聯華電子 (UMC) 2015 Q1 法說會逐字稿

Welcome, everyone, to UMC's 2015 first-quarter earnings conference call. (Operator Instructions). For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within an hour after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations/Investors 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 first quarter of 2015. I am joined by Mr. Po Wen Yen, the CEO of UMC, and Mr. Chitung Liu, the CFO of UMC.

In a moment, we will see our CFO present the first-quarter financial results, followed by our CEO's key message to address UMC's focus and the second-quarter guidance. Once our CEO and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the investors' financial sections.

During this conference, we may 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 Company's control. For these risks, please refer to UMC's filing with the SEC in the US and the ROC alternative authorities.

I would now like to introduce UMC's CFO, Mr. Chitung Liu, to discuss UMC's first-quarter 2015 business results.

Thank you, Bowen. I would like to go through the first-quarter 2015 investor conference presentation material which can be downloaded from our website.

Starting on page 3, the first quarter of 2015, consolidated revenue was TWD37.65b, with gross margin at 24.3% and operating margin at 10.9%. The net income attributable to the stockholders of parent was TWD3.98b and earnings per ordinary share were TWD0.32. And for first quarter, the capacity utilization rate was 93%, flat compared to the fourth quarter of 2014, and shipment grew to 1.481m 8-inch equivalent.

And I will now turn to page 4 of our presentation. What you see is a statement of our comprehensive income, income statement. For first quarter, consolidated revenue grew 1.1% to TWD37.65b. Gross margin was TWD9.15b or 24.3% and operating income was TWD4.1b or 10.9%, and the EPS is TWD0.32. For our ADS, the earnings per ADS is $0.051.

On page 5, we can see the year-over-year comparison. The revenue growth was 18.8% and the gross profit growth rate was 55%, from TWD5.9b in 2014 to TWD9.1b in 2015. And net income also grew 237% to TWD3.98b.

So, on page 6, we can see our balance sheet, which is in similar condition compared to the previous quarter. Cash on hand is TWD53.6b and total stockholder equity is TWD229b.

On next page, we can see the operating segment breakdown. For UMC foundry main business, revenue was almost around TWD36b, with a segment net income around TWD4b. Our new business, which is mainly composed of solar and LED operations, revenue was TWD1.67b with a segment loss of TWD343m.

On page 8, you can see our blended ASP in the first quarter of 2015, with up-tick due to the increased portion of 28-nanometer shipment.

On page 9, we offer here the sales breakdown by geography. Asia came down to 40%, compared to the 42% in the previous quarter, while North America increased 2% from 45% to 47%.

So, on page 10, IDM remained around 10% of our total revenue breakdown.

On page 11, we see further concentration in communication segment due to the increased leading edge wafer shipment, mainly in the communication sector. Consumers went down to 26% from 28% in the previous quarter.

On page 12, we can see 28 continued to grow as a percentage of revenue. In first quarter of 2015, we see 28 reached 9% from 7% in the previous quarter. Total revenue from below 40-nanometer is 33% in the first quarter.

And on page 13, our capacity continued to grow, which mainly focused on 28-nanometer and also some 40-nanometer in Singapore. So, total available capacity in the second quarter is 1.659m 8-inch equivalent.

Our capacity expenditure will remain unchanged at around $1.8b for year 2015.

And now that pretty much concludes my financial overview. I would like to turn the call to our CEO, Mr. Po Wen Yen.

Thank you, Chitung. Hello, everyone. I would like to update to everyone UMC's first-quarter operating results.

In the first quarter of 2015, our foundry revenue grew to TWD36b. Overall capacity utilization remained at 93%, bringing wafer shipments to 1.48m 8-inch equivalent wafers. While 8-inch fab continued to run at full capacity, 12-inch fab recorded higher wafer shipments during 1Q 2015. Revenue contribution from 28-nanometer and 40-nanometer increased to 9% and 24%, respectively, reflecting strong wafer demand for our leading edge technologies that helped enhance blended wafer ASP.

For 2Q 2015, we anticipate wafer shipments to remain at similar levels as 1Q 2015, despite end-market uncertainties and customer inventory adjustments. We will pay close attention to market developments and adapt to any possible changes that may unfold.

