聯華電子 (UMC) 2003 Q1 法說會逐字稿

Welcome to the UMC first quarter 2003 earnings conference call.

Please be aware that each of your lines is in a listen only mode.

At the conclusion of the presentation, there will be time for a question-and-answer session.

At that time, instructions will be given about the procedure to follow if you would like to ask a question.

For your information, this conference call is now being broadcast live over the Internet.

A replay will be available at www.UMC.com under the investor relations investor events section until June 30th, 2003 also a telephone call will be available from at 11 AM eastern time on Wednesday April, 30th until midnight eastern time on Thursday May, 1st at midnight.

To access replay call (888)203-1112, or (719)457-0820 if you are calling from outside the U.S.

The access code will be 480124 anytime during this period.

I would now like to turn the conference over to Mr. Fu Tai Liou of UMC.

Thank you Rachael welcome and thank you very much for attending the first quarter earnings conference call.

We are hosting this conference call from Taipei.

Here to help us with the result is Mr. Peter Chang, Vice Chairman of the Board, Chief Operating Officer, Mr. Liu Cheng the Accounting Director of UMC.

Before beginning the presentation, I'd like to remind everyone of our Safe Harbor policy, that is that certain statements made during the course of our discussions today may constitute forward-looking statements which are based on management's current expectations and belief and are subject to number or risks and uncertainties that could cause actual results to differ materially including risks that are beyond the company's control.

For this risks please refer to the UMC’s filing with the SEC in U.S and the security authorities.

Now I'd like to turn the call to today's speaker, Mr. Peter Chang VP of UMC.

Peter please go ahead.

Thank you Fa Tai.

Hello, everyone, and thank you, again, for joining us today.

As always, we appreciate your interest in UMC.

I'm going to start with a brief summary of our operation results for the first quarter.

You all should have seen all our press release by now, so I'm going to keep this remark short.

And we will leave the rest of the time for your questions.

Here is a short summary of our results from the first quarter of the year 2003.

We are pleased to announce that the results are better than the previously-announced guidance, and we are expecting the second quarter to be even better.

Quarter-over-quarter revenue increased 2.1% to $17.9 billion NT dollars or $515 million U.S. dollars.

Quarter-over-quarter operating profit increased 111% to 669 million NT dollars.

Our income dropped 59% to 403 million NT due to the non-operating lynch related to the investment losses at wafer scraps.

Quarter-over-quarter shipment of eight-inch equivalent wafers increased 3% to 446,000 wafers and the average selling price remained flat.

Now moving to the second quarter of year 2003 outlooks and guidance.

Quarter-over-quarter comparison.

As wafer ASP is flat from quarter one, 2003.

Our wafer shipment is greater than 20% increase compared with first quarter of year 2003.

And [Inaudible] utilization rate will be over 80%.

Operating profit margin, we like to challenge the double digits.

Percentage of revenue from the .18 micron and below technology approximately close to 40%.

The PC segment should post the strongest growth due to customers win and followed by the communication in the consumer.

Year 2003 Cap Ex remains unchanged at $500 million U.S. dollars.

Lastly, even the growing concern over the current spreading of SARS in the Asia-Pacific region in Taiwan, I'd like to state our evaluation on the potential impact from SARS and the risks management of SARS.

At present, SARS has no impact on UMC's production at all.

We are constantly monitored on demand, overlooked beyond July.

And inside the company, we are forming the SARS task force inside the company.

We enforce all the visitors, make sure they are screened, temperature measured.

Also we banned all travels to the affected areas, including China, Hong Kong, and the Singapore areas, and also we quarantine any personnel that returned from those areas.

And even altered the system for the employee and families.

And with this, actually, we believe we can control the SARS very effectively in the future.

We don't believe it will affect our production in the future at all.

In conclusion of my presentation, I'd like to turn this back to Fu Tai Liou.

Thank you Peter.

Now we will start the Q&A session.

Thank you.

The question-and-answer session will be conducted electronically.

If you would like to ask a question please do so by pressing the star key followed by the digit one on your touch-tone telephone.

If you are using a speaker phone, please be sure the mute function is off to be able to reach your signal to our equipment.

We will proceed in the order that your signal, and we will take as many question as time permits.

Once again please press star 1 on the touch-tone telephone to ask a question.

We'll pause for just a moment.

And we'll take our first question from Matt Gable (ph) with Calypso Capital.

Thanks.

I was wondering if you could comment on the current pattern of wafer loadings right now.

