United Microelectronics - Earnings Call - Q4 2020
January 27, 2021
Transcript
Operator (participant)
Welcome everyone to UMC's 2020 fourth 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. Please follow the instructions given at that time if you would like to ask a question. 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 has 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.
Michael Lin (Head of Investor Relations)
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. Chi-Tung 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 section. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investor's Financial section. During this conference, we may make forward-looking statements based on the 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 risks that may be beyond the company's control.
For these risks, please refer to UMC's filing with the SEC in the U.S. and the Overseas Securities Authorities. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2020 financial results.
Chi-Tung Liu (CFO)
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 three, Q4 of 2020, consolidated revenue was NT$45.3 billion, with a gross margin at 23.9%. The net income attributable to the stockholder of the parent was NT$11.2 billion, and earnings per ordinary share were NT$0.92. Capacity utilization rate in Q4 climbed to 99%, compared to 97% in the Q3. And if you turn to page four, our quarterly comparison financial performance, revenue increased about 1% after the NT dollar impact reached NT$45.3 billion. Gross margin 23.9%, or NT$10.8 billion. Because of some employee-related compensation and also share-based scheme, our operating expenses increased to NT$6.3 billion in the fourth quarter of 2020. And as a result, operating income is around NT$5.6 billion, or 12.4%.
Because of the strong stock market, our mark-to-market valuation has contributed to most of our non-operating income in Q4 2020, which was NT$ 5.6 billion. Our net income in Q4 last year was NT$ 10.9 billion, and the net income attributable to the stockholder of the parent is NT$ 11.2 billion. EPS is 0.92. On page five, which is the year-over-year comparison, our revenue growth 19.3% in NT dollars to NT$ 176.8 billion. In US dollars, the growth rate was roughly around 26%. And among the growth, around half is contributed by the combination of USJC in Japan. And gross margin growth to almost 8 percentage points to 22.1%, or NT$ 38.99 billion. Operating expenses are similar to the revenue. We also have some combined expenses from USJC, an increase year-over-year around 6.6%. And operating income jumped growth 359% to NT$ 22 billion. Operating margin rate was 12.5%.
Net non-operating income is around NT$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 NT$29.2 billion, or 16.5%. And full year EPS is NT$2.42 per share, so on page six, our balance sheet highlights cash remained around NT$94 billion, and total equity has increased to NT$235 billion. For Q4 of 2020, on page seven, our blended ASP increased a little bit less than 2% in the fourth quarter of last year, and for revenue breakdown on page eight, Asia continued to climb to 61%. And the other region doesn't really change much. For the full year, it's almost identical year-over-year comparison in terms of geographic breakdown on page nine. For page 10 and also page 11 is the revenue breakdown by customer type.
IDM continued to be around 12%-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 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%. For the full year, 28-nanometer net revenue growth from 11% in 2019 to 14% in the year 2020. Page 15 is our capacity breakdown table by fab.
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 extend our capacity mainly in our 12A, 12X, as well as 12i and also 12M. 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 $1.5 billion for 2021. The breakdown is about 85% 12-inch related and also mainly focused on 28 nm. The above is a summary of UMC's result for Q4 2020. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang.
Jason Wang (President)
Thank you, Chi-Tung. Good evening, everyone. Here, I would like to update the fourth quarter operating result of UMC. Our business traction in Q3 carried over into Q4, lifting utilization rate to 99% and rising wafer shipment to 2.3 million 8-inch equivalents. The stable capacity utilization was driven by robust end-market demand on consumer and computing-related applications, such as Wi-Fi, digital TV, microcontroller, and power management IC. For full year 2020, UMC's revenue grew 26% in U.S. dollars, while operating income surged to NT$ 22.01 billion. Reflecting solid utilization rate 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 operation.
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 NT dollars will offset more than half of the implied growth projected 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 $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. dollars will increase by 2%-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 $1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.
Operator (participant)
Yes, thank you, Mr. Wang. Now, ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Now, please press zero one to ask the question. Thank you. And our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Yes, thank you. Good afternoon and 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 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?
