Welcome everyone to UMC’s 2018 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. [Operator Instructions] And 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 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, you may begin.

Thank you, and welcome to the UMC’s Conference Call for the Second Quarter of 2018. I’m joined by Mr. Jason Wang, President of UMC; and Mr. Chitung Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial results, followed by our President’s key message to address UMC’s forecast and the third quarter 2018 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC’s quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section. During this conference, we will make forward-looking statements based on management’s current expectation and beliefs. These forward-looking statements are subject to a number of risk and uncertainty that could cause actual result to differ materially, including the risk that may be beyond company’s control. For these risks, please refer to UMC’s filing with the SEC in the U.S. and the ROC securities authorities. Now I would like to introduce UMC’s CFO, Mr. Chitung Liu, to discuss our second quarter 2018 financial results.

Thank you, Michael. I would like to go through the 2Q 2018 investor conference presentation material, which can be downloaded from our website. Starting on Page 3, the second quarter of 2Q 2018 consolidated revenue was NT$ 38.85 billion with gross margin at 17.2%. The net income attributable to the stockholder of the parent was NT$ 3.66 billion, and the earnings per ordinary share was NT$ 0.30. Utilization rate increased to 97% in Q2 from 94% in Q1. Our cash has stayed around NT$ 750 billion at the end of the second quarter. So on Page 4, our statement of income. Revenue was fueled by shipment increase, quarter-over-quarter by 3.6% to NT$ 38.8 billion. Gross margin rate is 17.2% or NT$ 6.67 billion. And our non-operating income due to the weakness in renminbi against U.S. dollars. So we pretty much gave back all the ForEx gain we booked in Q1, result in negative of NT$ 1 billion non-operating loss in second quarter. But still our end result in terms of net income attributable to stockholders still increased about 7.6% or reached NT$ 3.659 billion equivalent of EPS NT$ 0.30 in second quarter. For the first 6 months of the year, on Page 5, revenue increased 1.9% year-over-year, mainly due to shipment increase, and our operating expenses is still under tight control. And therefore, as a percentage, it has come off on 15.4% in the first 6 months of 2017 and now is 13.2% in 2018. And our net income in the first half has reached NT$ 7 billion, or 61% increase year-over-year compared to the same period of last year. EPS, as a result, is NT$ 0.58 compared to NT$ 0.36 in 2017. On Page 6, in terms of our balance sheet, our cash remained around NT$ 75 billion with…

Thank you Chitung. Good evening, everyone. Here I would like to update the second quarter operating results of UMC. In the second quarter, foundry revenue increased to 3.6% sequentially to NT$ 38.77 billion. Foundry operating margin was 8.4%. Overall capacity utilization reached 97%, that brings wafer shipment to about 1.85 million 8-inch equivalent. The operating results from second quarter 2018 reflect full utilization from our 8-inch and mature 12-inch technologies, driven by strong demand in computing and communications segment. This led to our first half EPS of NT$ 0.58, while generating NT$ 13.42 billion in free cash flow. To further take advantage of this healthy demand situation, our Board of Directors approved for the company to supplement UMC’s mature 12-inch process capacity through the full acquisition of Fujitsu’s 300-millimeter MIFS Semiconductor fab in Japan. The Board of Directors also approved a plan for our China-based operation to apply for listing on the Shanghai Stock Exchange, led by UMC’s HeJain operation. We project third quarter demand outlook to remain flat due to rising inventory levels from slower smartphone digestion and also the uncertainty surrounding the ongoing U.S.-China trade tensions. Despite the current market situation, UMC has always a focus on extending our global scale to enhance our customer value by providing a diversified manufacturing base across Asia that is also strategically positioned our Taiwan headquarters for seamless logistical support. UMC’s intention to acquire MIFS Semiconductor and list our China operations on the Shanghai Stock Exchange corresponds with this global expansion strategy and will fuel our long-term foundry competitiveness. We will continue to strive for manufacturing excellence and better position ourselves globally to create benefits for our shareholders and customers and employees. That was our second quarter results. Now let me go over the third quarter 2018 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will show a marginal increase. Gross profit margin profit margin will be in the mid teens percentage range and capacity utilization rate will be in the low 90% range. For foundry CapEx of 2018, it will remain at US$1.1 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

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

Okay, yes, thank you. The first question I wanted to ask was about the Japan fab acquisition. If you could give some more color on the capacity, the utilization and profitability of that fab versus the core UMC? And also for that fab, if there is headroom to further expand capacity in that fab?

