聯華電子 (UMC) 2003 Q3 法說會逐字稿

Welcome to the UMC third-quarter 2003 conference call.

Today's call is being recorded.

Please be aware that all lines are 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 of this call will be available at www.UMC.com under the Investor Relations/investor events section until December 30th of 2003.

Also, a telephone replay of this conference will be available from 11:00 AM Eastern Standard Time on Wednesday, October 29th of the year 2003 until midnight Eastern Standard Time on Thursday, October 30th of the year 2003.

To access the telephone replay, please call in at 1-888-203-1112 or if you're international, 719-457- 0820.

The access code will be 119658.

At this time, I would now like to turn the conference over to Mr. Chitung Liu of UMC.

Thank you, Lisa.

Welcome and thank you very much for attending our third-quarter earnings conference call.

We are hosting this conference call from Taipei.

Here to help report our results are Jackson Hu, CEO, and Mr. Steve Hung, CFO.

Before beginning this presentation, I would like to remind everyone of our Safe Harbor policy.

That is, certain statements made during the course of our discussion today may constitute forward-looking statements which are based upon management's current expectations and beliefs 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 these risks, please refer to UMC's filings with the SEC in the U.S. and SFC in ROC.

I would like now to turn the call now to today's speaker, Jackson Hu, CEO of UMC.

Thank you, Chitung.

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

As always, we appreciate your interest in UMC.

I'm going to start off by briefly introducing myself and telling you about some aspects of UMC that I have become more familiar and impressed with since I joined the company early this year.

Next then I would like to provide the directions and focuses moving forward.

Then I will provide a brief summary of our operating results for the third quarter.

You all should have seen our press release by now, so I am going to keep these remarks short.

Following this, we will leave the rest of the time for your questions.

So let us start.

First, let me briefly introduce myself.

Most of you may have known that I have been in the semiconductor field for over a quarter of a century.

My experiences have been in IC design, product development, and management.

I have worked in IBM company before, and also I have worked for and founded several successful fabless design companies.

During this period of time, I worked closely with UMC as a customer, and was always impressed with the company's professionalism and attention to their clients, which I encountered at all levels of the company from top management to technical account managers.

Although I'm new relatively in UMC, I have known many members in the executive management team for years, and my field complements the process-emphasized team.

The approximate 10 months has been accounting, but I was always impressed with UMC as an outsider.

Now I have opportunity to understand the organization and the operations much better since becoming a full-time insider.

So let me share with you my observations about the UMC strengths.

UMC is the second among all the foundry players in the semiconductor industry.

The last two years has been the worst market downturn over 30 years, and even during such difficult times, UMC was able to make a profit.

And after 23 years of effort -- by the way, UMC is 23 years old this year -- it has built very diverse- wide customer bases, both in terms of geography and application.

So it helps the stability of the business in a great way.

UMC has many talented people that I was really impressed with.

And in the new technology and 12-inch side, we are leading in the 90 nm technology.

We are making very good progress in delivering product to our customers.

Our 12- inch fab is also ahead of the industry.

We are probably one of the only -- we are the only foundry in the world that is simultaneously building two state-of-the-art 300 meter foundries.

And UMC is well-known of inter-flexibility (ph) and delivery.

So this here is a quick summary of what I have observed.

Since July 15, after I took the CEO job, I also had the opportunity to visit all of our customers worldwide, to understand their business and to hear their requirements.

So based on these meetings, I would like to summarize our operation model, future directions, and our focuses moving forward.

First of all, I want to make it very clear, UMC's operation model is a pure-play foundry.

We have two primary business objectives.

Number one, to fulfill our customers' technology and cost requirements to assure their competitiveness in the marketplace.

Number two, to maximize shareholders' return and employees' benefits.

So all of our strategy and the focuses are formulated based on these two primary business objectives.

And moving forward, we will focus in the following four areas.

Number one, understand our customers' applications in the markets, so that UMC can offer the right solutions.

Number two, we are determined and confident to be the leader in new technology development and the manufacturing yield.

Number three, we will provide high-quality design support, and for fabless customers to provide the IP that they need.

Number four, our capacity expansion, while primarily focused on 12-inch, remains invested in 18-inch fields to improve the throughput, but the focus will be on 12-inch.

We have collected enough evidence about the efficiency and advantage of 12-inch over 18-inch, and we believe the battleground of the foundry will shift to 12-inch soon.