Jason Wang (President)
All right, so first, thank you, and for the guidance of Q1, we project the wafer shipment will increase slightly, and primarily due to a higher utilization rate driven by the strong demand that we reported earlier. We're already at 99%, but we project Q1 will be 100%. So the ASP, I know.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Oh, yes, right. Okay. And maybe just to follow up first on that, I guess the follow-up through the year since you'll be at 100%, could you discuss the capacity additions? 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 de-bottlenecking mature nodes, how some of these fabs may ramp to add capacity through the year.
Jason Wang (President)
From a year-over-year standpoint, the 2021 capacity will grow about 3% in 2021.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Yeah.
Jason Wang (President)
That will split between the 8-inch and 12-inch. The 8-inch, due to the limited cleanroom space, and we're only doing the optimization and productivity improvement, so that will probably be about 1% increase on 8-inch and about 5% from 12-inch.
Randy Abrams (Managing Director and Head of Semiconductor Research)
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, the 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?
Jason Wang (President)
Well, I mean, well, first of all, from the 8-inch greenfield, from our existing cleanroom 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' benefits. So we are open to the inorganic approach. The comment of your question about if we can migrate the 8-inch to 12-inch, that is an ongoing effort. It's subject to different applications and the customer's alignment, and that will be an ongoing effort for us.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Great. And then I guess now for the question on pricing, could you discuss for blended ASP? You'll have two 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?
Jason Wang (President)
First of all, the Q1 ASP guidance was a result of an increase due to a higher 28-nanometer wafer shipment, 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 the next node. The overall blended ASP will increase by 2%-3% quarter-over-quarter in Q1 in our guidance. For the ASP, we always keep commitment to our long-term customers. However, we do believe the ASP should reflect our market value based on the technology's competitiveness as well as our manufacturing excellence, along with our commitment to our customers. Therefore, the ASP is more of a result of many different factors. If the question is about 2021, based on all those factors, we'll be able to set a mid-single-digit % year-over-year in ASP increase as our goal in 2021 at this point.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Great. That's helpful. Hey, just one final question. The earnings with some of the non-operating 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?
Chi-Tung Liu (CFO)
Of course, we'll continue high payout dividend policy. And I think for the cash dividend, we do see the potential for the 2021 payout to be likely doubled from last year. But this is also subject to the board approval.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Great. Thanks for your time, Jason.
Jason Wang (President)
Sure.
Operator (participant)
The next question is coming from Sunny Lin, UBS. Go ahead, please.
Sunny Lin (Stock Analyst)
Hi. Thank you for taking my question. 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?
Jason Wang (President)
In 2021, 28-nanometer capacity will increase by 20% year-over-year.
Sunny Lin (Stock Analyst)
Got it. So that's a bit above what you guided before. I think previously you were guiding for 40K wafer per month to about, I think, 52K wafer per month by the middle of this year?
Jason Wang (President)
The 28-nanometer total capacity combining the High-K and Poly-SiON, we have about 45.6K per month at the end of Q4 in 2020. And we are projecting by end of Q4 2021, it will be 59.3K per month.
Chi-Tung Liu (CFO)
Yeah. Some of the new 28-nanometer capacity also comes from the transition of 40-nanometer capacity. So it may not be all greenfield.
Sunny Lin (Stock Analyst)
Got it. So a very quick follow-up. How does this change your expectation on depreciation for this year and next year?
Chi-Tung Liu (CFO)
The depreciation curve still will be trending down, as we mentioned before. Of course, the slightly higher capacity 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 even more significant decline in 2023, but let's focus on 2021 and 2022 first.
Sunny Lin (Stock Analyst)
Got it. Thank you. 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 some of the price negotiation on 8-inch, should we also expect some price hike for 12-inch in following few quarters?
Jason Wang (President)
The earlier quarter ASP projection for the year is a blended ASP. A blended ASP reflects the combination of 8-inch and 12-inch price in the 8-inch equivalent. That will be a good reference for you to use.
Sunny Lin (Stock Analyst)
Got it. Thank you. Very helpful.
Operator (participant)
Next, we'll have Roland Shu of Citigroup for questions. Go ahead, please.
Roland Shu (Stock Analyst)
Hi. Good afternoon, 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 process nodes? I think my question specifically is for 28 and the 40-nanometer. So compared to your average 100% utilization, how about the capacity on 28 and the 40-nanometer doing in first quarter?