While progress continues on advanced logic, we have also qualified 55-nanometer low power embedded flash IP from SST and Faraday to target auto, general purpose MCU, SIM and smartcard and Internet Of Things IC designs. The proliferations of connected devices will help UMC to realize more growth opportunities as these products will adopt our comprehensive logic and mixed-mode and specialty technologies.

With regards to UMC's global expansion progress, in March we held a groundbreaking ceremony in Xiamen, China to kick-off the construction of our new 12-inch fab project. When the building structure is completed, we expect the fab cleanroom to be ready for equipment move-in by 2Q 2016, with initial production scheduled for late 2016.

Our flagship 12-inch Tainan fab, we recently held a public earth day event to promote environmental awareness to the community. As Taiwan experiences the west drought in 10 years, UMC has committed to adopt more stringent measures on water and energy conservation and step up our efforts on waste reduction. With UMC's effective conservation infrastructure in place, our fabs' water recycling efficiency has reached up to 88%, saving more than 20m tons of water in 2014. We have set higher goals to further reduce resource use by additional 10% over current levels by 2020.

In addition, UMC's Board of Directors proposed a dividend payout of TWD0.55 per share for fiscal 2014, which strikes a balance between business expansion and return on shareholder equity. We believe our commitment to manufacturing excellence with a focus in global expansion will secure UMC's long-term returns and enhance profitability to ensure shareholder value.

Now, please allow me some time to summarize the recent highlights in Chinese.

(Spoken in Chinese).

I have finished my remarks, and now let me go over the second-quarter 2015 guidance.

Foundry segment wafer shipments to remain flat. Foundry segment ASP in US dollars to remain flat. The UMC foundry segment gross profit margin will be in mid-20 percent range. Capacity utilization rate for foundry segment will be approximately 90%. The guidance for new business segment's revenue to be approximately TWD1.75b and net loss attributable to UMC parent company to be approximately TWD280m.

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

(Operator Instructions). Randy Abrams, Credit Suisse.

Okay. Thank you. Good afternoon. The first question, to follow up on the guidance for flat overall shipments and ASPs, could you talk about within that, the 28 and 40, how you expect those advanced nodes to perform versus the average, and also if any differences by end market?

And if you take the flat outlook, are you viewing it as a one-quarter slowdown, and if you have any initial view on how second half looks after the positive second quarter?

We did see the forecast adjustments from some customers due to the inventory adjustment and softer than expected demand in computer and communication segments, and UMC has reflected the changes in our 2Q guidance. So, due to the uncertainty end market and high volatility in forecast numbers, it is still too early to understand the total impact in second half 2015.

Okay. And if I could follow on for the advanced capacity, if you could give a view on the 28 ramp-up where it still moved up as a percent of sales, how you see 28 continuing the ramp through the year as a percent of revenue, how broad the customer base looks, and also how the 40 node is progressing as 28 ramps. Were you still adding capacity in Singapore? So, your view on both of those nodes in ramp up?

Yes. Our 28-nanometer production ramp will continue and the revenue contribution in 2Q will continue to increase. And our 40-nanometer will also maintain the revenue contribution in 2Q.

Okay. If you could maintain the revenue contribution so it stays similar levels for 40 and 28, could you give an idea of 28 by end of year, like where it could be on percent of revenue?

Yes. Our 28 4Q revenue target, as I just explained, because the forecast adjustment has crossed several nodes and we are unable to predict the 4Q revenue target at this time.

Okay.

However, the 2Q revenue -- 28 revenue contribution will continue to grow.

Okay. And could you talk on the 8-inch? Is that staying -- it's been tight or even in a bit of shortage. If you're expecting the tightness on 8-inch to continue, or you're also seeing adjustments there or some impact from applications moving to 12-inch?

For the demand size, we just see a very strong, very solid demand in 8-inch capacity, and certainly there's some application that the products will migrate to more on the base load. So we're expecting some will move from 8-inch to 12.

Okay. But it sounds like even with the migration you expect 8-inch to be pretty full through the year.

I would say some are still very strong.

Okay. Great. All right. Thanks a lot.

Bill Lu, Morgan Stanley.

