United Microelectronics Corp

TWSE:2303

Earnings Call Transcript 2020-Q1

[Operator]

Welcome, everyone, to UMC's 2020 First Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. And now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. And Mr. Lin, please begin.

[Michael Lin, executive]

Thank you, and welcome to the UMC's conference call for the first quarter of 2020. I'm joined by Mr. SC Chien, the Co-President of UMC; and Mr. Qi Dong Liu, the CFO of UMC. In a moment, we will hear our CFO present the first quarter financial results, followed by our President's key message to address UMC's forecast and the second quarter 2020 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors, Financials section.

During this conference, we will make forward-looking statements based on the management's current expectation and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond company's control. For these risks, please refer to UMC's filing with the SEC in the U.S. and the ROC security authorities.

Now I would like to introduce UMC's CFO, Mr. Qi Dong Liu, to discuss our first quarter 2020 financial results.

[Chi-Tung Liu, executive]

Thank you, Michael. I would like to go through the first quarter 2020 investor conference presentation material, which can be downloaded from our website. Starting on Page 3. The first quarter of 2020, consolidated revenue was TWD 42.27 billion, with the gross margin at around 19.2%. The net income attributable to the stockholder of the parent was TWD 2.21 billion and the earnings per ordinary shares were TWD 0.19. Our capacity utilization rate in the first quarter was 93% versus 92% in the previous quarter and 83% in the same first quarter of 2019.

For Page 4, as we discussed earlier, sequential growth is about 1% to TWD 42.2 billion for operating revenue. Gross margin almost quadrupled -- sorry, almost reached 20%. It's around 19.2% of gross margin rate or TWD 8.1 billion. And operating income is TWD 3.4 billion or 8.1% operating income percentage. And because of the global stock market meltdown, we book an unrealized mark-to-market investment loss nearly of TWD 2 billion in the first quarter of 2020, which result in about TWD 2.59 billion of net nonoperating losses. And as a result, our net income attributable to stockholder of the parent in the first quarter of 2020 was TWD 2.2 billion or in equivalent of TWD 0.19 in midyear.

On Page 5, for year-over-year comparison, our revenue grew by nearly 30%, to 42.6% (sic) [ TWD 42.27 billion ], from the same period of last year, and gross margin almost quadrupled here to TWD 8.1 billion compared to TWD 2.26 billion in the first quarter of 2019. And operating expenses has increased about 16%, largely due to the combination of USJC, which we acquired October 1 of last year. And net earning is about TWD 0.19 versus TWD 0.1 in the same quarter of last year.

For Page 6, our cash on hand has reached TWD 95 billion, and total equity for the company is about TWD 210 billion.

On Page 7, our quarterly ASP is down a little bit in the first quarter by low single digit. And next page for revenue breakdown by geography, Asia represents 56% of our total revenue, while U.S. is about 29%. For IDM, remain now almost unchanged, around 12% versus the last quarter of 13%. And communication remains at 40 -- 54% of the pie, which is the largest shares of our application breakdown.

For technology breakdown, 40-nanometer grew to 25% from the 22% in the previous quarter. 28-nanometer represent about 9% of the revenue, which was mainly because of our larger revenue base. And first quarter, we have quite a few scheduled fab maintenance, brand new fab maintenance. So there's not much growth in the capacity, but the growth of capacity will be more significant in the pie, not really significant, but will be more noticeable in the second quarter, mainly coming from Fab 8N, our HeJian fab as well as some increase -- incremental increase in 12A.

And our CapEx remains unchanged at USD 1 billion. About 85% of the capacity expansion related CapEx goes to 12-inch. So the above is the summary of UMC's results for first quarter of 2020. More details are available in the report, which has been posted on our website.

I will now turn the call over to President of UMC, Mr. SC Chien.

[Shan-Chieh Chien, executive]

Yes, thank you, Qi Dong. Good evening, everyone. Here, I would like to update the first quarter operating result of UMC. In the first quarter, foundry revenue grew 1.0% Q-over-Q to TWD 42.27 billion, leading to a foundry operating margin of 8.2%. Utilization rate increased slightly to 93%, bringing wafer shipments to TWD 2.15 million, 8-inch equivalent wafers, primarily attributed to display driver demand in consumer and the communication devices. The demand in consumer IC partially reflected work-from-home initiatives adopted in many areas around the world to combat the spread of COVID-19.

