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United Microelectronics Corp
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Welcome, everyone, to UMC's 2020 Fourth quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcast 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. Mr. Lin, please begin.
Thank you, and welcome to the UMC's conference call for the fourth quarter of 2020. I'm joined by Mr. Jason Wang, the President of UMC; and Mr. Qi Dong Liu, the CFO of UMC.
In a moment, we will hear our CFO present the fourth quarter financial results, followed by our President's key message to address UMC's focus and the first quarter 2021 guidance. Once our President and the 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 financial section. During this conference, we may make forward-looking statements based on management's current expectations 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 risk that may be beyond the company's control. For this risk, 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 UMC's fourth quarter 2020 financial results.
Thank you, Michael. I'd like to go through the Q4 2020 investor conference presentation material, which can be downloaded from our website.
Starting on Page 3. Q4 of 2020, consolidated revenue was TWD 45.3 billion, with a gross margin at 23.9%. The net income attributable to the stockholder of the parent was TWD 11.2 billion, and earnings per ordinary share was TWD 0.92. Capacity utilization rate in Q4 climbed to 99% compared to 97% in Q3.
And if you turn to Page 4, our quarterly comparison financial performance. Revenue increased about 1% after the NT dollar impact reached TWD 45.3 billion. Gross margin, 23.9% or TWD 10.8 billion. Because of some employee-related compensation and also share-based scheme, our operating expenses increased to TWD 6.3 billion in the fourth quarter of 2020. And as a result, operating income is around TWD 5.6 billion or 12.4%. And because of the strong submarket -- mark-to-market valuation has contributed to most of our nonoperating income in Q4 '20 which was TWD 5.6 billion. So our net income in Q4 last year was TWD 10.9 billion and the net income attributable to the stockholder of the parent is TWD 11.2 billion. EPS is TWD 0.92.
On Page 5, which is the year-over-year comparison, our revenue grew 19.3% in NT dollars to TWD 176.8 billion. In U.S. dollars, the growth rate was roughly around 26%. And among the growth, around half is contribute by the combination of our USJC in Japan. And gross margin grew to almost 8 percentage points to 22.1% or TWD 38.99 billion. Operating expenses is similar to the revenue. We also have some combined expenses from USJC, and increased year-over-year around 6.6%. Operating income jumped growth 369% to TWD 22 billion. Gross operating margin rate was 12.5%. Net nonoperating income is around TWD 5.9 billion, which is a similar reason as the Q4 result. And net income attributable to the stockholder of the parent for the full year, was TWD 29.2 billion or 16.5%, and full year EPS is TWD 2.42 per share.
So on Page 6, our balance sheet highlights. Cash remained around TWD 94 billion, and total equity has increased to TWD 235 billion. For Q4 of 2020, on Page 7, our blended ASP increased a little bit less than 2% in the fourth quarter of last year.
And for revenue breakdown on Page 8, Asia continued to climb to 61%. And the other region doesn't really change much. For the full year, it's almost identical on a year-over-year comparison in terms of geographic breakdown on Page 9.
So Page 10 and also Page 11 is the revenue breakdown by customer type, and IDM continued to be around 12% to 13% for both Q4 and the full year of 2020.
On Page 12, our revenue breakdown by segment. Communication declined a little bit to 49% in the fourth quarter. And computer is the highest growth segment in the Q4 of 2020. Again, for the full year segment breakdown on Page 13, that ratio didn't really change much on a year-over-year comparison.
On Page 14, our 28-nanometer percentage of revenue continued to increase. In Q4, now it's around 18% of our total revenue. For the previous quarter, 28-nanometer revenue was 14%. And for the full year, 28-nanometer net revenue grew from 11% in 2019 to 14% in year 2020.
Page 15 is our capacity breakdown table effect. And because of the shorter working days, and also Chinese New Year holidays in Q1 2021, our available capacity is a little bit less than that of Q4 2020. However, we continue to expand our capacity mainly in our 12A, 12X as well as a -- and also 12M. So for the full year capacity, we continue to see quarterly growth starting from Q2 of 2021. For our annual CapEx budget, current forecast is around USD 1.5 billion for 2021 and the breakdown is about 85% 12-inch related and also mainly focused on 28-nanometers.