Hi Randy, well, first, we announced this acquisition. But we’re still in the process of the – close this transaction. And we don’t expect to close until January 1, 2019. So before that, I can’t really comment on some specifics. But in terms of the future room for the expansion, there are some spaces for the future expansions. Not much, but I think there will be some down room for future expansion. Right now, according to what we have received, the current facility runs about 36.8k a month capacity and the maximum expansion could be at a range of 40k range.

Okay, great. I appreciate that. The second question, Chitung, you added on your CapEx comment for the time being. You spent about 30% of the full year guidance. So I’m curious if you do expect kind of back-half loaded, and there are certain projects to invest in? And the second part, for the mature 12-inch and 8-inch, which are running full, if there is existing space or plans or ability to get additional capacity for those technology nodes?

Yes. I think the ongoing effort for debottlenecking production facility is business as usual. We will continue to do so, but the incremental capacity increase will be quite minimum. However, we did mention before that, again, will come back about 15,000 wafer expansion on top of this current 64,000, 65,000 wafer monthly capacity. But it may take up to 12 months to see some upward from the nearly expanded capacity. And in terms of CapEx, for now, its $1.1, because it’s relatively low number compared to our past few years, a month. So there may be some kind of fluctuation, at the end we conclude the whole 2018.

Okay. The last question on the other income, if you could give color or guidance for other operating income and also the non-controlling interest, how we should expect that to trend? And maybe in the quarter, kind of what drove the increase? And then how do you see those lines progressing?

None of this is a bit difficult. It’s highly relied on the, as I mentioned earlier, renminbi against U.S. dollar term, given our Xiamen facility, currently has a US$1 billion senior loan outstanding. So the currency movement is the key factor for Q1 and Q2 in terms of the result for non-operating. As for minority interest, that has been quite stable. Relatively speaking, about one-third of Xiamen’s loss for now will be recognized or reversed by the end of the financial statement. So the non-controlling interest, one-third of the UMC, the 12X loss will be shared by our two local investor partners. And given the spending capacity and also operating scale for our 12X, the overall operating loss is actually larger than, I think 2017.

Okay. Chitung, one other line, there is one for net other operating income, which grew – is NT$ 1.72 billion. I guess, also for that line, what’s kind of driving that line? And what you see for that net other operating income?

Yes, that line is mainly coming from the subsidies from our China operation. And the normal number should be somewhat similar to that in Q1. In quarter two, we received an one-off annual subsidies for some investment activities in 2017. So that will be a one-off. For third quarter, this line, the operating line, the other operating income expenses should go back to the level in quarter one.

Okay. Would you get that once a year, like annual, like, say, in second quarter for the prior year?

I think, I believe so, next year. But this kind of seems – you never know until you really received the money in your pocket.

Okay, great. Thanks a lot, Chitung. I appreciate it.

And the next one is coming from Bill Lu from UBS.

Yes, hi. Good morning. I want to follow up on Randy’s question on capital spending. If you look out into next year, now that – just assuming that the Fujitsu MIFS deal is completed, does that impact your outlook for 2019 CapEx?

Well, first of all, it’s too early for us to comment on 2019 CapEx. And for MIFS acquisition, our main goal will be to drive the synergy first before we plan for further expansion. I’m not sure, if Jason want to comment on that.

Yes, I mean, at this point, I think the current capacity MIFS is sufficient to sustain the current business plan. Not until we fully integrate the operation, and we can’t really tell what will be the next step for the CapEx plan for MIFS.

Yes. So I didn’t mean CapEx for the Fujitsu. I guess, I just – now that you’ve got some new capacity coming in already from Fujitsu, does that lessen your requirement to expand in Taiwan?