So the above was a quick summary of the operation model and our future focus.

Now, I would like to provide a short summary of our results from the third quarter of this year, and then provide the guidance for the fourth quarter.

Due to SARS, the quarter-over-quarter revenue decreased slightly to NT$21.5 billion or US$638 million.

Our quarter-over-quarter operating profit increased by 4.2 percent to NT$2.6 billion.

Our quarter- to-quarter net income increased by 66.4 percent to NT$4.2 billion, due primarily to gains on investments.

The quarter-over-quarter shipments of 8-inch equivalent wafers decreased slightly to 546,000 8-inch equivalent wafers, and again due to SARS.

The blended average selling price increased by 1 percent, and the capacity utilization is 84 percent.

Through the first nine months of 2003, the CAPEX spending totaled US$200 million.

In the past few months, UMC has taken advantage of purchasing incentives that have been offered by various equipment vendors, which allowed us to defer certain CAPEX payments.

Because of this, we are updating our guidance on full-year CAPEX spending.

We now expect it to total US$350 million.

Now, let me give you the fourth-quarter outlook and guidance.

For the fourth quarter, our wafer shipment is expected to increase by approximately 10 percent.

Wafer price, average selling price, is expected to remain flat in U.S. dollar terms.

Capacity utilization rates will be greater than 90 percent.

Operating profits will increase by more than 20 percent.

Percentage of 0.18 micron and the smaller geometry revenue will be in the high 40 percent range, with 0.13 micron to exceed 10 percent.

The communications segment is expected to post the strongest growth, followed by consumer and the computer segment, and let me elaborate a little bit.

We are seeing a major conversion of cell phones from monochrome display to color display, and the high-end cell phones also offer camera functions.

Therefore, all the related ICs are in strong demand.

On the consumer side, probably due to the holiday season, Christmas and Lunar New Year, we also see strong demand in DSC and DVD.

So I think this is a quick summary of what I would like to report,

Thank you, Dr. Jackson.

Lisa, now we are ready for questions.

+++ q-and-a.

(OPERATOR INSTRUCTIONS).

Kumar Ashish from Credit Suisse First Boston.

My first question is that (indiscernible) you actually said yesterday that we will exit the fourth quarter with 0.13 micron at about 15 percent.

So not the average for the quarter, but exiting at 15 percent.

Does that still hold?

Regarding 0.13 micron technology, we do see continues to increase in percentage of revenue contribution.

And we do have more and more customers, including both IBM and fabless companies, doing 0.13 micron design.

So due to their pace, we anticipate to see the impact in Q1 -- to see more impact in Q1 2004.

But overall speaking, the percentage continues to increase.

Okay.

And after 90 nm and below, do you anticipate the Japanese semiconductor companies to provide something to your foundry capacity, and particularly one of your leading customers has been quoted saying they are speaking with the Japanese for 65 nm and below?

On the 90 nm side, we have shipped the preproduction volume to our customer.

And we are also continuously working on 65 nm and even more advanced technology.

But honestly speaking, for 65 nm, we believe it is still far out from production standpoint.

However, we are seriously working on the development on the 65 nm technology, and also we are watching the industry development data, including Japan, very carefully.

But have you sort of come across the Japanese competing for 90 nm for your -- where you pitch for business, do you see the Japanese too, like Toshiba or Fujitsu?

The honest answer is no, we have not.

And my last question, based on your understanding of the industry and when you look at all the players in the foundry business, what type of capacity is being built in 2004; just a ballpark number you think by all the foundries combined?

We needed to collect that information.

We do not have that piece of information in front of us, but we do have a very clear plan ourselves.

Thank you so much.

Bhavin Shah with J.P. Morgan.

Congratulations for making such good progress in the last couple quarters.

I had a question on the 90 nm I know you have been doing some activity for Xilinx clearly.

Could you talk about additional tapeouts, how many tapeouts do you expect by end of fourth quarter and also when do you see meaningful volume production at 90 nm?

Okay.

What I can tell is that our customer Xilinx is taking out multiple products based on 90 nm in different configurations and structures.

I think it is better to ask for additional details from Xilinx directly.

We have been shipping 90 nm products to Xilinx in preproduction volume and we expected to go into full production in early next year.