Yes. Hi. Good afternoon and thanks for taking my question. So, following up on 28-nanometers, I understand that visibility isn't great right now, but can you just give us a bit of an update on, number one, the customer diversification efforts, where you are in terms of getting additional customers on to 28, and then secondly can you give us an update on the profit levels for 28-nanometers?

Okay. Thank you for your question. And we have more than 20 customers engaged with UMC on 28-nanometer and more than 60 kick-offs in Q1 -- in 1Q continue.

And regarding our 28-nanometer process, we have a very comprehensive process revision of 28-nanometer, especially on low power version poly-SiON. Except the transition of poly-SiON version, we have UMC's proprietary high performance low power; we call it HLP, and this provides 10% better performance versus traditional poly-SiON low power version.

And for the High-K/Metal Gate version, high performance version, we have an HPL which is a more compact version, and we also have HPM and HPM's evolving version, or cost saving version, HPC. So in our 28-nanometer process, we have a very comprehensive and also a good customer engagement on each version.

Thank you for that. I guess just to see if I can get a little bit more details, out of those 20 customers that you're working with, again, I understand the volume is uncertain, but how many of those customers do you think will be in production by the end of the year?

We expect there will be more than five products will race into the production by the end of this year.

Five products from five different customers or --?

More than five.

Okay. And do you have a specific target in terms of profitability by the end of the year for 28?

Because -- for the past few quarters we have more product complete, our customers call. And, however, our 28-nanometer profitability quite depends on the loading and the product portfolio, so we don't have a clear target right now.

Understood. Question for Chitung. If you look at the first quarter, your OpEx came down pretty significantly and I think a lot of that came out of R&D. Can you just talk a little bit more about that and also how we should model it for the rest of the year?

I think for the full year, the OpEx should be similar to that in 2014, because quarter one we've got a saving from IBM technology transfer expiration. By quarter two, we do expect the R&D activity to pick up, but the overall full year should be similar to 2014.

Okay. Got it. So that's where you got it from last time. So really no change, I guess. I just had the quarter-on-quarter progression wrong. That's fine. Thank you very much.

Thanks.

Thank you.

Michael Chou, Deutsche Bank.

Hi, guys. Just some housekeeping question. What is your currency assumption for Q2?

Could you speak loudly?

Michael, you need to speak up, please.

Okay. Sorry, guys. Just some housekeeping questions. What is your currency assumption for Q2?

For quarter two, just take whatever the number from Bloomberg. So it's dynamic. We don't really have a forecast.

Okay. Second question is -- sorry, I didn't really hear that clearly. You said more than five products from more than five customers, or should I say just more than five products from several customers but it's not more than five customers?

It's more than five products for several customers, not from five customers.

For several, okay. So, does that imply you may have less than five customers?

We have more than 20 customers engaged with UMC. If we talk about the potential scale, we have only five products in production.

More than five products in production?

Yes.

Okay. Can we expect that you will have more product for mass production next year?

Sure. Certainly, yes.

Okay. Given the demand uncertainty, since that you cannot predict the Q4 28-nanometer sales portion, when do you think you can have a better visibility, maybe end of Q2 or early Q3?

We have no visibility for visibilities. It's very difficult to predict when we will have the visibility. But normally quarter three should be a strong quarter and so is quarter four. But right now, as our CEO just mentioned, it's quite volatile out there, so we'd rather wait until the next quarter.

Okay. As a follow-up, can we say your second-half outlook should be better than the first-half outlook?

No comment on the second half.

Okay. The final question is what will be your tax rate this year? Do you still maintain the same tax rate target?

Yes, roughly mid to low teens.

Thank you so much.

Daniel Heyler, Bank of America Merrill Lynch.

Thank you. Yes. Good afternoon, gentlemen. I had a question. Looking at the wafer revenue, you did TWD34.7b in the fourth quarter and TWD35.9b, yet the 28-nanometer mix increased from 7% of sales to 9%. It doesn't look as though, if you factor in currency, that you're getting much of a mix lift in revenue from 28 and I'm wondering why that is. Are you still operating on a good die basis there as a wafer base? Maybe just elaborate on that dynamic there. Thanks.

