UMC beats expectations, highlights customer inventory issues persist

UMC, a leading global semiconductor foundry company, released its earnings report for the fourth quarter of 2023. The company's earnings per share (EPS) for the quarter stood at NT$5.30, slightly higher than the NT$5.29 expectations. However, UMC's revenues for the quarter fell by 19.0% year-on-year to NT$54.96 billion, missing consensus of NT$56.95 billion.

Despite the decline in revenue, UMC's gross margin for the quarter was 32.4%, and the operating margin was 22.6%. The company highlighted that revenue from the 22/28nm segment accounted for 36% of total wafer revenue in Q4, representing a record high both in terms of revenue and proportion of wafer sales. UMC's co-president, Jason Wang, emphasized UMC's resilience in navigating the challenging macroeconomic conditions of 2023.

The company's operating expenses increased, with research and development (R&D) expenses growing by 21.2% sequentially to NT$3.95 billion. UMC's operating income for the fourth quarter decreased by 18.9% quarter-on-quarter to NT$12.42 billion.

In response to the earnings report, Jason Wang, co-president of UMC, acknowledged the challenging macroeconomic conditions that led to an inventory correction in the semiconductor industry. Despite this, the company's Tainan 12A P6 facility continued to ramp up, and its 22/28nm products contributed significantly to the company's revenue.

Looking ahead to the first quarter of 2024, UMC expects a mild increase in overall wafer demand, but with customers taking a cautious approach to inventory management. The company anticipates a 2-3% increase in wafer shipments and a 5% decrease in average selling price (ASP) in USD compared to the previous quarter. UMC also forecasts a gross profit margin of approximately 30% and a capacity utilization rate in the low-60% range. The company plans to invest $3.3 billion in capital expenditures for 2024.

UMC remains focused on navigating headwinds in an increasingly competitive landscape and geopolitical tensions. The company aims to leverage its diversified manufacturing base and differentiation in 12-inch specialty technologies to maintain its position in the semiconductor industry.

As UMC moves forward into 2024, it anticipates mild growth in overall wafer demand while customers continue to manage inventory cautiously. The company will continue to adapt to the ever-changing market landscape and maintain its structural profitability, setting it up for success in the face of ongoing challenges.

In summary, UMC's Q4 earnings slightly exceeded expectations in terms of EPS. Despite a decline in revenue, the company showcased resilience and achieved a solid gross profit margin. Although facing challenges in the current environment, UMC is optimistic about the mild increase in wafer demand expected for Q1 2024. The company's strategic focus on diversified manufacturing and specialty technologies positions it well for future growth. 

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