Are wafer loadings still Increasing now or are they stable.

As far as loading wise, right now it is continue rising the forecast for the next quarter, Wafer loading will be increase to above 80% from this quarter is 67%.

Okay.

And on the non-operating expenses, can you just talk about that and go through what was a cash charge and what wasn't, if possible?

Yes, we book 112 million [Inaudible], many is due to the difference between the purchase price and the value of SiS.

And we'll amortize the difference over a period of five years.

We expect to see roughly 100 million plus NT dollars lost from this amortization.

And if SiS starts to make either a profit or loss, we will also use equity method to record profit or loss accordingly.

That's actually a non-cash item.

The other one, a major non-operating loss in Q1 was from [UNCI].

UNCI is in can completion stage of equipment moving and they are about to start palette production in the next future.

So the loss will start to actually get bigger in first quarter compared to Q4 for last year.

And we do expect the loss will gradually reduce over time when UNCI start to have revenue the second half of this year.

So we do expect for the next quarter the loss from UNCI will slightly increase but may decrease in the second half of this year.

But overall volume, the number won't be too big.

And, also, this is, again, a non-cash item.

Is that the 200DNT 249 million.

Yes.

Okay.

Thank you.

Next we'll hear from Shekhar Pramanick with Prudential.

Good evening.

Two questions: The 20% shipment growth you're saying in the June quarter, how much of that is coming from particularly your win at one of the leading graphics company and how much of it's coming from some of the SiS business maybe your wafers you're building?

If you could somehow quantify.

It may not be exact.

Our 20% gain is from the -- overall, I think it's from the computer areas.

It is the majority from the graphic area and also the chip set areas.

Some of them, it's from our purchasing fee’s because the wafer started to pilot in the first quarter, a mass production of Q2.

So that has materialized some kind of revenues, generate a revenue.

Some of it we actually gained in the graphic areas, so that's why you see Q2 we have gains in that areas.

Right.

Next question, more on CAPEX side, you know, you have a CAPEX of 500 million.

Yes.

Do you see a possibility of increasing that CAPEX?

And lastly, what's the status on the JV, how much you're going to spend this year?

Okay.

With the 500 million, we believe we remain flat.

We believe that that is still our expectation.

We're going to spend 500 million this year on the CAPEX.

As far as JV's spending, you mean UMC K is 150 million, and UMCI is 200 million.

What rate do you expect your capacity to grow Q2, Q3, Q4.

I think it's not a growth substantially.

I think if you look, we give it didn't grope that much.

The capital expenditure was mostly for updating the equipment.

So the wafer out, it's not increased that significant.

But we upgraded to most of the .18-micron equipment to get to .13-micron copper technology.

And, also, the copper technology on the .13-micron, in general, is consumed more equipment because they have six to eight layers, so it's kind of a big change.

Thank you.

Okay.

Next we'll hear from Reyna Serna (ph) with DAWA.

Congratulations on your second quarter fines.

Currently, how many projects, roughly, you have on the .12-micron and 19 19-millimeter level.

Good afternoon gentleman and congratulations for good second quarter guidance.

I have one question on this one like currently how many take out projects roughly you have on .13-micron and 90 nano-meter level.

I think we had quite a few projects on the .13-micron. .13-micron is not the amount of projects, it's mainly the volume.

We see the volume increase from Q2, Q3, and Q4.

We expect until Q4 our revenue contribution from .13-micron will reach 15%.

That's our expectation in Q4.

And as far as 90 nano meters, we believe, its right now, in the pilot stage, in the Q3 time frame, we're going to have pilot production in the production mode, and Q4 in the mass production mode.

When we mentioned the mass production, each month, we probably closed to 1,000 wafers or beyond, what we call mass production.

And I have just like the .15-micron, that particular segment has come down.

Is it possible to elaborate that those customer has proved to the .13 or come down to the .18-micron, or what micron.

Some of them is migrating down to the .13-micron, but some of them is just because of seasonal adjustment on the product portfolio, it's shifting -- changing, depending on their demand from .18 to .15-micron.

I like to mention elaborate more on this technology. .15-micron, .18-micron, in general, is considered one generation.

The wafer pricing on this, too, is relatively very close, actually.

The ASP is very close. .13-micron is revolutionary changing it's not the same category.

Usually we put these two in the same category, but if you combine the two together, you find out we still increase quite a bit in this quarter.

And next quarter, you will very well be seeing .15-micron.

It depends on what product line they're running.