As the pandemic continues to impact populations across the globe, UMC has given priority to all wafer manufacturing of medical-related IC so that hospitals and the care centers receive the equipment they need in the shortest time possible in order to deal with the coronavirus. We will continue to commit all resources within our means to accelerate the shipments of health care-related IC in the universal fight against COVID-19.

Looking into the second quarter of 2020, despite significantly higher levels of uncertainty caused by the COVID-19 pandemic, current outlook indicates slightly higher wafer demand, mainly supported by inventory replacement across computer peripheral and the consumer electronics end market. We will continue to monitor market dynamics. Meanwhile, we anticipate a surge in the number of customer 28-nanometer tape-out in the first half of 2020. While we strive to maintain the business momentum attained during the first quarter, UMC's corporate strategy of delivering a high dividend payout ratio remains intact.

In Q1, our Board of Directors proposed to distribute a cash dividend of approximately TWD 0.75 per share subject to shareholder approval during the annual shareholder meeting. We will also continue to strengthen our financial structure, while gaining additional market share by executing our technology development and the corporate strategy. As the world navigates the COVID-19 situation, UMC is committed to the philosophy of employee care, environmental focus and public service, while furthering sustainable development and corporate social responsibility. We will confront this challenge together with our employees, shareholders and the suppliers. We also deeply appreciate the efforts of all the front line professionals confronting this pandemic, and we'll continue to support our communities in Taiwan and abroad.

Let's move on to second quarter 2020 guidance. Our wafer shipments will increase by 1% to 2%. ASP in U.S. dollar is expected to increase by 1% to 2%. The gross profit margin will be approximately 20%. The capacity utilization rate will be in the mid-90% range. Our 2020 CapEx budget will be USD 1 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

[Operator]

[Operator Instructions] And the first question is coming from Randy Abrams of Crédit Suisse.

[Randy Abrams, analyst]

Okay, yes. Good job on the results and margins. If I could ask the first question on your 2020 outlook. It looks like based on the guidance for Q2, you could get to mid-teens growth for the year with a flat third and fourth quarter. Could you give an updated view if you still expect to have that type of growth for the year? Or if you expect any inventory correction in the second half? And if you could also elaborate through the last few weeks of April, how have the customer order trends tracked just over the last few weeks?

[Chi-Tung Liu, executive]

I think maybe we start it with updated view on the semi industry. After the COVID-19, we do expect to see a mid-single-digit decline of the global semiconductor market. However, for various reasons, we still expect to see foundry segment to grow by about low single digit. And as for UMC, under this updated big picture view, we expect to show meaningful growth over the foundry industry, if you include our recently acquired USJC revenues. Even you exclude the USJC revenue, we're still comfortable to say that we should be able to grow in line or even outgrow a little bit of the global foundry segment. So that's our current view for UMC versus the industry under the new impact from the COVID-19.

As for customers, we think the order cut is inevitable. Even though for the second quarter, we still manage to be able to mitigate certain order adjustment. But our quarter 2 outlook is still stable. But for the second half, because of the mounting uncertainties, it's really difficult for us right now to pinpoint what's going to happen in the sector as well as for UMC's order trend. So all we can say is quarter 2, we are somewhat intact, but the order cancellation might be inevitable. But we really cannot see through the second half yet.

[Randy Abrams, analyst]

Okay. The second question, you talked about the strong tape-out activity continuing on 28. Could you discuss from this level how you expect 28 to scale as a percent of revenue through second half? And do you also see any sensitivity on timing or ramp of these projects due to the macro? So some of the projects like the OLED, the ISP, WiFi 6 or PMIC, if you see any change factoring the macro or you still expect that to ramp?

