聯華電子 (UMC) 2015 Q2 法說會逐字稿

Welcome, everyone, to UMC's 2015 second-quarter earnings conference call. (Operator Instructions). Webcast replay will be available within an hour after the conference has 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 third (sic - see slide 1 "second") quarter of 2015. I am joined by Mr. Po Wen Yen, CEO of UMC, and Mr. Chitung Liu, CFO of UMC.

In a moment, we will hear our CFO present the second-quarter financial results, followed by our CEO's key message to address UMC's forecast and third-quarter guidance. Once our CEO and CFO complete their remarks, there will be a question and answer session. UMC's quarterly financial reports are available at our website.

During the 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 the Company's control. For these risks, please refer to UMC's filings with the SEC in the US and the ROC securities authority.

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

Thank you, Bowen. I would like to go through the 2Q 2015 investor conference presentation material, which can be downloaded from our website.

Starting on page 3, in the second quarter of 2015, consolidated revenue was TWD38.01b, with gross margin at 22.9% and operating margin at 10.2%. The net income attributable to the stockholders of the parent was TWD4.6b, and earnings per ordinary share were TWD0.37.

Now please turn to page 4 of the presentation. For the comprehensive income statement for second quarter, revenue was TWD38.01b, up about 1% from the previous quarter, which is mainly coming from shipment increase on the back of strengthening NT dollars.

Gross profit was TWD8.7b or 22.9% gross margin. This is due to the swing of our new business from quarter 1 in profit and into quarter 2 in loss. Due to control of operating expenses, our operating income reached about TWD3.87b or 10.2% in operating income margin. And net income, as we reported earlier, is TWD4.5b or 12% of the net income margin. EPS was TWD0.37 per share.

On page 5 you can see the first six month comparison year over year. Our revenue grew 12%, mainly due to strong wafer shipment as well as the weakening NT dollars. And gross profit shows significant growth of 26.7% to TWD17.87b or gross margin of 23.6%, an almost 3 percentage point increase from the previous year. And net income is around TWD8.45b, grew 90% year over year, compared to the same period of 2014. And the cumulative EPS for the first half of 2015 is TWD0.68 per share.

On page 6 is our balance sheet highlight. Our cash has increased to TWD64b. And our total stockholder equity is around TWD224b, with total assets of TWD331b.

On page 7 there is the segment breakdown among our different operating division, mostly still coming from wafer fabrication, which represents a majority of our consolidated numbers. New business in the second quarter still report a segment loss of around TWD170m.

On page 8, our ASP, blended ASP in the second quarter was somewhat flat compared to Q1 of 2015, which is increasing our expectation.

The revenue breakdown from page 9 onwards, we can see Asia edge up a little bit to 42% and North America stays somewhat unchanged around 46%.

And IDM continues to represent around 11% of our total revenue on page 10.

And in terms of segment breakdown on page 11, communication stays around 55% and computer continued to show weakness and shrink to around 12%.

On page 12, our revenue breakdown by technology, we are happy to see 28-nanometer continue to climb to 11% of our total revenue, while 40-nanometer stay around 22%. Our total revenue for 40-nanometer and below now represent around 33% of our total revenue.

On page 13 we continue to see capacity growth, mainly coming from our 8-inch wafer fab in China as well as our leading-edge fab in China and Taiwan. For both 8N and 12A capacity increase, the trend will continue into third quarter of this year.

And the last page, our CapEx up to date still remains around $1.8b as planned. There is no change so far for our planned CapEx.

That concludes my 2015 second-quarter financial highlights. And 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, everyone. I'd like to update to everyone UMC's second-quarter operating results. In the second quarter of 2015, our foundry business performed within expectations, posting TWD36.52b in revenues and gross margin of 25.1%.

Wafer shipments reached an all-time high of 1.54m 8-inch equivalent wafers, leading to an overall capacity utilization rate of 94%.

Our 28-nanometer wafer shipments increased, as 2Q 2015 contribution reached 11% of sales, primarily from the communication sector.

The new business segment recorded TWD1.83b in revenue, with a net loss of TWD170m.

Topcell Solar Inc. officially merged into Motech Industries Inc. on June 1, 2015. As a result, UMC now owns approximately 9% of Motech equity shares and we will no longer consolidate its operating performance into UMC's financial statement.