So the above is a summary of UMC's results for Q4 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. Jason Wang.
Thank you, Qi Dong. Good evening, everyone. Here, I would like to update the fourth quarter operating result of UMC. Our business traction in Q3 carried us over into Q4, lifting utilization rate to 99% and rising wafer shipment to 2.3 million 8-inch equivalents. The stable capacity utilization was driven by robust end market demand on consumer and computing-related applications such as WiFi, digital TV, microcontroller and power management IC. For full year 2020, UMC's revenue grew 26% in U.S. dollars while operating income surged to TWD 22.01 billion, reflecting solid utilization rates across both 8-inch and 12-inch facilities, and optimization of our blended product mix, in particular, our enhanced 12-inch product mix primarily resulted from the substantial pickup in 28-nanometer wafer business as well as our successful integration of USJC 12-inch operations.
Looking into the first quarter, stable demand outlook will lead to an incremental increase in wafer shipment and blended ASP in U.S. dollars. However, due to the continuing unfavorable foreign exchange rate, we anticipate the appreciation of the NT dollar will offset more than half of the implied growth project for Q1. For full year 2021, UMC continues to share the foundry industry's positive view in wafer demand. Hence, we will continue with the company's disciplined and measured CapEx strategy by allocating a budget of USD 1.5 billion, to accommodate the strong demand outlook in advanced technologies.
Let's move on to the first quarter 2021 guidance. Our wafer shipments will increase by approximately 2% ASP in U.S. dollar will increase by 2% to 3%. However, the surging NT dollar will wipe out more than half of the implied revenue growth as reported earlier.
Now allow me to explain in Chinese as well. [Foreign Language] Gross profit margin will be in the mid-20% range. Capacity utilization rate will be at 100%. Our 2021 cash-based CapEx will be budgeted at USD 1.5 billion.
That concludes my comments. Thank you all for your attention. Now we are ready for questions.
[Operator Instructions] Our first question is coming from Randy Abrams, Crédit Suisse.
A good result. I want to test the first question on the shipment and ASP outlook. First on shipments, with utilization now at 99%, can you discuss how much growth -- additional shipment growth you can squeeze out this year from your capacity? So if you could give a sense on how much capacity additions through the year you'll have on 12-inch and 8-inch.
All right. So first, thank you. And for the guidance of Q1, we project the wafer shipment will increase slightly and primarily due to higher utilization rates, driven by the strong demand, as we reported earlier. We're already at 99%, but we project Q1 will be 100%. So the other -- the ASP…
Okay. And maybe just a follow-up first on that. I guess the follow-up through the year since you'll be at 100%, could you discuss capacity additions? Like -- because I know you had Xiamen coming on. So when the additional capacity will be available, if you could discuss on 12-inch. And then debottlenecking mature nodes, how some of these fabs may ramp to add capacity through the year?
Well, from a year-over-year standpoint, the 2021 capacity will grow about 3% in 2021. And that will split between the 8- and 12-inch. The 8-inch due to the limited clean room space. And we're only doing the -- some of optimization and productivity improvement, so that will probably be about 1% increase on 8-inch and the 12% -- about 5% from 12-inch.
Okay. Actually, a follow-up and then I'll get to ASP. On the 8-inch, where there's very limited space, there was discussion a few months ago about purchasing 8-inch capacity from Japan. Could you discuss, I guess, opportunity to acquire capacity or otherwise your view to grow the customer base on 8-inch? Is your plan to eventually find a way to add capacity? Or is it to transition customers into 12-inch?
Well, I mean, that's -- well, first of all, from the 8-inch greenfield from our existing premium space, there is a limitation there, okay? And as far as the -- inorganically, we are unable to comment on any guess or speculation, but we are always open to exploring new opportunities as long as they can enhance our shareholders' benefit. So we are open to the inorganic approach.
The comment -- your question about if we can migrating the 8-inch into 12-inch, that is ongoing efforts. It's subject to different applications and the customers' alignment, and that will be an ongoing effort for us.
Okay. Great. And then, I guess, now for the question on pricing. Could you discuss for blended ASP, you'll have 2 moves, like 28-nanometer ramping, but also, I'm curious for additional pricing action, how you expect over the next few quarters ongoing ASP trend, if you could discuss that?
