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United Microelectronics Corp (NYSE:UMC)
Q1 2020 Earnings Call
Apr 27, 2020, 5:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome everyone to UMC's 2020 First Quarter Earnings Conference Call. [Operator Instructions] 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 Event section.

And now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin please begin.

Michael Lin -- Division Director of Finance

Thank you and welcome to the UMC's conference call for the first quarter of 2020. I'm joined by Mr. SC Chien, the Co-President of UMC and Mr. Chitung Liu, the CFO of UMC. In a moment, we will hear our CFO present the first quarter financial results, followed by our President's key message to address UMC's focus and the second quarter 2020 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website www.umc.com under the Investors Financial section. During this conference, we will 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 company's control. For these risks, please refer to UMC's filing with the SEC in the US and the ROC security authorities. Now, I would like to introduce UMC's CFO Mr. Chitung Liu to discuss our first quarter 2020 financial results.

Chitung Liu -- Chief Financial Officer

Thank you, Michael. I would like to go through the first quarter 2020 Investor Conference presentation material, which can be downloaded from our website. Starting on Page 3, the first quarter of 2020 consolidated revenue was TWD42.27 billion with gross margin at around 19.2%. The net income attributable to the stockholders of the parent was TWD2.21 billion and earnings per ordinary share were TWD0.19. Our capacity utilization rate in the first quarter was 93% versus 92% in the previous quarter and 83% in the same first quarter of 2019.

On Page 4, as we discussed earlier, our sequential growth is about 1% to TWD42.2 billion for operating revenue. Gross margin almost quadrupled -- sorry, almost reached 19%; is around 19.2% of gross margin rate or TWD8.1 billion. And operating income is TWD3.4 billion or 8.1% operating income percentage. And because of the global stock market meltdown, we booked unrealized mark-to-market investment loss nearly TWD2 billion in the first quarter of 2020, which resulted in about TWD2.59 billion of net non-operating losses. And as a result, our net income attributable to stockholders of the parent in the first quarter of 2020 was TWD2.2 billion or equivalent of TWD0.19 in EPS.

On Page 5, for year-over-year comparison, our revenue grew by nearly 30% to 42.6% [Phonetic] from the same period of last year, and gross margin almost quadrupled here to TWD8.1 billion compared to TWD2.26 billion in the first quarter of 2019. And operating expenses has increased about 16%, largely due to the combination of USJC, which we acquired on October 1 of last year and net earnings is about TWD0.19 versus TWD0.10 in the same quarter of last year.

On Page 6, our cash on hand has reached TWD95 billion, and total equity for the company is about TWD210 billion.

On Page 7, our quarterly ASP down a little bit in the first quarter by low-single digit.

And on next page, revenue breakdown by geography. Asia represented 56% of our total revenue, where US is about 29%.

Our IDM remained almost unchanged, around 12% versus the last quarter of 13%. And communication remained at 54% of the pie, which is the largest share of our application breakdown.

On technology breakdown, 14-nanometer grew to 25% from 22% in the previous quarter. 28-nanometer represented about 9% of the revenue, which is mainly because of our larger revenue base. In the first quarter, we had quite a few scheduled fab maintenance -- new fab maintenance. So there's not much growth in the capacity, but the growth of capacity will be more significant in this quarter. It's not really significant but will be more noticeable in the second quarter, mainly coming from Fab8N or OTN [Phonetic] fab as well as some increase -- incremental increase in 12A.

Our capex remained unchanged at $1 billion. About 85% of the capacity expansion-related capex goes to 12-inch.

So the above is a summary of UMC's results for first quarter of 2020. More details are available in the report, which has been posted on our website.

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

SC Chien -- Co-President

Yes. Thank you Chitung. Good evening, everyone. Here, I would like to update the first quarter operating results of UMC. In the first quarter, foundry revenue grew 1% Q-over-Q to TWD42.27 billion, leading to a foundry operating margin of 8.2%. Utilization rate increased slightly to 93%, bringing wafer shipments to 2.15 million 8-inch equivalent wafers, primarily attributed to display driver demand in consumer and communication devices. The demand in consumer ICs partially reflected work-from-home initiatives adopted in many areas around the world to combat the spread of COVID-19. As the pandemic continues to impact populations across the globe,

UMC has given priority to all wafer manufacturing of medical-related ICs so that hospitals and care centers receive the equipment they need in the shortest time possible in order to deal with the coronavirus.

