Michael Lin - Head of Investor Relations Jason Wang - President Chi-Tung Liu - CFO

Bill Lu - UBS Randy Abrams - Crédit Suisse Sebastian Hou - CLSA Roland Shu - Citigroup Szeho Ng - China Renaissance Securities Gokul Hariharan - JPMorgan

Welcome everyone to UMC's 2018 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation there will be a question-and-answer session. [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. Mr. Lin, you may begin.

Thank you, and welcome to the UMC conference call for the third quarter of 2018. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial results, followed by our President's key message to address UMC's forecast and the fourth quarter 2018 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 Financial 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 risk 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 securities authorities. Now I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss our third quarter 2018 financial results. Chi-Tung Liu: Thank you, Michael. I'd like to go through the third quarter '18 investor conference presentation material, which can be downloaded from our website. Starting on Page 3, the third quarter of 2018 consolidated revenue was TWD39.39 billion with gross margin at 17.6%. The net income attributable to the stockholder of the parent was TWD1.72 billion, and the earnings per ordinary shares were TWD0.14. So for the revenue of 39.3 billion is 1.4% quarter-over-quarter growth and also 4.4% year-over-year growth. And this is also a record-high numbers in terms of quarterly revenue for UMC. The utilization rate for the last quarter was 94% compared to 97% in the second quarter of 2018. Page 4. The third quarter income statement. Other than 1.4% quarterly revenue growth, gross profit margin also extended slightly to 17.6% and grow 3.7% quarter-over-quarter to TWD6.9 billion. And we issued employee stock program to our employee in the third quarter, which costs about 500 million also additional expenses in the third quarter. And as a result, our operating expenses increased 500 million also accordingly or 9.4% quarter-over-quarter to 5.7 billion. And operating income, including other operating income expenses is now about 2.4 billion, a decline of 23.5% sequentially, and net non-operating income in the third quarter was 1.6 billion loss compared to the 1 billion loss in the second quarter. The main reason was the weak renminbi change -- exchange rate in the third quarter caused UMC to book unrealized 1 billion also ForEx loss in the third quarter. And income tax estimated to be about 632 million expenses in the third quarter. So net-net, we are seeing about 1.7 billion net income attributable to stockholder of the parent or an EPS of 0.14 in the third quarter compared to 0.03 in the second quarter. On Page 5, for the first three quarters of the year, revenue grew 2.7% year-over-year to 115 billion and gross profit rate was 15.8% or 18.2 billion and the operating income margin increased to 5.5% from 4.1% in the previous year to 6.38 billion and EPS for the first three quarters has reached $0.73 per share compared to $0.64 in the first three quarters of 2017. On Page 6, our cash position has continued to pile up due to slower CapEx and the cash level has now reached 81.5 billion. I think this is reason high numbers and for the stockholder equity numbers is now 212 billion at the end of third quarter 2018. And on Page 7, we experienced some price increase for average selling price in the third quarter by about 1% also and mainly due to the eight-inch wafer price increase. And on Page 8, our Asia revenue now is the largest portion of our sales breakdown, account for 52% of the total pie and U.S. now is 34%. On Page 9, the IDM and Fabless breakdown will remain the same. And on Page 10, communication portion has come down to 43% compared to 47% in the previous quarter, which made up by computer and some other revenue contribution. And on Page 11, our 14-nanometer revenue also has come to a record high of 5% in the single quarter, and 28-nanometer revenue at the same time declined to 13% compared to 15% in the previous quarter. On Page 12, we have prepared the quarterly capacity table for your reference. We continue to see some capacity expansion in our Singapore and also Xiamen fabs. And on Page 13, our annual budget for CapEx remain unchanged around 1.1 billion. Of course, the actual number still depends on how the cash payment schedule is for the fourth quarter of the year. So the above is the summary of UMC results for the third quarter 2018. More details are available in the report, which can be -- has been posted on our website. I will now turn the call over to President of UMC, Mr. Wang.