[Shan-Chieh Chien, executive]

Okay. I think for the 28 project, as you just mentioned, I think, so far, all the projects are still on track. We do not see any change from customer side yet. But based on this pandemic situation, there are some uncertainties there. But we still have a look at it in a positive way that so far, the progress is on track. Of course, there could be some impact, but recently, what we are talking about is more on the new application, new project and not existing product line.

[Randy Abrams, analyst]

Okay. And how would it translate if they continue to track? Do you have a feel that could grow as a percent of revenue if you see those ramping in the second half?

[Shan-Chieh Chien, executive]

Okay. I think the 28 contribution in second quarter 2020 is expected to increase, okay? I think mainly because of higher demand in the second quarter, especially for the 4G segment, and also have higher AMOLED adoption rate, okay? As this -- and also for the multi-camera module trend continue to take place. For those mid-end and entry-level models, that's what we see. So we do have some good expectation for that, yes.

[Chi-Tung Liu, executive]

Yes. If I may add on that, we don't really provide a percentage of revenue for any geometry. However, I think our view is that the quarter 1 should be the trough of 28 revenue in terms of percentage of total revenue.

[Randy Abrams, analyst]

Okay. And one last question. For the gross margins, maybe for Qi Dong on where you reported high teens and guiding to 20%. Is that purely a function of the better utilization and also better loading 40? Or is there another improvement going on? And as 28 starts to grow as a percent of sales, filling that capacity, would that help the overall corporate margin expand a bit further? Or would it be a dilutive?

[Chi-Tung Liu, executive]

Yes. Certainly, the recovery of our 28-nanometer business will certainly help our overall corporate gross margin as well as our operating profit margins. For second quarter, we do expect the higher 12-inch loadings, especially in demand related to 28-nanometer will help to drive the gross margin expansion coupled with 8-inch capacity likely to run at full capacity utilization rate in the second quarter. And of course, we continue to work on product mix enhancement as well as production cost reduction.

[Operator]

And next we'll have Roland Shu of Citigroup for questions.

[Roland Shu, analyst]

First question, I would like to ask about your blended ASP. So in first quarter, your blended ASP declined slightly. If I have a look at -- of your product mix then for 90-nanometer and below, I think the percentage as a -- the total revenue was the same as 4Q. And also, you have a little bit lower contribution from 90-nanometer but higher contribution from 40-nanometer. So explain, on this kind of product mix change, why you still see the ASP, blended ASP decline in first quarter?

[Chi-Tung Liu, executive]

First of all, the first quarter ASP declined by about 1%, so really a minor change. And secondly, the reason as I explained in the opening remarks is mainly because we actually experienced more 8-inch revenue contribution than anything else. Of course, you can say that there's not much growth for 28-nanometer segment. But we do expect that situation will change in the second quarter as we are guiding for 1% to 2% increase in the second quarter for ASP.

[Roland Shu, analyst]

Okay. So the second quarter ASP increase is mainly from the product mix change for more contribution from 12-inch?

[Chi-Tung Liu, executive]

That's correct.

[Roland Shu, analyst]

Do you see any seasonal ASP erosion in first quarter and the second quarter?

[Chi-Tung Liu, executive]

I think that's inevitable for certain large long-term customer, although right now, for example, for 8-inch wafers is nearly at full capacity utilization rate. So it's very unlikely we will see a price erosion. But I think for selective large long-term 12-inch related, especially high end, that would be inevitable. That's a industry practice, common practice.

[Roland Shu, analyst]

Okay. And second question, I would like to see your view for this supply chain inventory. How do you think about this supply chain inventory level? And also for the customer side, do you think our customers are willing to take more inventory to ensure no supply chain disruption in the near term? Or our customer actually is thinking up this, will turn more conservative for stop taking the inventory because of the demand weakening?

[Chi-Tung Liu, executive]

Yes. First of all, the customer order cut might be inevitable in the second half, as we highlighted. Although we don't really have the certain -- the crystal ball to tell the magnitude. But based upon the impact of COVID-19 at -- on the end market, here is what we have observed, it's actually differs -- different by customer segment. So some customer in last year, 2019, we have already experienced a weak year. We believe those customers that their inventory level, even at the impact of COVID-19 is pretty lean, I think.

