聯華電子 (UMC) 2013 Q4 法說會逐字稿

Welcome everyone to UMC's 2013 fourth quarter earnings conference call. (Operator Instructions). For your information, this conference call is now being broadcast to you live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investor Events section. And now I would like to introduce Mr. Bowen Huang, Head of Investor Relations at UMC. Mr. Huang, you may begin.

Thank you and welcome to UMC's conference call for the fourth quarter of 2013. I am joined today by Mr. Po Wen Yen, the CEO of UMC, and Mr. Chitung Liu, the CFO of UMC. In a moment we will hear our CFO present the fourth quarter financial results followed by our CEO's key message to address UMC's main area of focus and the UMC's first quarter of 2014 guidance. Once our CEO and CFO complete their remarks there'll be a Q&A session. UMC's quarterly financial results are available at our website, www.umc.com, under the Investor Relations Financial Release section.

During this conference we will make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the Company's control. For those risks please refer to UMC's filings with the SEC in the US and with the ROC securities authorities.

I would now like to introduce UMC's CFO, Mr. Chitung Liu, to discuss UMC's fourth quarter 2013 business results.

Thank you Bowen. For the fourth quarter of 2013 revenue was TWD30.72b with the gross margin at around 18.1% and operating margin at 0.6%. The net income attributable to the stockholders of the parent was TWD0.75b and the earnings per ordinary shares was TWD0.06.

And now I would like to go to our financial PowerPoint file to go through the Q4 last year's performance. If you turn to page 3 I'll briefly mention all the key numbers. As you can see there, TWD30.7b revenue in Q4 last year was around 8% decline on third quarter of 2013. And cash on hand at the end of Q4 2013 is TWD50.8b. Utilization rate for foundry segment for Q4 was 79%.

And on page 4 you can see our income statement on a quarter-over-quarter comparison. With the 8% revenue decline, our gross margin rate also declined by approximately 4 percentage points to 18.1%, which is around TWD5.5b. Our operating expenses has shown some growth, around 8.6%, mainly due to increase in R&D activities. And we also booked about TWD889m non-operating income in Q4 last year, mainly coming from our disposal of UMC Japan equity stakes. So the net income for Q4 last year was TWD588m and the net income attributable to parent is around TWD749m.

On page 5 you can see the year-over-year comparison. Revenue grow 7% year over year to TWD123b. Gross margin also grow 22% to TWD23.5b. With the consolidated basis, including Hejian starting from February of 2013 and also the increase in R&D activity, our operating expenses also grow 23.9% to TWD19.4b for the whole year of 2013. Total net income for 2013 was TWD12.6b and EPS is TWD1.01, and EPS per ADS is $0.169.

On the next page, page 6, again our cash is slightly over TWD50b, with total assets in the range of around $10b.

On page 7 you can see the breakdown between our foundry operation as well as the new business. New business in Q4 still caused a loss, around TWD670m, while foundry operation is in the profit around TWD778m. And for CapEx in Q4 last year for foundry it's around TWD7.6b. On page 8, the ASP trend was down around 2% in Q4 last year.

On page nine, we have a further breakdown for our foundry segment sales. First of all it's a geographic breakdown. As you can see that Asia probably show the biggest shrink, from 44% last quarter to 41% in Q4, and US market on the contrary grow to 47% from 43% in the previous quarter. On page 10 the whole year breakdown doesn't really show much difference, both Asia and US representing around 45% of our total revenue.

On page 11, in Q4 we continued to see IDM represent less part of our total revenue, which declined to 11% in Q4 from 14% in Q3. And for the whole year it shows a similar trend, from 16% in 2012 to 11% in 2013.

On page 13 we can see the communication declined to 49% of our total revenue in 4Q 2013 from 52% in 3Q, and consumer grow from 28% to 31%. For the whole year data on page 14 communication remained the same, around 50% of our total revenue both 2013 and 2012.

On technology breakdown on page 15, we continue to see 40-nanometer representing a larger part of our revenue. In Q4 it continued to grow to 24% from 20% in the previous quarter. 65-nanometer or below now is representing around 53% of our total revenue in Q4 2013. On page 16, the full-year figures, 40-nanometer also represents 20% of our total revenue, which is almost double from 11% in 2012, and 65-nanometer still remains our biggest portion, which is around 32%.

