we are low cade dial yet Rick at this moment we are already in production.

We have one graphic customer is planned to use it in the production areas.

We are -- we have quite a few whips in the line.

The majority of the revenue come from in the Q4 period time.

As far as the yield it has its own technical difficulties.

If you compare the yield with the locate, the true locate and with the fsg films, fsg has better.

[ indiscernible ].

We still working on it in that areas.

But we believe that that is in the manufacturing mode we can deliver the reasonable quality and the reasonable yield to our customer to sea their initial market need.

Operator: Gentlemen, at this time there are no further questions in the cue.

I'll turn the conference back to you for any additional remarks.

Thank you, operator.

Thank you all, again for your interest in umc.

Please feel free to contact us directly if you have additional questions.

Good day and looking forward to hear from you for the next quarter conference call.

Thank you.

Good-bye.

Thank you.

Thank you everybody.

Operator: That does conclude today's conference call.

We thank you for your participation.

You may disconnect at this time.