Q2 Net profit fell 26.7%! Umc again cut its 2023 revenue forecast

On July 26, wafer foundry United Electric officially announced the second quarter of 2023 financial results.

Revenue for the quarter was NT $56,296 million, down 21.9% year-over-year and up 3.8% sequentially. Gross profit was NT $20.252 billion, down 39.5% year-on-year; Gross profit margin was 36.0%, an increase of 0.5 percentage points quarter-on-quarter and a decrease of 10.45 percentage points year-on-year; Operating profit was NT $15.675 billion, down 44.3% year on year; Operating profit margin was 27.8%, an increase of 1.1 percentage points quarter-on-quarter, down 11.29 percentage points year-on-year; Net profit was NT $15.641 billion, down 26.7% year-on-year and 3.3% sequentially; Earnings per share were NT $1.27, compared with NT $1.74 a year ago. Earnings per ADS were $0.204, compared to $0.279 in the prior-year period.

Umc highlighted that 59% of second-quarter revenue came from differentiated special process business, with 22/28nm revenue accounting for the highest proportion, accounting for 29% of total revenue, up from 26% in the previous quarter.

Umc shipped about 1.83 million 8-inch wafers in the second quarter, up 0.27% sequentially and down 30.2% year-on-year. Average selling price (ASP) increased slightly from the first quarter, with production capacity of approximately 2.63 million 8-inch wafers, an increase of 4.12% sequentially and 3.8% year-over-year; Capacity utilization was 71% in the second quarter, up from 70% in the previous quarter.

In the second quarter, UMC's capital expenditure was about $820 million, down 17.84% from the previous quarter and up 1.08 times from the previous year.

Wang Shi, co-general manager of UMC, said that this quarter's results report was in line with previous forecasts, wafer shipments were flat compared with the previous quarter, capacity utilization was 71%, and revenue increased by 3.8% sequentially, mainly benefiting from 12-inch product portfolio optimization and continued revenue growth from 22/28nm products.

Umc's gross profit margin in the first half of the year was 35.7%, an annual decrease of 9.3 percentage points, and the cumulative net profit after tax in the first half of this year was NT $31.824 billion, down 22.6% year-on-year, and the net profit per share was NT $2.58.

Wang Shi pointed out that from the final application to observe, see the short-term recovery of demand in consumer areas such as WiFi, digital TV and display driver IC, and the demand for computer-related products is also a moderate rebound from the previous quarter, in addition, UMC completed the share repurchase transaction of 12 inch factory core in Xiamen, mainland China, making it a 100% owned subsidiary of UMC. We will continue to provide high quality wafer manufacturing services to our customers and contribute to the Group's financial performance.

Looking forward to the performance of the second half of the year, Wang Shi admitted that although the second quarter saw a glimmer of recovery, the wafer demand outlook is still unclear, and the overall terminal market atmosphere is still weak, customers are expected to maintain rigorous inventory management in the near future, and inventory adjustment is estimated to continue to the fourth quarter.

Wang Shi further said that the recovery of mainland China is slower than expected, and the overall environment continues to be sluggish, leading to the end demand is still weak, although some products such as televisions, personal computers and servers demand has picked up, but it is difficult to offset the overall weakening consumption power.

Based on this, Wang estimates that capacity utilization in the third quarter will decline from 71% in the second quarter to 64%-66%, wafer shipments will decline by 3%-4%, and the average unit price of products (ASP) will increase by 2%. And due to the increase in the cost of electricity, raw materials and labor, the gross profit margin will fall by 1-3 percentage points in the third quarter.

Affected by the global economic situation, the industry is facing inventory adjustment, coupled with sluggish consumer demand and other factors, UMC in the previous meeting, has revised down this year's foundry industry revenue forecast, down from 4-6% to 7-9%. At the meeting on the 26th, UMC again lowered its revenue forecast for this year to a year-on-year decline of 14%-16%, showing that this year is a very difficult year for the semiconductor industry. As for the full year of 2023, the capital will be 3 billion US dollars.

Although the overall environment in the second half of the year may not be as good as expected, Wang Shi is still optimistic about the demand driven by 5G, automotive, Internet of things and other demands to promote OLED driver IC, ISP, WiFi chip demand, 22/28nm business continues to maintain full resilience, capacity utilization will maintain a relatively healthy level.

In the AI layout, UMC is accelerating the provision of silicon interposer Wafer technology and production capacity required by customers to meet the needs of the AI market.

Wang Shi explained that under the increasing market demand recently, the company is cooperating with the back-end sealing plant to provide customers with overall solutions, and the current product gross margin is similar to the company's average level, and the target production capacity is doubled next year.