On page 17 we can see our quarterly capacity increase. Use the table for your reference. And quarter four we see some mild increase, around 1%, in total capacity. And for Q1 next year due to less working days so the increase is a lot smaller.

So on page 18, our planned or budget CapEx for 2014 is currently stay around $1.1b to $1.3b with majority, around 90%, for 12-inch capacity expansion as well for some capacity upgrade.

So the above is the summary of our results for Q4 2013. More details are available in the report which has been posted on our website. I will now turn the call over to Mr. Yen, CEO of UMC.

Okay. Thank you Chitung. Hello and happy new year to everyone. I would like to update UMC's fourth quarter operating results. The foundry segment recorded TWD28.58b in revenues, with profit margin from foundry operations of 2.7%. And wafer shipments reached 1.236m 8-inch equivalent wafers, bringing overall capacity utilization to 79%.

During the fourth quarter of 2013 our 40-nanometer and below business represented 24% of UMC sales. This continued growth demonstrates the strength of our 40-nanometer technology platform, which has been adopted by numerous customers from a wide range of diversified markets.

We also continue to achieve new milestones for our specialty technologies, recently surpassing 15m IC shipments for our 55-nanometer embedded high-voltage process in just one year. Our engineering teams have further miniaturized the SRAM cell for this process to power today's highest resolution smartphones, continuously pushing the boundaries of specialty technologies in 55-nanometer and beyond.

For 28-nanometer we have made significant strides on our 28-nanometer status to become a competitive foundry supplier, boosted by yield enhancement and has helped us secure additional design wins. To further strengthen our 28-nanometer design platform we now offer ARM Artisan physical IP for our 28HLP, UMC's 28-nanometer high-performance, low-power process that optimally balances die size, speed and leakage performance to target low power applications. This collaboration adds ARM's POP IP core-hardening acceleration technology to shorten time-to-market through proven, rigorous silicon validation for our customers designing into 28HLP.

For the first quarter, we anticipate softer business due to normal early-year seasonality. In 2014 we are optimistic that UMC will benefit from product design wins across a broad spectrum of the semiconductor industry. We will leverage our manufacturing excellence and deploy capacity expansion not only for 28-nanometer high-K metal gate lines but also for upgrades at our 8-inch and 12-inch fabs to fulfill emerging requirements.

As such, UMC's CapEx for 2014 will be approximately $1.1b to $1.3b. This investment will help UMC to expand economies of scale to drive down manufacturing costs and achieve a prolonged structural increase in productivity. These efforts will propel UMC's market share growth in leading-edge technologies and further expand our presence in the specialty segment, strengthening our position in the foundry industry.

And now I would like to translate these highlights in Mandarin. (Spoken in Mandarin).

Now I have finished my remarks and let me provide you with the first quarter of 2014 guidance. The foundry segment wafer shipments will show a marginal increase. The foundry segment ASP in US dollars will decrease by approximately 4%. UMC's foundry segment gross profit margin will be in the mid-teen percentage range. Capacity utilization rate for foundry segment will be high 70% range. 2014 CapEx for foundry segment will be in the range of $1.1b to $1.3b. Guidance for new business segment's revenue to be TWD2.8b. And operating loss will be approximately TWD0.5b.

That concludes my comments. We are now ready for questions. Operator, please open the lines up. Thanks.

Thank you. Ladies and gentlemen, we will now begin our question and answer session. (Operator Instructions). Randy Abrams, Credit Suisse.

Okay. Thank you. My first question on the CapEx, I think originally the range was $1.5b and it looks like you've spent $1.1b and guided $1.1b to $1.3b. If you could talk about the decision to take a more conservative view on CapEx and what it implies for amount of additional capacity versus specialty.

And then the depreciation implication from the lower CapEx.

Randy, our CapEx decision is based upon on our own sustainable cash flow as well as the customer need. And with some of the CapEx using for upgrade, the total available capacity can be achieved with a smaller amount of budget. So that's one reason. And second reason is of course you can probably notice that the 28-nanometer ramp is a little bit slower than what we expected. So the immediate need for additional 28-nanometer capacity is less now, but still we will continue to follow the need for our customers.