We will continue to commit all resources within our means to accelerate the shipments of healthcare-related ICs in the universal fight against COVID-19.

Looking into the second quarter of 2020, despite significantly higher levels of uncertainty caused by the COVID-19 pandemic, current outlook indicates slightly higher wafer demand, mainly supported by inventory replenishment across computer peripheral and consumer electronics end markets. We will continue to monitor

Market dynamics; meanwhile we anticipate a surge in the number of customer 28-nanometer tape-outs in the first half of 2020. While we strive to maintain the business momentum attained during the first quarter, UMC's corporate strategy of delivering a high dividend payout ratio remains intact. In Q1, our Board of Directors proposed to distribute a cash dividend of approximately TWD0.75 per share, subject to shareholder approval during the annual shareholder meeting. We will also continue to strengthen our financial structure while gaining additional market share by executing on our technology development and corporate strategy.

As the world navigates the COVID-19 situation, UMC is committed to the philosophy of employee care, environmental focus and public service while furthering sustainable development and corporate social responsibility. We will confront this challenge together with our employees, shareholders, and suppliers. We

Also deeply appreciate the efforts of all the front-line professionals confronting this pandemic and will continue to support our communities in Taiwan and abroad.

Let's move on to second quarter 2020 guidance. Our wafer shipments will increase by 1% to 2%. ASP in US dollars is expected to increase by 1% to 2%. The gross profit margin will be approximately 20%. The capacity utilization rate will be in the mid 90% range. Our 2020 capex budget will be $1 billion.

That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Questions and Answers:

Operator

Thank you Chien. And ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] Thank you. And the first question is coming from Randy Abrams of Credit Suisse. Go ahead, please.

Randy Abrams -- Credit Suisse -- Analyst

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

Chitung Liu -- Chief Financial Officer

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

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

Randy Abrams -- Credit Suisse -- Analyst

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

SC Chien -- Co-President

Okay. I think for the 28-nanometer, I apologize Chitung mentioned. I think so far, all the projects stay on track. We do not see any change from customer side yet. But based on this pandemic situation, there are some uncertainties there, but we see it -- look at it in a positive way that so far, the progress is on track. Probably, there could be some impacts, but recently what we are talking about is more on the new applications in total, not existing product lines.

Randy Abrams -- Credit Suisse -- Analyst

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

SC Chien -- Co-President

Okay. I think the 28-nanometer contribution in second quarter 2020 is expected to increase, OK, I think mainly because of higher demand in second quarter, especially for the 4G segment and also have higher MRAM adoption -- adoption rate, OK. And also for the -- on the camera module, changes [Phonetic] continue to take place for both mid-end and entry-level models. That's all we can see. So we see there's a good expansion for that. Yes.

Chitung Liu -- Chief Financial Officer

Yes. If I may add on that. We don't really provide a percentage of revenue or any geometry. However, I think our view that the quarter should the trough of 28-nanometer revenue in terms of percentage of total revenue.

Randy Abrams -- Credit Suisse -- Analyst

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

Chitung Liu -- Chief Financial Officer

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

Randy Abrams -- Credit Suisse -- Analyst

Okay, great. Thanks a lot Chitung and Chien.

Chitung Liu -- Chief Financial Officer

Thank you.

Operator

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

Roland Shu -- Citigroup -- Analyst

Hi, good afternoon. First question I would like to ask about your blended ASP. So in the first quarter, your blended ASP declined slightly. If I look at -- of your product mix, then for 19-nanometer and below, I think the percentage of total revenue, was same as 4Q, and also you have a little bit lower contribution from 19-nanometer, but higher contribution from 14-nanometer. So expand on this kind of product mix change. Why you still see the ASP -- blended ASP decline in first quarter?

SC Chien -- Co-President

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

Roland Shu -- Citigroup -- Analyst

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

SC Chien -- Co-President

That's correct.