Q4, we have a one-off license fee income from Fujitsu. I'm not sure if you deduct that from our wafer sales. So if you deduct that, it's JPY50b, and maybe you will work out for your formula.

Okay. So then on -- as you look at -- you talked about five products, planned production, I assume you've got a couple in production now. Are those being built on wafer bases or are you still on a good die basis there?

We are based on good die base, yes.

Okay. So I -- sorry?

It's on good die basis, mostly.

Okay. Thank you, yes. So what I was trying to get a bit of a feel for is if you could explain for us more why the challenges have been so formidable in bringing up 28, because there is only effectively one supplier here, the second supplier of gate last. Most of the gate first nobody wants at Global Foundry, so you don't have competition from Global Foundries. Samsung is not there and SMIC is late, so you've been kind of in a spot there to take market share. What are the technology challenges and how can we be confident that these can be addressed over the next three to six months? Thank you.

As I explained, that our 28-nanometer process, we have comprehensive process versions and we want to cover every version, this technology. And each version we have a customer engaged with UMC, and even some of them are entered into production stage and some of them complete their process core, and each version we think is pretty much on track.

And UMC also continue to evolve more cost over performance competitive versions, followed by HPM, and there are several and they continue to evolve. And this will maintain UMC's technological advantage in the field. So we're pretty confident on our 28-nanometer business engagement in the long run.

So what you're saying is you've needed to introduce -- to be competitive, you've needed to introduce more varieties to improve your competitiveness and that's taking longer than you anticipated, because of the effort in expanding your variety of 28; is that what you're alluding to?

Yes, we have more variety providing UMC's best cost over performance value to our customers, because the various applications, they require different process performance. And meanwhile, UMC's -- if you follow UMC's track record, we had pretty good progress starting from 2Q 2014 last year, and you can see it from our 28-nanometer revenue growth quarterly over quarter, and also if we follow UMC's yield performance we think we are pretty on a good track. And for example, our 28 LP process, low power process, the figure is in 90% range, and for our High-K/Metal Gate high performance version, our figure is at around 88% range, so it's on a pretty good track.

Well, sorry, but I have to kind of disagree, I guess, because in most cases one node would be three quarters to get to 28 contribution to revenue. So 20% of your revenue, a normal ramp would be three quarters, three to four quarters to get a contribution of 20% of revenue, and you've already been ramping four quarters and it's only 9% of revenue.

So I guess it does look slow to me. Maybe you disagree and I'm just wondering if you could help us understand what's going to change to accelerate this. And even one customer helping you, working very closely with you, we just would like a little more clarity in where this is going to go in the next few quarters. Thank you.

Thank you for your comments and I guess there are some application need to go to the market for the -- to grow the market size, their response. So it will take some while to realize the customers' engagement. It will become a high volume product. So it will take a while. However, (multiple speakers)

Okay. Thank you.

We're still pretty confident on our 28-nanometer engagement.

Okay. Thank you for that. That's it for me.

Szeho Ng, BNP.

Good afternoon, gentlemen. I just want to know the Q1 gross margin and operating margin for the foundry business.

Well, foundry business gross margin was 25.8% and operating margin was 12.1%.

I see. So for Q2 you are guiding for a better product mix, I assume, more 28-nano shipment, but how come the blended ASP will still be kind of flattish on US dollar basis?

Well, the incremental impact is diminishing, for one. And our depreciation expenses, for the full year we will see 15% to 20% growth, 2015 over 2014. Every quarter we will see roughly 5%, 6% quarterly increase, so that kind of net/net impact.

Okay. And the last question on the CapEx front. The full-year CapEx is $1.8b. Could you also give us update on the capacity growth for this year for both 8-inch and 12-inch?

Capacity for this year for 12-inch is 8% -- 7%, and for the whole Company 3.5%.

Okay. All right. Okay. Thank you very much indeed.

Gokul Hariharan, JPMorgan.

Hi. Thanks for taking my question. My question is on the 28-nanometer capacity build out. So are you guys still on track for the 28k, 29k by end of the year?