And again, as I mentioned, some of the upgrade for the capacity actually costs a little bit less than brand new capacity. So I think altogether it caused the numbers to be probably smaller than what you expected.

Okay. And the depreciation implication for 2014, like how much it may be increased?

No, still the same, probably less than 10%.

Okay. Thanks. And I have a question on the ASP guidance for the down 4%. If you could talk about how much is from the normal -- I think at the beginning of year there was a price reset. But also if there is change in product mix say, how say, 28 and 40 may look relative to the 8-inch, I mean if it's a function of product mix.

The blended ASP will decline approximately 4% in the first quarter due to the product mix. Yes, for the first quarter our [3-inch] is below our product mix average. So that's why.

Okay. Thanks. And then the final question, the new business sales and your guidance continue to move up. It looks like doubling versus where it was a year ago. If you could talk about the drivers of the revenue strength.

And for the profitability, maybe the source where the losses -- I guess they're staying pretty stable at TWD500m. Maybe a potential to narrow the losses or what needs to happen to improve profitability.

We do have several entities in our new business group. The silicon-based solar business is definitely turning around in Q1 and that's the main reason behind this larger revenue and smaller loss. The others including (inaudible), which show some minor improvement but still in a loss territory. And for our thin-film--based based solar the status hasn't changed much.

Okay. Is it expectation -- I guess toward second half we should expect continued growth and narrowing losses. That's how we expect the direction or is there a view on where this could go within a few quarters?

Well, that's certainly the hope. We have been spending last few quarters on efficiency improvements for our new business operation. However, the solar business, which is the bulk of our new business, it largely depends upon the market price. So for the time being it's difficult for us to predict the outlook for our solar business, but we will definitely ensure the operating efficiency will continue to improve.

Okay. Thanks a lot.

Thanks.

Dan Heyler, Merrill Lynch.

Thanks. Good morning gentlemen. Good afternoon gentlemen. I wanted to ask a couple of questions on the, looking at the growth rate of the industry overall, the projections are generally for fabless to grow about 10% in 2014 and I'm wondering if you think you could achieve that level of growth or do better than that.

Yes, agree on that, this improved GDP outlook, we are optimistic that semiconductor industry will continue to grow in 2014. Mainly it will be driven by continuous technology breakthrough on wireless devices as well as connected devices including the Internet of Things. We anticipate the foundry segment will also grow in 2014 and UMC will benefit from our broad-based service that includes wired and wireless communications, consumer and computing markets.

But, Dan, as you know, we cannot commit full-year revenue growth.

Yes, I'm wondering what you think the foundry growth rate, the industry growth rate will be. What's your projection?

Yes, from our intelligence, for foundry it will be around 10% to 12%.

Okay. Thank you. And from I guess the standpoint of revenue contribution from 28, could you update us on when that should be 5% of revenue, when you could first see 28-nanometer contribute to 5% of your revenue?

Yes. Our 28-nanometer activities continue, including small volume production for customers and pilot production for a couple of new tape-outs. And currently 28-nanometer, our yield has risen about 80% so hopefully we can start to disclose 28-nanometer revenue breakdown in several months.

So maybe we'd see maybe a few percentage points by the second quarter maybe. Is that right?

I guess we hope to report the numbers breakdown hopefully in few months. So, again, can't commit at the current level.

Okay. Great. And then I wanted to ask on the ASP side. What I was looking at, your 40-nanometer growth was pretty good this year, but the ASP doesn't seem to be really registering much so I'm wondering why your ASP isn't improving. Foundry ASP generally has been going up quite a bit and competition is clearly limited so I'm wondering why you're not seeing a better lift to your ASP.

Dan, I think you are right. Our mix in terms of 40-nanometer contribution has almost doubled, like we mentioned, on a year-over-year comparison basis. However, our loading for 12-inch facility didn't really meet our internal targets and for most of time of 2013 our 12-inch wafer capacity utilization rate is below Company average, and that's the case for Q1 for 2014 as well. So mix has improved. However, the 12-inch wafer loading actually still suffer from the 28-nanometer low utilization rate.