Roland Shu -- Citigroup -- Analyst

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

SC Chien -- Co-President

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

Roland Shu -- Citigroup -- Analyst

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

SC Chien -- Co-President

First of all, the customer order cuts might be inevitable in the second half as we highlighted, although we don't really have the crystal ball to tell the magnitude. Based upon the impact of COVID-19 on the end market, here's what we have observed. This is -- it actually differs -- different by customer segment. Some customers in last year, 2019, they have already favored [Phonetic] a weak year. We believe those customers have the inventory level, even at impact of COVID-19, is pretty enhancing [Phonetic]. For some other customers, who are actually concerned about capacity support, we do foresee inventory correction in the second half. Order cuts from those customers will be inevitable.

However, the magnitude will be uncertain. And lastly, we hope our effort in customer engagement, the diversification of our product pipeline and increasing penetration in viral effect will soften the correction.

Roland Shu -- Citigroup -- Analyst

Understood. But for the technology node point of view, I think last quarter, you expected some demand on 8-inch [Indecipherable] micron and below. Demand was strong, and with this tight utilization and then this also less than for 12-inch mature node from 19-nanometer to 14-nanometer. So you still think -- or hold to the same view for these -- less than [Phonetic] for these technology nodes and the technology and the demand will be still strong and the capacity will be still strong through end of this year?

SC Chien -- Co-President

Yes. For second quarter, we actually target mid-90. That's virtually full capacity utilization rate...

Roland Shu -- Citigroup -- Analyst

Okay.

SC Chien -- Co-President

...except for 5G segment in the second quarter. So everything is set for very leading edge 28-nanometer related. It's almost full in the second quarter.

Roland Shu -- Citigroup -- Analyst

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

SC Chien -- Co-President

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

Roland Shu -- Citigroup -- Analyst

Okay. Thank you. Yes. I'll go back to the queue up for follow-up questions. Thank you.

Operator

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

Bruce Lu -- Goldman Sachs -- Analyst

Hi, good afternoon. I have a question again about gross margin and operating margins. So first of all, what's the key differences between your guidance versus your delivery, which is gross margin at 19%. The revenue is pretty in line. Why the gross margin is so much higher, at least at the very, very high-end of the guidance?

The second thing is that I'm so happy to see that operating expenses especially for R&D expenses declined quite a bit in the first quarter 2020, almost down to 7.5% of total revenue. Do we expect this could be the new norm for the R&D expenses? So what is the key to drive the lower R&D expense? That's my first question. Thank you.

SC Chien -- Co-President

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

Bruce Lu -- Goldman Sachs -- Analyst

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

SC Chien -- Co-President

Exactly. The production pipeline, yes.

Bruce Lu -- Goldman Sachs -- Analyst

I see. I understand. Thank you.

SC Chien -- Co-President

[Speech Overlap] partially in the number I just gave you, the actual loading was 93% versus and guidance of 90%.

Bruce Lu -- Goldman Sachs -- Analyst

I see.

SC Chien -- Co-President

Of course, we also tried pretty hard. So I'll them [Phonetic] that we continue to lower our manufacturing costs. So there is also some factors related to cost reduction effort.

Bruce Lu -- Goldman Sachs -- Analyst

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

SC Chien -- Co-President

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

Bruce Lu -- Goldman Sachs -- Analyst

Okay. Thank you.

SC Chien -- Co-President

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

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

Bruce Lu -- Goldman Sachs -- Analyst

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

SC Chien -- Co-President

Already, yes.

Bruce Lu -- Goldman Sachs -- Analyst

But still, where is it?

SC Chien -- Co-President

Thank you. We want to do better. Yes.

Bruce Lu -- Goldman Sachs -- Analyst

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

SC Chien -- Co-President

Okay. I think we do expect smartphone shipment will decline, OK, till the -- especially I think the second half. However, we hope that higher penetration rates in wireless segment will help to offset the make-whole impact to UMC.

Bruce Lu -- Goldman Sachs -- Analyst

I'm sorry. I don't quite get it. You mean that your revenue exposure to communication is higher? That's why you can help -- that's why you can have some of the revenues or...

SC Chien -- Co-President

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

Bruce Lu -- Goldman Sachs -- Analyst

I see. I see. Understand. So your current outlook for the second half in 28-nanometer remains unchanged compared to CMOS?

SC Chien -- Co-President

I think we still have some uncertainty due to the COVID-19, but so far that's the data we have [Indecipherable].