Thank you, Chitung. Good evening, everyone. Here, I would like to update the third quarter operating results of UMC. In the third quarter, foundry revenue reached a record high, as Chitung mentioned, to 39.33 billion, up 1.4% from second quarter '18. Foundry operating margin was 6.4% and utilization rate reached 94%, bringing wafer shipment to 1.8 million 8-inch equivalent wafers, loading across 8-inch and mature 12-inch technologies continued to operate at full capacity. Thus the company generated 10.16 billion of free cash flow during the quarter. In addition, we saw an increase in computing-related applications, which offset the decline in communications segment. From a longer-term perspective, we believe new and essential semiconductor components will continue to strengthen our specialty technology business. For example, Allegro MicroSystems, a leader in high-performance power and sensor solutions, signed a multi-year manufacturing agreement with UMC to ensure long-term capacity support for their growing wafer requirements in industrial and automotive segment. Looking into the next quarter, we are seeing a softening of wafer demand from customers, partly due to a continued softness in the entry MEM smartphones. The recent escalation of the trade engine, rising global crude oil prices and continuous weakening of the emerging market currencies could further increase uncertainties in the broader economy. Meanwhile, we will continue to execute our strategy and invest in return-driven goals, while moderating the expansion of advanced technologies. We are confident that UMC's globalization efforts will increase our customers competitive edge through geopolitical risk mitigation, while enhancing shareholder value to preserve the best interest of all our stakeholders. That was our third quarter results. Now let me go over the fourth quarter 2018 guidance. Wafer shipments will show a decrease of 4% to 5% and ASP in U.S. dollar will show a decline of 4% to 5%. Gross profit margin will be in the mid-teens percentage -- low teens percentage range and capacity utilization rate will be in the high 80% range. For foundry CapEx of 2018, it will be a $1.1 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

[Operator Instructions] And our first question is coming from Bill Lu from UBS. Go ahead please.

First question is on your guidance for the fourth quarter. I'm wondering if you could talk a little bit more about the sequential decline, where that is coming from in terms of applications and geometry?

Well, for the wafer shipments, we anticipate about 4% to 5% decline, mainly coming out from the 28-nanometers. If we look at from the application, we actually see, across the board, the weakness, the strong -- the most weakness will be coming from computers, and within the computers the cryptocurrency will be the area that we see -- the weakest area, and then followed by the consumer and communication.

And there is a lot of uncertainties, I guess, for tech general. When you speak to your customers, what are they telling you looking out into the, for example, 1Q of next year? Do you have any -- can you give us some hints as how 1Q is progressing?

I mean, Bill, we typically don't want to give up more than a quarter. But at this point, we do see the market uncertainty will continue beyond Q4. So we're going to be very cautious about outlook of the Q1 right now.

My second question is on gross margin. It looks to me like Q3 gross margin is a little bit better-than-expected, but the decline in Q4 is maybe a little bit sharper. Can you talk about both?

Yes. If we look at our Q4 composition, you'll find that we actually generated about 5% revenue coming out from the 14, and the 14 give us much higher ASP. So from the branded ASP point of view, we cited 8-inch -- price slightly increase of 8-inch. We actually see a much better ASP in Q3 so that actually give us a boost about a little bit on gross margin side. And when we go into Q4, given the uncertainty and the weakness in the cryptocurrency market, along with our limited customer base, so the 14 remain to be very volatile. So I'll have to say the Q4 mainly the impact coming out in the cryptocurrency area of the 14 nanometers.

And so if I can ask one last question. On your CapEx, you spent a little more than 500 out of your total budget of 1.1. Was there any reason to think that CapEx is reaccelerating for Q2? Chi-Tung Liu: We're still on schedule in terms of our budget and CapEx. But this is not a big number in absolute dollar terms. So the real payment schedule sometimes could be moving forward or push out later. So we think the number is -- in the ballpark is about right, but the actual payment and the detail of the month won't be confirmed until the end of the quarter.

And next we have Randy Abrams from Crédit Suisse. Four questions, go ahead please.

I wanted to ask a question just about the 8-inch where you've seen full capacity and tightness. Now factoring in the slowdown, if you could give a view how 8-inch, and also the mature nodes look, both in terms of full utilization and tightness continuing and plans, if that's the case, to continue to see capacity additions and price increases there? Or if you're seeing any change in momentum on the 8-inch?

For the 8-inch, we have to remain optimistic cautious about the 8-inch outlook. For our Q4 loading, we have a pretty good confidence that we remain fully loaded in Q4 2018, mainly driving by some consumer segments of customer. And given we have a much broader and diverse customer base, we think we have a better chance to mitigate our 8-inch loading. So in Q4, we will still feel comfortable about the fully-loaded situation. Now the question for the pricing increase, some of the price increase is truly also coming from the product mix improvement, and given the market's uncertainty and we need to keep that option open from mitigating the demand changes and I don't anticipate significant pricing difference in Q4. We probably see a fully loaded and with a pretty flat ASP projection in Q4 on 8-inch to date.