And given that your visibility on the demand seems to have been a little bit weaker now, if, for example, demand does weaken further in Q3 and the smartphone recovery doesn't really happen, is that capacity ramp on 28 going to be reconsidered, or do you have customers who are committed given that you have [submitted] productivity so you are still going to be building up to around 30k anyway?

We are building up to 30k anyway, but the additional 9K which will happen in our new factory P5, the target there is beginning of 2016. And we do have some leeway or room in terms of adjusting the schedule, but for the time being we keep the schedule unchanged.

Okay. And just to follow up on that, where do you think your 28-nanometer capacity eventually is going to settle? Are you going to build out to as much as what you had in 65? Is it going to be lower than that kind of scale? I think you don't have hard numbers at this point, but depending upon what you're seeing from customers and your evaluation of the length of the node.

We think 28-nanometer is a long-lasting, long-life node. And given our variety and recipes, we are very confident in our 28-nanometer market share. So we think it's a big node and we will invest for it, but we will also follow a disciplined customer driven pace in terms of expanding our 28-nanometer capacity. We don't have a final target, but it's going to be a big node, a major node for us.

Okay. And also, since you plan to start moving in equipment for the Xiamen fab from middle of next year, does that have any impact on the UMC parent CapEx plans, or that is going to be completely funded out of the JV so that's slightly separate from what you spend on the Xiamen fab?

We see Xiamen fab is a wholly owned subsidiary. Even though there is some outside investors, UMC will -- actually is controlling everything. So it's one of our own fabs and we are including all the Xiamen CapEx into UMC's CapEx from this point onward. So for all 2016 CapEx, that will include 100% of the Xiamen CapEx.

Okay. Got it. Thank you very much. Thanks.

Eric Chen, UBS.

Gentlemen, good afternoon. The two quick follow-ups that you don't -- when you mentioned about your Xiamen fab, the CapEx, the only CapEx for this year or 1%, 2% of CapEx is mainly for the next year, the overall CapEx budget.

This year, what we comment is only the share of construction, probably less than $200m in terms of cash payout. But it will be a little bit more next year. We will include it in our next year's CapEx.

Okay. And how about a capacity schedule? [The list] by the end of next year, what kind of capacity we should expect for your Xiamen fab?

Capacity is -- initial ramp is 6,000 wafers in 40-nanometer or 55-nanometer in combination, and sometime in 2017, later 2017, we'll reach the first stage which is 20,000 wafer per month.

Okay. So total 20,000 wafer in the year 2017?

Without 2017. Late 2017.

Okay. And by the way, I probably missed, in terms of the 28-nanometer process capacity schedule, and how many at the end of this year and what kind of number we should expect at the mid of next year?

Capacity will reach 20,500 wafer per month by mid-2015. We are building additional 9,000 wafers, which should be completed sometime in early 2016.

Okay. So, no additional capacity expansions in the second half this year, right?

Well, we will continue to build the new fab, P5, and at the same time moving equipment. And it will be beginning of the next year to be effective to produce for those newly equipped 9,000 wafers.

Okay, just take time. Okay. And okay, how about ASP for the 28-nanometer process, blended ASP? Can we expect it will go up in the second quarter, given the revenue portion from High-K/Metal Gate increase?

As I mentioned, we expect to be flattish in terms of blended ASP in quarter two, because the increased percentage is diminishing compared to the previous two quarters.

I see. Okay. Got it. Thank you very much, gentlemen.

Michael Gold, Thomson Reuters.

Hi. Thank you for taking my question. I also want to ask about the Xiamen fab, and I'm just curious if there's any way that you can give some color on what kind of products, the chips that you're going to be making there will go into. Is it mostly going to be mobile devices, communication devices, whatnot? And are most of the clients going to be mainland Chinese IC design houses? And will the products mostly be destined for the Chinese consumer market? Thank you very much.

Yes. As Chitung mentioned, the initial stage, we'll build 55-nanometer and 40-nanometer [second launch]. And that is mainly for high voltage, embedded high voltage product and embedded Flash for MCU and security chips.

So mostly it will go into mobile devices, communication devices?

Yes, yes. We certainly will consider to work with customers to deploy the mobile devices for IOT application.

Right. And most of these are destined -- eventually destined for the Chinese market itself?