My last question is on your investment.

Do you have any size or target on how big could be the investment fund in '03 or beyond?

We don't have absolute numbers, but we would like to point out that it's not going to come from officially generated cash.

Basically, we'll only do a restructuring by bringing down our non-foundry or non-core related investment and proceed to find potential strategic customers in the whole foundry.

So from a cash point of view, you will be coming from divesting of non-core assets.

And for this quarter, in particular, we'll say the majority of the money was spent on acquiring C stake (ph), and that's pretty much one event.

We are likely to repeat that in the future.

Most of the investment focus will be on the private companies which only need very little funding.

Excellent.

And on -- the R&D has come down.

Do you think the particular R&D expense is sustainable, or you may have to increase some quarter when the 90-nanometer take out activities picks up.

We think, in general, R&D expenses maintainable at this time frame.

We do not think in the very near future we are picking up very significantly on R&D expenses.

We think this is sustainable in R&D expenses.

And that will bring ours to 90-nanometer.

In the meantime, we're going preliminary R&D in 65-nanometer and beyond, too.

Okay.

Thank you very much.

Thank you.

The next question comes from Dan Hiler (ph) with Merrill Lynch.

Thank you.

Yeah, I just have some questions with regard to average selling prices.

Looking at your fairly steep ramp there on .18 below in the quarter, I was wondering -- and it looks as though .13 is increasing as well, yet you're getting flat ASPs.

That assumes there must be some pressure in some of the other nodes.

Where are you seeing the most pricing pressure at this point?

We have seen some pricing erosion in the most advanced area, because the most advanced area is getting to mature, to the production motor, especially .13-micron, when the volume increased.

That's the customer expecting that you will reach so-called a cross-overpoint.

Your cost eventually will be more effective compared to .18-micron.

So we see that erosion.

So that explain most of the price erosion.

As far as the low-end-wise, we see the pricing is pretty stable, so that's, overall, the ASP almost flat.

Yeah, but the price differential between .13 and .18 is still very significant, yeah?

They still have certain percentage, still.

But that pricing erosion is happening.

On a percentage basis.

But I think the higher ASP would counter that.

It wants always like that.

It's always that the more advanced technology is always selling better, even to the price erosion-wise.

Our revenue will grow to 40 from 38% in Q1.

So from an enhancement point of view, it's not really changed that much.

Right.

And, so, what I was wondering is on the .18 note, is what I was getting at is if you're seeing -- obviously, that's pretty much a main stream product now with a lot of companies shipping .18 now.

I was wondering fur sensing any pressure on the .18 note given the abundant supply of .18, apparently.

I think the .18-micron, pricing wise, today we are already seeing that.

We reflected that sometime last year, it's already in there.

Because most of our customers, we consider is mature technology.

We're talking about the price erosion is pretty much from the .13-micron.

Great.

It looks as though it's stabilized.

Okay.

And then is the follow-up on the R&D when commentary --

Yes.

) In terms of the R&D being fairly stable, is it fair to say that most of the .13 R&D expenditure is at this point, complete, or is there still a significant portion of that that's still .13?

The majority of the R&D expenses is on the 90-nanometer and 65-nanometer.

Because .13-micron, the expenses have a very few, very few customers we have specialized process and development.

Other than that. .13 is well into production now.

Great.

Finally you commented on 90-nanometer seeing some volume in the fourth quarter.

Yes.

Where would you expect -- what areas would you expect the drive that?

Is it the normal kind of POD marked, or are there other areas we can see potential drivers?

And beyond that, would there be -- what level of design activity are you seeing in the market marketplace on 90-nanometer, right now, in the early stages of the 130.

I think the direction on the new technology, we will be focused on more fewer customers on the higher volume of production.

Instead of the .13-micron, we're pushing a lieutenant of customer bases.

We're gradually changing the strategy.

Right.

The strategy will be focused on a POD area, the other on a base band.

This two application I think in very near time could increase the volume of wafer very significantly in a very short period of time.

So that will enhance our capability to keep up the process problem and reduce defect density.

Great.

In other areas --

That's probably the areas we're going to focus on.

Okay.

The rest of the areas, at this moment, we're not really driving the customer into that direction.

Gotcha.

Thank you very much.

Thank you.

And next from Pacific Crest Securities, we'll hear from Michael McConnell (ph).

Thank you.

Could you go deeper into your end markets, products you're seeing strength from, weakness, in each of the three end markets please.

On the future of what?

I'm sorry.