Well, the Q1 -- first of all, the Q1 ASP guidance was a result of increase due to higher 28-nanometer wafer shipments. And some of the pricing enhancement in the 8-inch as well. The technology migration in the 12-inch business, we're migrating some of the product into different -- the next node. The overall blended ASP will increase about 2% to 3% quarter-over-quarter in Q1 in our guidance.
For the ASP, we always keep commitment to our long-term customer. So however, we do believe the ASP should reflect our market value based on the technologies' competitiveness as well as our manufacturing excellence along with our commitment to our customers. So therefore, the ASP is more of a result of many different factors. If the question is about 2021, based on all those factors will lead us to set a mid-single-digit percentage year-over-year in ASP increase as our goal in 2021 at this point.
Okay. Great. That's helpful. And just one final question. The earnings with some of the nonoperating income at [ 242 ], how would that translate? Because your payout has always been a target to be a high percent, but the earnings grew quite a bit. So if there's a framework to think about payout off the higher earnings you generated?
We, of course, will continue a high payout dividend policy. And I think for the cash dividend, we do see the potential for the 2021 payout to be likely double from last year. But this is also subject to the Board approval.
And the next question is coming from Sunny Lin, UBS.
Congrats on the very good results. Number one, for your CapEx, it's quite a bit above the level in the last few years. So I wonder, under the 5% expansion for your 12-inch, what specifically 28 is going to expand for this year?
In 2021, 28-nanometer capacity will increase by 20% year-over-year.
Got it. So that's a bit above what you guided before I think previously, you were guiding for -- from 40,000 wafer per month to about, I think, 52,000 wafer per month by mid of this year?
The 28-nanometers total capacity -- combining the high-K and poly-SiON, we have about 45,600 per month at the end of Q4 in 2020, and we are projecting by end of '21, Q4 '21, will be 59,300 per month.
Yes. Some of the new 28-nanometer capacity also comes from the transition of 14-nanometer capacity. So may not be all greenfield.
Got it. So a very quick follow-up. How does this changes your expectation on depreciation for this year and next year?
The depreciation curve still will be trending down, as we mentioned before. Of course, the slightly higher CapEx in 2021, will, of course, alter the depreciation curve for the next few years, but not that much. So we still expect to see about 5% decline year-over-year in depreciation for 2021. And the decline rate should be more in 2022, followed by an even more significant decline in 2023, but let's focus on '21 and '22 first.
Got it. And my second question is on mature 12-inch. So it looks like mature 12-inch foundries are also seeing pretty strong supply-demand from late last year. So following our -- some of the price negotiation on 8-inch, should we also expect some price hike for 12-inch in following few quarters?
Well, the earlier quarter ASP projection for the year, is a blended ASP reflects the combination of 8-inch and 12-inch price in a 8-inch equivalent. So that will be a good reference for you to use.
And next, we’ll have Roland Shu of Citigroup for questions.
And congrats for the good result. First question, you said your first quarter capacity is loaded under 100% utilization. So is this 100% across the board for all [indiscernible] margin, not all. I think that my question specifically is about 28- and 40-nanometer. So compared to your average 100% utilization, how about the capacity on 28- and 40-nanometer doing in first quarter?
Well, the overall is 100%. And both the 8-inch and 12-inch are full at 100%. So the most of nodes are full.
Yes. Most nodes are full, how about the 28 and the 40?
They both are full.
Okay. Both are full. Okay. And second question is for your gross margin. So your revenue last year already achieved a record high. Are there still room for gross margin to reach our last peak label, around 30% in 2010? So how do we expect your margins in the -- maybe next 1 to 2 years, how soon will the gross margin go back to 30%?
Yes. We kind of -- maybe I can answer first. Basically, every 1% increase in ASP will contribute more than 0.5% gross margin. So it really depends on how much ASP increase. Also, NT dollar appreciation also has some negative impact on our gross margin. So every 1% of NT dollar appreciation will eat about 0.4% of our gross margins. We also ensure the benefit of economic scale and also better product mix and cost reduction. More importantly, it will be our performance for both our 12-inch Japanese subsidiary as well as our Xiamen subsidiaries. Currently, our Xiamen subsidiary still post operating loss, given the early stage heavy depreciations. And -- but their performance has been continuing to improve because of the higher loading and also higher 28-nanometer production. So that will contribute a certain percentage of gross margin increase.