Looking into the third quarter, the limited end-market visibility and inventory correction we mentioned during our 1Q conference call is expected to continue. Current weakness in overall demand, partly due to the uncertainties in economic outlook, will prolong the inventory adjustment through the second half of 2015.

However, we continue to enhance our foundry services such as our recently announced 14-nanometer FinFET IP collaborations with Synopsys and ARM to accelerate process verification on our 14-nanometer platform.

UMC also announced the availability of a new 55-nanometer ultra-low-power process from ARM, aimed to maximize battery lifetime for IoT applications.

For TSV, Through-Silicon-Via, we recently ramped into volume production our TSV and silicon interposer process used on AMD's flagship Radeon GPU. These engineering efforts will strengthen our advanced and mature node offering and enhance UMC's competitive edge in the foundry industry.

In addition, shareholders have approved a dividend payout of TWD0.55 per share for fiscal 2014, balancing UMC's commitment to shareholders while maximizing the opportunities towards business growth.

UMC strives to provide enhanced corporate profitability by delivering the highest quality manufacturing services in order to ensure long-term shareholder value.

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

(Spoken in Chinese).

I've finished my remarks and now let me go over the third quarter 2015 guidance.

The foundry segment wafer shipments to show a decrease of less than 5%. The foundry segment ASP in US dollars to decrease by approximately 3%. The UMC foundry segment gross profit margin will be in the high-teens percentage range. Capacity utilization rate for the foundry segment will be in high 80 percentage range. Since new business revenue will be approximately 1% of the foundry segment, in future earnings conference, UMC will no longer provide the new business guidance.

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

(Operator Instructions). Randy Abrams, Credit Suisse.

Okay, yes, thank you. My first question, I wanted to ask on the guidance for third quarter for ASPs down 3%. If you could talk how much is from the technology mix, so the 28 and 40, if you expect that to decline? And how much is coming from pricing and if you're seeing any more aggressive pricing environment at this stage.

Yes, our third quarter guidance, as we just mentioned, yes, from the ASP side, we guided 3% decrease. And for wafer shipments, it will be less than 5% decrease than the previous quarter.

And the 3% ASP decrease mainly will come from mix deterioration rather than [like-to-like] price erosion.

Okay. On that, could you give a flavor for the 28, the contribution, how you expect that to track?

And I wanted to, I guess, clarify also the margin. In the press release, I think it said mid-teens and in the remarks you mentioned high-teens, but I wanted to understand I guess which one, whether it's mid or high teens. And also it seems like a relatively big magnitude to come from mid-twenties, downgrade gross margin to mid to high teens, so maybe the factor for why the margin is declining to that magnitude.

Our 3Q 28-nanometer revenue contribution will be approximately around 10%. And you mentioned the high-teens forecast, it's actually, at the end of 2015, our original forecast.

Okay. To clarify, 28-nanometer -- do you have a forecast for fourth quarter for 28-nanometer?

And then the second question was on gross margin, the factor to guide down gross margin and whether that's to mid-teens or high-teens for third quarter gross margin.

Yes, on the third quarter profitability was mainly impacted by the increase of depreciation. And secondly, the utility fee for the summer season and also the lower loading especially in the high-end technology nodes.

Okay. The last question I wanted to ask, the CapEx is maintained despite lower shipments, so could you give an update if you're still expecting a little bit over 29,000 capacity early next year on 28?

And if you can give a sense how much is loaded now and your view on adding customers or if you can fill that with 40? So I just want to understand the road map now on 28 and how you feel you can fill that over the next couple of quarters.

Yes, our 28-nanometer capacity, we will have around 20K by 3Q, third quarter 2015 and we expect to push out, due to the demand weakness and push out our original 30K per month originally in the end of this year or early next year, so push out two quarter. So that will be in 3Q, the 30K per month capacity will be in the third quarter of 2016.

Okay and just a quick follow-up, if you push out the depreciation, could you give a flavor now depreciation year over year and then an initial view on 2016 if maybe it doesn't increase as much.

Yes, it mostly impacts beyond 2015, further than 2015. So this year we're still expecting depreciation to go up around 15% to 20% and all the cash-based CapEx won't be impacted that much. That's why our numbers still stay around $1.8b.