Just the product strength in the second quarter.

Okay, Q2.

Generally, in Q2, we already see some inventory adjustment on the wireless communication areas.

And the number we gave to you is already counting those in.

We think the continue strongly in the consumer areas.

We believe the DVD players and also on the LCD drivers, this area continues to grow.

And also we gained some market share as we mentioned on the PC area.

It's not this area that's strong, but UMC in the past in the PC area is relatively weak especially in the graphic and chip set areas.

And the funding out from SiS in the UMC fabs is in the mass production mode in the Q2 area.

And also we gained some market in the graphic area in some newer -- it's old customer, but the new designs starting to get into the mass production.

So we would see those two areas would be strong in Q2 and beyond.

So on your consumer in the guidance, looks like it's going to with the weakest end marriage but you're seeing pockets of strength in CDs and LCDs.

We believe that will be continually strong.

You had a little spike in your DSOs.

I was curious, was that given a higher ramp in the second quarter with wafer shipments in excess of 20%?

Is that what that's due to?

Wafer shipment over 20%, it's due to that, overall.

We think, just like the area we mentioned, that would give us that strength, and that build up our loading.

Okay.

And in the last question I just had is could you give us an update on your new strategy, how that's progressing, particularly with your smaller customers, how they're taking to the new strategy.

I think our smaller customers, some of them, actually the majority of them, are happy.

Because UMC can spend more, kind of, engineering effort, also the IP effort, on their company.

Because, in the past, we always do not have enough effort for them.

Some company, of course, we have to tell them the reality is their company style doesn't fit with UMC, so we give them enough time to really either exit from UMC or understand they're spending too much engineering on their side.

I think most of the customers are very positive on that side.

We think that's the result.

We will see a positive result probably next year or year after.

Okay.

Are you seeing some of these smaller customers look at some off the newer foundry entrance as a source if you're not providing the engineering they need.

Basically, we'll let them know we'll not consider them as a partner.

If they still insist working with UMC, we'll definitely let them stay here.

But we tell them very clearly that support to them is not going to be very strong.

Thank you very much.

Sure.

And now from Mr. Ajit Kumar (ph) from Credit Suisse First Boston.

My first question is could you give us color on how you see the revenue ramp up in the second quarter between the three months.

We know why we don't get the monthly sales pattern, but the initial view is those three months we probably see pretty close for each month.

And a follow-up question on the ESP pressure.

I think we closed the quarter with about 67% [Inaudible].

We are guiding to 20-plus quarter-over-quarter shipment growth.

Capacity would remain just about the same.

Would suggest extremely high utilization rate by the end of second quarter.

And I was wondering, despite that, you know, we continue to see pricing pressure on each node.

Can you explain why that is the case when you are now soon at very high utilization rate?

No, we didn't say that we have a high pressure on the ASP.

Because, if you look at it, overall, we just said ASP maintain the same.

We don't have the intention the raise the price.

That's all the statement is.

If you look at the product mix, in the high end, it's not changing that significantly.

Our guideline did not give you very strong changing.

It's migrating.

We'll give you guideline from the .18-micron and below.

That technology, from the first quarter of guidelines, 38%, increased to 40%.

Only increased about 2%.

So we don't consider that's a big change, you know, overall.

So, accordingly, ASP is maintained the same.

So our guidelines give us ASP is pretty maintained about the same.

Only the high end have a very, very small amount of erosion of the price.

Okay.

And then what utilization rate would you have to sort of quickly ramp up capacity?

In other words, we look at your CAPEX numbers.

Our CAPEX number, today it's -- with the 500 million, in general, we are not expecting to increase that capacity.

We [Inaudible].

We're just expecting to upgrade it.

A lot of .18-micron fabs, upgrade them to become a copper .13-micron technology.

So we don't expecting that there's a need in the very near future that that will have a strong demand on the wafer, even though -- I guess you probably worry about our loading is that high, and maybe all of a as you understood, the increase of sudden the increase of demand doesn't have enough capacity.

At this moment, we are not inclined to see that direction because there's a factor that we haven't really factored in, which is the SARS effect on the overall demand, we don't really know.

And, you know, in case World appears much stronger in the second half and demand picks up, what is the lead time between you deciding now you need to increase capacity.

By the time it is up and running at you facilities.

In general we were expecting from the order, from start to issue the appeal really to materialize to get wafers out is probably five to six months.

Okay.

And the last question.

I notice that your notes and accounts receivable increased from 9.37 billion NT dollar to 12.38.