And the other customers or any additional number of tapeouts, any such metrics that you might be tracking to anticipate whatever new activity in 90 nm?

We do have other customers products built in 90 nm but in those cases we are not allowed to talk about.

Okay.

Just one more follow-up question.

There are a lot of alliances in the industry for the future generation technology developments, 65 nm and so on.

How does UMC plan to address the future generation (indiscernible) 65 nm, 45 nm and so on?

That is a very good question.

UMC has plenty of experience in joint technology development in the past.

We formed so-called JDP or joint development partners in the past multiple times.

However, our experience tells us that is not a very good model because each partner may have their own strengths, therefore their own objectives.

And the more party (ph) we have, the more difficult it is to try to align them.

UMC has grown into a leader in the foundry business.

We have both the financial strength as well as the skills to drive the technology development ourselves, but in the meantime we don't rule out the possibility of working with the industry-leading companies through an effort we call joint engineering effort, which shares experience exchanging information.

We will continue to do that.

Okay, thank you.

(indiscernible)

Congratulations Dr. Hu for this good set of results.

I have one question about UMCi, then some follow-up questions.

UMCi, when do you think you will start producing at UMCi?

Obviously you have given us some data like by end of year 2004 you will be achieving 10,000 wafer per month sort of capacity, but when you are you going to start that capacity?

UMCi, we already have the capability at the back end and we are moving equipment for the front end.

We expect to start production probably early next year.

In the first quarter '04 capacity guidance you have not giving UMCi.

Can we assume that you will start from the second quarter '04?

It will be a ramp situation.

Initially the volume will be lower.

And what type of product would you like to start at UMCi at the beginning at the front-end?

You know, it all depends on customers, so it could range from FPGA to any other, to base band or any other product.

But we will primarily produce advanced technology, 0.13 micron and 90 nm and so on and so forth.

Next question is on the 0.13 micron.

I understand you have been developing some 0.135 micron technology, maybe on the aluminum and interconnect.

Could you give us some update whether you are producing anything out there?

You may be referring to a report, maybe several months back.

We do have our 12 inch fab in Tainan 12 8 I am referring to, does have aluminum capability, so it can be used to produce 0.15 micron, for example.

So for any specific new geometry like 0.13 micron, I think it is primarily driven by customers.

But we do have aluminum capability.

This is maybe also one area that is different from any other 12 inch fabs and we consider that as an advantage.

Could you comment a little bit about expected probably nonoperating income in the fourth quarter '03 and what other things we should consider there?

So far we have realized from the first of October to today it is about 2.8 billion NT dollars from (indiscernible).

There is not so much we should expect for the remainder of Q4.

So it could be around $2.8 billion for the modeling purposes in Q4?

Around 3 billion, yes.

Last question is on the 65 nm.

You are saying that you are going for some joint engineering effort.

Could you elaborate a little about your material development capability and how you are thinking that at 65 nm you are going to get that material technology?

Which technology?

Basic materials.

Not on the process technology but to have basic materials itself, maybe some low-key or some other interconnect materials or silicon or anything.

The JEE (ph) efforts will cover all those areas potentially, including 65 nm, 45 nm notes, FOI (ph) and strain to silicon are in development.

That is great.

Thank you very much.

Timothy Arcuri of Deutsche Bank.

This is actually Dan Baron (ph) in for Timothy Arcuri.

You had mentioned that CAPEX was a little bit less than expected.

Did you do extended payment terms that were extended from some of your vendors?

Are these terms still ongoing?

Are they still offering extended payment terms, maybe could you give us some idea that if they had not given those terms, what would CAPEX have been if business conditions were little bit more normalized?

Our original plan was $500 million, and basically we ordered the base according to that plan.

And however because of the delay of delivery, things like that, our payment is also accordingly delayed.

But the order was made based on $500 million.

Okay.

And so are these extended payment terms still being offered, or are you seeing increased demand at the equipment vendors, increased lead-time from equipment vendors, that sort of thing?

Yes, from some of the vendors.

Everyone is different.

Okay, thank you.

Michael McConnell with Pacific Crest Securities.

Regarding your sales of 0.13 micron, we are now finally seeing percentage of revenue start to uptick at 0.13 micron.

Can you talk about is this more of a function of the base band business starting to come back quite dramatically, or also a function of your yield progress in 0.13 micron?

That is an excellent question.

I think primarily actually both, the answer is.

