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United Microelectronics Corp (NYSE:UMC)
Q4 2020 Earnings Call
Jan 27, 2021, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome everyone to UMC's 2020 Fourth 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 broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website www.umc.com under the Investor Relations, Investors Events section.

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

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 session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors financial section.

During this conference, we may make forward-looking statements based on 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 risk that may be beyond the Company's control. For this risk, 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. Chi-Tung Liu, to discuss UMC's fourth quarter 2020 financial results.

Chi-Tung Liu -- Chief Financial Officer

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 TWD45.3 billion, with a gross margin at 23.9%. The net income attributable to the stockholder of the parent was TWD11.2 billion and earnings per ordinary share was TWD0.92. 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 TWD45.3 billion. Gross margin 23.9%, or TWD10.8 billion. Because of some employee-related compensation and also share-based scheme, our operating expenses increased to TWD6.3 billion in the fourth quarter of 2020. And as a result, operating income is around TWD5.6 billion or 12.4%.

And because of the strong submarket, mark-to-market valuation has contributed to most of our non-operating income in Q4 2020, which was TWD5.6 billion. So our net income in Q4 last year was TWD10.9 billion and net income attributable to the stockholder of the parent is TWD11.2 billion. EPS is TWD0.92.

On page five, which is the year-over-year comparison, our revenue grew 19.3% in NT dollars to TWD176.8 billion. In US dollars, the growth rate was roughly around 26%. And among the growth, around half is contributed by the combination of our USJC in Japan. And gross margin grew to almost 8 percentage points to 22.1%, or TWD38.99 billion.

Operating expenses is similar to the revenue. We also have some combined expenses from USJC and increased year-over-year around 6.6%. Operating income jumped growth 369% to TWD22 billion. Gross operating margin rate was 12.5%. Net non-operating income is around TWD5.9 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 TWD29.2 billion or 16.5% and full year EPS is TWD2.42 per share. So on page six, our balance sheet highlights. Cash remained around TWD94 billion and total equity has increased to TWD235 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 on a year-over-year comparison in terms of geographic breakdown on page nine.

So, page 10 and also page 11 is the revenue breakdown by customer type and IDM continued to be around 12% to 13% for both Q4 and the full year of 2020. On page 12, our revenue breakdown by segment. Communication declined a little bit to 49% in the fourth quarter and computer is the highest growth segment in the Q4 of 2020.

Again for the full year segment breakdown on page 13 that ratio didn't really change much on a year-over-year comparison. On page 14, our 28-nanometer percentage of revenue continued to increase. In Q4, now it's around 18% of our total revenue. For the previous quarter, 28-nanometer revenue was 14%. And for the full year 28-nanometer net revenue grew from 11% in 2019 to 14% in year 2020.

Page 15 is our capacity breakdown table effect and because of the shorter working days and also Chinese New Year holidays, in Q1 2021, our available capacity is a little bit less than that of Q4 2020. However, we continue to expand our capacity mainly in our 12A 12X as well as a -- and also 12M. So, for the full year capacity, we continue to see quarterly growth starting from Q2 of 2021.

For our annual capex budget, current forecast is around $1.5 billion for 2021 and the breakdown is about 85% 12-inch related and also mainly focused on 28-nanometers. So, the above is a summary of UMC's results for Q4 2020. More details are available in the report which has been posted on our website.

I will now turn the call over to President of UMC, Mr. Jason Wang.

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 us over into Q4 lifting utilization rate to 99% and rising wafer shipment to 2.3 million 8-inch equivalents. The stable capacity utilization was driven by robust end market demand on consumer and computing-related applications such as Wi-Fi, digital TV, microcontroller, and power management IC.

For full year 2020, UMC's revenue grew 26% in US dollars, while operating income surged to TWD22.01 billion, reflecting solid utilization rates across both 8-inch and 12-inch facilities and optimization of our blended product mix in particular our enhanced 12-inch product mix, primarily resulted from the substantial pickup in 28-nanometer wafer business as well as our successful integration of USJC 12-inch operations.

Looking into the first quarter, stable demand outlook will lead to an incremental increase in wafer shipment and blended ASP in US dollars. However, due to the continuing unfavorable foreign exchange rate, we anticipate the appreciation of the NT dollar will offset more than half of the implied growth project for Q1.

