聯華電子 (UMC) 2015 Q3 法說會逐字稿

Welcome everyone to UMC's 2015 third quarter earnings conference call. (Operator Instructions). After the presentation there will be a question and answer session. (Operator Instructions). For your information this conference call is now being broadcast live over the Internet. A 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' Event 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, everyone, to UMC's third quarter 2015 earnings conference call. Joining me today are 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 third quarter financial results followed by the key message from our CEO addressing UMC's focus and the fourth quarter guidance. After their remarks we will proceed to a Q&A session. UMC's quarterly financial reports are available at our website www.umc.com under the Investors Financial section.

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 the Company's control. For these risks please refer to UMC's filing with the SEC in the US and the ROC security authorities.

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

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

Starting on page 3 of the third quarter 2015, consolidated revenue was TWD35.32b with gross margin at 19.6% and operating margin at 2.8%.

The net income attributable to the stockholders of the parent was TWD1.71b and the earnings per ordinary share were TWD0.14. And capacity utilization rate has dropped by around 5 percentage points to 89% in the third quarter.

Now please turn to page 4 which is the statement of income. Revenue of 35.3% (sic - see slide 4 "TWD35.32b") in the third quarter was down 7% compared to the second quarter of 2015.

Gross profit reached 19.6% of total revenue or TWD6.9b, and net income is TWD1.3b, or 3.7% of the total revenue. And the EPS, as I mentioned earlier, is TWD0.14 per Taiwan ordinary share.

On page 5 here is the cumulative first three quarters' financial statement. Revenue shows an 8% year-over-year growth for the period of January through September, reached TWD110.9b in revenue.

Gross margin is 22.3%, and also gross profit improved 14.4% year-over-year to TWD24.7b.

And net income reached TWD9.76b, a growth of 39% year over year. As a result, the EPS is TWD0.82 and EPS per ADS is TWD0.125.

On page 6 is our abbreviated balance sheet. Cash and cash equivalents is TWD52.1b and the total assets is TWD329b, with the stockholders' equity around TWD223b.

On page 7 is a breakdown by segment. The majority of our revenue was coming from our wafer fabrication department, or segment. Revenue is a small difference compared to our consolidated number. TWD35.07b is the segment revenue under foundry and, as a result, you can tell the new businesses has a very minor impact on our overall consolidated numbers.

On page 8 we are looking at a single digit decline in ASP in the previous quarter, the third quarter of 2015.

On page 9, our sales breakdown among different regions are relatively similar to the previous quarter. North America is about 45% and Asia is 41%. We see steady growth coming out of our Japan and Europe regions.

And for IDM, it still represents about 12% of our total revenue in the third quarter of 2015.

On page 11, communication remains unchanged, accounting for 55% of our total revenue, and consumer is another 27%.

And 28-nanometer and below represents about 10% of our total revenue, a similar percentage to second quarter of 2015. And 40-nanometer continued to show a relative strength with 25% of our total revenue in the third quarter.

On page 13 is our capacity breakdown by fab and there's about 1.6% increase in the third quarter, mainly coming from our 8-inch wafer fab in China again.

Our capital expenditure plan for 2015 for foundry segment remains unchanged, around $1.8b.

The above is the summary of UMC's results for third quarter of 2015. 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.

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

In the third quarter of 2015 our foundry segment posted revenue of TWD35.08b, with gross margin at 20.3%.

Wafer shipment totaled 1.47m 8-inch equivalent wafers, leading to an overall capacity utilization rate of 89%.

Our 40-nanometer revenue contribution grew to 25% of total sales, driven by demand strength in the communication and consumer segments.

Our 8-inch utilization maintained above 95%, reflecting stable demand for logic and specialty applications.

To better take advantage of the opportunities within mature nodes, UMC will leverage the advancements made in proven technologies to help customers compete in the IoT market. We recently announced volume production for touch controller ICs based on UMC's 0.11-micron embedded flash process that uses the most aggressive aluminum metal design rules to strengthen customers' product and market competitiveness through lower die cost.

In terms of corporate sustainability, in the third quarter 2015 UMC was selected as a DJSI, Dow Jones Sustainability Index, global component for the eighth consecutive year.

Although the continuing IC inventory adjustment will dampen fourth quarter wafer shipments, UMC continues on the path towards long-term growth. While Moore's Law continues, 28-nanometer remains a strong and long-lasting node with many applications migrating to this geometry. Throughout 2015 UMC engineers have worked tirelessly to bring several new 28-nanometer product tape-outs into volume production.

