Q2 gross margin rose to 31.3%; margin momentum expected to continue into Q3

Second Quarter 2021 Overview¹:

• Revenue: NT$50.91 billion (US$1.83 billion)
• Gross margin: 31.3%; Operating margin: 22.2%
• Revenue from 22/28nm: 20%
• Capacity utilization rate: 100%+
• Net income attributable to shareholders of the parent: NT$11.94 billion (US$429 million)
• Earnings per share: NT$0.98; earnings per ADS: US$0.176

United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the second quarter of 2021.

Second quarter consolidated revenue was NT$50.91 billion, increasing 8.1% QoQ from NT$47.10 billion in 1Q21. Compared to a year ago, 2Q21 revenue was up 14.7% YoY from NT$44.39 billion in 2Q20. Consolidated gross margin for 2Q21 was 31.3%. Net income attributable to the shareholders of the parent was NT$11.94 billion, with earnings per ordinary share of NT$0.98.

Jason Wang, co-president of UMC, said, “Strong demand fueled by 5G adoption and digital transformation underpinned our strong performance in the second quarter. Our manufacturing facilities exceeded 100% utilization while overall wafer shipments rose 3.0% QoQ to 2.44 million 8-inch equivalents. Revenue from 28nm technologies continued to grow sequentially, fueled by applications incorporated into 4G/5G smartphones, Solid State Drive, and Digital TV. During the quarter, we continued our product optimization and cost reduction efforts, lifting our gross margin. We expect the strength of structural demand to sustain and support the continuous improvement of blended ASP. As a result, the Company’s gross profit in the first half of 2021 surged 54.5% YoY to NT$28.40 billion.”

Co-president Wang continued, “Looking ahead, we anticipate demand to stay robust in the third quarter driven by megatrends such as 5G and EV. Supply tightness is expected to continue, across 8” and 12” facilities. We foresee margin momentum to continue into the third quarter, supported by further product mix optimization, cost reduction efforts and productivity enhancements. In addition, we expect the adoption rate of our 22nm technologies will continue to gain traction, reflected by a pickup in customers’ 22nm product tape outs in connectivity and display applications. We will also focus on further strengthening our leadership position in a number of specialty technologies such as OLED display driver, RFSOI and imaging applications. Moreover, we continue to take important steps to enhance our corporate governance and lead sustainability efforts in our industry. Earlier this month, five independent directors were newly elected to the Company’s Board of Directors, representing more than 50% of the board seats and including two female directors. The Company also announced its pledge to reach net zero carbon emissions by 2050, as well as our commitment to work alongside our partners to reduce carbon intensiveness and raise renewable energy usage in our supply chain. UMC is dedicated to enhance our corporate governance as well as addressing climate change to build a sustainable environment.”

Summary of Operating Results

Operating revenues in 2Q21 increased 8.1% to NT$50.91 billion partly reflected by slightly higher wafer shipment and the enhancement in blended product mix. Revenue contribution from 40nm and below technologies was 38%. Gross profit grew 27.3% QoQ to NT$15.91 billion, or 31.3% of revenue. Operating expenses increased 4.5% to NT$6.20 billion. Net other operating income increased to NT$1.61 billion. Net non-operating income was NT$1.88 billion. Net income attributable to shareholders of the parent increased to NT$11.94 billion.

Earnings per ordinary share for the quarter was NT$0.98. Earnings per ADS was US$0.176. The basic weighted average number of outstanding shares in 2Q21 was 12,206,292,756, compared with 12,206,292,756 shares in 1Q21 and 12,193,149,897 shares in 2Q20. The diluted weighted average number of outstanding shares was 12,382,592,798 in 2Q21, compared with 12,381,821,873 shares in 1Q21 and 12,262,774,432 shares in 2Q20. The fully diluted shares counted on June 30, 2021 were approximately 12,398,671,000.

Detailed Financials Section

Operating revenues grew to NT$50.91 billion. COGS remained flattish at NT$35.00 billion, as the 2.2% sequential decline in depreciation was offset the 2.6% increase in other manufacturing costs primarily due to higher wafer shipments in 2Q21. Gross profit increased 27.3% QoQ to NT$15.91 billion, reflecting the uptick in overall average selling price across 8” and 12” wafer shipments. Operating expenses increased 4.5% QoQ to NT$6.20 billion, as G&A grew 5.2% sequentially to NT$1.90 billion while R&D increased 3.9% QoQ to NT$3.17 billion, representing 6.2% of revenue. Sales & Marketing was up 3.8% QoQ to NT$1.13 billion. Net other operating income was NT$1.61 billion. In 2Q21, operating income expanded 48.4% QoQ to NT$11.31 billion.

Net non-operating income in 2Q21 was NT$1.88 billion, mainly resulting from NT$2.28 billion in net investment gain, offset by a NT$310 million in net interest expense and a NT$84 million in exchange loss.

In 2Q21, cash inflow from operating activities was NT$23.12 billion. Cash outflow from investing activities totaled NT$18.48 billion, which included NT$9.48 billion in capital expenditure, resulting in free cash flow of NT$13.64 billion. Cash inflow from financing activities was NT$13.24 billion, primarily from a NT$9.60 billion from the issuance of bonds and a NT$7.21 billion in deposit which included the capacity deposit from 12A P6 agreement, offset by a NT$2.00 billion in the redemption of bonds and a NT$1.38 billion payment in the bank loans. Net cash inflow in 2Q21 was NT$16.72 billion. Over the next 12 months, the company expects to repay NT$8.06 billion in bank loans.

Cash and cash equivalents increased to NT$124.00 billion. Days of inventory decreased by a day to 58 days.