And the yield improvements is a major reason, and I am happy to claim that our 0.13 micron yield has reached world-class levels.

And combining the 12 inch efficiency, I think there are more and more customers coming, they should come to UMC to use 0.13 micron and the 12 inch combination.

And on the PC side, where I know you are trying to make obtain some more market share, could you give us an update with regards to that particular group of customers and how successful you have been in courting them now that the 0.13 micron yields have improved especially on the graphics?

Yes, without mentioning names, what I can report is that we are making progress on the PC programs including graphics.

And at the proper time, we will report the customers and their product.

And I believe you understand that we have to get customers consent for disclosing such kind of information, but we are making good progress.

Okay and the last question I have is just lead times, obviously stretching at 0.13 micron.

Just characterize what your lead times right now are in terms of weeks?

For 0.13 micron, the typical cycle time is 60 days.

Thank you very much.

(indiscernible)

A question on CAPEX.

Looking at your slides, you have located about 200 million U.S. dollars for UMCi.

What is the timing of this investment?

Would it come in the fourth quarter or has it already been spent?

The UMCi 12 inch expansion for $200 million is on the plan.

I mentioned earlier that we are moving the front end equipment into the fab so that by early next year we can start the full accretion.

What I wanted to know this 200 million which you have allocated, after spending this amount you have this amount of cash in your balance sheet, or shall we assume this is going to be spent in the next three months?

The purchasing order has been placed out for 200 million, but payment varies by different vendors.

So up to now, that whole 200 million has not been totally paid out yet, but the order has been placed.

Okay.

Same for UMCi, you have factored about $1 billion U.S. for the next year.

So given that Infineon stake you have (indiscernible) would you be increasing the debt for this UMCi vehicle, would (indiscernible) level be increasing or would more funding be required in the year '05?

The $1 billion of investment was based on expansion plans to (indiscernible) per month of capacity by the end of 2004.

That is still the plan.

And UMCi's currently holding over 500 million U.S. dollars cash on hand, that is the recent cash injection, and also have their own drawn syndicated loan from the banks.

So to support this $1 billion CAPEX is enough for now.

And what is the (indiscernible) going to be for UMCi?

(indiscernible) so far we know during the syndicated loan it is actually pretty low, we are talking something 30 percent.

Okay.

One question on your debt repayment because I noticed that for the next 12 months you'll be paying just 3.5 billion NT whereas when I look at your annual reports the total amount which has to be paid over the next three years is about 36 billion plus.

I was wondering have you rolled over some of the debt or that 36 billion figure still remains?

No, we have to pay back roughly more than 10 billion debt over the next 12 months and the majority of that is the Euro convertible bond issued based upon the treasury stock we held. (multiple speakers)

It is very clear.

Besides euro convertibles when I look at your annual report over 2004 to 2006 you have total debt outstanding that you need to pay of 36.4 billion.

When I look at next 12 months there is just 3.5 billion what is being paid so I was wondering have you rolled over any part of this debt?

A majority of the euro convertible bonds (indiscernible) so there's not much (indiscernible) other than corporate funds which we won't have to pay until late '05.

Okay.

What would be 0.13 micron capacity now on 8 inch and also on 12 inch, and where do you expect it by end of the year?

The 8 inch capacity is about 6 percent and the 12 inch is about 3 percent overall capacity.

(multiple speakers) 0.13?

At the end of the year.

This 0.13?

Okay, and where do you stand right now?

This is pretty much here already so we pretty much there.

Okay, thanks.

Dan Heyler of Merrill Lynch.

Another question on the order patterns.

Chitung had mentioned some time ago that the wireless part of the business had picked up in the latter part of the third quarter.

How has that particular segment performing?

Is that progressing as the quarter strengthens?

When you say wireless you are probably referring to the cell phone?

Well hand-set related.

I mentioned earlier we see very strong demand on the hand-set, primarily due to the conversion of the display from monochrome to color and adding the camera function.

And that is what we are seeing in Q4.

I was wondering how that ramp was progressing?

Is it a steady ramp or given that it is a product cycle in time for Christmas, --?

Is a very good question.

We are also watching that to see if after the holiday season and whether there will be inventory and how much is it.

Okay.

Is there any evidence that some of the products that you are ramping or anything you are getting at this point, because obviously 10 percent growth is really strong, are products that are oriented towards the first part of next year?