Yes, I think that explains the margin side. But I'm wondering from a pricing side, have you needed to be aggressive on pricing or is somebody else -- I'm just wondering is there competitive dynamics out there that -- basically SMIC has been focused a lot on the specialty technology growth, as you have. TSMC certainly is in specialty technologies as well. And then clearly the high-end, there's always only been one supplier of 28. So I'm wondering what the competitive dynamics in 2014 have been. Has pricing been there in line with your expectation or has 40 been a little bit more aggressive than you would have thought, say, six months ago?

So for Q1 maybe to a certain degree we probably are a little bit more aggressive, but for most of 2013 we didn't really see much of pricing pressure. And, as I mentioned earlier, the main reason was really our lower utilization, lower average utilization rate for 12-inch facility.

Okay. Could you give us, finally, some color on your R&D budget for this year because I know there's a lot of stuff going on in R&D right now?

And if you did have some quarterly trends for R&D that would be great. Is it going to be fairly linear or will 28-nanometer be ratcheting up more towards the second half of the year? So just how much R&D is budgeted for the year and how should we think about the quarterly trend?

Yes. Our R&D outlook expense will remain similar to the fourth quarter last year and will be similar to the upcoming quarters.

Okay. Okay. That's it from me. Thank you gentlemen.

Thank you.

Donald Lu, Goldman Sachs.

Hi. Good evening. Can you give us some color on why the 28-nanometer ramp-up is behind schedule? Is that demand or yield?

And also I think theoretically this high-k metal gate is a great opportunity for UMC and can you give us some color on how is the activities there going on? And also when would you think you can start volume production for high-k metal gate. And I have a follow-up question. Thank you.

So I think the major reason for our 28-nanometer ramp-up is slower than our expectation is because the demand situation, as we know, since the second half last year the high-end smartphone demand is going to the inventory adjustment. So even though our engineering progress, for example our yielf enhancement is still on track, however the demand situation is become worse since last -- second half last year. So does that answer your question?

Yes. And for the high-k metal gate, when would you start tape-out for your customers and when do you think volume production can start?

Yes. We already have the product on high-k metal gate and we expect -- we are assembling our products. However, for the volume production I would say it would be in the second half this year.

I see. I see. And also just to follow-up on this, Dan's question on R&D, so you think Q1 the R&D expense will be flat over Q4, but for the whole year should we see continued run rate to increase for R&D because high-k metal gate and all other stuff, or do you think it will be pretty flat every quarter?

I would say it would be pretty flat over the quarters, through the year, yes.

Yes, okay. Great. Thank you.

Thank you.

Andrew Lu, Barclay Capitals.

Thank you. Couple of questions from me. Regarding the Q1 guidance, you highlight will be mid-teens OP gross margin, but from the revenue guidance even ASP reduce by 4% mainly driven by mix and we are having some high revenue coming from the other, solar business, but the solar business loads are actually reduced. So I wonder what drive the Q1 margin 3 percentage points lower. Can we say OP margin Q1 will be slight low (inaudible)?

Yes. The lower (inaudible) gross margin in Q1 2014 is because, as we addressed just now, the blended ASP decrease and, secondly, the (inaudible) caused by lower loading at 12-inch fab, the high-end technology, and thirdly the higher depreciation in the first quarter this year. So that can alter this result.

Yes. Is there any --

Just to clarify, our guidance for volume marginal increase, ASP down 4%, does not include new business. So new business is excluded from this volume and price guidance and we give a very separate guidance on new business.

Yes. Earlier I mentioned because new business guidance on the (inaudible) has actually reduced compared to the previous quarter so -- and the mix change shouldn't have a much effect unless you have a low margin to -- the mix change to a lower margin product. Otherwise the mix change shouldn't affect margin much. So I think the answer probably I got is more like depreciation causing the increase. Is that correct?

That's one part of the reason, yes.

Yes. Any other reason in Q1's margin lower? Is there some kind of one-off or one or two quarter start-up costs because 28-nanometer ramp up?

Yes. With the improvement at 12-inch fab loading the profitability will return to previous levels.

Okay. Thank you,

Thank you.

Steven Pelayo, HSBC.