For some other customers who are actually concerned about capacity support, we do foresee inventory correction in the second half. All the cuts from those customers will be [indiscernible]. However, the magnitude will be uncertain. And lastly, we hope through our effort in customer engagement, the diversification of our product pipeline and increasing penetration in wireless segment will soften the correction.

[Roland Shu, analyst]

Understood. But for the technology node point of view, I think the last quarter, you expect some demand on 8-inch or 0.18-micron and below, and your demand was strong and with this tight utilization. And this is also will stand for 12-inch mature node from 90-nanometer to 40-nanometer. So you still think or hold the same view for this thing -- let's say, for these technology nodes and the technology, and the demand will be still strong and the capacity will be still tight through end of this year?

[Chi-Tung Liu, executive]

Yes. For second quarter, we actually guide mid-90% and that's virtually full capacity utilization rate. Except for [indiscernible] segment in second quarter. So everything except for very leading-edge, [indiscernible] related is almost full at -- in the second quarter.

[Roland Shu, analyst]

Understood. Yes. And lastly, I would like to follow up Randy's question for the whole year growth point of view for UMC because I did not hear you clearly. So can you repeat what's your view for the foundry and UMC's growth outlook this year?

[Chi-Tung Liu, executive]

So the updated view for the semi globally is a decline by mid-single digits. But the foundry can continue to grow, but the -- at a lower rate, around low single digit. And UMC, with the combination of USJC, we should be able to comfortably beat the foundry market growth rate. Even without USJC, we should be able to grow in line or slightly better than your global foundry market.

[Operator]

And the next one is coming from Bruce of Goldman Sachs.

[Zheng Lu, analyst]

Can I ask a question again about the gross margin and operating margins. So first of all, what's the key differences between your guidance versus your delivery, which is gross margin at 19%, the revenue is pretty much in line. Why the gross margin is so much higher? Or at least at the very, very high end of the guidance? The second thing is that I'm so happy to see that operating expenses, especially for R&D expenses declined quite a bit in first quarter 2020, almost down to 7.5% of total revenue. Do we expect like this could be the new norm for the R&D expenses? So what is the key to drive the lower R&D expense? That was my first question.

[Chi-Tung Liu, executive]

So first of all, regarding gross margin doing better than guidance is because we do have a stronger quarter 2 outlook and wafer in the pipeline actually represent a better-than-expected loadings. So overall, the wafer shipment and also wafer being produced is higher than expected. So our unit cost is slightly lower than how we expected when we gave the first quarter guidance. So the actual loading in Q1 was 93% versus original 90% guidance.

[Zheng Lu, analyst]

Does that mean that your outlook for second quarter is better than what you have like 3 months ago?

[Chi-Tung Liu, executive]

Exactly. The production pipeline, yes. So for me to reply partially in the number I just gave you, the actual loading was 93% versus guidance of 90%.

[Zheng Lu, analyst]

I see.

[Chi-Tung Liu, executive]

And of course, we also try pretty hard, our President that we continue to lower our manufacturing costs. So there's also some factor related to cost reduction effort.

[Zheng Lu, analyst]

So what is a -- excluding that better outlook for the second quarter, what would be the new norm for the gross margin? I think that's the most important expectation we want to have for the investors though.

[Chi-Tung Liu, executive]

Yes. There is really no answer for that. There's too many factors in combined to determine the gross margin, always do. What we can say is we will continue to drive our cost reduction effort and at the same time, try to enhance product mix. Most importantly, we'd like to see a meaningful increase in our 28-nanometer capacity utilization rate that for the time being, is probably the key -- single key factor to drive the upside of our overall gross margin.

And the second question regarding your OpEx issue. So for our OpEx in Q1, I think it's a bit slower than norm in actual dollar terms. However, we continue -- again, we will try to put our effort to bring down the operating expenses. But when we have better profit, we also have to book a higher employee bonus as a provision. So then that's a kind of dilemma to the overall operating expenses, one of the factors. But again, we can say that the -- it is unlikely to increase as a percent at a absolute dollar terms for OpEx. And hopefully, through the increase of our revenue, we will continue to see percentage of revenue for both in operating expenses, and R&D can continue to come down gradually.