No. Well, if we look at the current demand situation, we have actually slowed down our pace of 12-inch expansion for our Xiamen set specifically. The capacity addition to – that we’re looking at is now truly just focus on how can we get that to reach economic scale, which we target at about 25,000 a month, and the Xiamen is running at around 17,000 per day. The slower 12-inch capacity expansion truly just reflect the current market outlook that we have. And meanwhile, we will continue tracking that, and adjusted, but at this point, I think, we are cautious about our CapEx pending in general.

Great. Thank you. Secondly, on your guidance for the third quarter, you are guiding for ASP to increase slightly and margin to be – it looks like down a little bit. Is that just conservatism on the margin part? Or Can you talk a little bit more about how those two things fit together?

Well, we guided Q3 2018 gross margin in the range of mid-teens, right? A two-year resulting from a flattish shipment that we guided. That would be a – we see shipment at a flattish rate and with the marginal increase of ASP on branded product mix. But within the product mix, we do see some lower 40-nanometer contribution in Q3 2018, so which – that will affect our gross margin along with other factors during the summertime, we also see higher utility cost.

Is the increase in ASP a function of higher 28? Or can you talk a little bit more about that 28 was 15% of sales, up 10%, what’s your expectation for the third quarter?

We see 28 and below, that will be a flat between Q2 and Q3, but 40 will actually reduce. So the overall – that actually – slightly increase of ASP is really coming from the mature note as with our 8-inch, but that was compensated by the slowdown of 40-nanometers.

I see. So ASP getting a little bit better for 8-inch and 10-inch, 12-inch?

Yes.

Great, thank you. I’ll get back in queue.

Sure, thank you.

And next we’ll have Michael Chou from Deutsche Bank for questions. Go ahead please.

Hi, thanks for taking my question. My first question, sir, what will be the 28 nanometers of portion in Q4, if you can provide some color?

For Q4?

Yes.

Yes. I mean, we don’t really comment on Q4 outlook. Given the recent elevates inventory level of the smartphones and some of the uncertainty on the market, we are cautious about our Q4 but we don’t comment on the Q4 outlook yet.

Yes. But for your 28-nanometer, what kind of main application for your 28-nanometer in Q3?

Entirely coming from mainly communication and also computer area, that includes Wi-Fi as well as the sum of the flash controllers, yes.

Flash controller. Okay. Second question is regarding your outlook by segment in Q3? Can you provide some color for that? Thank you so much.

Outlook for Q3 by application. At this point, look at the – the weakest will come in from communication. That’s very much associated with the MIFS and low-end of smartphone situation and followed by the consumer and then the computer. So the weakest will be the communication.

Okay. Then – final question is a housekeeping. What is the currency for Q2 when you calculate?

29.77.

Okay. So for your guidance, you just said, look at the current FX, you don’t have any assumption, right?

No. We don’t have any assumption. No.

Okay, sure. Thank you.

And the next question is come from Roland Shu from Citigroup. Go ahead please.

Hi, Good afternoon. First question for MIFS acquisition. So will you keep MIFS fab as it is in configuration and the technology? Or will you benchmark the equipment? Or what kind of technology with your worldwide 20-inch fab?

Well, we – at this point, without knowing, without getting into the integration process, we are considering both, both are the options. And because depending upon the product mix, the customers running a different product in a different fab, we may need to keep that option open. But meanwhile, at the same time, we do like to make sure that fabs are transparent to both sides. So both are important to us. But at this point, without the complete integration, I can’t really know exactly mix of that.

Yes, understood. But deal on your license configuration as your Taiwan fab or Singapore fab, well that be very important to you, do you think you’ll probably keep the same configuration there is also a doable option?

Well, again, depending on the outlook, and we believe with MIFS that we are going to be able to getting – enhance our exposure in automotive industrial segment, which is a little bit better than what we’re doing today. But at the same time, we’ll be able to bring some synergy from our larger customer base. So as I said, we will consider both and just – we don’t know exactly what the mix is yet.

Okay. Understood. Yes. Second question for your upcoming IPO for Hejian and 12X. So order to IPO 12X, are you going to consider to increase your shareholding for 12X?