Great. Thank you. So to clarify some of the questions here, you guys report consolidated gross margins, but you're guiding to foundry-only of a mid-teens gross margin. So I'm curious on an apples-to-apples basis what was the foundry-only gross margin in the fourth quarter?

In the full report you still can see the separation or the breakdown rough figures. So I think for numbers we already highlighted in the attached financial statement. For quarter four our operating profit from foundry is TWD775m. And the --

My question was on the gross margin right now.

I'm reporting the net numbers. So it's a similar magnitude. You can do a rough calculation.

Alright, I'll back into it. When you look to your first quarter --- sorry, say again? I am at page 7, but that is the net profit for the foundry business. I'm curious what the gross margin is because you are guiding the first quarter gross margin in foundry of mid-teens. So what is the comparable in the fourth quarter?

We're only allowed to disclose the equal base numbers.

Okay. And then if you look into the first quarter, you just reported a fourth quarter foundry-only operating margin of about 2.7%. With the falling ASPs and I assume weaker utilization rates in third quarter, lower margin, do you think you can maintain breakeven in the foundry-only business in the first quarter?

That is our target.

That's the target but we didn't say that. So still it's very close and we can only see the gross margin in the mid-teen range with somewhat less -- somewhat similar operating terms as Q4.

Okay. And then to try to understand the margin fall-off because of the mix, I'm curious if you could just talk about utilization rate for 200-millimeter versus 300-millimeter. You're guiding utilization rates in the first quarter in the high 70s, similar to the 79% you just reported. So with ASPs going down, that seems to me that 300-millimeter utilization rates are falling quite a bit faster. What's the absolute level of 300-millimeter versus 200-millimeter in Q1 versus Q4?

Yes. Yes, the 12-inch utilization rate is in Q4 last year is around [35%] and the first quarter this year is in the high 60 range.

Right. High 60s, okay. Last question from me is on 28-nanometer. You don't have a target for percentage of revenue just yet, but you are talking about a CapEx number and expanding more capacity there so could you just remind me how much wafer capacity you have in 28-nanometer today and where you think that might be at mid-year?

Yes. Our 28-nanometer capacity is 10,000 wafers per month.

And where do you think that will be mid-year or year-end?

That will be in the mid-year, yes.

So you think it's unchanged in the first half of the year and then maybe you make additions into the second half. Do I understand that correctly?

Second half the composition change. We'll add the more in high-k metal gate capacity 28-nanometer. The total capacity will remain the same, but the high-k metal gate will increase.

Okay. So you keep 10,000 for the year, but you shift to more high-k. Excellent. Okay, I think that's all my questions. Thank you.

Thank you.

Szeho Ng, BNP Paribas.

Hi. Good evening. Can you give us an update on the percentage of revenue coming from the specialty process in Q4 versus let's say Q3 last year?

Yes, our specialty technology revenue contribution is, in Q4 last year is around 30%. The Q1 this year is also around the same, 30%.

Okay. Alright.

A little bit higher than Q4 last year.

I see. Alright. And any target for exiting 2014?

We don't guide that far.

Okay. No worry. My second question on cash dividend. I'm not sure if you can -- of course you cannot give any quantitative number, but directionally should we expect cash dividend to be up this year compared with last year?

We cannot say that. We will try to maintain a stable dividend policy. Also we need to factor in that the big portion of the earnings from last year is on non-cash base so that will be taken into consideration.

Okay. Alright. Okay. Thank you very much.

Thanks.

Aaron Husock, ShearLink Capital.

Great. Thanks for taking my questions. I just wanted to start by following up on the last question, just thinking about the dividend policy. Should we be thinking of it more as a 60% payout rate on the TWD1.01 EPS for the year or should we be thinking about it as a 60% payout rate on the cash EPS of around TWD0.45? So is it more like a TWD0.60 dividend or more like a TWD0.27 dividend? You're not giving the exact number, but which is the right way to think about it?

Again, this will subject to the Board approval, but as the Financial Officer, I think I will put something in between.

Okay. Great. And then, sorry, I'm a little confused on 28-nanometer. On the call three months ago you seemed pretty confident that it was going to be a low single-digit percentage of revenue in Q4, 2013 and now you're talking about it like it was closer to zero revenue in Q4 and maybe saying it's closer to zero in Q1. Am I understanding that correctly and can you help me think a little bit more about what changed?

