United Microelectronics Corporation — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide separate Q4 results. Financial statements are prepared under IFRS as issued by the IASB. Amounts below are in NT$ millions unless stated otherwise; US$ figures are the filing’s convenience translations.
Business context
UMC is a global independent semiconductor foundry, primarily manufacturing wafers to customers’ designs. Its fabs operate in Taiwan, Singapore and China. Communications remained the largest wafer application, but its share declined to 45.2% of wafer sales from 48.6% in 2017. The ten largest customers generated 51.3% of 2018 revenue.
Financial performance and liquidity
| Metric | FY2018 | FY2017 | Change or context |
|---|---|---|---|
| Revenue | 151,253 (US$4,941) | 149,285 | Up 1.3% |
| Gross profit / margin | 22,840 / 15.1% | 27,058 / 18.1% | Profit and margin declined |
| Operating income / margin | 5,680 / 3.8% | 6,568 / 4.4% | Down 13.5% |
| Income before tax | 2,118 | 7,672 | Down substantially |
| Consolidated net income | 3,248 | 6,679 | Includes NT$1,130 tax benefit |
| Net income attributable to parent shareholders | 7,678 | 9,677 | Down 20.6%; non-controlling interests were attributed a loss of 4,430 |
| Basic / diluted EPS | NT$0.65 / NT$0.60 | NT$0.81 / NT$0.75 | Basic EPS declined |
| Operating cash flow | 50,935 | 52,474 | Cash generation remained substantial |
| Capital expenditure | 19,590 | 44,236 | Down from prior-year expansion spending |
| Cash and cash equivalents | 83,662 | 81,675 | At year-end |
Revenue growth reflected 4.0% higher wafer shipments, partly offset by a 3.4% decline in average selling price and 0.9% New Taiwan dollar appreciation. Operating costs rose 5.1%, contributing to lower gross margin. Average capacity utilization eased to 93.1% from 94.4%.
Cash used in investing activities was NT$15,500 million, including NT$19,590 million of fab equipment purchases, partly offset by NT$7,130 million of asset-related government grants. Cash used in financing activities was NT$33,485 million, reflecting loan and bond repayments, dividends and share repurchases. The company said existing cash and short-term investments should cover working capital and capital expenditures at least through the end of 2019.
At year-end, short-term loans were NT$13,104 million, bonds payable NT$41,378 million and long-term loans NT$30,826 million. Total liabilities were NT$158,200 million and equity NT$204,397 million. UMC reported net debt of NT$74,538 million using its defined measure of total liabilities less cash and cash equivalents. Unused short-term credit lines were NT$77,658 million. Current assets were NT$141,193 million and current liabilities NT$50,017 million.
Material changes, outlook and unusual items
- Net other operating income rose to NT$5,117 million, mainly from government grants income of NT$5,221 million, versus NT$1,710 million in 2017. This materially supported operating income.
- Non-operating results swung from income of NT$1,103 million to a loss of NT$3,562 million, mainly reflecting losses on financial asset valuation, foreign exchange and equity-accounted investments.
- UMC recognized NT$409 million of expected credit losses, including a loss allowance related to contract assets and receivables associated with its Fujian Jinhua joint technology-development arrangement.
- The U.S. Department of Justice indicted UMC, Jinhua and three individuals in November 2018 over alleged Micron trade-secret theft and filed a civil complaint seeking restrictions on certain DRAM exports. UMC suspended the joint development work. The proceedings were preliminary, and the company said it could not assess the probable outcome or impact.
- UMC reported a proposed acquisition of the remaining 84.1% of Mie Fujitsu Semiconductor (MIFS), for consideration of up to ¥57.6 billion, was delayed pending approvals. The scheduled transaction date was pushed to July 1 or October 1, 2019; the option would expire if not completed by October 1, 2019.
- Management said it would moderate leading-edge capacity expansion and emphasize diversification of logic and specialty technologies. The filing gives no numerical revenue or earnings guidance for 2019.
- The board proposed a dividend of approximately NT$0.58 per share for 2018 earnings, subject to shareholder approval. The 2018 cash dividend paid for the prior year was NT$0.70 per share.
- UMC adopted IFRS 9 and IFRS 15 from January 1, 2018 using the modified retrospective method, without restating prior periods. IFRS 16 was scheduled for adoption in 2019; the filing estimated initial lease liabilities of NT$6,006 million.
Key risks include foundry cyclicality and pricing pressure, high fixed costs and capital needs, reliance on a concentrated customer base, foreign-exchange exposure, Taiwan and cross-strait geopolitical risk, natural disasters and utility availability, and the Micron/Jinhua litigation. The filing reports an unqualified audit opinion on the financial statements and an effective internal-control opinion.
Most important facts for investors to verify
- Progress, potential penalties or restrictions, and financial effects of the Micron-related DOJ and civil proceedings; also whether the associated credit-loss allowance is sufficient.
- How much of operating income depends on government grants and whether comparable grant income is expected to continue.
- Whether wafer shipments, selling prices, utilization and gross margin stabilized after the 2018 decline in profitability.
- Completion timing, approvals, funding and economics of the MIFS acquisition, and progress of the proposed China subsidiary listing.
- Debt maturities, refinancing and capital-spending requirements, including the 2019 bond maturity and management’s liquidity assessment.
- Approval and payment of the proposed NT$0.58 dividend, and the effect of IFRS 16 lease recognition on reported liabilities.