Any reason for reasonable sharp increase in your receivable position.

Can you repeat the question?

Yeah.

I think from your press release, it appears that your notes and accounts receivable, which was 9.37 billion NT dollar for fourth quarter of '02 has gone up to 12.38 so about 30% increase quarter-over-quarter when revenues were flat -- or flattish.

That pressure is due to the revenue increase in Q1 and also partially due to wafer in.

The new wafer in increase for the upcoming quarter, quarter 2, so that's why the accounts receivable increasing.

Thank you so much. .

Next we'll hear from Michael Hoffielder (ph) with HZB group.

Actually I got two question, the first question would be what's your opinion concerning your product mix in the second quarter by applications given your guidance that you see some growth -- a sort of growth in the PC area?

And the second question would be what's your estimator concerning the risks that we could leave the second year quarter with a pretty high inventory situation at customers?

Okay.

Thanks.

The first question, I think the second half of the year, right now, the prediction is very hard to predict.

The second quarter, the product mix, we believe that our graphic is the one that really gains.

And the gain to market share.

So we would see some demand.

Also, we see the continue of some demand in the DVD and consumer area DVD, and also the LCD driver area product mix.

As far as the second one, what's the second question?

The inventory at customer end.

At customer end, inventory-wise, we believe that we're accounting in some kind of wireless communication situation in the second quarter.

The number we quote you is in.

As far as beyond that, whether our customer has inventory-- we believe our customer, in general, after learning all this cyclic effect, they're much better.

But sometimes the demand is very hard to predict, especially with the impact of the Iraq war and also the SARS situation.

After that, we really don't know what is going to be in the market situation, how much inventory could build up.

Okay.

Thank you very much.

Thank you.

Moving on, we feel hear from Shilish Jalei (ph) with Nomar Securities.

Hi.

I was wondering if you could proved what is the installed capacity at .13-micron node right now and how do you expect to end the year?

By the end of the year, it's about 10%.

Right now, we're running about 5- 6%.

And how many wafers per month.

By the end of the year, 10% close to 22,000. 10%, roughly 22.

Okay.

And what was your utilizations at the lagging edge technology, that is lower than .25 microns, .25 and .35 kind of stuff?

What the loading?

I think that's because the consumer area is very strong because loading is high overall in Q2 general loading is pretty good.

It's close to above 80%.

So pretty much every area is loaded pretty well.

There were reports that, particularly because of the LCD driver, you were running out of capacity for the lagging edge.

So would you cauterize that the first quarter, the loading was a lot better at the lagging edge as compared to the leading edge?

We did see more pressure on the legacy technologies in that area, but that's only short-term situation.

We believe those customers, eventually, were migrating by the second half of this year, they may migrating to even more advanced technology.

By that time, you would see the percentage of technology would be increased significantly on [Inaudible] wafer-out situation.

In terms of the amounts due which you're supposed to pay, say, in the next 12 months, the long term loans you have lifted 4.26 billion and redeem about 11.77 billion of bonds.

I was wondering if you could provide the figure for months forward, that is even for 2004, what are the amounts due?

For the next 12 months, we expect to pay 4.26 billion in long-term loans.

And the bond will be about NT 11.8 billion.

Yeah, that is already there on the press release.

If you can provide the same for the 12 months forward.

12 months forward?

We only have -- yeah, you can look into our financial statement.

We currently -- long-term debt after this next 12 months, the majority of the remaining will be due in the year 2005.

Okay.

One final question I want to ask regarding the same bonds.

You have mentioned the reclassification of the ECB at about NT 106 million.

Because looking at your financial statements.

The original amount was something like U.S. 302 million.

So you have you cancelled some of these bonds?

Have you already paid a majority of the bonds or where do we stand now.

No we didn’t cancel any bond.

Just this duration of the bonds is becoming less than 12 months according to our [Inaudible].

It has to be moved from the long-term debt to incur liabilities.

And we did pay back about 1 billion syndicate loan in the first quarter of this year in order to reduce our interest expenses.

So that syndicated loan which you repaid back, is that towards this loan which was issued on December 12th, 2001?

Because the figure I see here is pretty high.

It's about U.S. 302 million.

And the reclassification you have done is just for 106 million CCB.

The $302 million U.S CCB is not being reclassified yet.

The syndicated loan is actually a bank loan.

It has nothing to do with a bond.

Okay.

And this 302 million is payable by March 2004?

That's correct.