Jason Wang (President)
The overall is 100%. Both the 8-inch and 12-inch are full at 100%. The most nodes are full.
Roland Shu (Stock Analyst)
Yeah. Most nodes are full. How about the 28 and the 40?
Jason Wang (President)
They both are full.
Roland Shu (Stock Analyst)
Okay. Both are full. Okay. Thanks. Yeah. And second question is for your gross margin. So your revenue last year already achieved a record high. However, I think there's still room for gross margin to reach a last peak level around 30% in 2010. So how do you expect your margins in maybe next one to two years? And how soon will the gross margin go back to 30%? Thanks.
Chi-Tung Liu (CFO)
Yeah. 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, US dollar appreciation also has some negative impact on our gross margin. So every 1% of US dollar appreciation will eat about 0.4% of our gross margin. We also enjoy the benefit of economies of scale and also better product mix and cost reduction. And more importantly, will be our performance for both our 12M, the Japanese subsidiary, as well as our Xiamen subsidiaries. Currently, our Xiamen subsidiaries still post operating loss given the early stage heavy depreciations. But their performance has continued to improve because of the higher loading and also higher 28-nanometer production. So that will contribute a certain percentage of gross margin increase.
Roland Shu (Stock Analyst)
Understood. Yeah, so how do you see the ASP increase? Are we able to have this 10% ASP increase in the near future?
Jason Wang (President)
I commented earlier, the ASP has manufacturers that have to be considered. So along with all those considerations, we're expecting our ASP will reflect our market value based on our current market position. And that's what we're continuously striving for. Just like Chi-Tung Liu mentioned earlier, the continuous improvement of our corporate earnings is our principle. So we continue improving productivity, driving costs down, enhancing product mix, as well as moving the ASP to a regional market, reflecting our market value. And at the same time, we're managing our depreciation curve. That means the UMC will have to do our plan to improve our overall corporate earnings.
Roland Shu (Stock Analyst)
Okay. Thanks. It's clear. These are all my questions. Thank you.
Jason Wang (President)
Thank you.
Operator (participant)
The next question is coming from Bruce of Goldman Sachs. Go ahead, please.
Bruce Lu (VP and Equity Analyst)
Hi. Thank you for taking my question. Great result. I want to ask about the profitability for the 8-inch and 12-inch, especially the legacy 12-inch. Okay. Let's remove 28-nanometer 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?
Jason Wang (President)
I mean, that's an interesting question. In general, we do believe there is a potential in terms of our market price. Okay. Again, the ASP results from many different factors I mentioned earlier. So we have to actually first execute our technology manufacturing while maintaining our commitment with our customers. So then eventually, we can try to win-win result for both our customer 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's a potential to get to that.
Bruce Lu (VP and Equity Analyst)
Let me ask a question in a different way. I mean, when the company tried to do that listed IPO in China, you did provide your highest profitability, which is for mid-30s % in terms of the gross margin. So compared to TSMC for the 8-inch, which is around 50%, so the profitability gap is about 15%, which may mean that you reasonably assume that the price gap or some kind of cost gap, right? I mean, given the current situation or given your execution has improved, the cost structure has improved, so what is the reasonable can we assume that you can achieve 50% sometime in two, three years, or that is a way too high bar to achieve?
Jason Wang (President)
I can tell you this. On the 8-inch operation, we are very close to where our market value is. Okay. But again, the blended ASP including a product mix as well. So some of the product migration will have to take effect to reflect the gap. And those applications, we may already have existing commitments. So that will take some time to manage that migration. But if you're talking about from apple-to-apple standpoint, our 8-inch ASP is very close to what the market value is.
Bruce Lu (VP and Equity Analyst)
Wow, so how about legacy 12-inch?
Jason Wang (President)
The legacy 12-inch also, again, is resulting on current product mix. So one of the product mix improvements is an important area for us to continue to enhance. So if we do the apple-to-apple comparison, I do think from the 12-inch potential, on the 12-inch material, there's still some potential there.
Bruce Lu (VP and Equity Analyst)
I see. So from an investor's perspective, we can reasonably assume that the profitability for 8-inch will remain at a high level, but we can expect some profitability improvement from the legacy 12-inch.
Jason Wang (President)
That will be our goal. Yes.