Okay thank you, I appreciate the color.

Thanks.

Thank you.

Szeho Ng, BNP.

Yes, good evening, gentlemen. For Q2 what's the foundry's business operating margin?

25.1%.

That's the gross margin, but how about operating margin?

Gross margin, gross margin, yes. Operating margin we don't provide the numbers.

Okay, all right. And right now what percentage of your revenue is coming from driver IC?

Driver IC is around 30% of our specialty revenue and specialty revenue is around 30% to 40% of our total revenue.

Okay, all right, thanks.

So 10% each.

Okay, all right, that's good. And for new business you are no longer offering the guidance because the revenue is kind of small, but how about the bottom line impact to the Group? Would that be still similar to what we have seen last reported?

Half of the new business has already been merged into Motech so regardless if this profit or loss it will be halved. We'll still have some entity with meaningful numbers, most likely in loss in the near term, but it won't really make a big impact for our overall bottom line for UMC Group. That's why we have discontinued to provide guidance on new business.

I see, I see, all right thanks. And a last question on 28-nano, Q2 it accounted for 11% revenue, so any indication for the contribution by the end of the year?

Yes, we just guided our 3Q 28-nanometer revenue contribution of around 10% and 4Q will be close to 3Q's contribution.

Okay all right, okay. And the mix should be similar between Poly and High-K-Metal Gate for 28?

It changes quarter over quarter so roughly it will be -- but in terms of revenue it will be 50 to 50.

Okay, all right. Okay, thank you very much, yes.

Michael Chou, Deutsche Bank.

Hi, good afternoon. Could you give some color for the outlook by applications, that's my first question. In Q3, I'm sorry.

For Q3 is all segments, all applications are showing a decrease and for computer it's decreased the most, over 10%. And secondly it's followed by consumer products and then communications.

So communications segment decline is the most modest in Q3, is that correct?

Yes, that's correct.

Can we say the wireless will see more declining ROI in Q3?

In Q3 the (inaudible) of wireless is increased.

Q3 wireless will increase, okay, thank you so much. My second question is you mentioned you are going to do TSV for a client, would that see the very massive adoption next year or 2017 for your customers?

Yes, we'll continue to see the, yes -- to taking more opportunities on TSV with our silicon interposer technology.

Okay, let me rephrase my question. I'm wondering if the yield rate of TSV is good for GPU, I know you made an announcement for AMD's high-performance GPU which will adopt your TSV process but is the yield rate good enough for really massive mass production?

As I mentioned, we are phasing to the mass production but however that is only for flagship parts so it's --

Oh, I see, I see.

The demand will not, as we have said, will not be that big yet.

Okay. My final question is, would you enter 14-nanometer FinFET mass production in late 2016 or 2017?

Yes, we plan to, we are targeting to begin the 14 FinFET production in the first half of 2016 -- 2017 sorry.

That's mass production.

Yes.

Oh mass production, okay, thank you so much, I'll go back to the queue. Thank you so much.

Thank you.

Gokul Hariharan, JPMorgan.

Yes hi, thanks for taking my question. My first question is on your 8-inch capacity and the demand that you're seeing. It looks like there has been some slackening of 8-inch demand. Could you talk about how your 8-inch capacity, what are the utilizations that you're expecting for the second half of the year? And do you think that the 8-inch is still likely to remain tight as we go into 2016 once this inventory correction ends, or are there a lot of applications migrating from 8-inch to 12-inch which could result in 8-inch not being in tight supply even in 2016. Thanks.

So our current forecast on 8-inch capacity utilization is around mid-90, so it remains very strong.

Okay, so your 8-inch is not seeing any degree of slackening. Are you still going ahead with some of the capacity addition planned for 8-inch or, I think it was primarily in China but are we still going ahead with that or is there any change in that plan?

It's very minimum, yes, but it's only conversion of some tools for various process applications, it's not for volume sales and in our China plant we are mainly focused on the [12-inch.]

Okay and on the 28-nanometer fab could you give us some color on when you would restart the investment again? Based on your guidance for 28-nanometer revenue in Q3 and Q4, it looked like it's going to be remaining at a slightly lower than optimal utilization level. So should we expect that it's going to be only maybe Q2 or Q3 of next year that you restart the 28-nanometer plan and does that have any impact in terms of your CapEx plans for next year? Is that going to come down from the $1.8b that we have for this year.