I don't want to give you unrealistic expectation that this number will see further reduction or can stay at the current level for a long time.

[Zheng Lu, analyst]

I see. But the first quarter earnings is pretty good. Do we incorporate employee bonus within the first quarter operating expenses already?

[Chi-Tung Liu, executive]

Already, yes.

[Zheng Lu, analyst]

Still very good.

[Chi-Tung Liu, executive]

Thank you. We want to do better. Yes.

[Zheng Lu, analyst]

Okay. The next question is for the 28-nanometer. I mean, management mentioned that the 28 demand, one of them is driven by the 5G as well as some of the overflow business. So with recent correction in terms of like smartphone shipment or the penetration rate changes in terms of 5G smartphone in later part of this year, do you expect that will have any impact for your 28-nanometer's revenue in second half?

[Shan-Chieh Chien, executive]

Okay. I think we do expect smartphone shipments will decline, okay, year-over-year. Especially I think in the second half. However, we hope that higher penetration rates in the wireless segment will help to offset the macro impact, yes, to UMC.

[Zheng Lu, analyst]

I'm sorry, I don't quite get it. You mean that your revenue exposure to communication is higher. That's why you can have stronger revenue to...

[Shan-Chieh Chien, executive]

What I'm trying to say is that we have higher penetration rate in our wireless segment by new customer and our customer gaining the market share in the smartphone wireless area.

[Zheng Lu, analyst]

I see. I see. I understand. So your current outlook for the second half in 28 nanometers remain unchanged compared to 3 months ago?

[Shan-Chieh Chien, executive]

I think we still have some uncertainty due to the COVID-19. But so far, as the data we have, yes, that's what I'm trying to say, yes.

[Zheng Lu, analyst]

So you -- so for your 28-nanometer capacity expansion plan also remain unchanged?

[Shan-Chieh Chien, executive]

Yes, currently, based on our alignment with customers, we still don't see the change. But of course, we will continue to align with customers based on the COVID-19 situation, a very dynamic change, yes. So we should continue to align with customers. So far there's no change.

[Operator]

And the next question is coming from Gokul Hariharan of JPMorgan.

[Gokul Hariharan, analyst]

A couple of things. First of all, could you talk a little bit about what is your outlook for 8-inch capacity utilization and demand through the rest of the year, especially, I think first half has been pretty tight with full capacity? Second question, when you talk about potential for order cuts and inventory correction in second half, could you give us some idea about which segments would you see the bigger cuts? Which segment do you think is going to be more resilient for you a bit in -- a bit more detail? I think especially given that you mentioned that you're gaining some share in the wireless, especially on image camera-related components, et cetera?

And lastly, a quick question on USJC fab status. I think last time we checked, I think it was kind of close to breakeven. What do you think is the status for the customers in USJC, given that they have a lot of automotive, industrial kind of exposure, which seems to be a little bit weaker than the overall semiconductor industry. Are you able to move some of your design wins into that fab already? Or that's going to take some more time?

[Shan-Chieh Chien, executive]

Okay. I think I may answer the first one. I think the 8-inch growth -- we expect our 8-inch will operate at utilization in the second quarter, okay? And we also foresee that 8-inch utilization will remain full, okay, mainly driven by the solid demand outlook in power, MCU and display-related requirements, okay? And as for the USJC, the question is how is the loading situation? And do we transfer the new pipeline product to there yet? Okay.

I think, yes, we do -- or started to do the technology transfer, okay? But that still may take 1 more quarter to gain some business, okay? I think 12-inch, so far, the profitability in the first quarter has improved Q-over-Q. So we have already set up the profitability target based on the fab's condition and cost structure. I think so far, the synergy has already seen a good result, okay? So I think we are doing good for USJC integration so far. Yes.

[Chi-Tung Liu, executive]

So for second half sector outlook in terms of product cut. Again, all we can say is all we mentioned earlier that there are different categories of customers. For example, the automotive one may have already started inventory production back in 2019. So we don't really expect the inventory level for automotive-related is too high. However, for those customers who are requiring capacity support, and we do foresee in second half, they may show a stronger magnitude in terms of order cuts and again, we really hope through our customer engagement and more diversified clientele base, we should be able to offset some of that, if not all.