And then if you could talk a little bit more about the advanced nodes. On 40-nanometer with the decline, I'm curious how much you think is business environment tied to smartphone versus if you're seeing any application migration from 40 to more advanced nodes like 28? And then also if you could talk about the 28 where it's declining, how you're seeing that also in the business environment versus just a decline in number of applications? I think in the past you had an issue from some of your high-volume customers switching strategy. But just how's the outlook for 28? How much is macro versus just issues with the products you're running?

Well, okay, that's quite a bit of questions. Let me first start off with your previous question about the mature 12-inch. If we break it down the mature 12-inch on the 55, 65, 90 area, we remain pretty confident about our loading situation going into Q4. So that said, there's some called the 40-nanometers. And we do see some decline on 40-nanometers and we see some product migration on 40-nanometer as well. But we do believe that 40-nanometer loading will be a temporary issue. It will recover to corporate average level in foreseeable future, but in near term we'll probably see some decline. In terms of where the softness is coming from, again, it's coming from the low-end MEM smartphone area as well as sound and node migration like the WiFi application, okay. As far as your question about the follow-on applications for 40, we see a technology migration from consumer MCU high voltage, RF and connectivity product will migrate into the 40s. So there will be a continuous pipeline going into 40. That's also the reason we believe that 40 loading will recover back to the corporate average level. So that's on the 40. Let's go to the 28. And on the higher level, we do see a worldwide demand of 28 will remain flat and the 28-nanometer may experience some of the overcapacity situation for the next years. And so that's the overall market situation. In the near term, our 28-nanometer technology business will become post to a more fragmented and small volume type of customer, which we reported in the previous conference calls as well. And we see that more and more coming in the second wave is more of those fragmented -- it's more volume type of customer. And this type of customer will require higher engineering efforts and take much longer to support and ramp. So that will make the UMC recovery appear probably prolonged, okay. So at the same time, we see that capacity oversupply situation in the next year. But -- although the volume is probably lighter, we will continue to see many of our products take up in our engagement today and also project in the next 12 months. So over a longer period of time, I think, that will still help us get back to where we want to be, and I think it will also significant diversify our customer base as well. And so that sort of what outlook on 2018. I hope I covered all of your questions.

Yes. That was great. And just a quick followup to that. I guess, with 40 and 28 loading coming down in the near term, the CapEx this year like, I think, you're confident to still get to close to $1.1 billion, but you add the 5% more capacity. So I guess, the initial view into next year would be lower capacity growth and lower CapEx. So if you could share kind of how you're thinking at this stage on CapEx outlook? Chi-Tung Liu: Yes. I think the next year CapEx is on the downside. But again, I want to emphasize this $1.1 billion is already a pretty small number in absolute dollar terms. And the magnitude of decrease will be limited next year. We will report the numbers in the coming quarter -- quarterly conference call. But for the current year, again, it largely depends on the payment terms and payment schedules. And it will minorly alter the final number of this year's CapEx.

And next one is coming from Sebastian Hou from CLSA. Go ahead please.

My first question is to follow on the eight-inch utilization rate. So you just mentioned that still fully loading in fourth quarter, but how about being selective on the product mix? Can you still be that selective right now in 4Q? Or are you actually resuming doing some low -- ASP low margin products?

Well, I mean, the product mix will change in the Q4 as we're seeing some of the application actually see some weakness. But given some broader customer base, we do have some other products to mitigate that, we mentioned just. And among all those customer base today is all selective customer and all selected product area. So we see very insignificant changes in terms of ASP level.

Okay. In terms of those segments that you see some weakness, are those specifically related to automotive and industrial?

Are you talking about the weakness area or you actually just...

Yes, yes, the weakness areas.

I see. Well, actually across-the-board from consumer, communication and computer as well as automotive. And to date, the computers seems to be the weakest area.

Okay. I'm actually asking about the 8-inch, specifically.

Right. And the -- on the 8-inch, the computer is weak. Automotive is also weak. Yes.

Okay. Got it. But you can mitigate it by some consumer application.

Yes, that's right.

Okay. And the second -- I'd like to also follow on that is I remember you had expansion planned in your Hejian fab in China. Then I just wonder, is that still on schedule?