The listing entity is HeJain and 12X or UMC is only the subsidiary of both HeJain and UMC. So UMC is not listing.

Okay. So that means it’s not in your entity list.

No. The listing entity is HeJain.

Okay. Understood. Last question. Given there was not much 8-inch capacity or shipment increase in second quarter, but you still grow your 8-inch revenue. So I would like to know how do you spend of this 8-inch revenue increased was from the wafer price high capacity? And what kind of spend for this revenue increase is coming from product mix change?

Well, we don’t have a specific mix breakdown, but the increase on the 8-inch blend is really coming from field. One is the productivity improvement, means we have increased some of the wafer outlook through the productivity improvement. And same time for the product mix, the improvement, and we have stopped making some headwind there. The last is the – we did increase some of the cost from the wafer material. So we passed through those cost difference to the 8-inch customer, but it’s not changing entire wafer pricing. So our policy is we do not increase pricing simply because of strong demand, but we are working with our customers to compensate for the wafer cost increases.

Understood. So for the 8-inch product improvement and product mix change even for – we pursue this cost, you said, we have slightly ASP growth in 3Q. So that means that this will be well maintained in 3Q, so that means in 3Q, that 8-inch revenue probably will continue to grow, however, 12-inch will decline, is that right?

Yes. I mean, in general that’s correct. We do see the 8-inch capacity load continue to be full in the following quarter, and the 12-inch mature is healthy, while the 14-nanometer is actually declining, yes.

Understood. Okay, thank you.

And the next one is from Donald Lu from Goldman Sachs. Go ahead, please.

Yes, good evening. First question is, what is this other operating income of NT$ 1.7 billion in second quarter?

Yes, that’s the subsidies from our Chinese operation in Xiamen.

I see. That’s a one time? Or is that going to be every quarter going forward?

This will be every quarter, but the amount should be similar to Q1. Q2 will receive a one-time annual subsidies from 2017.

I see. Yes. My second question is about this potential A share listing. I understand that the R&D for 12-inch research and also probably for HeJain are going to be accomplished in Taiwan in the UMC entity in Taiwan. How do you transfer the technology to the China entity by enlisting? I mean, what kind of guarantee you give to the China entity for R&D transfer?

Yes. By the detail of application, given that we haven’t really submit the application yet. The next follow is we will have AGM in Taiwan on August 20, and then we will prepare the document and get ready to send in the application. So we are not to that step yet. For the time being, all of the UMC operation has been following the same kind of practice over the past years.

But if Chinese SEC will be okay with this kind of arrangement because apparently, the technology transfer would subject to a lot of the political risks?

Yes. As I mentioned, we haven’t really submit the application. Every time there’s a technology license from UMC to our subsidiary in China [indiscernible] approved by [indiscernible] government as well as the Chinese authorities.

I see. Great. My final question is, in the prepared remarks, you said that third quarter outlook is impacted by U.S.-China trade tensions. Is there any specific case or customers or areas that is causing this kind of concern?

Well, we see some signs. So that’s why we’re observing the development very carefully with the hope that it’s not going to be any impact. But however, we won’t be able to control that. So that’s how we are cautious about that.

I see. Okay. Is ZTE a customer of UMC?

Not directly.

Okay, great. Thank you.

And the next question is coming from Charlie Chan from Morgan Stanley. Go ahead please.

Hi, good afternoon. So my first question is on your third quarter gross margin trend, right, because your shipment is flat and you have some nodes, you have ASP hike, right? So I suppose the – your gross margin should go up, because you have ASP hike, right? So what do we miss on the gross margin assumption?

Yes, a couple. First of all, the third quarter normally, we will see higher operating costs. Also, the utility cost is higher in the third quarter as well as our annual compensation adjustment. And secondly, we will also see some unfavorable mix, 14-nanometer, which still carry much bigger depreciation against our 8-inch operations. So cost wise, it’s more unfavorable in terms of product mix point of view.

Okay, got it. And also regarding the government subsidiary, I’m sorry, is that a cash item? And will you need to amortize those subsidies in the coming years? And lastly, because my understanding is that the subsidy comes from the loss, right? So if the fabless turn around, make money, do you need to return those subsidies?