Bruce Lu (VP and Equity Analyst)
I see. Thank you. The next question is regarding your CapEx, right? I mean, in addition to the 28-nanometer capacity expansion that you guided, do you have any plan to expand legacy 12-inch? I mean, based on current wafer pricing, is it profitable or margin equivalent to increase the capacity for the legacy 12-inch?
Jason Wang (President)
The economics on the legacy 12-inch at this point remain very challenging. Okay. So part of our 2021 CapEx that we invested, we're including for some of the specialty capacity capability within the legacy side. I think those have a justifiable economics. But if you're talking about the greenfield logic capacity for the mature 12-inch, I think the bar is very high. It remains very challenging to make economic sense there.
Bruce Lu (VP and Equity Analyst)
Thank you. I think I want to squeeze one last question, which is R&D expenses. Okay. For 2020, the R&D expenses are 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 stopping the advanced R&D for the advanced nodes. So can you provide me more color about this R&D expenses increase other than the higher employee bonus?
Jason Wang (President)
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 want to try to become a leading pure-play foundry in some particular application with one comprehensive process solution, okay, and manufacturing excellence and sizable capacity offering in both 12-inch and 8-inch fabs, 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 the 8-inch advanced and the 12-inch mature. And demand from those nodes significantly outpaces the growth in capacity. Okay. And we believe the supply and demand imbalance could likely lead to a structural shift in semiconductor market dynamics.
So for UMC, this is our technology node that we need to continue focusing. 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 a meaningful amount of R&D into the R&D investment to sustain the technology leadership in our focused and particular applications. Areas such as high voltage, those are new. RF-SOI, PMIC, ultra-low power, embedded non-volatile memory, those are all important and that require us to remain committed in the R&D development. So that will give you some idea of why we're looking at that as a continuous effort.
Bruce Lu (VP and Equity Analyst)
So can I say that those investments will be the key for you to improve your legacy 12-inch profitability?
Jason Wang (President)
Yes. You can say that. Not only the profitability, also the continuous stable high utilization rate.
Bruce Lu (VP and Equity Analyst)
Understood, so for the modeling purpose, can you provide some target for R&D expenses as a percentage of revenue in 2021?
Chi-Tung Liu (CFO)
Yeah. 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, and hopefully, our revenue growth will provide more resources for all the related operating expenses items.
Bruce Lu (VP and Equity Analyst)
Okay. Thank you.
Operator (participant)
And the next question is coming from Stefan Chang, Aletheia Capital. Go ahead, please.
Stefan Chang (Tech Analyst)
Hi. Good afternoon, and thank you for taking my question. A couple of questions here, and the first one is actually still on 200-millimeter. I think one of the other foundry suppliers mentioned about to acquire or to build a 200-millimeter capacity from greenfield. Actually, the cost increased by probably another 50% in the past two to three years. So I'm just wondering, in your thoughts, what kind of 200-millimeter ASP can justify if you are going to acquire a new fab or to start from the greenfield?
Chi-Tung Liu (CFO)
This is really hypothetical, so it's difficult for us to answer the hypothetical questions. So let me answer you in different ways. We see potentials 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 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.
Stefan Chang (Tech Analyst)
Okay. Fair enough. Thank you. Another question is, so in Q4, your 28-nanometer revenue was already 18%. So do you have any goal or if there's any ballpark number in this year that you think we can provide us as a reference?
Jason Wang (President)
In Q1, we foresee the 28-nanometer contribution will continue to grow. If you're talking about the target, our goal is we believe the 25% contribution is achievable after our new 28-nanometer capacity comes online. We still align that as our current objective.
Stefan Chang (Tech Analyst)
Yeah. Thank you. That's very helpful. And the next question from me is back to 200 mm. So we know it is a very busy capacity right now. So I'm just wondering, at this moment, do you still have the luxury or do you still leverage the chance to continue to optimize your product portfolio within 200 mm? And if we look at this on a structural basis, let's see in the next one to two years, how do you think this will alter your 200-millimeter ASP as well as the profitability?
Jason Wang (President)
Again, that's the ongoing efforts. Along with the productivity improvement and the product mix enhancement, I think that will be the continued effort for us to improve our 8-inch result and performance. The current 8-inch capacity within UMC is mainly due to the limited cleanroom availability. That's why we focus on productivity improvement and some of the bottlenecking efforts. We also talked about earlier that we were always open to explore viable options in the 8-inch space as well. We'll continue seeking those opportunities. Given the current strong market demand, I think the inorganic approach has less possible. We have to concentrate and draw our attention to our internal efforts.