Yes. I mean, that's still on schedule. And we still have confidence in terms of our 8-inch outlook. So we'll be -- that is still ongoing. We anticipate about 2% increase for the year, overall on 8-inch, 2% on 8-inch capacity increase.

For '19 -- 2019?

2018, this year.

Oh, 2018. And, how about next year?

Next year, we still have to find space for the expansion, but the space is very limited. We don't see a whole lot of opportunity to increase the 8-inch capacity.

Oh, I remember that you had planned to expand your Chinese 8-inch fab for next year. I remember, it is like 10-K capacity increase coming like some time second quarter or mid of next year. I'm asking, is that still on schedule?

Yes. That's still on track, yes.

Right. So based on that, your 8-inch capacity will still increase next year because of the expansion there?

That's correct, yes.

Okay. Okay. Can I ask about the -- your collaboration with the Fu-Chang Ching Huang government on the DRAM side? So any new update, progress on the pile around or mass production over there? Chi-Tung Liu: We cannot really comment on there. This is really two different companies and the collaboration is rather limited to technology transfer only. So we are working on the final stage for the first generation we try to develop for Qin Wang company. So this is the latest status. As for Qin Wang's status, we cannot comment on that.

Okay. So don't you say you're at the final stage in terms of your R&D contribution at the final stage? Chi-Tung Liu: For the first generation development, yes.

Development, which means that if you're at the final stage, which means that you will reach -- probably reach the production pretty soon? Chi-Tung Liu: Well, there will be time -- lead time or learning curve period in terms of technology versus initial production. But again, we are in charge of this technology development part and production part is really up to Qin Wang.

And the next question is on the, I think, in the past year quarters you have mentioned about the shortage spike on trains of the railway for materials, and how do you see that so far and going to 2019 in terms of the supply sources just in terms of quantity and pricing?

We actually start seeing less of a price increase issue. We more focus on the supply area and we are engaging with our suppliers for the long-term supply discussion. And I think, we -- the situation more in control now. I won't say we're very safe now, but I think, it's much better, it's actually improved. Chi-Tung Liu: And this is from UMC's perspective and mainly due to the longer term -- longer-term contract we have entered with our supplier and we have no intention to comment on the general market situation for the rollover.

I'm just trying to understand whether there will continue to be some negative margin impacts on the price increase on the raw material into 2019 and '20? Would there be?

Not at this point. We're actually seeing the pricing start saturating, as it is in our case, yes.

Last question from me is regarding your Asia listing plan. Is this on schedule given the very weak Asia market recently? Chi-Tung Liu: We don't have a schedule. We just are doing all the filing and document preparation at this point. So we are doing as quick as we can. It is a lengthy process. So we are still filing and preparing all the document at this point.

In terms of a very rough timing, is it more possible sometime next year, but not this year, right? Chi-Tung Liu: It's really not up to us. I think all we do is once we have all the documents ready in the acceptable format, we will deliver or submit our application. And once we've done that, we will also make a popular announcement.

And next question is coming from the Roland Shu from Citigroup.

First question for your 4Q wafer shipment guidance. You said it will be kind of about 4% to 5% quarter-on-quarter and it will be many from the 28-nanometer. So I just calculated so that means for 28-nanometer wafer shipment in 4Q probably will be declined by more than 50% from 3Q? And third question is on your -- how is your 28-nanometer loading utilization now in 3Q and 4Q? Chi-Tung Liu: Well, first of all, we cannot endorse your 50% speculation. The real numbers are less than that. Our loading for 8-inch and mature 12-inch will stay fully loaded in the fourth quarter this year. And this is leading edge, including 28 and 14 will be below corporate average and given our guidance of high 80 in the Q4 for the whole company, I think, it might be quite easy for you to calculate the average loading for the NAND 4 part.

Yes. Say something for this 12X the fab in Fujitsu. So have you figured out how to rank up 12X capacity to 28k from our current 17k? [Foreign Language]

The 25k of economic skill level is always our target, but there's still subject to our demand outlooks and given the current demand outlooks, we're putting on our 17k, but we can reactivate that any time when we start seeing some demand changes.

So there is no planned schedule for the further expansion to 25k? Am I right?

There is some scenario that we are currently to discuss. There is no final scenario yet.

Understood. Second question is for 14-nanometer now is the 5% of total revenue in 3Q. So I'd like to know how much revenue upside from 14-nanometer going forward given you are not investing in 14-nanometer anymore?