These subsidies, not so much related to operating result. It’s more related to our CapEx and also our borrowing costs. So it is a result of amortization already.

Okay. So you will need to amortize those...

It’s already being amortized.

Okay, I see. And you said the – cash item or accounting GAAP?

It’s cash.

Cash, okay. Thanks. And lastly, can you comment a little bit on the rolled wafer price? And what does it mean to your wafer price in the coming quarters?

Well, we are seeing a rolled wafer price increase on 8-inch particularly from the last year to this first half of this year in the double-digit range significantly. So we start pass – discussing with the customers about passing through those cost increase to the customer and that happened in last quarter and it will continue this practice. And so we do see that or recover some of our 8-inch ASP, but not going to be a significant way, yes.

Okay. One more, if I may. So I think your competitor TSMC talked about 28-nanometer utilization could decline again in 2019 before you ramp up in 2020. And they hope to fulfill their 28-nanometer fab with those AI, those new applications. So what would be your kind of mid to long-term outlook for 28-nanometer business? What will be the new growth drivers for this business line?

Well, we do see some transitional product applications and we see AIoT, we see the high voltage. We see those applications will continue going in – coming into the 28. But that’s more of the product trend. For UMC specifics, we are facing a moldable way to involving technology on the 28 high-k, which – that puts UMC more in a recovery mode right now. And so once we start getting ready, from a technology standpoint, and we will start seeing new customer base in this area more fragments more than volume. So we’re coming from those applications, but those customers will be more fragmented and more volume. And our current issue, the near-term issue is more of a technology readiness as – when this continues evolving technology in the 28 high-k.

Okay, got it. Thanks very much.

And the next one is from Sebastian Hou from CLSA. Please ask your question.

Thank you. Good afternoon. My first question is on the – you have a very nice rebound or growth of the 40-nanometer and 28 in second quarter. Can you give us some colors on what type of applications is that?

Well, currently, we still concentrate in the communication area. So the baseband, RF, those areas are still our main drivers for 28, yes.

How about 14?

14 is actually with a very limited capacity as well as the customer base. I will not comment on the 14.

Okay. So can we assume that your 14, the application has been pretty much the same since the beginning?

Yes, yes.

Okay, got it. All right. Well – but that’s good enough. So how about the outlook into – I remember, Jason, you mentioned it will be flat in – for the quarter, but how about into the first quarter and next year? Are you confident in further grow – to further grow this product revenue?

Well, I mean, if you look at 28 product mix situation, I think there will be a continued product migration path going. So we are expecting other application coming into 28, but we also expecting, on the product, we’re migrating out of 28. So we’ll continue going through that process until our 22 get ready, most likely will be in the time frame of 2019, yes. So I think we’ll continue seeing the product application mix change throughout this time, yes.

Okay. So which means that it’s fair to assume your 28 nanometers, although there is a nice rebound in second quarter, but will probably remain at this level for the next few quarters?

Well, that will be our goal main chamber, but it’s also subject to the outlook, right? I mean, whether it’s on the market or the early transition of product. So that could change. But as I said, we probably have to go through this whole process quarter-by-quarter, yes.

Okay. Second question is your gross margin in second quarter improved about 5 percentage point, but you – when I look at your process node mix, 40 nanometers above nodes, U.S. dollars revenue down about 3%; while your 28, 14 revenue, up 13% quarter-on-quarter. But if I understand correctly, those nodes should carry lower margin than the mature nodes, but your margin improved from 5 percentage point. Can you explain a little bit that? Is it because of the overall structure margin improving on those nodes? Or any other particular reason?

Mostly coming from a better capacity utilization base. So we’re virtually running at the full capacity, 97% in the second quarter. So that definitely helped the gross margin side and...

Right. But you – like UTR in the first quarter was 94%, right, but only 3 percentage – 3% point – I’m sorry, 3% from the UTR. Is that significant enough to give you a 5% point of the margin improvement?

Yes. In terms of single fab difference, yes, that’s actually quite a big swing factor. So if you look at the overall 94% versus 97%, it may not be that big difference. But if you look at the single wafer fab, the swing actually is quite big.