Mostly, as we mentioned earlier, it's on the demand side I think. We do have volume production and it reached certain targets by the end of 2013. However, the overall demand did not really ramp according to our forecast mainly due to the weakness in high-end smartphones. But the number of customer-wise and number of (inaudible)-wise especially on the engineering achievement actually all hit our target. Our peak yield on our 28-nanometer production actually now is over 80% and we are quite actually happy with that. Unfortunately there is some short-term correction in high-end smartphone demand.

Okay. Okay. Great. And thinking about this year, you're talking about less CapEx spend than had been your prior expectation and you're talking about not extending 28-nanometer capacity. Is this -- are we at the point where -- the other people are already talking about 20-nanometer. Are you not giving up on 28, but you're not expecting it to be a major node for you anymore?

Yes, we believe that 28-nanometer is a long-life node and therefore there will be many business opportunities arising from multiple waves of customers. So our 28-nanometer solution provides an optimized balance in performance, chip size and (inaudible), plus our IP offering will enable UMC to capture more design wins in the coming quarters.

Okay. Great. Thank you.

Thank you.

Thank you.

Roland Shu, Citigroup.

Hi, good evening. I think the first question to me is for the 28-nanometer capacity. I understand you said throughout to the end of this year capacity will be about 10,000 wafer per month. Question is, you think this too small and actually with this tiny capacity will it be economic to run the 28-nanometer operation? And what kind of the level of capacity you think would be reach the economy of scale for-28 nanometer and when will you reach this capacity? This is my first question. Thanks.

Yes. Our internal simulation suggests that the higher loading at 28-nanometer capacity will bring adequate returns in the long run so we -- it quite depends on the ASP it will generate. So we believe the (inaudible) 28-nanometer adequate capacity will be more than 25,000 per month.

Okay. And when do you think you will reach this 25,000 per month capacity for 28-nanometer?

Roland, we do have shell almost ready, like P5, P6 shell ready, standing by and we are also upgrading certain of our 40-nanometer capacity. It's capable or compatible to do a 28 upgrade if we need to do that. So again it's driven by the customers' demand, but we do have a goal to ultimately reach at least 25,000 per month, including both high-k metal gate capacity and the PolySiON capacity.

Okay. Thanks. And second question is for your 65-nanometer and 40-nanometer revenue. I think we've continued decreasing 65-nanometer revenue and continued increasing our 40-nanometer revenue. Are we going to see the revenue cross over, the revenue contribution cross over in this year?

We think our 40-nanometer revenue contribution will be quite consistent. Will be around 20% to 25% throughout this year.

Okay, 20% to 25%. So how about 65-nanometer revenue? Will it continue decrease?

Our -- the 65 will be also very consistent. Will be roughly around 30%. Yes.

That means --- okay, 30%. So that means that in this year probably for the product mix improvement part of your agenda we probably will see very limited improvement on the product mix. Am I reading this right?

No, actually it largely depend upon the ramp-up speed for 28. 28, this now is our key focus this year. We're going to jump-start whenever we can.

Yes, but you said probably the revenue contribution in first have would be limited and so you expect jump-start in second half. So what's the expectation by end of this year the 28-nanometer contribution will be?

We don't have the figures, but again we do have most of the criteria ready and hopefully we shall, right in the end we will see a smooth ramp throughout the next few months.

Okay, understood. Okay. And last question is about your specialty IC is about 30% of the total revenue. How about the contribution from 12-inch amidst the total specialty IC there?

We don't have the data on hand.

Okay. Yes, okay. Thank you very much.

Thank you.

Eric Chen, Daiwa.

Good evening and very quickly two questions. And my first question regarding to the total capacity, the expansion, and how many percent year-on-year growth and based on the 8-inch equivalent? So just give us the idea how many percent year-on-year growth. Thank you.

Yes. Our capacity increase is, year on year is 3.7%.

Okay. Okay. The second question is regarding to the driver IC and could you give us an idea in terms of revenue contribution from the driver IC, the business?

And I also notice your geometry of the driver IC keep improve so could you give us the idea what kind of mainstream geometry you are going to use for the driver IC business?