Well, I kind of touched that earlier, and we have very limited customer base on 14 and is actually more associated with the cryptocurrency, and because the cryptocurrency market is down -- witness -- we actually see some declining on the 14 in the upcoming quarters. So at this point we have no plans for expanding our 14 capacity. Although we have engaged many of the non-crypto 14-nanometer customers, and those customers will remain on track with production more into 2020, and by then we will see if we need more additional capacity to grow the 14 business, but even at that time, we're still going to base on ROI business justification to do that and to pursue that. So that's kind of where we are on 14.

It sounds like in the near-term now you won't have the capacity expansion plan on 14-nanometer and also now you're seeing some demand weakness from your cryptocurrency customer on 14-nanometer. So is there any risk that you cannot run 28-nanometer mesh production in China if your 14-nanometer demand has been totally gone? Will it be a risk for your 28-nanometer production in China? Chi-Tung Liu: No. This is last year hit bottom production, which we did many quarters ago. You are allowed to do a minus-run technology in China, not to mention this is a proven 5% of revenue in the previous quarter. So there's no such risk.

And the next question is coming from Szeho Ng from China Renaissance Securities. Go ahead please.

Actually my question is on minority interest. Chi-Tung Liu: Sorry, can you speak a little bit louder.

Can you hear me now? Chi-Tung Liu: Yes.

For minority interest it has been at a pretty high level for two consecutive quarters. So I just want to get your input on how to moderate that as for Q4 and probably going into 2019? Chi-Tung Liu: Minority interest?

Right. Chi-Tung Liu: Okay. That's mainly because our Xiamen Fab 12X is experiencing early-stage losses and we are currently -- recently increased our holding to 55% as a group and 35% of the loss will be shared by our investor partners and that percentage is unlikely to change in the near term and the rest is up to the operating loss or profit, how to divide it over the -- through the minority share ownership. So I would say the main focus is still how do we improve the operating result for our 12X operation in Xiamen.

So we should expect the minority interest to hold at the current around $1.5 billion per quarter? Chi-Tung Liu: Again, this percentage of 35% thanks to our China losses. So the 35% will become OpEx for the near term. The rest is really after the Xiamen losses.

Okay, and the second question on payout ratio. Would you consider to increase the payout ratio for next year going forward keeping the very strong free cash flow generation? Chi-Tung Liu: Yes, it's our intention to maintain at least high payout ratio for our dividend, cash dividend payout. For the last year our payout ratio was already 88% so it's a pretty high number. And of course, UMC will continue to stay at the high payout ratio from our dividend policy point of view.

And next we have Gokul Hariharan from JPMorgan. Go ahead please.

First of all, on gross margins, in Q4, could you talk a little bit about what are the drivers for gross margin going down to low teens given most of the weakness appears to be with 28 and mature 12-inch and 18 seems to be holding up quite well. Is it primary utilization or are there other factors that are driving the gross margin lower? And I had one other follow-up question.

Well, I mean, it's a combination of the ASP and the loading because the [Indiscernible] 14 and 28 showing weakness in demand. So on the branded ASP point of view, it does affect that and given the lower brand at ASP and the lighter loading that contributed gross margin impact.

But even with higher mix of 8-inch and mature 12-inch, it's not really helping on gross margins or is that how we should think about it? Or are there changes in gross margin within the mature 12-inch and 8-inch process nodes as well?

No. It's mainly coming out from the advanced node. Chi-Tung Liu: Yes. The sensitivity for ASP to our gross margin rate is about 0.6. So if we're seeing 4% to 5% drop in ASP that would suggest a 2 to 3 percentage point knockout in terms of gross margin.

Okay. Understood. That's very clear. Also, could you talk a little bit about how much of the confidence you have on the 8-inch process nodes staying relatively full going into, let's say, Q1. We are starting to hear a lot about automotive and industrial demand being weak, I think, DI talking about demand weakness across the board. What do you see in terms of your backlog given that 8-inch demand was extremely tight in Q2 and probably early part of Q3 as well?

Well, you're right. The market does definitely started seeing some softness in the 8-inch area and now the backlogs also lightened up. But for Q4, we do believe that we can remain fully utilized. And for beyond Q4, we'll be little bit cautious about that seeing the uncertainty of the market.