Understood. Yes. So how do you see the ASP increase? Are we able to have this 10% ASP increase in the near future?
Well, I commented earlier, the ASP has manufactured, they have to be considered. So along with all those considerations, and we're expecting our ASP will reflect our market value based on our current market position. And that's what we continue striving for. Just like Qi Dong mentioned earlier, the -- continuing to improve our corporate earnings is our principle. So as we continue improving productivity, driving costs down, enhancing product mix as well as moving the ASP to a reasonable market, reflecting our market value. And at the same time, we are managing our depreciation curve. That means the UMC will act on to our plan to improve our overall corporate earnings.
And the next question is coming from Bruce of Goldman Sachs.
A great result. I want to ask about the profitability for the 8-inch and 12-inch -- especially legacy 12-inch, okay. Let's remove 28-nanometers out of the equation because the depreciation is still on the way. So what is the price gap between the industry leader for 8-inch and legacy 12-inch for UMC? I mean do we see the reasonable cost gap between you and the industry leader? So what is the optimal profitability for the 8-inch and the legacy 12-inch?
Well, I mean, that's an interesting question. The -- in general, we do believe there is a potential in terms of our market price, okay? Again, the ASP result of many different factors I mentioned earlier. So we have to actually -- first, executing our technology manufacturing and while maintaining our commitment with our customer. So -- and eventually, we can try to win-win results for both our customers and UMC. So the bottom line is we need to be a trustworthy partner for our customers while we're managing our ASP to a reasonable level. I can't really quote you a percentage specifically, but I do believe there is a potential to get to that.
Let me ask a question in a different way. I mean when the company tried to do that -- list IPO in China, you did provide your urgent profitability, which is for like mid-30s percentage in terms of the gross margin. So comparing to TSMC for the 8-inch, which is around 50%, so the profitability gap is about 15%. Which may mean by -- reasonably assume that the price gap or some kind of cost gap, right? I mean given the current situation or given your execution has been improved, the cost structure hasn't improved. So what is the reason? Can we assume that you can achieve 50% sometime in 2, 3 years? Or that is a way too high bar to achieve?
Well, I can tell you this on the 8-inch operation, we are very close to where our market value is. Okay. And -- but again, the blended ASP, including a product mix as well. So the -- some of the product migration will have to take effect to reflect the gap. And from those applications we may already have is in commitment, so that will take some time to manage that migration. So -- but if you're talking about from apple-to-apples standpoint, the -- our 8-inch ASP is very close to what the market value is.
Wow, so how about legacy 12-inch?
The legacy 12-inch also, again, is resolving on current product mix. So one of the product mix improvement is included, it's an important area for us to continue to enhance. So if we do the apple-to-apple comparison, I do think the -- from the 12-inch potential there is -- on the 12-inch mature, there's still some potential there.
I see. So for investors' perspective, we can reasonably assume that the profitability for 8-inch will remain at high level, but we can expect some positive improvement from the legacy 12-inch?
That will be our goal, yes.
The next question is regarding your CapEx. I mean in addition to the 28-nanometer capacity expansion that you guided, do you have any plan to expand like legacy 12-inch? I mean, based on the current wafer pricing, is it profitable or margin acquisitive to increase the capacity for the legacy 12-inch?
The economics on the legacy 12-inch at this point, is -- remain very challenging, okay? So the -- part of our 2021 CapEx that we invest we including for some of the specialty capability -- capacity capability within the legacy side. I think those has a justifiable economics. But if you're talking about a greenfield logic capacity for the mature 12-inch, I think the bar is very high. It remains very challenging to make economic sense there.
I think I want to squeeze one last question, which is R&D expenses, okay? For 2020, the R&D expense is still like 7.5%. So what is the target for 2021 and maybe 2022? And absolute R&D expenses actually went up in 2020 versus 2019. I mean after like giving -- after stopping the best R&D for the best node. So can you provide me more color about these R&D expenses increase other than the higher employee bonus?