I think given a little bit more time we will have visibility to answer you that question.

This market is very dynamic.

Right, so your sense is that orders from customers continue to be somewhat cautious, but still obviously strong as visibility generally isn't fantastic for your customers.

Actually we have not seen such an optimistic response or forecast from customers for long time, but I think we are cautious for the reason I mentioned, we want to see whether this is persistent, whether there will be inventory.

Right, and assuming that in your dialogues with your customers as well that you just made, that inventories look okay by, say, January or so.

Are your customers indicating that they would be willing to be a little bit more aggressive towards taking more risk on inventory yet?

I would not say whether they would take a risk in inventory, but again as I said, given a few more weeks, we can probably have a better visibility.

Okay, great.

That is helpful.

Thank you.

Donald Lu of Goldman Sachs.

I have two questions and a follow-up.

First can you just clarify what is the year-to-date investment gains that is left to be modeled into Q4?

And secondly is for your 300 nm expansion for next year, are those 04.13 (ph) micron or is that also for aluminum 0.15?

Let me answer the second question first while we're looking for the answer for your first question.

On the 300 millimeter, we will have strong demand both in 0.15 micron (indiscernible) as well as 0.13 micron.

About the capital gains, (indiscernible) Q3 total capital gain is 2.5 billion NT and so far Q4 is capital gains of 2.8 billion NT, so total up to now is 5.3 billion NT.

So in Q4 at least we will book this 2.8 billion NT investment gains?

Yes.

Okay.

I have a follow-up on the 300 mm (indiscernible) So if that is the case and you are talking this afternoon that 300 mm capacity would account for 30 percent of the total capacity excluding the 8 inch 0.13 capacity, so altogether you are going to have more than 30 percent 0.15/0.13 capacity.

So the revenue from those segments would be over 50, 60 percent of your revenue.

So is that the way we should model your revenue toward the end of next year?

It is one way to estimate if by the end of 2004.

The capacity (indiscernible) is by year-end 2004, that is not the average for '04.

Okay, thank you.

John Pitzer of First Boston.

You spoke a bit about the efficiencies of 12 inch over 8 inch and I was hoping you could quantify that a little bit.

It you have a current customer on 8 inch 0.13, what kind of cost savings can you give them by moving them over to 12 inch?

And secondly, when you look at the capital budget for next year, is there any plan to add additional 8 inch capacity?

The 12 inch efficiency over 8 inch actually can be understood relatively easily.

From wafer area standpoint, 12 inch over 8 inch we show about 2.25.

However, the 12 inch wafer will have a better edge effect (ph) and lower defect density, (ph) so the overall number of die could be 02.5 times or more depending on the die size.

So we estimated to be cost advantage would be 20 percent or more, again depending on the complexity of the process and the die size.

Secondly, are you planning to add any 8 inch capacity next year in your capital budget?

Not in a major way but probably to further enhance the efficiency and throughput, to maximize the throughput.

And lastly when you look at your capital spending plans for next year, as you ramp 12 inch do you think that most of the CAPEX is going to be spent in the first half of the year with ramping capacity in the second half of the year?

Or will it be fairly evenly distributed throughout the year?

We are trying to accelerate the expansion, so it is possible that we may spend a little sooner than later.

Great, thanks a lot.

Steven Pelayo of Morgan Stanley.

Actually my question was essentially that, the linearity of your spend in light of taking advantage of the purchase incentives.

You have been spending at roughly 75 million U.S. per quarter.

You are taking that up to about 115 or so in the December quarter.

How is that going to track going into the first quarter and maybe you can just give a little more detail on the linearity of your quarterly CAPEX spend.

Yes, as I just mentioned, we are going to accelerate it.

So you may see a lump, large spending early next year.

And then depending on the delivery, each vendor is different, then (indiscernible) affecting linearity also.

Fair enough, thank you.

A follow-up from Kumar Ashish from CSFB.

For fourth-quarter '03, do you see revenues continue to increase from November to the month of December?

How do you categorize month over month expectations?

Yes, I think in general the answer is yes.

We do see a strong demand in Q4 every month and stronger and stronger.

And one other question.

On your capacity utilization, can you give us some idea of how is it for lagging edge and for leading-edge?

Let me try to understand that, how is the lagging for.