For full year 2021, UMC continues to share the foundry industry's positive view in wafer demand. Hence we will continue with the company's disciplined and measure the 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 US dollar will increase by 2% to 3%. However, the surging NT dollar will wipe out more than half of the implied revenue growth as reported earlier. Now, allow me to explain in Chinese as well.

[Foreign Speech]

Gross profit margin will be in the mid-20% range. Capacity utilization rate will be a 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.

Questions and Answers:

Operator

Yes. Thank you, Mr. Wang. Now ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from Randy Abrams, Credit Suisse. Go ahead please.

Randy Abrams -- Credit Suisse -- Analyst

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 growth -- additional shipment growth you can squeeze out this year from your capacity? So if you could give a sense on how much capacity additions through the year you'll have on 12-inch and 8-inch?

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 higher utilization rates driven by the strong demand that we reported earlier. We're already at 99%, but we project Q1 will be 100%. So the other -- the ASP...

Randy Abrams -- Credit Suisse -- Analyst

Okay. And maybe just a follow-up first on that. I guess, the follow-up through the year since you'll be at 100%. Could you discuss the capacity additions? Like -- because I know you had Xiamen coming on. So when the additional capacity will be available if you could discuss on 12-inch and then debottlenecking mature nodes? How some of these fabs may ramp to add capacity through the year?

Jason Wang -- President

Well, from a year-over-year standpoint, the 2021 capacity will grow about 3% in 2021.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Yes.

Jason Wang -- President

And that will split between the 8-inch and 12-inch. The 8-inch due to the limited clean room space. And we're only doing the some of optimization and productivity improvement so that will probably be about 1% increase on 8-inch and the 12% -- about 5% from 12-inch.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Actually a follow-up and then I'll get to ASP. On the 8-inch where there's very limited space, there was discussion a few months ago about purchasing 8-inch capacity from Japan. Could you discuss, I guess, opportunity to acquire capacity or otherwise your view to grow the customer base on 8-inch. Is your plan to eventually find a way to add capacity, or is it to transition customers into 12-inch?

Jason Wang -- President

Well, I mean, that -- well, first of all, from the 8-inch greenfield from our existing premium space there is a limitation there, OK? And as far as the -- inorganically, we are unable to comment any guess or speculation, but we are always open to exploring new opportunities as long as they can enhance our shareholders' benefit. So we are open to the inorganic approach.

The comment -- your question about if we can migrate in the 8-inch into 12-inch, that is ongoing efforts. It's subject to different applications and the customers' alignment and that will be an ongoing effort for us.

Randy Abrams -- Credit Suisse -- Analyst

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

Well, the Q1 -- first of all, the Q1 ASP guidance was a result of increase due to higher 28-nanometer wafer shipments. And some of the pricing enhancing in the 8-inch as well, the technology migration in the 12-inch business, we're migrating some of the product into a different -- the next node.

The overall blended ASP will increase about 2% to 3% quarter-over-quarter in Q1 in our guidance. For the ASP, we always keep commitment to our long-term customer. So, however, we do believe the ASP should reflect our market value based on the technologies competitiveness as far as our manufacturing excellence along with our commitment to our customers. So, therefore the ASP is more of a result of many different factors.

If the question is about 2021 based on all those factors will lead us to set a mid single-digit percentage year-over-year in ASP increase as our goal in 2021 at this point.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Great. That's helpful. And just one final question. The earnings with some of the non-operating income at TWD2.42, 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 of the higher earnings you generated?

Chi-Tung Liu -- Chief Financial Officer

We, of course, will continue high payout dividend policy. And I think for the cash dividend, we do see the potential for the 2021 payout to be likely double from last year. But this is also subject to the Board approval.

Randy Abrams -- Credit Suisse -- Analyst

Okay, great. Thanks for your time, Jason.

Operator

And the next question is coming from Sunny Lin, UBS. Go ahead please.

Sunny Lin -- UBS -- 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 -- UBS -- Analyst

Got it. So that's a bit above what you guided before, I think previously you were guiding for -- from 40,000 wafer per month to about I think 52,000 wafer per month by mid of this year?

Jason Wang -- President

The 28-nanometers total capacity -- combining the high-K poly SiON we have about 45,600 per month at the end of Q4 in 2020, and we are projecting by end of 2021, Q4 2021 will be 59,300 per month.