Okay.

Sure.

Thanks.

Thank you.

And next we'll hear from Nick Godich (ph) with Deutsche Bank.

I have three questions, if I can.

First of all, can you give us an indication of you current [Inaudible] rates at .13-micron.

13-micron utilization rate is almost 100%.

Thanks.

And you give us an idea of the increasing capacity you're planning for year which is nearly about 240 in terms of wafers.

How much is in [Inaudible] 12, A and how much is basically the [Inaudible] 20-millimeter.

We are on the majority -- did you ask for the capital expenditure distribution.

That's more precisely the ramp in wafer stocks, which I think is from 12,000 wafers per month, currently, to 22 by year end.

How much is that --

Okay.

In general, we are on the 12, A, that .13-micron will be on 8-inch equivalent is close to, like, 7.5K.

Okay.

7.5K.

The rest of them are distributing AT.

By year end how much will be the capacity --

That's year end.

Currently?

Currently, I do not have -- currently, the majority of capacity actually at.

Is it fair to say that part of your investments [Inaudible]in the press release for Q2 and beyond would actually be capacity-related and not only process related.

Yes.

We are trying to upgrade our capacity in AT, and also the 12A is newly installed.

As a matter of fact, capital expenditure and 12A.

Even though some of them, already spending in the first quarter or previous years.

But the equipment installation also qualification takes some time.

So that's why the [Inaudible] in this time frame.

Until its really in the production mode get qualified it, then we will consider as capacity ready.

Great.

You mentioned what -- what Wiess is doing leading edge in Q2 [Inaudible] and same for PLD, what is the transfer overall for both wireless and [Inaudible] in Q2?

We really don't want to answer particularly segments, especially those segment is very particular customers.

We prefer not the answer that question.

Thank you.

Thank you very much.

From Deutsche Bank we'll hear from Barry (ph) [Inaudible].

Just two questions.

First, you say you expect the R&D levels to remain similar.

How much is the fact that you're going to be following a strategy of fast leader rather than trying to be the leader influencing this reduced R&D expense? is the first one.

And secondly UMCJ in the first quarter the investment income actually came down from Q4.

Any particular reason for that.

Let me answer the first question.

About the R&D expenses, I think that's one of -- probably one of the reasons we were trying to be the leading edge manufacturing technology.

We're focused on the 90 nanometers more than 65.

So that's why our R&D expenses remain reasonable all the time.

So that's one of the big reasons.

Another reason is we are more, kind of, focused on the manufacturing technology that also reduced the capital requirement on the leading edge technology.

Especially we're trying to do the partnership with the most of the equipment and manufacturing companies like [Inaudible].

And instead of buying the equipment, we are using their equipment at their site to do our most advanced technology at their places.

That continue contributes some degree on that part.

On the second question, you were asking why the investment in UMCJ declined.

That's to stocks and cancelled shares -- cancelled ACB, yeah.

Next we'll hear from Mark Fitzgerald (ph) from Banc of America Securities.

I was curious if SARS if you can judge it having any impact on people wanting the build inventory because they're more concerned down the road that production may be impacted?

I think, right now, as far as this impact on the SARS, we really do not see that impact at this time frame.

We didn't see a spiking increase demand, also we didn't see the cancel order either.

It seems everything is normal.

But all the impact has to be see where SARS is spreading, what the situation -- how the spread-out situation, or whether it's getting stabilized.

If we assume the SARS will be stabilized in the May time frame, and we see the consequences, probably afterwards -- after the stabilized force, three weeks or four weeks, and then we can see the impact.

And has there been any change in your UMCI plans with its location in Singapore.

No.

Okay.

Thank you.

Next we'll hear from Kevin Vassily with Thomas Wisels Partners.

Thank you.

My questions have been answered.

Moving on, we'll hear from B.Shaw (ph) with JP Morgan.

First on you mentioned you will do equity account in [Inaudible].

I thought you are not required to if you own less than 20%?

Could you explain that and couple of other questions.

We have to -- our CEO is the Chairman of the SiS, and by definition, we have strong inference over this company even though we don't own 20%, we're still required to do measures, accounting.

I see.

Understood.

Now, I notice that people are still asking questions about pricing pressure from China.

So can you comment on whether, indeed, that's the case, that China is no longer coming in the equation?

I mean, just what's your thought on the competitive dynamics with respect to China.

I think the overall pricing pressure is depending on loading.

As you know, our loading in Q2 already reached above 80%.