Yes, it's mainly for the Chinese market. We're really trying to achieve an add-on effect, not really tapping the existing customer base but rather enlarge our overall customer base by penetrating into exclusive domestic Chinese market. So that was the idea for the Xiamen operation.

Okay. Thank you.

Roland Shu, Citigroup.

Hi, CEO and Chitung. First question is, is 20-nanometer still on your product roadmap?

No, 20-nanometer is not on UMC's product roadmap.

Okay. So now you are doing for 28-nanometer mass production and ramping up 28-nanometer. So what's the next generation? So you will go directly to 14?

Yes (multiple speakers).

Or is there any node in between 28 and 14?

Yes, we have a technology roadmap on our 14, 16 FinFET technology. And so far, in the past quarter, our 16, 14 FinFET technology, we have good progress and we met the high performance device target, and the [SOU] demonstrated and also the IP and customer's flagship verification is in progress. And our internal test vehicle for reliability test is also clean. So we are hoping the technology revenues will be -- it will be ready for customers to take on by the end of this 2Q 2015, so pretty much on track.

Okay. Okay. So, again, can you clarify, so when you talk about 14 and 16-nanometer, is this at the same node, or this -- and you are going to offer two different designs, 14-nanometer and 16-nanometer, specific to a customer?

Thank you for your question. More specifically, UMC, we are talking about 16.

16?

Yes.

Okay. Thank you. Second question is regarding to your 8-inch fab utilization. Since you're always talking about 8-inch fab continues to run at full capacity. So I just try to understand, what do you mean full capacity? This means utilization 100% or more than 100%?

Because I think if I ask the question, it's I just compared your 8-inch capacity and revenue last year with 2010, and I found since we include (inaudible) capacity since 2013, so the overall capacity -- 8-inch capacity actually in 2014 increased about 20% compared to 2010, but the revenue actually was still slightly below what you generated in 2010. So I just try to understand whether or not we are talking about the full capacity, but still there is still gap of the utilization, or we're already seeing a very big change on the product mix so because of this your revenue did not increase according to this capacity expansion?

Yes. We're actually running at around 97% utilization rate and 3% haven't fully utilized this because we are doing some process tool conversion that is for some special applications customers need. And also, in the meantime, we are also expanding our 8-inch capacity and some capacity may take some time to qualify to release the capacity. So in our calculation, the 97% utilization is a pretty full -- fully utilized condition.

So is there any further upside to -- for utilization to go above 100%, because for the other foundry I think from time to time they report utilization at 8-inch 110% or 120%. So, is there any possibility for UMC to see the same upside on the utilization for 8-inch?

In UMC's case, we think it's possible, but we believe we have different formulas to define that capacity utilization rate.

Okay. Understood. So, 97% actually was the utilization in first quarter. So, how about in second quarter, for 8-inch?

Yes, it's still around the same level as the first quarter.

Okay. Thank you very much. This is all my questions. Thank you.

Donald Lu, Goldman Sachs.

Hi. I have two questions. First is can you comment on which application is strong or weak in the second quarter this year?

The second question is one of your large customers has recently put down a near 1b dollar prepayment to one of your largest competitors, and would that affect your loading at 28-nanometer this year?

And also, going forward, looking at the customer concentration, would you see increasing customer concentration for your leading node technology? Thank you.

Thank you. I believe your first question is on 2Q, which application -- actually, we see that it's almost flat for all the three major applications, including communication, computer and consumer.

And your second question is related to the -- yes. I'm not sure it's related to -- you mentioned our number one customer, their investment plan on our competition. We don't comment on our competition and we do see that the short-term inventory correction is -- we have some detected.

And I believe you have another question is about -- what is your --?

Sorry. Yes, my -- I guess related to that is what is the customer concentration today for 28 versus 40-nanometer, for example, at a similar stage? I checked your 40-nanometer revenue; it was exactly three years ago your 40-nanometer was 9% of total revenue in Q1 of 2012. So I just want to see whether the customer concentration has increased for the leading edge at the same stage for UMC.

So, Donald, the 28-nanometer concentration rate is really high right now, given that we only have a little bit more than five products in production. But our CEO mentioned we have more than 20 customers engaged. I think eventually, by default, the concentration rate has to come down with the increased number of products in 28-nanometer production.