At the same time we have also received multiple customer enquiries requesting optimized, cost-effective solutions derived from our fundamental 28-nanometer High-K Metal Gate process. UMC is working to bring a timely conversion of new 28-nanometer requirements into production which will strengthen our business.

In addition, UMC is also levering mature node technology development to deliver specialty technology platforms addressing customers' requirements, applications, further diversifying our product mix.

Going forward UMC will continue to drive process innovations across leading edge and legacy technologies, as well as proactively expanding worldwide manufacturing services to support our growth in the IC industry.

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 fourth quarter 2015 guidance. The fourth quarter wafer shipments will show a decrease of less than 5%. The ASP in US dollars to decrease by approximately 1%. The UMC gross margin will be in the high teens percentage range. Our capacity utilization rate for the foundry segment will be in the low 80% range.

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 if you can give an update on the 28-nanometer? If you expect that to rebound and grow as a percent of sales in the fourth quarter, or it takes us getting through the inventory correction? And if you could look out into 2016, how you expect that to ramp as a percent of sales and within that, the mix of High-K Metal Gate versus Poly/SiON?

Yes. On the 28-nanometer we remain positive based on our customer engagement and we probably need more time to see if our sales rebound in the coming quarters. However, our 28-nanometer, we believe will reach bottom in the end of this year or early next year.

Okay. So if it starts to grow after, beginning next year, it sounds like again.

And maybe the follow-up more broadly, with third and fourth quarter slowing down, could you give an update on your view of inventory getting back to normal and setting up even potential for first quarter to be seasonal or better. In the past few years, seasonal seemed like it was flat or even up in first quarter. If you think given the correction we could have that type of scenario?

If our customer demand focus have been restabilized and the customer inventory shall move closer to reasonable levels in a few months and, as I mentioned just now, our foundry revenue we believe will reach the bottom, even in the end of this year or the beginning of 2016. So --

Okay.

Yes.

Oh, go ahead. Okay. If I could ask then, your CapEx and capacity outlook, this year it's $1.8b to add some 28. Could you give a view on there was some capacity you had pushed out to reach 29,000 to 30,000 on 28. Could you give an update if that capacity plan is moving ahead and if we should think a similar level? I think in the past it was similar to operating cash flow for CapEx at around $1.8b reasonable baseline again for next year.

Our 28-nanometer capacity will reach the 30K by the second half of 2016. So the, yes, the CapEx for -- we are still working on our CapEx for 2016.

Okay. So it's still being set. I guess for Chitung, will depreciation, it moved up this year. On baseline plan does that start to slowdown now after the increase this year, so it could help gross margin a bit?

Well, unfortunately our depreciation policy is five plus one. So it's going to last for a couple of years. This year, 2015, our depreciation expenses, this is likely to grow by 15% to 20% and that's likely to be the range for next year as well.

The range meaning similar depreciation or --?

Meaning the growth rate, growth rate.

So another 15% to 20%, okay. All right. Thanks a lot for the updates.

Thanks.

Thanks.

Bill Lu, Morgan Stanley.

Yes hi. Thank you for taking my questions. Your 8-inch wafer demand remains very high. Can you talk about what is driving that, the outlook for 8-inch demand going into next year and whether you can add some capacity too if demand is good?

Yes our 8-inch, yes mostly still maintain pretty high utilization rates and the driving is coming from really across the board. Communication and consumer and, yes, mostly on the high-voltage drivers and our power management and some RF applications.

Thank you. What is the outlook for 8-inch next year?

We don't guide for the moment for the next year.

Okay and the last part of that question was if demand does stay robust for 8-inch foundry in 2016, do you have the ability to add some capacity?

I think we've been pushing our day capacity to almost maximum level this year in 2015 and we are continuing to do upgrades as well as increase the variety of technology. So I think for the time being that's likely to be our key focus for 2015 and also 2016.

Okay, got it. Changing topics. On 28-nanometers, Mr. Yen made the comment and also it's in the press release that UMC is working to bring a timely conversion of new 28-nanometer requirements into production. Can you explain that to me? What are these new 28-nanometer requirements? Are the requirements changing now versus a couple of quarters ago? What's going on there?

Yes, we continue to evolve our 28-nanometer process platform. So it's also a help to provide the better performance, lower cost solutions to meet the customers' requirements. So those are, will continue to evolve.