The pricing pressure from China, especially low end is pretty stable.

I don't see any price pressure in it at all.

Thank you.

Fu Tai Liou let me ask one more question.

The 90-nanometer, I guess people now expect sort of fewer issues in the 90-nanometer for a lot of reasons, having done a lot of work at .13.

Do you have reports of potential issues with the chips being a big problem?

I'm not sure if you can comment on that at this point.

It's probably still early.

But I wonder if there are any challenges you expect in the 90-nanometer what could they be.

We don't expect we see any in 90-nanometer.

The process is already qualified at this moment.

We are almost ready in pilot production.

We already are going to be in the Q3 time frame due to pie lieutenant production, and production in the Q4 time frame.

So far, we see everything goes according to schedule.

Okay.

Thank you.

Thank you.

Next we'll hear from Don Boyd (ph) with Lehman Brothers.

Good evening.

In terms of the pricing environment, in terms of when you sit down and talk to customers today, because the fabs are pretty tight, are you finding it's easier kind of maintain pricing?

If that's the case, if the fabs remain relatively full for a while now, should we expect to start to see the ASP -- some upward pressure of the ASP, on a technology basis, pricing become stable and, on a mixed basis, be more favorable?

We thing, within the next few weeks, the pricing we will see -- within the next few months, we probably will see the pricing will be a pretty stable situation.

Even though the loading close to 80% above.

But it doesn't mean that we can increase the pricing because, overall, the worldwide still a lot of capacity, as far as if you look at the loading from the charter, loading from the others in China, there's still a lot of capacity available.

So I personally do not think there's environment for increase in pricing.

In general, we don't see any price erosion pressure either.

Okay.

Okay.

So would it be safe to assume, though, if pricing remains relatively stable in the second half, there possibly could be some upward ASP, you know, rise due to a mix issue -- better mix of higher technology?

As I was mentioning, the higher technology, in general, that we have to make -- our customer feel that the type, a is why they could be competing with the previous generation.

Eventually we'll reach that.

Okay.

That's why we see some very price erosion at the high end.

But that rate is very slow.

Okay.

And just one other question.

In terms of yield of the .13-micron, they're quite different for different products, but kind of aggregate field of .13 versus something more mature like .15, how many quarters do you think you're away from more mature technology like .15 or .18?

I think our defect NCY, at this time frame, we're getting close to .15 , .18 defect density, and every month we're getting closer and closer.

So we're very happy on the .13-micron, so are our customers, too.

Okay.

Very good.

Thanks.

Okay.

And next from Tom Crowley (ph) from AMS Advisers. .

Hey guys question, the previous caller just asked a little bit but I want to ask little differently.

Earlier in the call, you mentioned about price pressure at .13, and then seems like now backing off you're saying there isn't much price pressure.

TSMC yesterday said there was price pressure at .13 as well.

With the capacity utilizations, you mention you will fall out TSMC's some 90% plus.

I just want to get clarification why there's any price pressure at that node and whether IBM is having any impact on the pricing.

I think it's not from IBM at all.

I think it's purely the customer is expecting, in the newer technology, eventually you will reach to a point you should become cost effective.

One of the motivation from a customer migration from previous generation of technology to more advanced deck knowledge is the dye shrink.

Right.

If you shrink the dye in general that you have [Inaudible] area so we can become cost effective.

In every generation of technology we will reach a point which we call the crossover point which means if you use the same design, same amount of transistors, and then you use the leading edge technology, after shrink, you will find out it's actually more cost effective per die.

Right.

That is two factors.

One is wafer pricing, the other is defect density.

Both will reach mature level and you will reach the so-called crossover point.

In that point the large amount of customers sign in.

On .13-micron we have not reached that point yet.

Are they hammering you on pricing because the yield's not there yet.

We are not because of that reason.

We are yielded it's reasonable.

But price erosion has to continue going until it reaches the point, which is crossover happening.

Okay.

It's too high.

So if you can get comparable yields at .13 as compared to .18, would you suggest that wafer pricing at .13 would be stable to up at these utilization levels.

We have to do both, be able to become crossovers.

In today's situation, even though we reach that level we still have to lower the wafer price to get that level.

Thanks.

We'll they hear from Tim McCurry (ph) with Deutsche Bank.

Hey guys I had a quick one for you.

Did you get any wafer targets -- wafer starts, targets, for UMCI?

Will you give us some targets for potentially what you think wafer starts will be at the end of this year and the end of next year.