Chi-Tung Liu -- Chief Financial Officer

Yeah. Some of the new 28-nanometer capacity also comes from the transition of 14-nanometer capacity. So may not be all greenfield.

Sunny Lin -- UBS -- Analyst

Got it. So a very quick follow-up. How does this changes your expectation on depreciation for this year and next year?

Chi-Tung Liu -- Chief Financial Officer

The depreciation curve still will be trending down as we mentioned before. Of course, the slightly higher capex in 2021, we are of course after the depreciation curve for the next few years but not that much. So we still expect to see about 5% decline year-over-year in depreciation for 2021. And the decline rate should be more in 2022 followed by an even more significant decline in 2023 but let's focus on 2021 and 2022 first.

Sunny Lin -- UBS -- 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 our -- 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

Well, the earlier quarter ASP projection for the year is the blended ASP reflects, the combination of 8-inch and 12-inch price in a 8-inch equivalent. So that will be a good reference for you to use.

Sunny Lin -- UBS -- Analyst

Got it. Thank you. Very helpful.

Operator

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

Roland Shu -- Citigroup -- 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 -- not all. I think that my question specifically is about 28 and 40-nanometer. So compared to your average 100% utilization, how about the capacity on 28 and 40-nanometer doing in first quarter?

Jason Wang -- President

Well, the overall is 100%. And both the eight-inch and 12-inch are full at 100%. So the multi nodes are full.

Roland Shu -- Citigroup -- Analyst

Yeah. Multi nodes are full, how about the 28 and 40?

Jason Wang -- President

They both are full.

Roland Shu -- Citigroup -- Analyst

Okay. Both are full. Okay, thanks. And second question is for your gross margin. So your revenue last year already achieved a record high. Are there still room for gross margin to reach our last peak label around 30% in 2010. So, how do we expect your margins in the -- maybe next one to two years? How soon will the gross margin go back to 30%? Thanks.

Chi-Tung Liu -- Chief Financial Officer

Yes. We, kind of, maybe I can answer first. Basically every 1% increase in ASP will contribute more than 0.5% gross margin. So it really depends on how much ASP increase. Also NT dollar appreciation also has some negative impact on our gross margin. So every 1% of NT dollar appreciation will eat about 0.4% of our gross margins. We also ensure the benefit of economic scale and also better product mix and cost reduction. More importantly, it will be our performance for both our 12M Japanese subsidiary as well as our Xiamen subsidiaries.

Currently, our Xiamen subsidiary still post operating loss, given the early stage heavy depreciations, but their performance has been continuing to improve because of the higher loading and also higher 28-nanometer production. So that will contribute a certain percentage of gross margin increase.

Roland Shu -- Citigroup -- Analyst

Understood. Yes. So how do you see on the ASP increase? Are we able to have this 10% ASP increase in the near future?

Jason Wang -- President

Well, I commented earlier, the ASP has manufactured, they have to be considered. So along with all those considerations and we're expecting our ASP will reflect our market value based on our current market position. And that's what we're continuously driving for. Just like Chi-Tung mentioned earlier, continuing to improve our corporate earnings is our principle. So as we continue improving productivity, driving costs down, enhancing product mix as well as moving the ASP to a reasonable market reflecting our market value. And at the same time, we are managing our depreciation curve. That means the UMC will act on to our plan to improve our overall corporate earnings.

Roland Shu -- Citigroup -- Analyst

Okay. Thanks. It's clear. These were all of my questions. Thank you.

Jason Wang -- President

Thank you.

Operator

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

Bruce Lu -- Goldman Sachs -- Analyst

Hi. Thank you for taking my question. Great results. I want to ask about the profitability for the 8-inch and 12-inch -- especially legacy 12-inch, OK. Let's remove 28-nanometers out of the equation because the depreciation is still under 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

Well, I mean, that's an interesting question. In general, we do believe there is a potential in terms of our market price, OK? Again, the ASP result of many different factors I mentioned earlier. So we have to actually -- first executing our technology manufacturing. And while maintaining our commitment with our customer so -- and eventually, we can try to win-win results for both our customers and UMC.

So the bottom line is we need to be a trustworthy partner for our customers while we're managing our ASP to a reasonable level. I can't really quote you a percentage specifically, but I do believe there is a potential to get to that.