Okay.

It's not that high a level, but it should go down.

Got it. Thank you, Chitung.

Andrew Lu, Barclays.

Thank you for taking my question. Two quick ones. First one is, Chitung, can you remind us the depreciation cost year over year for this year?

Depreciation will be 15% to 20% higher than that of last year.

Is this the same as the last guidance or slightly lower? I remember last time you said about 20%.

Well, it's 15% to 20%, and it's moving in between these two boundaries given -- depends on the speed of our CapEx.

Thank you. The second one is solar. The new business mostly is solar, right? I remember earlier you sold that business to someone else, so are we going to see one quarter start to have no revenue from new business?

No, we have a few members. One of the member, Topcell, will be merged into Motech mid of this year, but we will still have remaining solar operations such as NexPower.

So the revenue roughly will be this range based on the market situation, right?

Right.

Thank you. That's it.

Randy Abrams, Credit Suisse.

Okay. I just actually want to follow up on the question on the new business. After the Topcell deconsolidates after second quarter, woul there be a change in the second half?

And I guess just the target for that, if we should start to see the losses get closer to breakeven from second half, or there's not much material change with what happens to Topcell when it actually merges with Motech?

We will no longer consolidate Topcell result into UMC's operation after the divestment, but we will still have the others such as NexPower consolidation financial statement, which is also in loss right now.

Okay. But what's, I guess, the revenue and profit impact after that event?

The revenue and tax impact on Topcell will be discontinued.

Okay. No, but what's -- is there a magnitude how much we should assume comes out of your revenue and losses?

Actually, itself, new business itself is actually quite volatile; depends on the solar market. So it's hard to generalize, give you the numbers.

Okay. And if I could ask on the Xiamen where you're consolidating it now, what's the percent ownership? I would assume there's a minority interest. Like how much of the capital would UMC be putting up versus your partners now, and then what percent of the cost or like some of the costs would get shared? So, how does the accounting flow through your statements?

Accounting-wise will be fully consolidated, because (multiple speakers).

Okay. And then how much of the -- how much would there be minority interest, because your ownership -- like what percent ownership will you have?

Financially, we own 33% in the beginning, but eventually we'll increase to 90%.

Okay. And the last question, I wanted to ask on just business environment where it's a bit softer now for yourselves and your peers. Have you noticed or noted any change in pricing environment going after orders and projects? Some of these are multi-source customers or these specific applications for UMC where it's still pretty in line with your original pricing understanding, but just wondering if it's getting a bit more aggressive given the competition and mix outlook.

Our guidance for ASP for the next quarter is still flattish. And so we do believe overall it's still quite firm out there. Especially 8-inch capacity remains poor. But the visibility for second half is rather limited right now.

Okay. All right. Thanks a lot.

Thanks.

Rick Hsu, Daiwa Capital Markets.

Yes. Hi. Yes, thank you so much for taking my final question. So just one question from me. If you look at the supply chain guidance, I look at the revenue guidance from the backend guys and compare with the front end, I think this time for second quarter the backend guys will likely outperform the front end in terms of revenue growth sequentially. So I think that should imply some wafer bank drawdown or inventory depletion. So, do you guys see the same situation right now? And do you actually agree with what TSMC said about inventory should be normalized by the end of the second quarter?

We cannot agree or disagree with our competitor, but we do see our customers are revising their forecasts, and some due to the inventory correction. I think that's what we see right now.

So in your own view, when do you anticipate the industry inventory to normalize?

Quarter two is still okay. We're looking for a firm or flat wafer shipment in second quarter. Compared to the normal seasonal pattern, it's not that bad a result. What we are lacking or we don't have right now is the visibility or clear visibility for second half, which may take a few months. So wait until the next earnings call. We can provide a more comprehensive overview for the third quarter.

I see. All right. Thank you so much.

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 appreciate your questions. As always, if you have any follow-up questions, please feel free to contact UMC at ir.umc.com. Have a good day. Bye-bye.

Thank you. Ladies and gentlemen, that concludes our conference for first quarter 2015. 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/Investors Events section. You may now disconnect. Goodbye.