I think UMCI does at this moment it all depends look at market driven.

We are preparing the capacity just in case there's an upswing in the market.

I think a lot of customers start to worry about it.

Our loading is 80% and above.

Incase there is a search [Inaudible] UMCI could provide a necessary capacity for us.

So we do not have a definite plans that UMCI will be starting wafers, but capacity-wise we think, back end, they should be able to handle close to 2,000 wafers per month.

Do you have the equipment already delivered the do your 2000 wafers per month or do you have to order --

We only have a back end of equipment delivered, not including the front end.

Okay.

Thanks a lot.

Okay.

As a reminder, if you if you would like to ask a question, please press star 1 at this time.

If you find your question has been answered, you may remove yourself by pressing the pound key.

And we'll take a question from Gaylin Haskin (ph) with Capital Research.

Can you talk about what the order book is looking like in Q3 and what your expectation are.

I think we gave guide line in Q2.

Q3 is too far to give any guideline at this time frame.

And the world situation, right now, is unstable lot of factor we cannot see very well.

Okay.

Thank you.

And we'll take a follow-up from Reyna Serna from DAWA.

Thank you very much for taking my question.

Is it possible to let us know your customer concentration on the last quarter, like top five or top ten customer, how many percent is the revenue accounted, and how many of the customer do you have in your portfolio, given you have started your new business model, probably dropping off some of the small non important customers from your portfolio.

Yeah, the top ten is about 55%, and the top 15 is about 65% of the overall revenue.

If you -- I guess your question is involving as to what we started new strategy, maybe we lost some customers that would contribute some of the loss on the business, which is not really happening.

Because the customer we actually involve in any termination of the relationship in general, the wafer level, at this time frame is insignificant.

I don't think there's any impact in our revenue at all.

Even though there's some impact, probably, very insignificant to mention, you would mention it.

Okay.

And on this communications side, especially the wireless communication, in the second quarter you will get the sequential revenue growth in that wireless communication segment, or it will sequentially down?

It from much flat compared to --

Flat?

Yes.

Okay.

Thank you.

We'll take the last question, operator.

Thank you.

And we'll take our last question from Shekhar Pramanick with Prudential.

Shekhar Pramanick ;

My question has been answered.

Thanks.

Okay.

We'll take one more question, then.

Okay.

We'll take that question from Mr. Ajit Kumar with Credit Suisse First Boston.

Thank you know one of the commends that management made was gain in market share and in the GPU segment and you know this is a customer you hired is not moving to you and doing .15 micron.

Could you tell us if this customer could do .13-micron with you?

Yeah, bear with us for one minute.

Sure.

On this particular customer, of course we would be taking any customer -- if any customer do only one generation, we not consider it as a partner or even customers.

Okay.

Definitely we have long-range relationships.

So if today this customer is working with us on the .15-micron, definitely .13 is in the planning stage.

And if I may ask, you know, I'm sure you have done lot of work at .13.

You have some key accounts like [Inaudible] .

From the customer it appears that your computer has a much better list of customers at .13-micron.

With you having also gotten stable yield at .13, what does it take to get customers to move from your computer to you?

I think for moving one customer to -- from one supplier to the others is not just to buy -- buy just the technology, or anything.

It's very important that actually the customer feels that it's valuable, your services.

So you will see, definitely, it's not using the pricing we're using to attract customers.

In general, we're trying to enforce our relationships and, also, emphasis on our value that add on to their particular.

One of the example -- for example, their cycle time could be faster.

Second thing, their yield could be better.

All of the things could be added on to make the customer converting.

So as far as .13-micron, I disagree with you.

At Xilinx we have a valuable customer like TI and [Inaudible] and also customers like [Inaudible].

It's just their product is not quite there yet.

It's going to be in production that probably a next-year time frame.

It depends on their product getting into the production mode.

We have a quite of few others in the pilot stage.

We don't want to announce immaturely before that becomes really a mass production situation .

Thank you very much.

Okay.

That concludes the question-and-answer session today.

Again I'd like to remind everyone that you may listen to a rebroadcast at 11 AM eastern time today thru May 1st at midnight by dialing (888)203-1112, or (719)457-0820 and enter pass code 480124 on your telephone.

At this time, Mr. Liou, I will turn the conference back to you for any additional or closing remarks.

Thank you, operator, and thank you everyone for your interest in UMC.

Feel free to contact us directly if you have additional questions.

Good day everyone.

That concludes today's conference.

Thank you for your participation.