Bruce Lu -- Goldman Sachs -- Analyst

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

SC Chien -- Co-President

Yes. Currently based on our alignment with customers, we still don't see the change. Of course, we will continue to align with customers. Based on the COVID-19 situation, [Indecipherable] with customers. But so far, there is no change.

Bruce Lu -- Goldman Sachs -- Analyst

I see. Thank you. Very good results. Thank you.

SC Chien -- Co-President

Thank you.

Operator

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

Gokul Hariharan -- JPMorgan -- Analyst

Yes, hi. Thanks for taking my question. A couple of things. First of all, could you talk a little bit about what is your outlook for 8-inch capacity utilization and demand through the rest of the year, especially, I think, first half has been pretty tight with full capacity?

Second question, when you talk about potential for order cuts and inventory correction in the second half, could you give us some idea about which segments would you see the bigger cuts, which segment do you think is going to be more resilient for you a bit more in detail, I think, especially given that you mentioned that you're gaining some share in the wireless, especially in image camera-related components, etc. And lastly, a quick question on USJC fab status. I think last time we checked, I think it was kind of close to breakeven. What do you think is the status for the customers in USJC given that they have a lot of automotive, industrial kind of exposure, which seems to be a little bit weaker than the overall semiconductor industry. Are you able to move some of your design wins into that fab already or is that going to take some more time? Thanks.

SC Chien -- Co-President

Okay. Let me answer the first one. I think 8-inch -- we expect to know how 8-inch will operate at full utilization in the second quarter, OK? And we also foresee that 8-inch utilization will remain full, OK, mainly driven by the solid demand outlook in power, MCU and display-related requirement. Okay?

And as for the USJC, the question is, how is the loading situation and do we transfer new pipeline product to there yet. Okay. I think yes. We started to do the technology transfer, OK. But that's still may take one more quarter to gain some business, OK. I think 12-n so far the profitability in the first quarter has improved Q-over-Q. So we have already setup the profitability target based on the set condition and comp structure. I think so far, the synergies already seen a good result, OK. So, I think, we are doing good for USJC integration so far. Yes.

Chitung Liu -- Chief Financial Officer

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

Gokul Hariharan -- JPMorgan -- Analyst

Got it. Thank you.

Operator

And the next one is coming from Szeho of China Renaissance. Go ahead please.

Szeho Ng -- China Renaissance Securities (Hong Kong) Ltd. -- Analyst

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

SC Chien -- Co-President

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

Szeho Ng -- China Renaissance Securities (Hong Kong) Ltd. -- Analyst

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

SC Chien -- Co-President

We don't really see a clear pattern for second quarter in terms of monthly revenue. We don't have a guidance on that.

Szeho Ng -- China Renaissance Securities (Hong Kong) Ltd. -- Analyst

Okay, all right. Okay, no problem. Okay. Congratulations.

SC Chien -- Co-President

Thank you.

Operator

And next we'll have Sebastian Hou of CLSA for questions. Go ahead please.

Sebastian Hou -- CLSA -- Analyst

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

Chitung Liu -- Chief Financial Officer

Sebastian, this is a question that I cannot answer. Okay? So that's -- area parameters grow determining our gross margin and we have seen an improvement coming from USJC, and we also have recovery capacity utilization rate from 28-nanometer. And yes, we're also under this threat of order cancellation overall broad based because of the COVID-19. So that's why we cannot really see through the, first of all, for second half. But for quarter two, we do expect to see further margin expansion based upon better capacity utilization rate and higher contribution from 28 nanometers.

Sebastian Hou -- CLSA -- Analyst

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

SC Chien -- Co-President

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

Sebastian Hou -- CLSA -- Analyst

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

SC Chien -- Co-President

Okay, yes. I think, we foresee 8-inch utilization to remain full, OK, driven by the solid demand OK throughout the second half 2020. I'd say that demand outlook is here good in the power, MCU and display requirement.

Sebastian Hou -- CLSA -- Analyst

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

SC Chien -- Co-President

I think yes, that's obviously because we see customer weighting for the capacity is full.

Sebastian Hou -- CLSA -- Analyst

Okay.

SC Chien -- Co-President

So we have [Indecipherable] communicated the impact.

Sebastian Hou -- CLSA -- Analyst

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

SC Chien -- Co-President

So far, yes. and caused us uncertainty for the second half because of the COVID-19 factor. That's what we see from our data in customer alignment.