Yes, our 28-nanometer, we are going through a phase of bringing more 28-nanometer products into production; however, the transition will take some to realize. So we are still actively engaging with several second wave customers their product pickup and it will need a few quarters to regain momentum. And we are targeting to reach more than 15% 28 revenue share in the second quarter of 2016, next year.

Okay, all right, got it. And any implications for the CapEx for next year? Should we expect significantly lower CapEx for next year compared to this year?

Well, we do have two projects ongoing simultaneously, the P5 basic in China as well as the Xiamen fab, in Xiamen of course. And it's unlikely to be very small CapEx, but our CapEx is really based upon the customer need as well as our sustainable cash flow so it will always be around the same forecast figure, it will be up and down a little bit but not far off.

Okay. Thank you very much.

Thank you.

Steven Pelayo, HSBC.

Yes, on 28-nanometer, I'm trying to understand how much is your push-out here and it looks like you're guiding down maybe 10%, 15% quarter on quarter on revenues. How much of it is demand versus maybe market share issues and not getting the second wave of customers and tape-outs ramping sooner. The fact that you're kind of pushing out that 30K until mid next year really concerns me a bit here. So can you talk just a little bit about the broadening out of that customer base, the number of tape-outs that you have going on and it sounds to me like the ramp schedule is really not until maybe 2Q next year.

Yes, currently we have five customers and from 2Q to 3Q we are increasing from 10 to 13 products phased into production. And in the coming quarters we will still increase our customer engagement from five to eight and there will be more than 20 products 28-nanometer products tape-outs in early 2016.

Okay. It just doesn't seem like they're really transitioning to revenues much if you're talking about 28-nanometer remaining around 10% of revenue for the rest of this year, so it seems like we have to wait until next year.

Do you think some of the 28-nanometer issues, I'm curious if the slower ramp is just related to TSMC continuing to introduce new processes there with the Compact and the Compact Plus processes as well. Is that just keeping customers from moving to second sources or do you think it's just a weakened demand environment out there.

Yes, I would say it's mainly due to the inventory ration and the whole industry's economic situation is kind of weakening, demand is weakening. And we, at UMC with our 28-nanometer process portfolio it's pretty comprehensive, we also have a compact version coming in the coming quarters so we're pretty, still engaging a pretty -- broaden our customer base beginning more 28 tape-outs.

Okay, last question from me, I think you had said in the past that you really needed scale, I think 30K was considered kind of scale to really get corporate average gross margins in 28-nanometer. So should I just push that off until maybe, I guess some time a year from today? Or maybe we can start talking about 28-nanometer doing the mid-twenties gross margins that you had been doing in the last couple of years -- or the last couple quarters pardon me.

Yes, at this moment, it's difficult to predict when our 28-nanometer can catch up the corporate [blended ASP] -- average margin.

Okay. Thank you very much.

Thank you.

Daniel Heyler, Merrill Lynch.

Thanks very much. Can you hear me okay?

Yes.

Great, okay. Hey Chitung, I had a question, just a clarification. You've said 28-nanometer is holding about 10% contribution to revenue and the rest of the business is kind of soft, you've got a 3% unit decline. Why would the mix go down in your ASP, down in the third quarter when 28 is keeping its contribution at about the same level? Why would ASP be declining as a result of mix then?

There's a shift in between Poly and High-K for 28 for the coming quarter, and also we see some weakness in the more mature 12-inch demand such as the 65 and that has some impact on our blended ASP.

Okay, yes, so the 65 is an area of notable weakness relative to 8-inch and 28 then. That's the big area. Is there any particular, you said it's very broad-based, are there any areas within 65 that are notably weak? That's a pretty big part of your business, 20% of revenue, I was wondering where --?

Yes, for the third quarter we see in computer, the weakest for the computer segment is AOCD driver and touch panel controller are showing a decrease. And for the consumer it's DTV and set-top box going down. And for the communication we see the microcontroller and switch panel parts they are going down.

Okay, thanks. And then as you bring up some of the 28 business gradually, what are your areas within 65 that you can backfill that capacity? In other words, what end market can you fill 65 with, because that's going to be an area of plenty of capacity in the industry. So I'm wondering if that's going to be an excess there and how you go about filling 65.