[Operator]

And the next one is coming from Szeho Ng of China Renaissance.

[Szeho Ng, analyst]

I just want to ask a question regarding tax. When I look at the Q1 number, for the last couple of years, actually, the company book a tax credit in Q1 every year. Is it just a coincidence? Or are there any specific reasons behind?

[Chi-Tung Liu, executive]

I think for tax, I think they always book a little bit higher expenses, so the normal tax rate first. And through all the effort by taking a qualified incentive program, et cetera, you get some cash returns. And that's what happened in the first quarter of this year. That is not unknown. Our corporate tax rate still stays around 15% or so.

[Szeho Ng, analyst]

Okay. All right. Okay. Second question regarding Q2. You gave out the quarterly guidance, but how would the monthly pattern be shaping up? Anything you can share?

[Chi-Tung Liu, executive]

We don't really see a clear pattern for second quarter in terms of monthly revenue. No, we don't have a guidance on that.

[Szeho Ng, analyst]

Okay. All right. Okay. No problem. Okay. Congratulations.

[Operator]

And next we have Sebastian Hou of CLSA for questions.

[Sebastian Hou, analyst]

My first, I want to follow up on 28 nanometer. So with the improving utilization rate, we are seeing gross margin to go up in the second quarter. So what's the -- I wonder what's the outlook for second half this year, your margin versus 28-nano UTR? I wonder that whether you expect that the 28 nanometer's utilization rate to continue to go up and likely to reach the full utilization level in second half? And if that were to happen or if we assume that all else equal, what's the possible gross margin range UMC can achieve in -- when that happens?

[Chi-Tung Liu, executive]

Sebastian, this is a question that I cannot answer, okay. So there's various parameters for determining our gross margin. And we have synergy improvement coming from USJC, and we also have recovery capacity utilization rate from 28 nanometers. And yes, we're also under this threat of order cancellation overall broad-based because of the COVID-19. So that's why we cannot really see through the crystal ball for second half. But for quarter 2, we do expect to see further margin expansion based upon better capacity utilization rate and higher contribution from 28 nanometers.

[Sebastian Hou, analyst]

Okay. How about let me ask from another perspective. What's -- so can we assume that most of the revenue growth in second quarter is driven by 28 nanometers, majority?

[Chi-Tung Liu, executive]

Overall, corporate capacity utilization rate goes up to mid-90s to -- from 93% in the first quarter and pretty much 8-inch is full, so no, 28 is not the only factor. It's actually a pretty broad-based, mainly coming from overall improvement in the capacity utilization rate.

[Sebastian Hou, analyst]

Okay. Okay. Got it. My second question is on the -- I'm not sure if I hear you correctly on 8-inch the comments from Co-CEO. Can you elaborate again on the 8-inch outlook into second half? Did you say that you will continue to expect the very high loading into second half?

[Shan-Chieh Chien, executive]

Okay. Yes. I think we foresee 8-inch utilization will remain full, okay, driven by the solid demand, okay, throughout the second half, 2020. As I said that the demand outlook is here good in the power, MCU and display-related requirements.

[Sebastian Hou, analyst]

Okay. So that is already factoring that even with a potential order adjustment for some of the customers due to COVID-19, we still expect the 8-inch to be pretty full?

[Shan-Chieh Chien, executive]

I think, yes, that's what we believe because we see customer waiting for the capacity support. So we expect that will communicate the potential impact.

[Sebastian Hou, analyst]

Okay. Okay. So we can also interpret that as because most of these customers are pretty confirmed with the new projects or their -- maybe their new design, the order reallocation, so that's why we are pretty confirmed about these orders regardless how macro will change. Is that the right way to interpret?

[Shan-Chieh Chien, executive]

So far, yes, so far, yes. Yes. Of course, there are some uncertainty for the second half because of COVID-19 impact. So far, that's what we see from our data and customers' alignment.