So if I interpret that correctly because the advanced nodes have seen the largest change in second quarter. So the delta there – or the leverage there is higher?

Yes.

Okay. Thank you Third question is on the Fujitsu fab acquisition. Can you give us more colors on the – what type of customers, application of this fab is? And how easy for you to run about this fab and to, say, to pour your current customer to that fab?

Well, the current Mie fab, the MIFS 12 inch, kind of quite diverse. They have communication, consumer, automotive and the computer, industrial. They’re quite diverse. And there are some major customers in the communication area. So it will be very complementary to our current customer portfolio. And – but as far as other synergy, we just have to get closer to the integration stage, so I can comment that, yes.

Okay. Or I’ll ask it for another way is that the – before you do anything, do any integration to this fab, as I said, this starts from the early next year, would this fab be earnings accretive without doing anything? I mean, without you doing any integration, that’s what I mean.

Again, this one is a subsidiary of Fujitsu company right now, so I cannot comment on the future probability of this particular operation. We will only start to be able to comment on the operational profitability after January 1, 2019.

Okay. Fourth question for me is the – regarding your Asia listing, also, I think in your announcement, you also said that we’ll use the funding from the listing to add capacity of Hejian fab by 15%. Is the 8-inch fab – and I know the equipment availability is pretty low right now. So how confident are you to increase capacity by 15%?

That is a – very comfortable of that. And I think we don’t see a concern about capacity in Hejian, yes.

Okay. So does that mean that you have already secured or locked down some equipment?

Right. So that’s already in discussion, yes.

Okay. But why not like add in now or earlier? Why do you need to wait for like IPF or IPO if you already secured equipment?

For the current frame of capacity expansion in Hejian, that’s already underway. The future of the listing assume the IPO is successful and the fund will be – also come to the future expansion. We haven’t get into that future expansion discussion yet. So I told you I was referring to the current expansion plan.

Okay. So this 15% expansion is not relevant to the Asia listing? Or they are still relevant?

For the next 10,000-wafer capacity increase, it’s not – it’s our current CapEx plan. That’s already in discussion, yes.

Okay. If I may...

Let me clarify that. I do have the expansion plan for now and its ongoing. And the proceeds on IPO is coming on time. They can still use to pay for it. So that was the idea. It’s not the other way around. So the capacity expansion will go through with or without this IPO. But we see IPO proceeds. The use of proceed is actually to provide this trench, also maybe the future trench of the Hejian expansion.

Okay. So easier too for us to say though, regardless of the IPO plan, you will like definitely expand that 15% capacity?

Yes, yes.

And the time line – tentative time line is 2019?

Second quarter next year, yes, yes.

Second quarter next year, okay. Second quarter next year, we’ll start to see that – okay, kind of [indiscernible]. Last one is just – sorry, for me is that since you already share some of the cost burden with your customer by raising your foundry wafer price, do you expect this to continue, which means that – do you expect the wafer cost to continue to go up, so you continue to reflect this kind of price hike to your customers?

Well, it does continue to increase, and our plan is we will work with our customer for the wafer cost increase, yes.

All right, yes. So are you seeing the cost continue to increase?

We see the pricing start fluctuating a little bit. Now the discussion is how to increase the supply in this area and to increase the capacity by bringing new facility and will cause a new price increase and then we have to address that.

Okay. You – sorry, just to clarify, so Jason you mean that the wafer cost increase has kind of – mandatory had kind of saturated?

That’s right, yes.

Okay. Got it. Thank you.

I was talking about the increase of the supply. And if that falls, the supplier needs to go into fully a new facility and if that attributes to the new cost increase, then there will be a new discussion again. So at this point, I – we can’t really comfortable in saying there’s no more slight increase, but we do see that saturate a little bit, yeah.

You’re talking about both – that you’re referring to both 8-inch and 12-inch, right?

Yes. now that’s considerably more on availability now.

Okay. Got it. thank you.

[Operator Instructions]. And next, we’ll have Aaron Jeng from Nomura Securities for questions.