That's a very good question. I mean, let me see if I can answer it this way. It's our belief and our goal, we won't strive to become a leading pure play foundry in some particular applications with one comprehensive process solution, okay, and manufacturing excellence. And sizable capacity offering in both 12-inch and 8-inch fabs and along with our strong client portfolio. We think with that, we can actually help UMC to become an important player in this industry.
The foundry capacity has been tight for some time, as we all know. The tightness in capacity availability is more pronounced in 8-inch advanced and the 12-inch mature. And demand from those nodes have significantly outpaced the growth in capacity, okay? And we believe the supply and demand imbalance could likely lead to a structural shift in semi market dynamics. So for UMC, this our technology know that we need to continue to focus. And therefore, UMC has become more relevant to the market and trustworthy to our customers, as I said.
In addition, we need to commit, and we are committed to strategically allocate meaningful among of R&D into the R&D investment to sustain the technology leadership in our focused in particular applications. Areas such like high voltage; those are new. RF SOI, PMIC, ultra-low power, embedded on flash memories, those are all important and that require us to remain committed in R&D development. So that will give you some idea why we're looking at that as a continuous effort.
So can I say that those investment will be the key for you to improve your legacy 12-inch profitability?
Yes, you can say that. Not only the probability, also the continued stable, high utilization rate.
Understood. So what is the -- for the modeling purpose, can you provide some target as for R&D expenses as a percentage of revenue in 2021?
Yes. I think for 2021, even beyond, our goal is really to keep the OpEx at a similar percentage as the last few years and same for R&D. Hopefully, our revenue growth will provide more resources to all the related operating expenses items.
The next question is coming from [ Stephen Chen, Asia Capital ].
A couple of questions here. And the first one is actually still on 200-millimeter. I think one of the other foundry supplier mentioned about to acquire or to build a 200-millimeter capacity from greenfield. Actually, the cost increased by probably another 50% in the past 2 to 3 years. So I'm just wondering, in your thoughts, what kind of 8-inch or 200-millimeter ASP will be just -- can justify if you are going to acquire a new fab or to start from the greenfield?
This is really hypothetical, so it's difficult for us to answer the hypothetical questions. So let me answer you in a different way. We see potential to bring value to our current customers as well as our shareholders, if we acquire a similar fab like we did for USJC. So that has been bringing value to our customers as well as to our shareholders. So that has been our benchmark. For the future acquisition, if there's any, we will pretty much follow a similar guidance. So the question you raised is really too many factors. For us, I think the ultimate baseline is to see if they can bring value to our shareholders and customers.
Okay. Fair enough. Another question is so in Q4, your 28-nanometer revenue was already 18%. So do you have any goal or if there's any like ballpark number in this year that you think we can -- can provide us as a reference?
Well, the -- in Q1, we foresee the 28-nanometer contribution will continue to grow. And the -- well, if you're talking about the target, our goal is -- we believe the 25% contribution is achievable after our new 28-nanometer capacity come online. So we still align that as our current objective.
Yes. That's very helpful. The last question from me is back to 200-millimeter. So we know it is a very busy capacity right now. So I'm just wondering, as of this moment, do you still have the luxury or do you still leverage the chance to continue to optimize your product portfolio within 200-millimeter? And if we look at it on a structural basis, let's say in the next 1, 2 years, how do you think this will alter your 200-millimeter ASP as well as the profitability?
Well, again, that's the ongoing efforts and the -- along with the productivity improvement and the product mix enhancement. I think that, that will be the continuing effort for us to improve our 8-inch results and performance. The current 8-inch capacity within UMC is mainly due to the limited clean room availability. So that's why we focus on productivity improvement and some of the debottlenecking efforts. And we also talked about earlier that we are always open to explore viable option in the 8-inch space as well. So those -- we'll continue seeking those opportunities. Given the current market, strong market demand, I think the inorganic approach is less possible. So we have to concentrate and draw our attention to our internal effort first.
And the next one is from Szeho Ng of China Renaissance.
Congratulations. My first question regarding on digitization. Now if the company are running at 100% utilization, I just wonder how much we can overdrive our capacity? So what is the theoretical peak utilization we can achieve?