That is the 0.18 and below, what (indiscernible) you are seeing vis-a-vis your 0.25 and above?

90 percent is (indiscernible) there is an average, so I do not have the detailed breakdown in front of me.

So we may be able to respond later.

No problem.

Thank you so much.

Mark Fitzgerald of Banc of America Securities.

Your R&D expenses so far have been running around 7 percent of your revenues.

Do you expect that to go up next year as you start developing your 1990 (ph) wafer technology, or how do you expect us to model that?

At least at 7 percent is the main increase of our revenue increase.

And just a clarification on your CAPEX.

You said that spending was 350 instead of 500, right?

Is that something that just got pushed out into 2004?

It's not discounts, right; it's just something that got pushed out?

It is (indiscernible).

I think its 350 (indiscernible) based on payment, not based on orders.

Right, okay.

We mentioned earlier that we are ordering based on $500 million sustaining (indiscernible).

And that's still on track?

Yes.

Thanks.

Bhavin Shah from J.P. Morgan.

I'm a little bit confused about that comment you said about 20 percent costs, and I think what you said from 300 millimeter over 200.

Could you elaborate a bit further?

You explained very well the productivity benefits.

How much do you have to share with customers?

In other words, what is the pricing at 300 millimeter versus 200 millimeter for the same technology node?

And then what is the cost differential you see when you reach (indiscernible) efficient scale at 300 millimeter over 200 millimeter?

By now, the advantage of 12-inch over 8-inch is quite well known in the industry.

And we present with the advantage that I just described to you, 20 percent plus, to our customers.

And they are, of course, talking about the figures or some of the figures in (indiscernible) and report.

So again, it depends on the process complexity and the die size.

That can vary.

And so, in other words, there could be product that (indiscernible) more than 20 percent.

So the 20 percent benefit is to the customers?

Yes, from die cost standpoint.

Thank you.

Michael O'Brien of SoundView Technology.

Two questions.

Could you just give me a little more on the outlook for the PC side or the computer side of the business, specifically on the -- I will look for some of your chipset business?

Okay, so if you are referring to the overall growth potential for PC market, is that what you are talking about?

No, really just your fourth-quarter and if you have thoughts on the first quarter for any growth or lack of growth from the computer segment, specifically on chipsets.

Actually for Q1 we need more time to have that visibility, but overall speaking, our growth will be the strongest in the communication segment, followed by consumer and then computer, in that sequence.

Are you seeing any growth from the chipset side of things?

In my opinion the computer segment has had moderated growth, a new growth about 6 percent, and industry is talking about potential high growth because in the last two years during market downturn, the enterprises have not changed the equipment there for some time.

So there is a possibility that they will start to do that when the economy recovers.

So we have not seen that yet.

And then finally talking about the accelerated deliveries of equipment in the first half of '04, can you give me an idea of how much in the way of orders have already been placed.

Or do you still need to place those orders in the fourth quarter in the first quarter?

We mentioned that by end of 2004 that we are going to have totally 30 K 12 inch wafers per month of capacity and we are ordering actually to accelerate that plan.

So again I hope that next time we can give you more information.

Okay, but can you give me an idea if most of the orders have been placed or have a certain amount --?

A lot of them have and additional are coming.

Thank you.

(OPERATOR INSTRUCTIONS) Pranab Sarma with Daiwa Institute Research.

Could you give us some color on the average selling price trend in different technology node, how it’s shipping at this point in the fourth-quarter and going forward for the first quarter pricing?

As I mentioned in the guidelines that we anticipated ASP to stay flat. (indiscernible) demand is getting stronger.

We have not raised price, mainly because we do not know whether this is persistent.

We have to continuously watch the situation.

That is why we estimate the average sale price would stay the same.

Just to (indiscernible) for one particular technology, the 0.1 micron 5 metal layers or 7 metal layers is it the prices are stable at this point, or it is still falling slowly?

I felt that the price is stable.

Okay.

And yesterday I think one of your competitors made a comment like for foundry models, CAPEX model normally 25 percent of the revenue could be put in the CAPEX.

I think that was the model they were trying to say yesterday.

Do you agree to that particular type of number or you have some different numbers in your mind?

Yes, we cannot comment on what our competitors did, and usually we do not have a fixed rule.

Again, the markets is changing rapidly.

You compare this quarter or next quarter versus six months ago, they have a nice difference.