Current liabilities increased to NT$85.00 billion, which included a NT$19.88 billion in dividends payable. Long-term credit/bonds increased to NT$50.97 billion. Total liabilities increased to NT$181.49 billion, leading to a debt to equity ratio of 76%.

Analysis of Revenue²

Revenue from Asia-Pacific remained unchanged at 63% as business from North America declined to 22% of sales. Business from Europe was 8% while contribution from Japan increased to 7%.

Revenue contribution from 22/28nm stayed at 20% of the wafer revenue, while 40nm contribution declined to 18% of sales.

Revenue from fabless customers decreased to 84% of revenue.

Revenue from the communication segment increased to 47%, while business from computer applications increased to 17%. Business from consumer applications declined to 26% as other segments accounted for 10% of revenue.

Blended ASP Trend

Blended average selling price (ASP) grew in 2Q21.

(To view blended ASP trend, please click here for 2Q21 ASP)

Shipment and Utilization Rate³

In 2Q21, wafer shipments increased 2.9% QoQ to 2,440K, while quarterly capacity grew to 2,370K. Overall utilization rate in 2Q21 exceeded 100%.

Capacity⁴

Total capacity in the second quarter expanded by 4% QoQ to 2,370K 8-inch equivalent wafers. Capacity is expected to slightly increase in the third quarter to 2,387K 8-inch equivalent wafers, mainly reflecting the capacity expansion at Fab 8F.

⁽¹⁾ One 6-inch wafer is converted into 0.5625 (6²/8²) 8-inch equivalent wafer; one 12-inch wafer is converted into 2.25 (12²/8²) 8-inch equivalent wafers. Total capacity figures are expressed in 8-inch equivalent wafers.

CAPEX

CAPEX spending in 2Q21 was US$339 million. Full year 2021 CAPEX is budgeted at US$2.3 billion, which includes the company’s collaborative Fab 12A P6 expansion plan with customers.

Third Quarter 2021 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To increase by 1-2%
• ASP in USD: To increase by approximately 6%
• Gross Profit Margin: To be in the mid-30% range
• Capacity Utilization: 100%
• 2021 CAPEX: US$2.3 billion

Recent Developments / Announcements

Please visit UMC’s website for further details regarding the above announcements

Conference Call / Webcast Announcement

Wednesday, July 28, 2021

Time: 5:00 PM (Taipei) / 5:00 AM (New York) / 10:00 AM (London)

A live webcast and replay of the 2Q21 results announcement will be available at

www.umc.com under the “Investors / Events” section.

About UMC

UMC (NYSE: UMC, TWSE: 2303) is a leading global semiconductor foundry. The company provides high quality IC production with a focus on both logic and specialty technologies to serve every major sector of the electronics industry. UMC’s comprehensive technology and manufacturing solutions include logic/RF, embedded high voltage, embedded flash, RFSOI/BCD and IATF-16949 automotive manufacturing certification for all its manufacturing facilities. UMC operates 12 fabs that are strategically located throughout Asia with a maximum capacity of approximately 800,000 8-inch equivalent wafers per month. The company employs approximately 19,500 people worldwide, with offices in Taiwan, China, United States, Europe, Japan, Korea and Singapore. For more information, please visit: http://www.umc.com.

Safe Harbor Statements

This press release contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended, and as defined in the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding anticipated financial results for the second quarter of 2021; the expected wafer shipment and ASP; the anticipated annual budget; capex strategies; environmental protection goals and water management strategies; impact of foreign currency exchange rates; expected foundry capacities; the ability to obtain new business opportunities; and information under the heading “Second Quarter of 2021 Outlook and Guidance.”

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of UMC to be materially different from what is stated or may be implied in such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, but not limited to: (i) dependence upon the frequent introduction of new services and technologies based on the latest developments in the industry in which UMC operates; (ii) the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets; (iii) the risks associated with international business activities; (iv) dependence upon key personnel; (v) general economic and political conditions; (vi) possible disruptions in commercial activities caused by natural and human-induced events and disasters, including natural disasters, terrorist activity, armed conflict and highly contagious diseases; (vii) reduced end-user purchases relative to expectations and orders; and (viii) fluctuations in foreign currency exchange rates. Further information regarding these and other risk factors is included in UMC’s filings with the United States Securities and Exchange Commission, including its Annual Report on Form 20-F. All information provided in this release is as of the date of this release and are based on assumptions that UMC believes to be reasonable as of this date, and UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

The financial statements included in this release are prepared and published in accordance with Taiwan International Financial Reporting Standards, or TIFRSs, recognized by the Financial Supervisory Commission in the ROC, which is different from International Financial Reporting Standards, or IFRSs, issued by the International Accounting Standards Board. Investors are cautioned that there may be significant differences between TIFRSs and IFRSs. In addition, TIFRSs and IFRSs differ in certain significant respects from generally accepted accounting principles in the ROC and generally accepted accounting principles in the United States.

- FINANCIAL TABLES TO FOLLOW -

¹Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with TIFRSs recognized by Financial Supervisory Commission in the ROC, which is different from IFRSs issued by the International Accounting Standards Board. They represent comparisons among the three-month period ending June 30, 2021, the three-month period ending March 31, 2021, and the equivalent three-month period that ended June 30, 2020. For all 2Q21 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the June 30, 2021 exchange rate of NT$ 27.86 per U.S. Dollar.

² Revenue in this section represents wafer sales

³ Utilization Rate = Quarterly Wafer Out / Quarterly Capacity

⁴ Estimated capacity numbers are based on calculated maximum output rather than designed capacity. The actual capacity numbers may differ depending upon equipment delivery schedules, pace of migration to more advanced process technologies, and other factors affecting production ramp-up.

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