Well, we -- for the 2021, we see a very robust demand outlook in 2021, driven by multiple factors. In the smartphone-related demand, the continued momentum, the work-from-home trends. And in addition, a very hot topic recently, there is a strong pickup in automotive segment too, right? So we believe the demand remain very strong. The strong demand on those applications, obviously, will lead to higher utilization rates. And so I think we have a pretty good confidence that we will maintaining the high-loading situation.
But besides demand, we still need to continue to focus on our manufacturing excellence as well as our solutions in order to continue managing the pipeline of both 12-inch and 8-inch, and those will help us for the long-term loading stability. So far, we've been executing according to plan, and we're making good progress. We have delivered in 2020, and we still remain very high confidence in our 2021 loading outlook.
Yes. Okay, great. And for this year's capacity expansion, can you share with us how fast you will be ramping up the capacity every quarter?
There will be some increase in the second quarter, and there will be some increase in the fourth quarter. And -- but in general, the overall percentage of target increase is about 5% year-over-year.
Okay. Great. And last one, I think for Qi Dong. How should we model the tax rate for the company this year? Because last year, the cash rate was actually kind of low so I'm not sure if that's kind of sustainable?
I think we probably -- it will be safe to model about 10% corporate tax rate for 2021.
The next question is coming from Sebastian Hou, CLSA.
So first question is, I think there's a lot of talks recently about the oval chip shortage, which has affected the global car production, and hence, also media reported many governments have approached Taiwan government and TSMC specifically mentioned for causing such shortage, but we don't see much mention about UMC. But we know that UMC also have some exposure here. So curious about -- if you can elaborate what's the company's exposure to automotive here, particularly for those power management, microcontrol unit chips that are severely in shortage right now. And also whether you are seeing a similar situation i.e. the shortage issues with your major IDM customers here?
Well, I mean, we reported last quarter, we see a recovery of the automotive market space. And so we definitely see the auto recovery from end of last year, and the momentum has continued. However, the overall utilization rate is -- of the fab are very high for the past 3 quarters, 4 quarters already. So despite the fact that UMC's fab has been operating at 100% utilization rate, we are aware of the inquiry from the automotive market and starting from Q4 last year, and we are aware of our position in the auto supply chain as well. And our current plan with that area is we're trying our best effort to help the chip shortage within that supply chain. And we have been doing that, starting from the beginning of this year, yes.
Okay. So what you said is that you were trying to allocate more capacity or expand capacity to mitigate the shortage impacts for automotive customers specifically?
Yes, it's hard to increase the capacity. It's more of a reprioritize. So prioritizing the automotive market with a bit of a better priority. So -- and so hopefully, we can relieve some of the pressures.
Okay. So does that imply that non-auto-related applications and customers, if they have not given you long and big enough forecast for the following quarters, then they are likely to -- their allocation will likely to be get reduced?
Well, I won't say that because some of the capacity increase is coming out from the productivity improvement. And so for those, the priority will probably be allocating to automotive at the current time. And -- but again, automotive recovery really came late in this whole demand surge. So we -- it's more of an optimization approach now. And hopefully, by giving some of the higher priority support, we can release the market pressure a little bit. As you know, the overall loading situation is severely high. And so we can only do as much as we can at this point.
So our commitment to all the nonauto customer will not change at all.
Okay. Okay. And then given that the company has offered some colors about the 8-inch capacity will increase by 1%, also there is a challenge to increase legacy 12-inch capacity, which I assume that most of the auto chips are using these nodes. It seems like, if you're not cutting or lowering the priority -- cutting or lowering your commitment to the non-auto customers, I just cannot imagine how to mitigate the -- how much more extra capacity we can allocate to the auto guys?
Just as I just mentioned, we will have our own way to managing the priority while keeping the commitment to other customers. So basically, we are doing our best to mitigate the situation.
Okay. Great. And a follow on that is that given the auto, I think we have already adjust our wafer prices and now closer to the market prices on the 8-inch side. And whether or not this auto chip shortage and auto guys that come later could be an extra catalyst or factor to enable you -- enable the company to raise price or adjust price higher, not just for the auto guys, but to the non-auto guys also?
The upside and the incremental support will be limited. And so I will say that it's not going to be any significant uptick on that.
Okay. Great. Is there a number -- or is there a number you can give to us or the range of the numbers you can give to us about your automotive revenue exposure as a company in total?