Bruce Lu -- Goldman Sachs -- Analyst

Let me ask a question in a different way. I mean, when the company tried to do that -- list IPO in China, you did provide your urgent profitability, which is for like mid-30s percentage in terms of the gross margin. So comparing to TSMC for the 8-inch, which is around 50%. So the profitability gap is about 15%, which may mean by reasonably assume that the price gap or some kind of cost gap, right? I mean, given the current situation or given your execution has been improved the cost structure hasn't improved. So what is the reason? Can we assume that you can achieve 50% sometime in two, three years, or that is a way too high bar to achieve?

Jason Wang -- President

Well, I can tell you this, on the 8-inch operation, we are very close to where our market value is. Okay. And -- but again, the blended ASP including a product mix as well. So the -- some of the product migration will have to take effect to reflect the gap. And from those applications, we may already have is in commitment, so that will take some time to manage that migration. But if you're talking about from apple-to-apples standpoint, our 8-inch ASP is very close to what the market value is.

Bruce Lu -- Goldman Sachs -- Analyst

So how about legacy 12-inch?

Jason Wang -- President

The legacy 12-inch also again is resolving on current product mix. So one of the product mix improvement is included an important area for us to continue to enhance. So, if we do the apple-to-apple comparison, I do think the -- from the 12-inch potential there is -- on the 12-inch mature, there's still some potential there.

Bruce Lu -- Goldman Sachs -- Analyst

I see. So from investments perspective, we can reasonably assume that the profitability for 8-inch will remain at high level, but we can expect some positive improvement from the legacy 12-inch?

Jason Wang -- President

That will be our goal yes.

Bruce Lu -- Goldman Sachs -- Analyst

Thank you. The next question is regarding your capex. I mean in addition to the 28-nanometer capacity expansion that you guided do you have any plan to expand like legacy 12-inch? I mean based on the current wafer pricing, is it profitable or margin accretive to increase the capacity for the legacy 12-inch?

Jason Wang -- President

The economics on the legacy 12-inch at this point it remained very challenging, OK? So the part of our 2021 capex that we invest we including for some of the specialty capability -- capacity capability within the legacy side. I think those has a justifiable economics. But if you're talking about a greenfield logic capacity for the mature 12-inch I think the bar is very high, remain very challenging to make economic sense there.

Bruce Lu -- Goldman Sachs -- Analyst

Thank you. I think I want to squeeze one last question which is R&D expenses, OK. For 2020, the R&D expense is still like 7.5%. So what is the target for 2021 and maybe 2022? And the absolute R&D expenses actually went up in 2020 versus 2019. I mean after like giving -- after stopping the best R&D for the best node. So can you provide me more color about these R&D expenses increase other than the higher employee bonus?

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 won't strive to become a leading pure play foundry in some particular applications with one comprehensive process solution, OK, and manufacturing excellence and sizable capacity offering in both 12-inch and 8-inch fabs and along with our strong client portfolio. We think with that we can actually help UMC to become an important player in this industry.

The foundry capacity has been tight for some time as we all know. The tightness in capacity availability is more pronounced in 8-inch advanced and 12-inch mature. And demand from those nodes significantly outpaced the growth in capacity, OK? And we believe the supply and demand imbalance could likely lead to a structural shift in semi market dynamics. So for UMC this our technology know that we need to continue to focus. And therefore UMC has become more relevant to the market and trustworthy to our customers as I said. In addition, we need to commit and we are committed to strategically allocate meaningful among R&D into the R&D investment to sustain the technology leadership in our focused in particular applications.

Areas such as like high voltage those are new. RF SOI, PMIC ultra-low power embedded on flash memories, those are all important and that require us to remain committed in R&D development. So that will give you some idea why we're looking at that as a continuous effort.

Bruce Lu -- Goldman Sachs -- Analyst

So can I say that those investment will be the key for you to improve your legacy 12-inch profitability?

Jason Wang -- President

Yes you can say that. Not only the probability also the continued stable high utilization rate.

Bruce Lu -- Goldman Sachs -- Analyst

Understand. So what is the -- for the modeling purpose can you provide some target as for R&D expenses as a percentage of revenue in 2021?

Chi-Tung Liu -- Chief Financial Officer

Yes. I think for 2021 even beyond our goal is really to keep the opex as a similar percentage as the last few years. And same for R&D. Hopefully our revenue growth will provide more resources to all the related operating expenses items.