Okay, understood. Just one quick one. If we are putting a temporary hold on the CapEx expansion for 2018 in 12X fab, where will you focus the spending in 2019 on CapEx if you still think CapEx is going to be lower than this year but not much lower. Like if you were, take a hypothetical situation, you don't have any new capacity addition next year, where would be your maintenance CapEx be? Chi-Tung Liu: We have about 200 million plus in terms of maintenance CapEx per se and we will also invest in some 8-inch wafer capacity as we discussed earlier mainly in Hejian. Also, we will continue to increase our flexibility in terms of cross-technology capacity support to each other. This may not lead to capacity extension, but it will significantly help our flexibility in terms of mitigate the certain node capacity up and down -- I mean, demand up and down. And lastly we will continue to invest in small manufacturing AI-related type of efficiency enhancement for overall capacity. So that will -- that kind of program will also continue into 2019.

Okay, so is it fair to say maybe 500 million, 600 million is what your CapEx would be if we don’t really spend incremental CapEx on 28 next year? Chi-Tung Liu: Again, this number in semiconductor foundry space given our market share, I think, it's coming down to a pretty low number. And all the project has highlighted, and we will continue to invest in the parts with full spectrum of technology for existing geometry, and even though we are getting moderating in the leading edge node, investment for capacity, but we will not stop, actually we will continue to accelerate for the parts of the technology for existing geometry. So I cannot really give you numbers, but all I can say is, we will be very disciplined in terms of capacity expansion and the number of CapEx will be lower than this year for 2019.

[Operator Instructions] And the next question is coming from Sebastian Hou from CLSA.

I have two follow-ups. The first is the -- for Shandon. In terms of depreciation, can you remind us about depreciation for this year, and also the initial outlook for next year? Chi-Tung Liu: Still the same schedule, so we're talking about flattish depreciation expenses for 2018 versus 2017. And we are seeing about 5% also year-over-year decrease in 2019 versus 2018 and followed by more decline in depreciation if we continue the current CapEx trend.

And then how significant decline would that be in 2020? Chi-Tung Liu: Of course, eventually we will see more than double-digit decline. I mean, this is long time spend for this kind of projection. So let's stick to this year and also next year for now.

And the second follow-up is in terms of the growth strategy, apart from organic growth and noticed you also made acquisition which is Mie fab this year, how about the future M&A strategy? And are you looking proactively on this -- on some potential acquisition opportunity?

The answer is definitely yes. That's always option for future growth. Our strategy is simple is, we're going to be focused on the legacy market and at the same time on the cost-effective path to expansion and the -- any potential acquisition will give us that option. And so we'll continue considering that as well as other option as well so the acquisition is definitely part of it.

So assuming if there is a target, is there any opportunity? That opportunity is not just to give you the low-cost or mature capacity, those will come with advanced capacity that's not making any profit. Will you still consider that?

Well, there's many things to be consider and it depends what that justifies and so we're going to keep very disciplined with our policy of cash -- use of cash, and there's many different areas as long as we believe it will benefit our shareholders value and we will do so and different approach to us acquisition is one. Organic investing in capacity expansion also is one consideration, buying stock back. Always, we're going to consider all options and we're now rolling out what you mentioned, but it depends if that benefits our shareholders.

So with that kind of growth strategy in mind given that, I think, this could be quite hard, if you don't know where and when this opportunity will come and will close a deal. So I know you also want to maximize the cash return to shareholders, but probably we'll not see over 100% dividend payout in the near term given that you want to give yourself some flexibility for potential acquisition. Is that the right way to think about it? Chi-Tung Liu: Yes, well we're at the 88% payout ratio already. So it won't increase that much even we increase the payout ratio to over 100%, say 120%. So it's not entirely impossible for UMC to have over 100% payout ratio. But what we do want to do on a consistent steady rate in terms of shareholder returns. So this has very little correlations to the potential M&A if there's any.

I'm sorry, I just have another follow-up because earlier I think you scoped the question, you mentioned about the beyond fourth quarter you will also cautious on the 8-inch outlook so which means that you're less confident on the first quarter '19 8-inch being staying at 100% UTR?

Well, we're optimistically cautious. Let's put it this way because it's kind of thought out, and we do see indication of the market softness. So we don't want to over commit ourselves by going into Q1 via the comments, but and I do want to give some kind of indication that we are cautiously looking into Q1 right now, yes.

And there seems no more questions at this point. Thank you for all your questions. That concludes today's Q&A session. I'd like to hand things over to UMC Head of IR for closing remarks.

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 ir@umc.com. Have a good day. Thank you.

Ladies and gentlemen, that concludes our conference for third quarter 2018. 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.