No. Right now, we don't guide any automotive contribution in -- the revenue contribution at this time. And we only covered the 3 -- under the 3 Cs.
Okay. Okay. That's fair. The last question for me. I think the -- I think Qi Dong probably explained this in the prepared remarks, but I dialed in later, so I didn't -- so allow me to ask again. So what's driving the nonoperating investment gain for the past quarter?
So for Q4, the net investment cap, TWD 5.7 billion, was mainly correlated to the upward momentum in the equity market. So mostly noncash-based mark-to-market valuation gain.
Okay. Of all this equity holding you have?
Yes.
Yes.
The next question is coming from Rick Hsu, Daiwa Securities.
Congratulations for your strong results. I just got one question for my modeling purpose. How much government subsidies do you expect to receive throughout the whole year? And how much longer would that sustain?
It should be similar to that of 2020. And the continued subsidy recognition should continue all the way to maybe 2023.
And next, we'll have Charlie Chan of Morgan Stanley for questions.
So first of all, we have a lot of discussion about the supply debottleneck. You try to reprioritize auto to production. Can you give us a kind of time line of how soon this could be resolved? And I guess is there any way to judge how real is the demand? Because during a shortage, customers tend to double book. So can you give us some insights about these questions?
Are you referring to the automotive market? Or it's just…
Yes. Just -- we probably won't be able to give you auto segment, but we can give you an overall.
Yes. So the overall market, the -- at this time, the pace of the demand growth has surpassed the rail capacity increase, as we all know. However, we do look at the -- on the inventory side, we do see a decline in semi inventory in the past 2 quarters. Portray a healthier inventory level as we think across the supply chain. So the demand continued to be strong in both 8- and 12-inch, and we have confidence in that. And we're constantly checking that at this time. We believe this is some of the changes taking place in the supply and demand dynamics and again, this could lead to a more of a structural shift in the foundry industry. There may be a possibility of that right now. Yes.
Okay. And maybe some intelligence from supply side, right? I mean, TSMC, the power chip, are they -- can they add additional 20,000 of the 8-inch capacity in their [indiscernible] fab, right? So why they can do so and you cannot? And also you have some operation in China, right, the Xiamen fab and the Hejian fab. So how do you see the Chinese peers plan for that supply increase and long-term or is this going to result in oversupply?
Well, first of all, I mean, we are not in a position to comment on our peers. And we can only focus on what we do. For UMC, the -- we have a very limited space, clean room space in the 8-inch area. So what we're doing now is we deploy -- we're taking our CapEx and taking advantage of the available clean room space for our 12A and 12X fab. And -- but those 2 facilities, our objective now is to increase capacity to accommodate a growing 28-nanometer wafer demand. And that's why you heard earlier, we're talking about -- we will focus on 28-nanometer capacity increase in both the -- in 2021. And that's where we're going to be putting our capacity at.
Okay. So these are more like a clean room issue and you want to prioritize 28-nanometer? Is not because you cannot acquire 8-inch equipments?
Well, first of all, yes, the clean room is limited, right, I mean from a greenfield standpoint. We -- it doesn't make sense for us to acquire tools if we don't have a place to put them. Yes.
Okay. Yes. And also, you mentioned that you try to convert some 8-inch product to 12-inch, another approach to increase the supply. Can you share with us what kind of the semiconductor products you're going to see a massive migration from 8-inch to 12-inch in the coming 2 years?
Well, they are different applications spread out in the different segments. So for example, we see the [indiscernible] solution, the covering from both the 8-inch and 12-inch, and we see the RF SOI application migrating from the 8-inch to 12-inch. So they are various applications, they continue doing that. But we also see a continued pipeline going into the 8-inch as well. So this is -- we just have to continue managing the pipeline, the product pipeline from both 12- and 8-inch.
Yes. Okay. That's very helpful. And that's the maybe question to Qi Dong. Can you give us kind of full year gross margin guidance? Sorry if I missed it. And also, the lawsuit with Micron. I know you already settle with the U.S. Justice Department, right? But how about those with Micron and are you going to settle with the counterparts?
We don't have full year guidance for gross margin. We do have 1 quarter -- first quarter gross margin guidance, which is in mid-20s. So hopefully, we will take it from there. For the lawsuit, we don't have any comments. If there's any significant development, we will disclose them accordingly in a timely manner.
