End-Market Weakness Weigh On UMC's Q1; Lower Utilization Shrinks Margins

United Microelectronics Corp UMC reported a first-quarter FY23 revenue decline of 14.5% year-on-year to $1.781 billion (NT$54.2 billion), marginally beating the consensus of $1.780 billion. The revenue decreased by 20.1% Q/Q as inventory correction continued within the semi-industry, lowering wafer shipments.
Revenue from 22 and 28nm declined to 26% of the wafer revenue, while 40nm contributed 15% of sales.
The gross margin declined by 790 basis points to 35.5% due to lower utilization and weak demand across significant end markets.
Earnings per ADS of $0.215 beat the consensus of $0.160.
Capital expenditure spending totaled NT$30.38 billion.
Jason Wang, co-president of UMC, said, "Although demand weakened across major end markets, our automotive and industrial segments posted growth during the quarter. Automotive sales, in particular, accounted for 17% of overall first-quarter revenue. While this partially reflects declines in other segments, we expect automotive to remain a significant revenue contributor and key growth driver for UMC going forward, as IC content in cars continue to increase driven by electrification and autonomous driving."
Outlook: UMC expects Q2 FY23 wafer shipments to remain flat and ASP in USD to stay flat quarter-over-quarter. It expects capacity utilization in the low 70% range.
UMC reiterates a 2023 capex of $3.0 billion.
Price Action: UMC shares closed lower by 3.88% at $7.68 on Tuesday.

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