Structural profitability intact despite industry consolidating at the trough

First Quarter 2023 Overview¹:

• Revenue: NT$54.2 billion (US$1.78 billion)
• Gross margin: 35.5%; Operating margin: 26.7%
• Revenue from 22/28nm: 26%
• Capacity utilization rate: 70%
• Net income attributable to shareholders of the parent: NT$16.2 billion (US$532 million)
• Earnings per share: NT$1.31; earnings per ADS: US$0.215

United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC” or “The Company”), a leading global semiconductor foundry, today announced its consolidated operating results for the first quarter of 2023.

First quarter consolidated revenue was NT$54.2 billion, decreasing 20.1% QoQ from NT$67.8 billion in 4Q22. Compared to a year ago, 1Q23 revenue declined 14.5% YoY from NT$63.4 billion in 1Q22. Consolidated gross margin for 1Q23 was 35.5%. Net income attributable to the shareholders of the parent was NT$16.2 billion, with earnings per ordinary share of NT$1.31.

Jason Wang, co-president of UMC, said, “In the first quarter of 2023, our business was impacted by sluggish wafer demand as customers continued to digest elevated inventory levels. In line with guidance previously provided, wafer shipments fell 17.5% QoQ and utilization rate dropped to 70%, while average selling price stayed firm during the quarter. Factoring in a less favorable foreign exchange rate, revenue in the first quarter fell 20.1% QoQ. Despite lower utilization, gross margin remained firm at 35.5%, reflecting improved structural profitability and optimized product mix. Although demand weakened across major end markets, our automotive and industrial segments posted growth during the quarter. Automotive sales, in particular, accounted for 17% of overall first quarter revenue. While this partially reflects declines in other segments, we expect automotive to remain a significant revenue contributor and key growth driver for UMC going forward, as IC content in cars continue to increase driven by electrification and autonomous driving.”

Co-president Wang said: “Entering the second quarter of 2023, we expect customers’ inventory correction to linger given the softness in overall end market demand. As a result, our wafer shipment will be flat this quarter. Meanwhile, the Company continues to implement strict cost control measures to ensure our profitability remains intact through near-term cyclicality. Going forward, we believe our strategy of focusing on the development of differentiated solutions across numerous logic and specialty technology platforms such as eHV, RFSOI, and BCD will help us secure future business and expand our presence in the IC industry. While positioning for future business growth, UMC is also committed to maintaining a high dividend payout ratio. In Q1, the Board of Directors proposed to distribute a cash dividend of approximately NT$3.60 per share, subject to shareholders’ approval.”

“UMC has invested in a number of initiatives over the years to minimize the environmental impact of our operations, such as increasing the reuse rate of resources in our fabs. Last month, we announced that we will be building the Circular Economy & Recycling Innovation Center at our Fab 12A. The new facility, which will process semiconductor manufacturing waste into value-added products that can be reused or sold, is expected to reduce waste from UMC’s Taiwan manufacturing sites by one-third. This NT$1.8 billion project represents our commitment to sustainable practices as well as innovative solutions that create value for the Company and our stakeholders,” Co-president Wang added.

Summary of Operating Results

First quarter operating revenues declined by 20.1% sequentially to NT$54.21 billion as inventory correction continued within the semi industry, lowering wafer shipments. Revenue contribution from 40nm and below technologies represented 41% of wafer revenue. Gross profit decreased 34% QoQ to NT$19.22 billion, or 35.5% of revenue. Operating expenses declined 15% QoQ to NT$5.78 billion. Net other operating income declined to NT$1.04 billion. Net non-operating income totaled NT$4.65 billion, reflecting the mark to market securities. Net income attributable to shareholders of the parent amounted to NT$16.18 billion.

Earnings per ordinary share for the quarter was NT$1.31. Earnings per ADS was US$0.215. The basic weighted average number of shares outstanding in 1Q23 was 12,348,880,384, compared with 12,348,880,384 shares in 4Q22 and 12,283,479,334 shares in 1Q22. The diluted weighted average number of shares outstanding was 12,597,236,266 in 1Q23, compared with 12,684,106,050 shares in 4Q22 and 12,534,728,721 shares in 1Q22. The fully diluted shares counted on March 31, 2023 were approximately 12,597,236,000.