Our 65 is -- originally we have planned to have some low-end nodes, legacy nodes migrate to 65; however, in some areas, it did not happen. For example, the AOCD driver is one of the example, and that's moving to the 12-inch 65-nanometer technology as we expected. So to fill our 65-nanometer is very difficult.

Is the utilization on 40-nanometer going to be higher do you think because that's more specialty technology, 45?

Yes, our 40-nanometer is very strong, yes, above average.

Can you convert your 65, can you do 40 products on 65? How economical is that?

Yes, we are doing that.

Okay. Are you migrating customers forward then?

Yes, we either do -- we are working with customers to upgrade their products to 40 or we are also consider to upgrade those 65 excess capacity to 40-nanometer to fulfill our 40-nanometer [chips].

Okay, it makes sense. Then I guess, as you're trying to ramp 28, I presume is that, the target market there, still wireless is your target market? And with weakness in China and emerging markets it appears that that's going to be a big challenge for you right? So how do you go about ramping 28 when number one demand is pretty weak? And number two, a lot of the new products coming out that are more lower cost in emerging markets will be on 16-nanometer. So I just can't quite figure out how you're going to get the 28 up and running due to the demand dynamics and the competition from 16.

Yes and actually our 28, our technology offering is pretty comprehensive so our engagement with customers' applications is pretty broad. So we have not only wireless, we have many application engagements ongoing, for example, the set-top box, DTV, there are some second wave customers. Of course the wireless is still one of the end applications and they are actually, most of the second wave 28-nanometer customer they are actually taping out their product base, they've started taping out their 28-nanometer products.

Okay what --

So we think it's looking pretty good from the perspective of the 28-nanometer demand in 2016.

Okay, so the 10% of the revenue, how much of that is mobile processor related right now and where would it be say in six months? Is it still predominately a mobile processor that's the majority portion of the 10%?

That is the majority of application is mobile processor.

Right now, okay. So two quarters more before you diversify.

Yes.

Okay, thank you.

Thank you.

Donald Lu, Goldman Sachs.

I've got one short-term question and one long-term question. On the short-term side, I'm getting a little confused because some companies, like packaging companies, still specifically talking about communication is down in Q3, TSMC saying communication is down, but you commented wireless is up but computing and consumers are down. So maybe you can just give us some color about is this because of the market share of your customers are changing or is that something happened just in the last week or so unexpected which the whole things changed, or maybe some other color. So that's my short-term question.

A more long-term question is I think that Steven and others have addressed some of it, is we look at your 28-nanometer effort and also look at your revenue on the current plan and also your 28 really isn't probably by one very large customer early on with some help with technology, is this something that you think the ROI can become positive for the 28-nanometer?

So Donald, we're kind of losing you, there's like strong background noises from your side. We kind of got your questions but --

Oh I'm sorry.

That's okay, we'll try to answer, maybe you have follow-up later and we will start and answer your longer-term question first.

So, if I understand you correctly your second question is regarding with the our 28-nanometer competitiveness, something like that.

Returns.

Returns, okay. So far our 28-nanometer especially during the first few quarters of mass production, so its ROI is slightly higher than -- sorry, slightly lower than the 40-nanometer. And we expect that our 28-nanometer ROI will continuously improve through cost reduction measures and enhance our capacity scale and many other activities. For example, the yield enhancements and for the (inaudible) enhancements. So we believe in the long run our 28-nanometer ROI will be improved.

And for your first question I think we are telling you what we are seeing for the third quarter and it could be all relative. And our wireless continues to show resilience in the third quarter but the others seem to fall at a bigger magnitude in the third quarter. So we cannot really compare ourselves to our competitors or our upstream/downstream providers, so, again, we are telling what we are seeing for the coming quarter.

Can I just have a follow-up question. Have you seen things really getting weaker in the last week or so or is it more like stable?

This is a business dynamic and what we are providing today is the most up-to-date view according to our internal forecast. So I cannot really tell you what has happened on a weekly basis but this is pretty much what we predict for the third quarter.

Okay, thank you.

Roland Shu, Citigroup.

Good morning, Po-Wen and Chitung. I think that maybe you already said that however I did not catch-up clearly. So can you repeat what your expectation for 28-nanometer revenue contribution in next year after you bring in all of this on your second wave application?