Bruce Lu -- Goldman Sachs -- Analyst

Okay. Thank you.

Operator

The next question is coming from Stephen Chan, Asia Capital. Go ahead please.

Stephen Chan -- Asia Capital -- 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 supplier mentioned about to acquire or to build a 200-millimeter capacity from greenfield actually the cost increased by probably another 50% in the past two to three years. So I was just wondering in your thoughts what kind of 8-inch or 200-millimeter ASP will be just -- can justify, if you are going to acquire a new fab or to start from the greenfield?

Chi-Tung Liu -- Chief Financial Officer

This is really hypothetical so it's difficult for us to answer the hypothetical questions. So let me answer you in a different way. We see potential to bring value to our current customers, as well as our shareholders. If we acquire a similar fab like we did for USJC. So that has been bringing value to our customers as well as to our shareholders. So that has been our benchmark. For the future acquisition, if there's any we will pretty much follow a similar guidance. So the question you raised is really too many factors. For us, I think the ultimate baseline is to see, if they can bring value to our shareholders and customers.

Stephen Chan -- Asia Capital -- 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 -- can provide us as a reference?

Jason Wang -- President

Well, the -- in Q1, we foresee the 28-nanometer contribution will continue to grow. And the -- well, if you're talking about the target, our goal is we believe the 25% contribution is achievable after our new 28-nanometer capacity come online. So we still align that as our current objective.

Stephen Chan -- Asia Capital -- Analyst

Yeah. Thank you. That's very helpful. The last question from me is back to 200-millimeter. So we know, it is a very busy capacity right now. So I'm just wondering, as of this moment, do you still have the luxury or do you still leverage the chance to continue to optimize your product portfolio within 200-millimeter, and if we look at it on a structural basis, let's say in the next one, two years, how do you think this will alter your 200-millimeter ASP as well as the profitability?

Jason Wang -- President

Well, again, that's the ongoing efforts and the -- along with the productivity improvement and the product mix enhancement. I think that that will be the continuing effort for us to improve our 8-inch results and performance. The current 8-inch capacity within UMC is mainly due to the limited clean room availability. So that's why we focus on productivity improvement, and some of the debottlenecking efforts. And we also talked about earlier that we are always open to explore viable option in the 8-inch space as well. So those -- we'll continue seeking those opportunities. Given the current market strong market demand, I think the inorganic approach is less possible. So we have to concentrate and draw our attention to our internal effort first.

Stephen Chan -- Asia Capital -- Analyst

Understood. Thank you very much. That's very helpful. Very good results. Thank you.

Jason Wang -- President

Thank you.

Operator

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

Szeho Ng -- China Renaissance -- Analyst

Hi, gentlemen. Congratulations. My first question regarding on digitization, now if the company are running at 100% utilization, I just wonder, how much we can overdrive our capacity? So what is the theoretical peak utilization we can achieve?

Jason Wang -- President

Well, we -- for the 2021, we see a very robust demand outlook in 2021. It's driven by multiple factors in the smartphone-related demand, the continued momentum, the work-from-home trends. And in addition a very hot topic recently, there is a strong pickup in automotive segment too, right? So we believe the demand remained very strong. The strong demand from those applications obviously will lead to higher utilization rates. And so, I think we have a pretty good confidence that we will maintaining the high-loading situation.

But besides demand, we still need to continue to focus on our manufacturing excellence, as well as our solutions in order to continue managing the pipeline of both 12-inch and 8-inch and those will help us for the long-term loading stability. So far, we've been executing according to plan and we're making good progress. We have delivered in 2020 and we still remain very high confidence in our 2021 loading outlook.

Szeho Ng -- China Renaissance -- Analyst

Okay. Great. And for this year's capacity expansion can you share with us how fast you will be ramping up the capacity every quarter?

Jason Wang -- President

There will be some increase in the second quarter and then there will be some increase in the fourth quarter. And -- but in general the overall percentage of target increase is about 5% year-over-year.

Szeho Ng -- China Renaissance -- Analyst

Okay. Great. Thank you. And last one, I think for Chi-Tung. How should we model the tax rate for the company this year? Because last year, the cash flow actually capped low. So I'm not sure if that's kind of sustainable?