So I think we will watch the situation very closely and do the necessary adjustments.

Okay and my last question, in that you have seen some of the increase in the European IDM related customer, probably, and even in the memory size.

If you like, could you give us some color into that side, whether it is mainly European IDM's and memory is getting up or whether you are putting more memory on advanced technology?

We are not producing memory.

You probably know.

So we -- (multiple speakers)

If 2 percent of the revenue came from memory versus 1 percent in the past quarter?

That is small enough basically.

There were some clear spots of demand there, but we are not doing memory products.

Thank you very much.

Matt Gabel (ph) from (indiscernible) Capital.

I was wondering a couple things.

With the shift to from monochrome to color in camera handsets, where -- at what geometry are most of those orders being placed, number one?

Number two, and separately, with regard to the CAPEX payment deferral until early next year, given that equipment lead-times are stretching out, why did you get this payment deferral and what type of tools or equipment was it for?

To answer your first question, the strongest demand on the cell phone related device is the LCD driver devices which are based on 0.35 micron technology, high-voltage process.

On the CAPEX expansion, the payment deferral, I'm guessing because in the last two years most of equipment vendors had severe cutbacks and now when we receive new orders that it will take them some time to adjust the demand.

That is our own guessing.

So you got the payment deferral because the delivery is going to be pushed back?

In some cases yes.

Finally are you seeing any PC-related in terms of your orders, any PC-related seasonal slowing of orders as we progress into Q4 now?

Is that starting?

We do not have any strong indication on the slowdown or faster growth on the PC segment.

Okay, thank you.

Ivan Goh, with Dresdner Kleinwort and Wasserstein.

I have got one question that relates to what you said earlier where you said that orders rising and rising in the fourth quarter.

I just want to clarify are you referring to revenues sequentially increasing on a month-to-month basis towards the fourth quarter?

Yes.

Not orders, right?

Yes, the revenues.

Then I have a follow-up.

You saw a return or revival in communications related orders in late Q3.

And my question is are you seeing that momentum continuing into where we are today and perhaps through for the end of Q4, or are you seeing more or less these orders plateauing?

Could you please repeat your question again?

The continuation of what?

You started to see a revival in communications orders starting in late Q3.

My question is are you seeing that momentum increasing into where we are today, or are you seeing those orders plateauing?

As I explained earlier that part of the strong demand maybe seasonal, maybe relating to the upcoming holiday.

So (indiscernible) the Chinese new year and after the holidays we will know the answer.

So at this point in time it is still continuing in momentum, in other words?

Yes, you can say today that is the case.

Thank you.

Lisa, we may have time for just one last question.

Cristina Osmena from Needham & Co.

Two quick questions if you don't mind. (indiscernible) 0.13 approaching world-class yields, are you beginning to take out more designs?

Yes, that is exactly the case.

We have more and more new designs from both IDM and the fabless customers and will start to see the impact probably Q1 next year.

Any sense on -- could you give us any indication on the magnitude of the increase in the number of designs?

Yes, maybe we can talk about that later.

And somebody asked earlier about this pattern of the way CAPEX is going to shape out for UMC only next year, and I was wondering if you could just talk about the same thing for UMCi.

Is it going to be front end loaded also?

UMCi?

Actually for UMCi our order equipment order has been placed, so I mentioned earlier our back end is already operating, and we have all the equipment for the front end which we expected to come in before the end of the year, so early next year UMCi will start operations.

Okay, so ordering for CAPEX that is slated for next year has already been placed?

Have been placed for UMCi.

Thank you very much.

That does conclude today's question-and-answer session.

I will turn the conference back over to Mr. Liu for any closing or additional remarks.

Thank you all again for your interest in UMC.

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

Good day, everyone.

And also I wanted to thank everyone.

It is the first time for me to meet with everyone over the phone and I look forward to meet with you in the future quarters.

That does conclude today's conference.

Once again there is a replay of this call and it will be available at www.umc.com under the investor relations/investor events section until December 30 of 2003.

Also a telephone replay of this conference will be available from 11 a.m. eastern standard time on Wednesday October 29, 2003 until midnight eastern standard time on Thursday October 30, 2003.

To access the replay again please dial 1-888-203-1112 or if you are international 719-457-0820.

The access code will be 119658.

Once again that does conclude today's conference call.

We thank everyone for their participation today.