Okay. If I look at your 28, it's staying at this level, roughly 10% of sales. Do you think there's a concept that there is a window of opportunity because if I look at TSMC they're now in year four of production and they have reduced their costs quite significantly, right? So, I don't know exactly, but my guess is that their ASP is quite a bit lower than what it's been three, four years ago. If you don't get this ramped up, do you think the opportunity is lost forever?

Yes, I agree with that. And so we are actually impacted by the market dynamics and as far as our customer and also UMC and -- however based on our customer engagement, we still continue being positive to gain the 28-nanometer market share. So our internal target to achieve over 15% to 20% revenue share on 28 will be by the second quarter 2016.

That's very helpful. Thank you.

And based on our customer engagement we are also gradually increase our capacity. So when we reach the 28-nanometer economies of scale capacity, then we believe that by the second half of next year we believe that profitability will get improved.

Thank you. Let me ask one last question and then I'll hand it off. 40-nanometer was quite good in the third quarter. Can you talk a little bit more about that, what drove that?

Yes. It was pretty much grown by the communication segment, especially the Wi-Fi and the ISP, image signal processor, and some mid-low end application processor and some baseband applications.

Great. Understood. Thank you very much.

Thank you.

Szeho Ng, BNP.

Hi. Good evening. I just want to know the FX assumption for Q3.

The FX was 32.1 --

Okay, all right. I see. Also, in Q3 I notice there is a very odd operating expense number. Could you explain a little bit what it is?

Please say that again, please.

Yes. There is a very odd operating expense number, TWD804m. I just want to know what it is about.

We had an impairment loss from the dollar subsidiary NexPower. They have actually an impairment loss in the third quarter and we took about TWD800m hit in the same quarter.

Okay. And should we expect more to come in the next couple of quarters, or is it pretty much that?

Yes. Same position and of course from an accounting policy point of view, we have to take whatever we believe the future is going to be. So hopefully the execution is going to be on track and we are still monitoring the subsidiary very closely.

Okay. All right. And what is still left on the balance sheet right now for that operation?

The tax asset for NexPower is about TWD2.8b.

Okay I see. All right. Got you. And a final question. Could you comment a little bit about the pricing environment for, especially for the 40-nano and 28-nano?

Sorry, it was?

Pricing.

Pricing environment, it's very clear and every time. So the pricing is, yes. Anyway, we will bring all our efforts to improve our product portfolio for those niche and specialty customers to improve our pricing structure for the 40 and 28-nanometer.

Okay. All right. For the 40-nano, is it all right for you to comment a bit? That part of the operation, the margin I mean, is already above the corporate average?

Yes.

Okay. All right. That's great. Thank you very much.

Thank you.

Michael Chou, Deutsche Bank.

Hi. Thank you for taking my question. Two questions. The first one is could you give some color regarding your portion for Poly-SiON and High-K Metal Gate in 28-nanometer for next year?

The second question is what is the outlook in terms of segment in Q4? Thank you.

Your first question is with respect to the portion of the Poly/SiON and High-K Metal Gate and, yes, for this quarter our High-K Metal Gate version was much higher than Poly/SiON in terms of revenue. And for the coming quarters we believe that the High-K Metal Gate version will still dominate our 28-nanometer revenue contribution.

Okay. Can we say that it could be more than 60% of total 28-nanometer from High-K in the future, I mean for next year?

Yes, based on our current product engagement.

Okay. Given your previous experience in 28-nanometer, is it possible we'll see some disappointment for your 28-nanometer ramp-up phase next year, or are you quite confident that you can definitely ramp-up your 28-nanometer smoothly next year versus this year?

We feel that, we are confident that the 28-nanometer engagement and also the loading will continue to improve quarter over quarter for the 2016.

Okay. Is it possible you can give some color for 28-nanometer sales portion by end of next year, or do you think it is too early to highlight that at this moment?

Based on our engagement with customers and the customers' request, we see this 28 will be a long-lasting and a strong node. So it will be our growth driver for the coming years.

Okay. Okay. Thank you. And the second question, the outlook by segment in Q4?

Our Q4, yes, across the board it will decrease a little bit, however the consumer segment is flat and communication will drop a little. Computer will be the weakest one.

What is driving the consumer segment?

It's the DTV and set-top box.

Thank you. I have no questions. Thank you so much.

Thank you.

Gokul Hariharan, JPMorgan.

Yes, hi. Thanks for taking my questions. My first question is on utilizations. Could you give some color on Q3 and Q4 by 12-inch and 8-inch and the split in utilizations?

For utilizations, yes, our Q4 for the 8-inch is at the high 80 percentage range and for the 12-inch it's high 70 percentage range.