Stefan Chang (Tech Analyst)
Understood. Thank you very much. That's very helpful. Very good result. Thank you.
Jason Wang (President)
Thank you.
Operator (participant)
The next one is from Szeho Ng of China Renaissance. Go ahead, please.
Szeho Ng (Managing Director)
Oh, hi, gentlemen. Congratulations. My first question regarding the utilization. Now, if the company is already running at 100% utilization, I just wonder how much we can overdrive our capacity. So what would be the theoretical peak utilization we can achieve?
Jason Wang (President)
For 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? We believe the demand remains very strong. The strong demand from those applications obviously will lead to a higher utilization rate, and so I think we have a pretty good confidence that we're maintaining the high loading situation, but besides demand, we still need to continue to focus on our manufacturing excellence as well as our solutions, and 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, and so far, we've been executing according to the plan, and we're making good progress.
We have delivered in 2020, and we will still remain very high confidence within our 2021 loading situation outlook.
Szeho Ng (Managing Director)
Okay. Great. And for this year's capacity expansion, can you share with us how fast you'll be ramping up the capacity every quarter?
Jason Wang (President)
There will be some increase in the second quarter, and there will be some increase in the fourth quarter. But in general, the overall percentage of 12-inch increase is about 5% year-over-year.
Szeho Ng (Managing Director)
Oh, okay. Great. Thank you. And last one, I think for Chi-Tung, how should we model the tax rate for the company this year? Yeah, because last year, the tax rate was actually cut low. So I'm not sure if that's kind of sustainable.
Chi-Tung Liu (CFO)
Yeah. I think we will be safe to model about 10% corporate tax rate for 2021.
Szeho Ng (Managing Director)
Oh, okay. Great. Okay. Thank you very much. Congratulations.
Jason Wang (President)
Thank you.
Operator (participant)
The next question is coming from Sebastian Hou, CLSA. Go ahead, please.
Sebastian Hou (Managing Director and Head of Technology Research)
All right. Thank you for taking my questions. So first question is, I think there's a lot of talk recently about the auto chip shortage, which has affected the global car production. And hence, also media reporting 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 has some exposure here. So curious about if you can elaborate what's the company's exposure to automotive here, particularly for those power management, microcontroller units, 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. Thank you.
Jason Wang (President)
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 the end of last year. And the momentum has continued. However, the overall utilization rate of the fab is very high for the past three quarters, four quarters already. So despite the fact that UMC's fab is operating at 100% utilization rate, we are aware of their 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'll try 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.
Sebastian Hou (Managing Director and Head of Technology Research)
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?
Jason Wang (President)
Yeah. 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. And so hopefully, we can relieve some of the pressure.
Sebastian Hou (Managing Director and Head of Technology Research)
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 their allocation will likely be reduced?
Jason Wang (President)
I wouldn't say that because some of the capacity increase is coming out from the productivity improvement. So for those, the priority will probably be allocating to automotive at the current time. But again, automotive recovery really came late in this whole demand surge. So it's more of an optimization approach now. And hopefully, by giving some of the higher priority support, we can relieve the market pressure a little bit. As you know, the overall loading situation is severely high. So we can only do as much as we can at this time.
Chi-Tung Liu (CFO)
Our commitment to all the non-auto customers will not change at all.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Okay. And given that the company has offered some colors about the 8-inch capacity will increase by 1%, and also there's 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 are not cutting or lowering the priority well, cutting or lowering your commitment to the non-auto customers, I just cannot imagine how to mitigate how much more extra capacity we can allocate to the auto guys.
Chi-Tung Liu (CFO)
Just like Jason mentioned, we will have our own way to manage the priority while keeping the commitment to other customers. So basically, we are doing our best to mitigate the situation.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Great. And the follow-up on that is that given the auto, I think we have already adjusted our wafer pricing and now closer to the market pricing 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 the company to raise price or adjust price higher, not just for the auto guys, but to the non-auto guys also.