Chi-Tung Liu -- Chief Financial Officer

I think we probably -- it will be safe to model about 10% corporate tax rate for 2021.

Szeho Ng -- China Renaissance -- Analyst

Okay. Great. Okay. Thanks very much. congratulations.

Chi-Tung Liu -- Chief Financial Officer

Thank you.

Operator

The next question is coming from Sebastian Hou, CLSA. Go ahead please.

Sebastian Hou -- CLSA -- Analyst

Thank you for taking my questions. So first question is, I think there's a lot of talks recently about the oval chip shortage, which has affected the global car production and hence also media reported many governments have approached Taiwan government and TSMC specifically mentioned for causing such shortage, but we don't see much mention about UMC. But we know that UMC also have some exposure here. So curious about -- if you can elaborate, what's the company's exposure to automotive here, particularly for those power management microcontroller unit chips that are severely in shortage right now, and also whether you are seeing a similar situation i.e., the shortage issues with your major IDM customers here? 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 end of last year and the momentum has continued. However, the overall utilization rate is -- of the fab are very high for the past three quarters, four quarters already. So despite the fact that UMC's fab has been operating at 100% utilization rate, we are aware of the inquiry from the automotive market and starting from Q4 last year and we are aware of our position in the auto supply chain as well. And our current plan with that area is we're trying our best effort to help the chip shortage within that supply chain. And we have been doing that starting from the beginning of this year, yes.

Sebastian Hou -- CLSA -- Analyst

Okay. So what you said is that you were trying to allocate more capacity or expand capacity to mitigate the shortage impact for automotive customers specifically?

Jason Wang -- President

Yes, it's hard to increase the capacity. It's more of reprioritize. So prioritizing the automotive market with a bit of a better priority. So -- and so hopefully we can release some of the pressures.

Sebastian Hou -- CLSA -- Analyst

Okay. So does that imply that nonauto-related applications and customers, if they have not given you long and big enough forecast for the following quarters and they are likely to -- their allocation will likely to be get reduced?

Jason Wang -- President

Well I won't say that because some of the capacity increase is coming out from the productivity improvement. And so for those, the priority will probably be allocating to automotive at the current time. And -- but again, automotive recovery really came late in this whole demand search. So we -- it's more of an optimization approach now. And hopefully by giving some of the higher priority support, we can release the market pressure a little bit. As you know the overall loading situation is severely high. And so we can only do as much as we can at this point.

Chi-Tung Liu -- Chief Financial Officer

So our commitment to all the nonauto customer will not change at all.

Sebastian Hou -- CLSA -- Analyst

Okay. Okay. And given that the company has offered some colors about the 8-inch capacity will increase by 1%? Also there is a challenge to increase legacy 12-inch capacity which I assume that most of the auto chips are using these nodes. It seems like if you're not cutting or lowering the priority -- cutting or lowering your commitment to the nonauto customers, I just cannot imagine, how to mitigate the -- how much more extra capacity we can allocate to the auto guys?

Chi-Tung Liu -- Chief Financial Officer

Just as I just mentioned, we will have our own way to managing the priority while keeping the commitment to other customers. So basically, we are doing our best to mitigate the situation.

Sebastian Hou -- CLSA -- Analyst

Okay. Great. And a follow on that is that given the auto I think we have already adjust our wafer prices and now closer to the market prices on each side. And whether or not this auto chip shortage and auto guys that come later could be an extra catalyst or factor to enable to come in to raise price or adjust price higher not just for the auto guys, but to the nonauto guys also?

Jason Wang -- President

Yeah. The upside and the incremental support will be limited. And so, I will say that it's not going to be any significant uptick on that.

Sebastian Hou -- CLSA -- Analyst

Okay. Great. Is there a number -- or is there a number you can give to us or the range of the numbers you can give to us about your automotive revenue exposure as a company in total?

Jason Wang -- President

No. Right now we don't guide any automotive contribution in -- the revenue contribution at this time. And we only covered the three -- under the three Cs.

Sebastian Hou -- CLSA -- Analyst

Okay. Okay. That's fair. The last question for me. I think the -- I think you did probably explained this in the prepared remarks but I dialed-in later. So I didn't -- so allow me to ask again. So what's driving the non-operating investment gain for the past quarter? Thank you.