And in Q3 overall it was 89%. Should I assume that 8-inch was pretty much all full?

On 8-inch we just gave the number, around 95.

Okay. Just a second question. Could you give some granularity into how you expect the Q4 to shape up? Do you expect revenue starting to drop off in October itself, or you expect that to happen towards the end of the quarter? Just some granularity in terms of what you are seeing, as well as what have you been seeing from the order trends from the customers also, maybe in the last one or two months?

Yes. There is no particular pattern in the Q4 price month over month.

And what is the second question?

Yes. Just I think you did mention that you're seeing some stabilization in the order patterns from customers. Is that something that has been happening for the last couple of months, or is it something that is very recent? And any expectations that you have, or any forecast that you have in terms of how that is likely to shape up over the next -- over this quarter?

It's kind of a mixed bag. We do see a pattern over the months, but we do see some indication of the rush order recently. Yes.

And on 28 specifically, are you seeing any improvement in order rates, or 28 is still relatively weak, because I think TSMC also commented that 28 is still probably the weakest node for them as well?

We -- I just explained the -- our 28-nanometer utilization will be improved gradually. And we are targeting to come back to the first half of 2015, the utilization rate in the Q2 next year.

Okay. Thank you.

So high 80 percentage range.

Okay. Thank you.

Eric Chen, UBS.

Hello. Probably just the two quick questions. The first on the capacity expansion. Chitung, would you mind I probably lost earlier, and in terms of capacity expansion, the growth and for next year and for this year, and also between the 12-inch and the 8-inch.

Yes. This year we are talking about overall about 5% capacity growth for UMC as a whole. And for 12-inch it's around 12%. And we don't have the capacity breakdown for next year yet, but we do have at least 9,000 8-inch wafer capacity lined up ready to be installed sometime after mid of 2016. At the same time, our Xiamen fab is also under construction. And by the end of 2015 there will be also some initial production. So in terms of exact numbers, we will disclose our next quarter.

Okay. And for the Xiamen fab, the capacity, the schedule, I remember you mentioned earlier is 6,000, right, by end of next year.

Yes. By the end of next year between 3,000 to 6,000 wafers. So, end of 2015 we will start to see initial production.

Okay. And sorry, 3,000 to 6,000, right, by end of next year for Xiamen?

Yes. 3,000 to 6,000 by the end of 2016.

Okay. So like indicator on the capacity expansion in terms of growth rate next year, should we have the growth rate we have this year, right?

Well again, we don't have the numbers. So this year we also had a lot of capacity in 28. Initially, we're starting from low teens and now we have 20.5, so also around 10K 28 installed in 2015. And Hejian in China also adds a lot of 8-inch wafer capacity.

Okay. So for the 8-inch capacity expansion, how many percent year-on-year growth for this year?

You will probably have to do the math. So 5% overall for the Company. 12% -- 7% for the 12-inch, so maybe less than the average of 5. 3% also.

Okay.

But we have a big gate of 8-inch, so 3% is quite big.

Okay. The utilization rate for the 8-inch, I mean for the whole year always pretty high. So what's my sense for -- to -- we know the 28-nanometer process capacity is quite critical. But to some extent the 8-inch is quite a profitable business for UMC, right? How come other capacity expansion for the 8-inch relatively slow this year and how about next year, how should we look at?

Well 8-inch has better profitability largely due to the depreciation. It has been fully depreciated. If you buy brand-new equipment to do 8-inch, it may not be as competitive as 12-inch. And besides, all the new leading-edge technology on 12-inch is still evolving and we still have a lot of customer that we can penetrate. So that's why we still spend most of our CapEx on 12-inch instead of 8-inch.

I see. Very clear. And one very quick question. In terms of the ISP for the manufacturing UMC by using the 40-nanometer process, that's the sensor, right?

This depending on the communication, connectivity, baseband and some [amenable end appreciation] processor.

Okay. So what does ISP mean? I'm sorry, I don't get it.

Image signal processor.

And down supposedly, right? So that's the -- okay then. Okay, that's signal process. And the main application product is--?

For handsets.

Handsets. I see. Okay. Very clear. Thank you very much.

Thank you.

Roland Shu, Citigroup.

Hi. Thanks for taking my question. First question is for last quarter you expect in 4Q 28-nanometer contribution to be close to 3Q level. So does this still hold, or you have been change your view on that?

Yes. We still hold.

So we can expect 4Q 28-nanometer revenue to be close to 3Q level, right?

Yes.