Jason Wang (President)
The upside and the incremental support will be limited, and so I will say that it's not going to be any significant uptake on that.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Great. Is there numbers or is there numbers 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?
Jason Wang (President)
No. Right now, we don't guide any automotive contribution in the revenue contribution at this time. And we only cover the 3 under the 3Cs.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Okay. That's fair. The last question from me, I think Chi-Tung probably explain this in the prepared remarks, but I'll tell you later. So allow me to ask again. So what's driving the non-operating investment gain for the past quarter? Thank you.
Chi-Tung Liu (CFO)
So for Q4, the net investment of TWD 5.7 billion was mainly correlated to the upward momentum in the equity market. So mostly non-cash-based market valuation. Yeah.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Of all this equity holding you have?
Chi-Tung Liu (CFO)
Yes. Yeah.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. Thank you.
Chi-Tung Liu (CFO)
All right.
Operator (participant)
The next question is coming from Rick Hsu, Daiwa Securities. Go ahead, please.
Rick Hsu (Director and Senior Equity Analyst)
Yeah. Hi. Good evening, guys, and congratulations for your strong result. 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 will that sustain?
Chi-Tung Liu (CFO)
It should be similar to that of 2020. And the continued subsidy recommendation should continue all the way to maybe 2023.
Rick Hsu (Director and Senior Equity Analyst)
Okay. All right. Thank you so much. Yeah. That's all I have. Thanks.
Operator (participant)
And next, we'll have Charlie Chan of Morgan Stanley for questions. Go ahead, please.
Charlie Chan (Executive Director and Technology Research Analyst)
Thanks for taking my question. Hi. Good afternoon, gentlemen. So first of all, we have a lot of discussion about the supply. You tried to reprioritize the auto chip production. Can you give us a kind of timeline? How soon this could be resolved? And I guess, is there any way to judge how real is the demand? Because during shortage, customers tend to double book. So can you give us some insights about these questions?
Jason Wang (President)
Are you referring to the automotive market or just?
Chi-Tung Liu (CFO)
Yeah. We probably won't be able to give you an auto segment, but we can give you an overall.
Charlie Chan (Executive Director and Technology Research Analyst)
Yep.
Jason Wang (President)
Yeah. So the overall market, at this time, the pace of the demand growth has surpassed the real capacity increase, as we all know. However, we do look at it from the inventory side. We do see a declining inventory in the past two quarters. It portrayed a healthier inventory level as we think across the supply chain. So the demand continued to be strong in both 8-inch 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 more of a structural shift in the foundry industry. There may be a possibility of that right now. Yeah.
Charlie Chan (Executive Director and Technology Research Analyst)
Okay. Thanks. And maybe some intelligence from supply side, right? I mean, TSMC, Powerchip, they claim they can add additional 20K of the 8-inch capacity in their Miaoli 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 in the long term, whether they're going to result in oversupply?
Jason Wang (President)
First of all, I mean, we're not in a position to comment on our peers. And we can only focus on what we do. For UMC, we have a very limited cleanroom space in the 8-inch area. So what we're doing now is we deploy our CapEx and taking advantage of the available cleanroom space for our 12A and 12X fab. And for those two facilities, our objective now is to increase capacity to accommodate a growing 28-nanometer wafer demand. And that's why you heard in the earlier, we're talking about we will focus on 28-nanometer capacity increase in both in 2021. And that's where we're going to be pooling our capacity at.
Charlie Chan (Executive Director and Technology Research Analyst)
Okay. So it's more like a cleanroom issue and you want to prioritize 28-nanometer. It's not because you cannot acquire 8-inch equipment?
Jason Wang (President)
First of all, yes. The Cleanroom is limited, right? From a Greenfield standpoint, it doesn't make sense for us to acquire tools if we don't have a place to put them. Yeah.
Charlie Chan (Executive Director and Technology Research Analyst)
Okay. Yeah. And also, you mentioned that you tried 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 two years?
Jason Wang (President)
They are different applications spread out in different segments. So for example, we see the all-around PMIC solution covering both 8-inch and 12-inch. And we see the RF-SOI application migrating from the 8-inch to 12-inch. So there 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 product pipeline from both 12- and 8-inch. Yeah.