Detailed Financials Section

Operating revenues decreased to NT$54.21 billion. COGS declined 9.6% to NT$34.99 billion, which included 11% sequential decrease in other manufacturing costs. Gross profit fell 34% QoQ to NT$19.22 billion. Operating expenses declined to NT$5.78 billion, as R&D fell 18.8% to NT$2.77 billion, representing 5.1% of revenue while G&A sequentially declined 13.8% to NT$2.10 billion. Net other operating income was NT$1.04 billion. In 1Q23, operating income declined 38.7% QoQ to NT$14.48 billion.

Net non-operating income in 1Q23 was NT$4.65 billion, primarily reflecting the NT$3.99 billion in net investment gain and the NT$0.91 billion in net interest income partially offset by the NT$0.24 billion in exchange loss.

In 1Q23, cash inflow from operating activities was NT$26.96 billion. Cash outflow from investing activities amounted to NT$29.59 billion, which included NT$30.38 billion in capital expenditure, resulting in free cash outflow of NT$3.42 billion. Cash inflow from financing was NT$1.35 billion, primarily from a NT$1.99 billion in increase in deposits-in partially offset by a NT$0.49 billion in repayment of bank loans. Net cash outflow in 1Q23 totaled NT$1.99 billion. Over the next 12 months, the company expects to repay NT$2.43 billion in bank loans.

Cash and cash equivalents slightly decreased to NT$171.83 billion. Days of inventory increased by 11 days to 83 days.

Current liabilities slightly decreased to NT$105.89 billion. Long-term credit/bonds decreased to NT$37.30 billion. Total liabilities decreased to NT$194.08 billion, leading to a debt to equity ratio of 55%.

Analysis of Revenue²

Revenue from Asia-Pacific declined to 50% while business from North America was 31% of sales. Business from Europe increased to 11% while contribution from Japan was 8%.

Revenue contribution from 22/28nm declined to 26% of the wafer revenue, while 40nm contribution was 15% of sales.

Revenue from fabless customers accounted for 77% of revenue.

Revenue from the communication segment represented 44%, while business from computer applications decreased to 9%. Business from consumer applications was 24% as other segments grew to 23% of revenue.

Blended ASP Trend

Blended average selling price (ASP) grew slightly in 1Q23.

(To view blended ASP trend, please click here for 1Q23 ASP)

Shipment and Utilization Rate³

Wafer shipments decreased 17.5% QoQ to 1,826K in the first quarter, while quarterly capacity was 2,522K. Overall utilization rate in 1Q23 was 70%.

Capacity⁴

Total capacity in the first quarter decreased to 2,522K 8-inch equivalent wafers. Capacity will grow in the second quarter of 2023 to 2,626K 8-inch equivalent wafers, primarily representing the capacity expansion at 12A facility.

CAPEX

CAPEX spending in 1Q23 totaled US$998 million. 2023 cash-based CAPEX budget will be US$3.0 billion.

Second Quarter 2023 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To remain flat
• ASP in USD: To remain flat
• Gross Profit Margin: Will be in the mid-30% range
• Capacity Utilization: low-70% range
• 2023 CAPEX: US$3.0 billion

Recent Developments / Announcements

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

Conference Call / Webcast Announcement

Wednesday, April 26, 2023

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

A live webcast and replay of the 1Q23 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 company. The company provides high quality IC fabrication services, focusing on logic and various specialty technologies to serve all major sectors of the electronics industry. UMC’s comprehensive IC processing technologies and manufacturing solutions include logic/mixed-signal, embedded high-voltage, embedded non-volatile-memory, RFSOI and BCD. UMC has total 12 fabs in production with combined capacity of approximately 850,000 8-inch equivalent wafers per month, and all of them are certified with IATF 16949 automotive quality standard. Most of UMC's 12-inch and 8-inch fabs with its core R&D are located in Taiwan, with additional ones throughout Asia. UMC is headquartered in Hsinchu, Taiwan, plus local offices in China, United States, Europe, Japan, Korea and Singapore, with worldwide total 20,000 employees. For more information, please visit: https://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 first quarter of 2023; 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 “First Quarter of 2023 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 -

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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 March 31, 2023, the three-month period ending December 31, 2022, and the equivalent three-month period that ended March 31, 2022. For all 1Q23 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. Dollars at the March 31, 2023 exchange rate of NT$ 30.44 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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