Okay. And also for 28-nanometer, you expect by second quarter next year it will be 15% to 20% of the total revenue. So after that, in second half next year, will 28-nanometer contribution still maintain the same level, or it will be further increased?

Our internal target is that it will be gradually increase quarter over quarter.

In dollar amount point of view or in the percentage point of view?

In revenue share percent -- revenue share.

Revenue share. So is the percentage point of view, right?

Yes.

So can we expect by end of next year, the 28-nanometer will be -- remaining contribution will be above 20%?

For the full year, we don't guide that. Yes.

Okay. But by the end of next year, since you are gradually increase from 15% to 20% in second quarter next year, so can we assume by end of next year it will be more than 20% of total?

That is our target.

Okay. Thanks. And also for 28-nanometer, actually, if you look at this year, the overall 28-nanometer revenue growth grows much more than the overall revenue growth. And that means on your -- except for 28-nanometer, the other nodes, the overall revenue actually has been declined. So is this a normal case going forward for next year since it looks we also will have very strong growth from 28-nanometer. But for the other nodes, are we going to see the overall revenue to decline or the other revenue will be continuing to grow, same as the 28-nanometer?

Yes. For this year, actually our 40-nanometer revenue, we have pretty steady and strong growth. Yes. So yes.

Yes. I know that. But for the other non-28-nanometer, actually the overall revenue has been declined this year. Will that be the same next year?

Yes. Some node is -- some node will be relatively weak than 40. And we believe the -- we are actually -- we identify a number of applications, such as migrating from 8-inch to 12-inch. So we are expecting in the second half of 2016 our 12-inch mature node utilization rate will be improved.

Okay. So that means that for next year actually the growth for 40-nanometer or even 65-nanometer will be much better than this year?

40 is already strong. Like I see now, the mature node for 12-inch mainly 65 and 80. The CEO mentioned that by second half of next year we stabilize the position, will be able to lift the overall capacity utilization rate for those relatively more mature 12-inch nodes.

Okay. Okay. Understood. Thanks. Last question to ask is for the progress for your advanced packaging technology. So where are you now? And how are you going to differentiate your packaging technology versus TSMC's information? Thanks.

Yes. We're still working. We still focus on promotion, which is working with our customer. And that is online to have the TSI -- you know TSV technology. And we are also collaborating with some research institutes on providing a diverse, more diverse to enhance the technology in the future. They will be active to enhance the technology. It's by adapting silicon interposer technology.

So are we going to see any revenue contribution for these two (inaudible) or TSV technology this year?

We already have some contribution from this technology.

Yes. We had a press release last quarter regarding AMD adapting the packaging. So it's already accounted in our revenue contribution.

Okay. Yes. So how about the growth next year? Are these going to be significant? Say contribute about 2%, 3% or 5% of total revenue next year?

We don't have the number right now. But it's growing with our customer for this growth.

Okay. Understood. So -- and on this, how about the probability or margins for this 2.5G or TSV packaging? Is this above corporate average or below corporate average?

I think that the -- this is -- belongs to a special detailed knowledge. Normally it's adapted existing tool technology. So normally it will be -- that will enjoy a better profitability than other technologies.

Understood. Thank you. So going forward for this packaging technology actually will be classified as the specialty technology. So we can see the growth from your specialty technology because of these high-end advanced packaging technology. Am I right?

That's correct.

Okay. Thank you.

Thank you.

Eric Lin, CIMB.

Hi, Chitung. Could you give us some idea about the currency impact? If you strip off the currency fluctuation, what would be the margin outlook? What would be the margin for third quarter, gross margin-wise?

Well, the ForEx helped about 3.9% revenue in the third quarter. Every 1% increase in currency will help our gross margin by roughly 0.5 percentage points.

Got it. Got it. Thank you. Then my second question is on the inventory level. Third-quarter inventory was up 3 days. And Po Wen mentioned that we are expecting the inventory level to come to a reasonable level in the coming one or two quarters. So what would be the reasonable level in terms of days?

That would be our ballpark figures, but maybe one or two days less in the coming one and two quarters.

So that would be like 50 days. Would that be reasonable?

Yes.

Okay. Thank you. Last quarter management mentioned about the progress of 40-nano. Would you update us about the progress right now? Are we still expecting the same ramp-up stage and the equipment moving schedule?

Yes. We are based on our current involvement roadmap. We are still on track on cost to engaging with customer. So we are expecting the customers tape-out by the end of this year.

So I will assume that CapEx should be spent maybe earlier next year.

No. This is the early vehicle tape-out, and it's not a product tape-out.