Sebastian Hou -- CLSA -- Analyst

Okay, got it. My last question is a follow-up on depreciation. Let me -- to Chitung, when do you expect our depreciation start to fall more, obviously in -- I mean, I understand that's target for next year. But can you possibly to -- tell us by which quarter or is it first half next year or potentially by the end of this year we could see that?

Chitung Liu -- Chief Financial Officer

No, we probably only see low-single digit this year, and it will be more than that in 2021, but majority more noticeable one will be in 2022.

Sebastian Hou -- CLSA -- Analyst

Okay. So this year, low-single digit, next year more than low-single digit? But still...

Chitung Liu -- Chief Financial Officer

Yes, that's exactly.

Sebastian Hou -- CLSA -- Analyst

But I remember earlier you -- I think the past two quarters, your guidance was down -- tend to be down like teens or double-digit. Are you still looking for that for '21?

Chitung Liu -- Chief Financial Officer

I cannot really have firm figures for you for 2021, but you will be getting.

Sebastian Hou -- CLSA -- Analyst

Got it. Okay. Thank you.

Operator

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

Gokul Hariharan -- JPMorgan -- Analyst

Yes, hi. Just one quick question. Could you talk a little bit on how you're thinking about dividend given that we are potentially getting into a bit of a downturn situation. Given I think this is probably one of the highest dividend -- absolute dividend that you have paid, last year TWD0.75. Is there any change in policy in terms of thinking about keeping flattish dividend on an absolute basis or are we still going to be sticking to the payout ratio kind of formula?

Chitung Liu -- Chief Financial Officer

It's both. We will like to see continued high dividend payout ratio based upon our earnings. And hopefully, we can continue to improve our earnings. But during these cyclical industries, we also want to make measure our shareholders receive a certain protection and absolute dividends are received. So it depends on which cycle are we in, in terms of dividend. So I think high payout ratio is definitely, but certain minimum protection is also we wish to maintain.

Gokul Hariharan -- JPMorgan -- Analyst

How should we think about that certain minimum ratio if you think about it, average of last two, three years or...

Chitung Liu -- Chief Financial Officer

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

Gokul Hariharan -- JPMorgan -- Analyst

Okay, thank you very much.

Chitung Liu -- Chief Financial Officer

Thank you.

Operator

And the next question is coming from Bruce of Goldman Sachs. Go ahead please, Bruce.

Bruce Lu -- Goldman Sachs -- Analyst

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

Chitung Liu -- Chief Financial Officer

First of all, I think the overall semiconductor actually show a decline of mid-single digit. And so, as an important component of the semiconductor industry, it's actually a pretty good result already for foundry to continue to show growth. And of course this is coming from our corporate marketing department and they are planning out different views from research, data center, as well as customer visit, etc. So, I don't have a straightforward answer why we are using this low-single digit number. But from -- and I also cannot comment on our competitors. What we can see from UMC is that we are seeing -- penetrating into new segments through new product wins. And so, UMC is winning market share. And more importantly our customers seem to win market share as well. So that's a combination that why UMC can do slightly better than the industry, at least by far as we can see.

Bruce Lu -- Goldman Sachs -- Analyst

I understand. I have no questions about why UMC is able to outgrow the industry, but I thought the industry growth is a lot lower than [Indecipherable] its potential. And I think the debt [Phonetic] is actually pretty big. That's why we want to know a bit more detail. Maybe even we can follow up with this, but this is definitely that debt is a lot bigger than our expectation.

Chitung Liu -- Chief Financial Officer

Yes, we can certainly follow up on this with more data we gather from outside.

Bruce Lu -- Goldman Sachs -- Analyst

Okay, thank you.

Chitung Liu -- Chief Financial Officer

Thank you.

Operator

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

Michael Lin -- Division Director of Finance

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.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Michael Lin -- Division Director of Finance

Chitung Liu -- Chief Financial Officer

SC Chien -- Co-President

Randy Abrams -- Credit Suisse -- Analyst

Roland Shu -- Citigroup -- Analyst

Bruce Lu -- Goldman Sachs -- Analyst

Gokul Hariharan -- JPMorgan -- Analyst

Szeho Ng -- China Renaissance Securities (Hong Kong) Ltd. -- Analyst

Sebastian Hou -- CLSA -- Analyst

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