Chi-Tung Liu -- Chief Financial Officer

So for Q4, the net investment cap TWD5.7 billion was mainly correlated to the upward momentum in the equity market. So mostly non-cash-based mark-to-market valuation gain.

Sebastian Hou -- CLSA -- Analyst

Okay. Of all this equity holding you have?

Chi-Tung Liu -- Chief Financial Officer

Yes.

Sebastian Hou -- CLSA -- Analyst

Okay. Thank you.

Operator

The next question is coming from Rick Hsu, Daiwa Securities. Go ahead, please.

Rick Hsu -- Daiwa Securities -- Analyst

Hi. Good evening, guys and congratulations for your strong results. I just got one question for my modeling purpose. How much government subsidies do you expect to receive throughout the whole year? And how much longer would that sustain?

Chi-Tung Liu -- Chief Financial Officer

It should be similar to that of 2020. And the continued subsidy recognition should continue all the way to maybe 2023.

Rick Hsu -- Daiwa Securities -- Analyst

Okay. All right. Thank you so much. That's all I have. Thanks.

Operator

And next we'll have Charlie Chan from Morgan Stanley for questions. Go ahead, please.

Charlie Chan -- Morgan Stanley -- Analyst

Thanks for taking my question. Hi, good afternoon, gentlemen. So first of all we have a lot of discussion about the supply debottleneck. You try to reprioritize auto to production. Can you give us a kind of time line? How soon this could be resolved? And I guess, is there any way to judge how real is the demand? Because due to 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 it's just...

Chi-Tung Liu -- Chief Financial Officer

Yes. Just -- we probably won't be able to give you auto segment but we can give you an overall.

Jason Wang -- President

Yes. So the overall market the -- at this time the pace of the demand growth has surpassed the rail capacity increase as we all know. However, we do look at the -- on the inventory side we do see a decline in semi inventory in the past two quarters. Portray a healthy inventory level as we -- we think across the supply chain.

So the demand continued to be strong in both 8- and 12-inch and we have confidence in that. And we're constantly checking that at this time. We believe this is some of the changes taking place in the supply and demand dynamics and again, this could lead to a more of a structural shift in the foundry industry. There may be a possibility of that right now. Yes.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. Thanks. And maybe some intelligence from supply side, right? I mean PSMC, the power chip are they -- can they add additional 20,000 of the 8-inch capacity in their fab right? So why they can do so and you cannot? And also you have some operation in China, right, the Xiamen fab and the HeJian fab. So how do you see the Chinese peers plan for that supply increase and long-term or that is going to resulting in oversupply?

Jason Wang -- President

Well, first of all, I mean we are not in a position to comment on our peers. And we can only focus on what we do. For UMC, the -- we have a very limited space, clean room space in an 8-inch area. So what we're doing now is we deploy -- we're taking our capex and taking advantage of the available clean room space for our 12A and 12X fab. And -- but those two facilities, our objective now is to increase capacity to accommodate a growing 28-nanometer wafer demand. And that's why you heard earlier, we're talking about -- we will focus on 28-nanometer capacity increase in both the -- in 2021. And that's where we're going to be putting our capacity at.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. So it is more like a clean room issue and you want to prioritize 28-nanometer? Is not because you cannot acquire 8-inch equipments?

Jason Wang -- President

Well, first of all yes, the clean room is limited, right. I mean from a greenfield standpoint. We -- it doesn't make sense for us to acquire tools if we don't have a place to put them. Yes.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. Yes. 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

Well, they are different applications spread out in the different segments. So, for example, we see the overall solution the covering on 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 the -- we just have to continue managing the pipeline, the product pipeline from both 12-inch and 8-inch.

Charlie Chan -- Morgan Stanley -- Analyst

Yes. 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 US Justice department right? But how about those who use Micron and are you going to settle with the counter parts? Thank you.

Chi-Tung Liu -- Chief Financial Officer

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. For the lawsuit, we don't have any comments. If there's any significant development, we will disclose them accordingly in a timely manner.

Charlie Chan -- Morgan Stanley -- Analyst

But may I assume that the gross margin can gradually improve from here because the FX impact -- sorry I'm not sure about FX impact 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 core return of depreciation FX impact and also the positive impact from the -- your wafer pricing? So, we can kind of get a sense about the full year gross margin trend. Thank you.