But may I assume that the gross margin can gradually improve from here? Because the FX impact -- sorry, I'm not sure about FX impact's kind of a 1 quarter impact or assuming that the FX rate is the same for 2Q, would that negative impact on gross margin carry into 2Q? And also the depreciation trend, can you kind of comment on the core return of depreciation, FX impact and also the positive impact from the -- your wafer pricing? So we can kind of get a sense about the full year gross margin trend.
The depreciation will go up/down quarter-over-quarter as I mentioned earlier. This year, we expect the full year depreciation to decline by roughly 5%, and next year it'll be a little bit more. As for the gross margin guidance, again, unfortunately, I don't have a crystal ball for the currency. So we can only give the current situation for first quarter, which is again mid-20s.
And the last question is coming from Randy Abrams, Crédit Suisse.
Okay. Hey, a few follow-ups. First on the CapEx, where before you were at TWD 1 billion and underspending. And I think part of that, your 28 wasn't full. With the move to TWD 1.5 billion, should we expect that's a new range? Like you're growing mid-single digit with about TWD 1.5 billion spend. So is that the framework to go on? Or do you even see a scenario that it -- with the focus on 28, it could even start to push a bit higher?
Well, Randy, the first comment I have is our stated ROI-driven CapEx strategy, that did not change. So we'll continue following that principle. So despite the needs, the upside in customers demand and forecast, even with the 28-nanometers, the market situation is not the only consideration that's into our 2021 CapEx budget.
Our plan right now is we want to focus on maintaining UMC's market relevance and increase the customer stickiness and base our value proposition, our solutions and the manufacturing and as well as the critical mass on our capacity offering. So this strategy and the principle, it requires to follow a rigorous evaluation process, right? So we continue doing that, okay? And so we have quite a bit of foundry to do that, to make sure that we deploy the right amount of the CapEx. At this time, it's TWD 1.5 billion and for the upcoming next year, we will provide that guidance when we're ready.
Okay. Great. If I could ask on the SMIC, it looked like there were a lot of fears, 3, 6 months back of restriction of U.S. tools. And now with the latest, they may get access to mature tools. I'm curious from a market dynamic, did you see any accelerated kind of diversification efforts. And have those efforts slowed down or reversed?
Well, I mean, first of all, prior to the -- any of the export restriction, the wafer demand was already very strong. The demand situation was remained strong as we have come this will last throughout the entire 2021 and driven by many of the momentum. So I haven't seen much of a change from that. And even with what the media or any speculation in terms of the approval in the legacy, we can't comment on the competitors or any media speculation. But the way we see it is we believe the semi demand now is surpassed the supply. And it's -- in our view, this is not related to any development of export restriction at all. And so I think our competitiveness advantage is going to be on our own capability. It's not going to be on any top -- on the geopolitical or trade dynamics.
Okay. And one other question. I think a quarter ago, there was still some underutilization in the Japan fab and also from a little bit lower CIS. Has that loading now picked back up? Or is there opportunity to get some of the automotive customers for that fab if it's not quite full?
You have very good memory. Yes. Yes. The -- our last call, we actually talked about that. We stated the 90-nanometer will be a throw, and the business will start to recover during the first half of this year. And we are seeing that. And the production rate on some of the wireless communication product will increase our 90-nanometer's contribution. And this ramp will start towards the end of the Q1 and beginning in Q2. So it's our expectation by Q2 and will be fully low down this node.
Okay. And one last, just a couple of housekeeping. The noncontrolling interest has been moving around, but the expectation on that where it's probably the Xiamen JV partner. And if you could also clarify on OpEx, I think to Bruce's question, would OpEx grow with sales or OpEx would be kind of stable in absolute dollars? I just want to clarify the OpEx rate.
We certainly want to keep it within 13% to 14% of revenue range.
Okay. And then for the noncontrolling interest, is there a way to think how that would trend? If you get closer to breakeven, that minority interest would come down?
That's right. That's correct.
We thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks.
Thank you, everyone, for dialing this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir@umc.com. Have a good day.
Thank you, Mr. Lin. And ladies and gentlemen, that concludes our conference for fourth 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.