[Sebastian Hou, analyst]

Okay. Got it. My last question is a follow-up on depreciation, maybe Qi Dong, when do you expect the -- our depreciation starts to fold more obviously in -- I mean, I understand that's the mid part of our next year, but can you possibly to -- specify which quarter? Or is it first half next year or potentially by the end of this year, we could see that?

[Chi-Tung Liu, executive]

No. We probably only see low single digit this year, a little bit more then in 2021, but majority and more noticeable one will be 2022.

[Sebastian Hou, analyst]

Okay. So this year, low single digit. Next year, more than low single digit. But still -- but I remember earlier, I think the past 2 quarters, your guidance was down -- to be down like teens or double digit. Are we still looking for that for '21?

[Chi-Tung Liu, executive]

I cannot really have a confirmed figure for you for 2021, but it will be down.

[Operator]

[Operator Instructions] And the next question is coming from Gokul Hariharan of JPMorgan.

[Gokul Hariharan, analyst]

Just one quick question. Could you talk a little bit on how you're thinking about dividend, given that we are potentially getting into a bit of a downturn situation. Given I think this is probably one of the highest dividend -- absolute dividend that you have paid last year of TWD 0.75. Is there any change in policy in terms of thinking about keeping a flattish dividend on absolute basis? Or are we still going to be sticking to the payout ratio kind of formula?

[Chi-Tung Liu, executive]

All right. So we will like to see continued high dividend payout ratio based upon our earnings. And hopefully, we can continue to improve our earnings. But during this cyclical industries, we also want to make sure our shareholders receive a certain protection in absolute dividend received. So it depends on what -- which cycle are we in, in terms of dividend. So I think high payout ratio is definitely, but a certain minimum protection is also -- we wish to maintain.

[Gokul Hariharan, analyst]

How should we think about that certain minimum ratio, if we think about it on average of last 2, 3 years? Or...

[Chi-Tung Liu, executive]

I really don't have an answer. All I can say is we will be trying very hard to have a high dividend payout. If there's a bad day, we will also try to come up with certain minimum payout. And because of the COVID-19, of course, we try to be a little bit financially responsible by not too aggressive in every corporate action, including share buyback, but that probably won't impact our dividend payout, at least for the near term.

[Operator]

And the next question is coming from Bruce of Goldman Sachs.

[Zheng Lu, analyst]

I have a question about your assumption for the foundry industry growth. You guys are doing like 30% year-on-year growth in the first quarter. And TSMC is growing like 45% year-on-year in the first quarter. And they are guiding for mid- to high teens and why is that the foundry growth is only grow by low single digit in 2020? What's your basic assumption for that?

[Chi-Tung Liu, executive]

First of all, I think the overall semiconductor actually show a decline of mid-single digit. And so as an important component of the semiconductor industry, it's actually a pretty good result already for foundry to continue to show growth. And of course, this is coming from our corporate marketing department, they're planning all the different views from research, data center as well as customer visit, et cetera.

So I don't have a straightforward answer why we are using this low single-digit number for the -- from -- and I also cannot comment on our competitors. All we can see from UMC is that we are seeing -- penetrating into new segments through new product wins. And so UMC is winning market share. And more importantly is our customer seems to win market share as well. So that's a combination that why UMC can do slightly better than the industry, at least for as far as we can see.

[Zheng Lu, analyst]

No. understand. I have no questions about like UMC is out there, say, about outgrow the industry. But I thought the industry growth is a lot lower than investor expectations. And I think that, that is -- that's pretty big. That's why we want to know a bit more detail. Maybe then we can follow up with this, but this is definitely the case, it's a lot bigger than our expectation.

[Shan-Chieh Chien, executive]

Yes. We can certainly follow up on this with more data we gather from our side.

[Operator]

We thank you for all your questions and it concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks.

[Michael Lin, executive]

Thank you, everyone, for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at [e-mail]. Have a good day.

[Operator]

Thank you. And ladies and gentlemen, that concludes our conference for first quarter 2020. Thank you for your participation in UMC's conference. There will be a webcast replay within an hour. Please visit www.umc.com under the Investors Events section. You may now disconnect. Goodbye.