I see.

So we are expecting the revenue contribution will likely happen on the middle 2017.

Okay. So in that case I think we have to spend some money on the equipment maybe second half next year or early next year, right?

We already have some R&D capacity there.

So will that ramp up, the -- will the CapEx for the 40-nanometer be an extreme factor for our next year's cash flow?

For the time being it probably won't. So, as our CEO mentioned, revenue is not expected until second half of 2017 or mid-2017. So it's unlikely to have significant amount of CapEx on 2014 in next year.

I see. My last question is would it be reasonable for us to assume the 28-nanometer revenue will be holding at about 10% for Q4 and for 40-nanometer will be still at 25%?

Yes. It's about the correct numbers.

I see. So it will be pretty much similar with third quarter, right?

Yes.

Thank you so much. That's all from me. Thank you.

Steven Pelayo, HSBC.

Yes, Chitung, some clarification first of all. I think you were saying depreciation's going to grow 15% to 20% this year. I think with only one quarter left in the quarter that -- in the year, that would imply a very significant increase in the fourth quarter. You know, double digits just to even get 15% year on year and probably much more to get 20% year on year. So is 15% to 20% still the right number or what are you thinking about for fourth-quarter depreciation?

15% to 20% is still the right number. Third quarter alone increased 7.3% quarter over quarter. And yes, Q4 will still some similar or higher quarter-over-quarter growth rate.

Okay. So then how do you issue gross margin guidance that's similar quarter on quarter if utilization rates are falling, revenues are falling and depreciation is going up? So what are the things that are helping gross margins?

Currency helped a little bit. And also we have higher utility costs in the third quarter. And most importantly, we think we have made some progress in terms of yield. We used to suffer some heavy debt to customers in terms of yield issue. But Q4 will have some meaningful improvement.

Okay. Interesting. I think you said that you expected 28-nanometer utilization rates to gradually improve and targeting to come back to the high 80s range by the second quarter. What is the current utilization rate of 28-nanometer?

It's about 50%.

Okay. And are you utilizing any of that 28-nanometer capacity to maybe address some of your 40-nanometer demand?

There is some transparent [costs]. But the best case certainly we would like to use all our 28-nanometer capacity for 28-nanometer products. So many [swap over] to 28. Yes.

Maybe I should ask the question the other way. 40-nanometer has been so strong for you. Are you tight on capacity of 40-nanometer utilization rate?

Yes. For the recent quarters, yes.

Okay. And last question for me is you had pushed out your 28-nanometer ramp to reach I think 30,000 wafers now sometime mid next year. I guess you wouldn't go from 20,000 to 30,000 if you didn't feel like you have that full. Does that seem like a reasonable expectation for us right now that we can assume you're generating 20,000 wafers a month of 28-nanometer revenue by mid-next year?

I think, Steve, that's a fair analysis. And we do expect to see, as our CEO mentioned, the 28-nanometer utilization ratio rebound for the first-half level of this year first, then gradually go up quarter over quarter. I think that's under all the assumption I believe we have for our customer engagement.

Okay. That's fair enough. I guess lastly I just want to mention I noticed you guys did buy back some stock. I think it was about TWD11 stock price. That's not that far different from today. Do you have any more plans to continue to acquire shares?

We do have the resources if we feel there's opportunity or there's a necessity in the market. So always we are open to that.

Okay. Fair enough. Thank you very much.

[Carlos], Jefferies.

Good evening, Bowen and the Chairman. Regarding China SMIC and Hua Hong Grace is seeing a very strong order flow for 8-inch from the 2Q to 4Q, which is nearly fully utilized from the SMIC's 8-inch capacity from the second quarter to the fourth quarter, especially in the pigment IC fingerprint and MEMS segment. And partial of the older flow are currently waiting for the capacity in the SMIC's new Shenzhen fab. So does that pose any market share lose risk on the UMC's 8-inch business over the 2016, or are there any other -- the strong product to secure UMC's market share over the next year?

So, yes, we don't comment on our competitors. And for the 8-inch, the demand, we're still working very closely with our customers to engage more the coming demand for 2016.

Okay. Okay. Thank you.

Thank you.

Thank you, sir, and 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.

I would like to thank everyone for being on the call today. We appreciate your questions. If you have any additional follow-up questions, please feel free to contact UMC at ir@umc.com. Operator, please wrap up the call.

Thank you, Bowen. And ladies and gentlemen, that concludes our conference for third quarter 2015. And 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. And you may now disconnect. Goodbye.