Chi-Tung Liu -- Chief Financial Officer

The depreciation will go up, down quarter-over-quarter. As I mentioned earlier this year we expect the full year depreciation to decline by roughly 5% and I think a little bit more. So, the gross margin guidance again unfortunately I don't have the crystal ball for the currency. So, we can only give the current situation for first quarter which is again mid-20s.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. Thank you. Super helpful.

Operator

Ladies and gentlemen, we're running out of time. So, we'll take the last one. And the last question is coming from Randy Abrams, Credit Suisse. Go ahead please

Randy Abrams -- Credit Suisse -- Analyst

Okay. Thanks for fitting me at the end. I have a few follow-ups. First on the capex where before you were at TWD1 billion and under spending. And I think part of that your 28 wasn't full. With the move to TWD1.5 billion, should we expect that a new range like you're growing mid-single-digit with about TWD1.5 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

Well, Randy, the first comment I have is our stated ROI-driven capex strategy that did not change. So, we'll continue following that principle. So, despite the needs the upside in customers demand and forecast even with the 28-nanometers, the market situation is not the only consideration that's into our 2021 capex budget. Our plan right now is I want to focus on maintaining UMC's market relevance and increase the customer stickiness and base our value proposition, our solutions, and the manufacturing and as well as the critical mass on our capacity offering.

So, this strategy and the principle it requires to follow a rigorous evaluation process right? So, we continue doing that, OK? And -- so we have quite a bit of boundary to do that to make sure that we deploy the right amount of the capex. At this time, it's a TWD1.5 billion and for the upcoming next year, we will provide that guidance when we're ready.

Randy Abrams -- Credit Suisse -- Analyst

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

Well, I mean, first of all, prior to the -- any of the export restriction, the wafer demand was already very strong. The demand situation was remained strong, as we have commented, this will last throughout the entire 2021 and driven by many of the momentum. So I haven't seen much of a change from that.

And even with what the media or any speculation in terms of the approval in the legacy, we can't comment on the competitors for any media speculation. But -- is the way we see it, is we believe the semi demand now has surpassed the supply. And it's -- in our view this is not related to any development of export restriction at all. And so, I think, our competitiveness advantage is going to be on our own capability. And it's not going to be on any top -- on the geopolitical or trade dynamics. Yes.

Randy Abrams -- Credit Suisse -- Analyst

Okay. And one other question. I think, a quarter ago there was still some underutilization in the Japan fab and also from a little bit lower CIS. Has that loading now picked back up, or is there opportunity to get some of the automotive customers for that fab, if it's not quite full?

Jason Wang -- President

You have got very good memory. Yes. Yes. The -- our last call, we actually talked about that. We stated the 90-millimeter will be a trough and the business will start to recover during the first half of this year. And we are seeing that. And the production rate on some of the wireless communication product will increase our 90-millimeter's contribution. And this ramp will start toward the end of the Q1 and beginning in Q2. So it's our expectation by Q2 and will be fully low down this node.

Randy Abrams -- Credit Suisse -- Analyst

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 probably the Xiamen JV partner. And if you could also clarify on opex, I think, to Bruce's question, would opex grow with sales or opex would be kind of stable in absolute dollars? I just want to clarify the opex rate.

Chi-Tung Liu -- Chief Financial Officer

We certainly want to keep it within 13% to 14% of revenue range.

Randy Abrams -- Credit Suisse -- Analyst

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 -- Chief Financial Officer

That's right. That's correct.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Great. Okay. No, thanks. That's all my questions. And good job and good luck, guys.

Jason Wang -- President

Thanks.

Chi-Tung Liu -- Chief Financial Officer

Thanks.

Operator

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

Michael Lin -- Head of Investor Relations

Thank you, everyone, for dialing in 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: 64 minutes

Call participants:

Michael Lin -- Head of Investor Relations

Chi-Tung Liu -- Chief Financial Officer

Jason Wang -- President

Randy Abrams -- Credit Suisse -- Analyst

Sunny Lin -- UBS -- Analyst

Roland Shu -- Citigroup -- Analyst

Bruce Lu -- Goldman Sachs -- Analyst

Stephen Chan -- Asia Capital -- Analyst

Szeho Ng -- China Renaissance -- Analyst

Sebastian Hou -- CLSA -- Analyst

Rick Hsu -- Daiwa Securities -- Analyst

Charlie Chan -- Morgan Stanley -- Analyst

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