So we are targeting to reach over 15% 28 revenue share in 2Q 2016.

Okay, 2Q 2016 to reach 15% of the total revenue for 28-nanometer.

Yes.

Okay and how about by the end of next year?

Yes, we don't give that far.

Okay, thank you.

But you can get it with our capacity expansion in 3Q 2015 up to 30K per month and we will increase our revenue share of 28-nanometer.

Yes, so (inaudible) revenue contribution in second quarter next year, what kind of utilization assumptions are there behind that? Is it fully loaded for 28-nanometer or is that just at a certain level of the utilization?

The level of utilization is around normal, normal levels for this.

Okay, thank you.

It's not fully loaded.

Okay, thank you, yes. A second question is for, last time you expect 14-nanometer FinFET process ready to tape out from the second quarter this year, and I think that you previously just said you expect 14-nanometer FinFET to mass production starting from first half 2017. Why it takes so long from product tape-out to mass production for FinFET.

We are working with our partners to have their prototype test chips in the coming quarters and to validate UMC's 14 FinFET technology platform. Then we are expecting at the end of this year we have a standalone tape-out, real product tape-out, so it will take about one year to get the new product tape-out and qualified. So, we are expecting -- that's why we're expecting starting from first half 2017 phasing to the 14 FinFET production.

Okay, so let me clarify. So 14-nanometer real product tape-out has not yet started. Am I right?

Not yet, yes.

So that will be planning to start by the end of this year.

Yes.

Okay, thank you. And how many customers and also how many products, real products that will be by the end of this year?

We have more than one partner but I cannot disclose the actual numbers right now.

Okay, thank you. And then my last question is on with your recent share price weakness, do you have any plans to buy back shares recently?

Yes, we just actually proposed a buyback in today's Board meeting so all the details will be disclosed on our website.

Okay, thank you.

Thank you.

Thank you.

(Operator Instructions). Mark Li. Nomura.

(Spoken in Chinese). My first question is regarding to your gross margin guidance. In the past when utilization rate stayed at high 80 percentage point, the gross margin may still stay above 20%. So what is the reason behind the weaker gross margin guidance for third quarter?

Yes, our third quarter profitability was mainly impacted by the increase in our depreciation and, as we just mentioned, there are some other factors including the utility fee and also our high-end technology nodes the loading is lower than our estimation.

So that means the main reason behind weaker gross margin may be from a low utilization from 28-nanometer.

Yes, mainly, yes.

Okay. So you mentioned about a utility fee. That is also related to 28-nanometer right?

That is a whole company, it's a summer utility fee is higher than other seasons.

Oh, I see.

High powers, it's utility fees policy.

Could you remind me, you just mentioned there the eight-inch FAB utilization rate can still stay at mid-90% in the third quarter?

Yes, that's correct.

Okay, so the utilization of 12-inch will be much lower than the corporate average, right?

Yes, it's around 80%.

Okay. And could you remind us the capacity of 28-nanometer in the second quarter and the third quarter?

Second quarter this year?

Yes.

Yes, in 2Q we have 18,000 wafers per month and in 3Q we have 20,500 wafer per month for 28-nanometer capacity.

Okay and we will reach 30K wafers per month in the second quarter of next year.

In the third quarter of next year.

The third quarter, okay.

Okay.

And what is the capacity allocation on High-K-Metal Gate and Poly-SiON? Is it still 70% to 30%?

It's around 50% to 70% on High-K-Metal Gate version. It will vary quarter over quarter but on average it's around 60% to 70% is on High-K-Metal Gate version.

So in the third quarter the computer applications will see the largest decline, so you mentioned that the communication application will still decline but the wireless products will grow in the third quarter right?

Yes.

Okay, I see. Thank you so much.

Thank you.

Ladies and gentlemen, we are running out of time. That concludes today's Q&A session. We thank you for all your questions. I'll turn things over to UMC's Head of Investor Relations for closing remarks.

Thank you, everyone, for joining us today. We appreciate your questions. As always, if you have any additional follow-up questions please feel free to contact UMC at ir@UMC.com. Have a good day. Bye-bye.

Ladies and gentlemen, that concludes our conference for the second 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 even section. You may now disconnect. Goodbye.