Hi, thanks for taking my question. Number one, I want to clarify that mid-teens, from your company’s definition, is which range? It’s somewhere like 16% to – 14% to 16% or it’s wider range? And – because I wonder whether the 2Q result, which was 17%, whether it included the range of mid-teens? That’s my first question.

Well, that’s – I will say plus, minus 1.5%, above or below 15%.

Okay, that’s – got it. So 2Q was a bit...

2Q was close. yeah.

Okay. So maybe a follow-up. So why the 2Q beat, but all went right versus three months ago when you gave it a forecast?

I think there was an earlier question asking about it. It’s mainly a swing factor from a better utilization rate, our leading-edge capacity.

Okay, no problem. Look, the second question is that I just – I want to clarify, you got the lower 40-nanometer revenue into third quarter and – which leaves associated with a slower trend [indiscernible] demand over, say, inventory correction.

Yes.

Okay. Thanks. And my last question is on 28-nanometer outlook. Earlier, you replied to one question that, correct me if I’m wrong, that you were unable to comment on whether the 28-nanometer revenue going to stay at current level for maybe the next couple of quarters. Is this right? Because you said that depends on the market situation before you fully ramp the 22-nanometer? I don’t know whether this is the right statement from you.

Well, we only give out quarterly guidance. So for the Q3 2018, we’re saying the 28 and below will be flat from Q2 2018.

Yeah, okay. Thanks. And so how about technology progress right now? You earlier – I think at every conference call, you give out the tape-out schedule, investor guidance schedule. For 22-nanometer, are any of these changed?

For 22?

Yes, 22 and – yes, 22, yes.

The 22 is currently under the development stage, and the project is on track. We do expect 22 tape-out will happen in early 2019 and followed by the pilot production.

Okay. So one – just a scenario, into second half of next year, assuming that 22-nanometer start ramping, should we assume 22-nanometer revenue contribution to be same like probably more at 50% of your 20-nanometer family? Yes, that’s my question.

Well, it’s hard to predict that far out because revenue contribution really coming from the success of a customer product that we engage. So we’re getting good discussion with the customer, but first of all, we have to deliver that first. So since this is still under development and we just want to make sure that we deliver that we deliver what we have, align it with our customers first.

Okay, thank you very much, hop next to the queue, thanks.

Right, thanks.

Ladies and gentlemen, we are running out of time. So we’re taking the last question. And the last question is from Charlie Chan from Morgan Stanley, go ahead please.

Thanks a lot for taking my follow-up question. So first of all, regarding the shipment fab acquisition, did you ever disclose the valuation, I mean, the price of bulk PE even it’s from last year’s financial?

The price is a onetime book, yes, and I believe their P&L is a public information from Fujitsu’s filing. So you may want to look it up, basically small profit in the previous year – fiscal year.

Okay. So is there so called contingent liability, because I think Japan really cared about employees benefits, right, like pension fund, et cetera, right? So is that going to Japan’s fab earning contribution going forward?

Well, without disclosing the other too much details, basically, we are paying onetime book, and that’s it.

Okay, okay. And lastly, can you give us some update regarding the patent infringement from Micron? I mean, do you expect that your IP claim can apply to more Micron’s products, even some more fundamental IP that can apply to the overall Micron’s process. Can you comment on that?

Well, first of all, there are a few of the litigations ongoing between UMC and Micron in China, Taiwan and U.S., okay? So owing to ongoing natural litigation, we are limited to – on how much we can comment on the – for the time being. The few thing, I would probably – I can mention is, one, is we take the IP protection very seriously and we conduct our operations with integrity and transparency. So we respect our customers, the foundry company will respect our for private information, IP rights very much. So, when we review, when we have – we see this as attack from Micron, we review our intellectual property between the two parties and discover that we have some intellectual property failed to respect by Micron. So that’s how we filed the patent infringement suit against Micron in China. But that wasn’t really – it wasn’t our intention to impact this because we only look at this from a Micron product line infringement, what’s being infringed and we haven’t really gone into much of the detail yet. So that’s kind of where we are, yes.

Okay, I know quite sensitive since it’s all of the color, that’s all from me thank you.

Thank you.

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

Thank you, everyone, for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir@umc. com. Have a good day.