Charlie Chan (Executive Director and Technology Research Analyst)
Yeah. Okay. That's very helpful. And that's the maybe question to Chi-Tung. 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 settled with the U.S. Justice Department, right? But how about those who was Micron? And are you going to settle with the counterpart? Thank you.
Chi-Tung Liu (CFO)
We don't have full year guidance for gross margin. We do have one quarter, first quarter gross margin guidance, which is in mid-20s%. So hopefully, we will take it from there. And for the lawsuit, we don't have any comment. If there's any significant development, we will discuss them accordingly in a timely manner.
Charlie Chan (Executive Director and Technology Research Analyst)
And may I assume that gross margin can gradually improve from here because the FX impact? Sorry, I'm not sure about FX impact, kind of a one-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 quarterly trend of depreciation, FX impact, and also the positive impact from your wafer pricing? So we can kind of get a sense about the full year gross margin trend. Thank you.
Chi-Tung Liu (CFO)
The depreciation will go up, down quarter over quarter, and as I mentioned earlier, this year, we expect the full year depreciation to decline by roughly 5%, and next year, it will be a little bit more, and as for the gross margin guidance, again, unfortunately, I don't have a crystal ball for the current currency, so we can only give the current situation for first quarter, which is again mid-20s.
Charlie Chan (Executive Director and Technology Research Analyst)
Okay. Okay. Thank you. It's super helpful.
Operator (participant)
Ladies and gentlemen, we're running out of time, so we'll take the last one. The last question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Yeah. Thanks for fitting me at the end. Yeah. A few follow-ups. First, on the CapEx, where before you were at $1 billion in underspending. And I think part of that year 28 was in full. With the move to $1.5 billion, should we expect that's a new range? You're growing mid-single digit with about $1.5 billion spend. So is that the framework to go on? Or do you even see a scenario that with the focus on 28, it could even start to push a bit higher?
Jason Wang (President)
Randy, the first comment I have is our stated ROI-driven CapEx strategy, that did not change. We'll continue following that principle. Despite the needs, the upside in customer demand and focus, even with the 28 nm, the market situation is not the only consideration factor into our 2021 CapEx budget. Our plan right now is we want to focus on maintaining UMC's market relevance and increase the customer's stickiness and base our value proposition, our solution, and the manufacturing, as well as the critical mass of our capacity offering. This strategy and the principle, it requires us to follow a rigorous evaluation process, right? We continue doing that, okay? We have quite a bit of bandwidth to do that to make sure that we deploy the right amount of the CapEx. At this time, it's $1.5 billion.
For the upcoming next year, we'll provide that guidance when we're ready. Yeah.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Great. If I could ask on the SMIC, it looked like there were a lot of fears three, six 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?
Jason Wang (President)
I mean, first of all, prior to any of the export restrictions, the wafer demand was already very strong. The demand situation was remained strong. As we have commented, this will last throughout the entire 2021 and driven by many of the demand 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 in our view, this is not related to any development of export restriction at all, and so I think our competitive advantage is going to be on our own capability, and it's not going to be on any top geopolitical or trade dynamics. Yeah.
Randy Abrams (Managing Director and Head of Semiconductor Research)
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 an opportunity to get some of the automotive customers for that fab if it's not quite full?
Jason Wang (President)
You have very good memory. Yeah. Yeah. Our last call, we actually talked about that. We stated the 90-nanometer was strong, 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 products will increase our 90-nanometer contribution, and this rate will start toward the end of the Q1 and beginning of Q2. So it's our expectation by Q2, and we'll be fully rolled out on this node.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. And one last, just a couple of housekeeping. The non-controlling interest has been moving around, but the expectation on that, where it's partly 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.
Chi-Tung Liu (CFO)
We certainly want to keep it within 13%-14% of revenue range.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. And then for the non-controlling interest, is there a way to think how that would trend? If you get closer to breakeven, that minority interest would come down?
Chi-Tung Liu (CFO)
That's right. That's correct.
Randy Abrams (Managing Director and Head of Semiconductor Research)
Okay. Great. Okay. No, thanks. That's all my questions. And good job and good luck this year.
Jason Wang (President)
Thanks.
Operator (participant)
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.
Michael Lin (Head of Investor Relations)
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 [email protected]. Have a good day.
Operator (participant)
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 Event section. You may now disconnect. Goodbye.