On the revenue contribution side, our driver IC segment is around 40% of specialty segment. So specialty is 30% of total revenue and you can calculate the high-voltage driver IC's revenue contribution.

And the mainstream technology, we are moving to 55-nanometer. This is UMC's strength and leading position.

Okay, 55 nanometer.

Yes.

Okay. So in that case, more like the 55-nanometer process business mainly from the driver IC business. Is that correct?

It's not at this moment, yes. It's not.

I mean for the 45-nanometer process, it would be the revenue in Q4 is probably below the 10% of the total -- I'm sorry, 55. Okay. My question -- I'm sorry. Let me clarify. For the 55-nanometer process, driver IC is the major revenue contribution product, right?

It's not the case. Yes.

Not the case.

For the driver IC it's still mainly from legacy nodes, legacy technologies.

So most of the advanced products is going to by using the 55-nanometer process right?

Yes, that's correct.

Okay. Okay. Thank you.

Thank you.

Michael Chou, Deutsche Bank.

Hi, good evening. I have a couple of questions. The first one is can we expect advanced node sales will decline quarter on quarter in Q1? Given 12-inch loading would be below the common average loading, can we say the 40-nanometer would decline quarter on quarter in Q1? Thank you.

Yes.

Well, it will be rather stable but the whole base is also declining so at the moment it's hard to tell it will stay the same or decline, but it will be relatively stay around the 20% range. Depends on how the other mix change.

Okay. Thank you. Second question is could you give some color on outlook by application in Q1?

Yes, the Q1 by application would be, for consumer segment it will be up to 32% in the sub-sector in DTV and set-top box. And communication will be, it will be drop to 47%. And the down sector, sub-sector is WiFi, WiFi products. Computer segment is a little bit up, 17%. And the driver IC, audio codec is the sectors, sub-sectors are going up a little bit.

Okay. My next question is what was the currency in Q4 last year and what's your assumption for Q1 this year? Thank you.

We don't have a forecast. We just follow the Bloomberg numbers. So currently it depreciated a few percentage points, but we take our average in the Bloomberg page.

Okay. What was the currency in Q4 when you translated?

TWD25.65

Okay. Thank you. Okay. That was all my questions. Thank you.

Thank you. Thank you.

Steven Pelayo, HSBC.

Yes, just a clarification on 40-nanometer. It grew I think 9% quarter on quarter and revenues were down 8% in the fourth quarter. You were just talking about 40-nanometer as a percentage of revenue and I'm curious just on a dollar basis in the fourth quarter, can it grow on a dollar basis quarter on quarter?

For Q1?

Correct.

That would be unlikely, but it will be roughly 20% range, but given the down revenue quarter it's probably unlikely to see growth in 40-nanometer.

Okay. And then just two more quick questions here. I'm curious can you help us understand what was the gross margin in the first quarter on the new business? Because you guys always guide the operating level of that, I'm trying to understand what the mix is. How much of is it OpEx and how much is (multiple speakers).

It's a mix of combination so it varies a lot. But bottom line is improving I guess; that's the only thing I can say.

Okay. Last question is if you have 10,000 wafer starts a month of 28-nanometer capacity and if you want to have a few percentage of revenues before you're divulging to us, I think that only comes out to maybe 1,000 or 2,000 per month in run rate over a quarter. So should I assume today that you're running less than a 1,000 wafers per month at 28-nanometer?

Again we have multiple product in volume production although on a smaller scale, but it varies month-on-month basis. And we haven't really seen the maximum amount we are hoping for yet, but it's actually coming in a few months. So it's pretty radical if you -- up the line and it's not really a meaningful figure to quote yet.

Okay. Fair enough. Thank you.

Thank you.

Thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of Investor Relations for closing remarks.

Thank you everyone for joining us today. We really appreciate your questions on the call. Thank you for joining into our fourth quarter conference call, as always. If you have any additional follow-up questions please feel free to contact UMC IR at ir@umc.com. Thanks again and have a good day.

Ladies and gentlemen, that concludes our conference for fourth quarter 2013. Thank you for your participation in UMC's conference. There will be a webcast replay within an hour. Please visit www.umc.com under the Investor Relations, Investor Events section. You may now disconnect. Goodbye.