REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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Accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
U.S. GAAP ☐ |
Other ☐ |
UNITED MICROELECTRONICS CORPORATION
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2022
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ITEM 14 |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
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PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
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ITEM 16G. |
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ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
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SUPPLEMENTAL INFORMATION
The references to “United Microelectronics”, “we”, “us”, “our”, “our company” and “the Company” in this Annual Report refer to United Microelectronics Corporation and its consolidated subsidiaries, unless the context suggests otherwise. The references to “Taiwan” and “R.O.C.” refer to Taiwan, Republic of China. The references to “China” and “PRC” refer to People’s Republic of China. The references to “shares” and “common shares” refer to our common shares, par value NT$10 per share, and “ADSs” refer to our American Depositary Shares, each representing five common shares. The ADSs are issued under the Deposit Agreement, dated as of October 21, 2009, as amended, supplemented or modified from time to time, among United Microelectronics, JPMorgan Chase Bank, N.A. and the holders and beneficial owners from time to time of American Depositary Receipts issued thereunder. The references to “TIFRSs” refer to the Taiwan International Financial Reporting Standards as issued by the Financial Supervisory Commission in the Republic of China, “IFRSs” refer to International Financial Reporting Standards as issued by the International Accounting Standards Board, or IASB, and “U.S. GAAP” refer to the generally accepted accounting principles in the United States. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this Annual Report, “NT$” and “NT dollars” mean New Taiwan dollars, “$”, “US$” and “U.S. dollars” mean United States dollars, “¥” means Japanese Yen, “RMB¥” means Renminbi, “SGD” means Singapore Dollar and “€” means EURO.
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
Our disclosure and analysis in this Annual Report contain or incorporate by reference some forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. You can identify forward looking statements by the fact that they do not relate strictly to historical or current facts. The words “may”, “will”, “is/are likely to”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify a number of these forward-looking statements. Forward-looking statements in this Form 20-F include, but are not limited to, statements regarding our business strategies and future plans, anticipated business condition and financial results, our capital expenditure plans, our capacity management plans, expectations as to the capabilities of our technologies and manufacturing process, technological upgrades, investment in research and development, future market demand, regulatory or other developments in our industry, business expansion plans or new investments as well as business acquisitions and financing plans. Please see “Item 3. Key Information—D. Risk Factors” for a further discussion of certain factors that may cause actual results to differ materially from those indicated by our forward-looking statements. Although we believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things:
• | our dependence on frequent introduction of new product services and technologies based on the latest developments; |
• | the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets; |
• | risks associated with our international business activities; |
• | our dependence on key personnel; |
• | general economic and political conditions, including those related to the semiconductor, communications, consumer electronics and computer industries; |
• | natural disasters, such as earthquakes and droughts, which are beyond our control; |
• | possible disruptions in commercial activities caused by natural and human-induced disasters, and outbreaks of contagious diseases; |
• | fluctuations in foreign currency exchange rates; |
• | additional disclosures we make in our previous and future Form 20-F annual reports and Form 6-K periodic reports to the U.S. Securities and Exchange Commission, or the U.S. SEC; and |
• | those other risks identified in the “Item 3. Key Information—D. Risk Factors” section of this Annual Report. |
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We do not and will not undertake the obligation to update or revise any forward-looking statements contained in this Annual Report whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
GLOSSARY
AMS | Analog/mixed-signal. | |
ASIC | Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of off-the-shelf integrated circuits to perform. | |
BCD | Bipolar-Complementary Metal Oxide Semiconductor (“CMOS”)-Double Diffused Metal Oxide Semiconductor (“DMOS”). An integrated circuit and one of the most important components for power management integration circuits. | |
BSI-CSI | Back-Side Illuminated CMOS Image Sensor, which is recently used for mobile product image sensor with better performance and thinner chip. | |
Cell | Semiconductor structure in an electrical state, which can store a bit of information, mainly used as the building block of memory array. | |
Die | A piece of a semiconductor wafer containing the circuitry of an unpackaged single chip. | |
DRAM | Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity hundreds of times per second or else it will fade away. | |
eFlash | Embedded Flash Nonvolatile Memory. Used for most SoC (“System-on-Chip”) applications and has faster speed and enhanced security. | |
eHV | Embedded High Voltage Device. Used for Liquid Crystal Display (“LCD”) driver circuit to drive LCD devices. | |
FinFET | Fin Field-Effect Transistor. | |
FPGA | Field Programmable Gate Array. A programmable integrated circuit. |
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Integrated Circuit | Entire electronic circuit built on a single piece of solid substrate and enclosed in a small package. The package is equipped with leads needed to electrically integrate the integrated circuit with a larger electronic system. Monolithic and hybrid integrated circuits are distinguished by the type of substrate used. | |
Interconnect | The conductive path made from copper or aluminum that is required to achieve connection from one circuit element to the other circuit elements within a circuit. | |
Mask or Photomask | A piece of glass on which an integrated circuit circuitry design is laid out. | |
MCU | Microcontroller unit, a small computer on a single integrated circuit, containing one or more central processing units along with memory and programmable input/output peripherals. | |
Memory | A group of integrated circuits that a computer uses to store data and programs, such as ROM, RAM, DRAM and SRAM. | |
Micron | A unit of spatial measurement that is one-millionth of a meter. | |
MRAM | Magnetic Random Access Memory. | |
Nanometer | A unit of spatial measurement that is one-billionth of a meter. | |
RAM | Random Access Memory. A type of volatile memory forming the main memory of a computer where applications and files are run. | |
RRAM | Resistive Random Access Memory. | |
RF-SOI | Radio Frequency Silicon on Insulator. | |
ROM | Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed. Typically, ROM is used to provide start-up data when a computer is first turned on. |
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Scanner | A photolithography tool used in the production of semiconductor devices. This camera-like step-and-scan tool projects the image of a circuit from a master image onto a photosensitized silicon wafer. | |
SoC | System-on-Chip. A chip that incorporates functions currently performed by several chips on a cost effective basis. | |
SOI | Silicon-On-Insulator. Silicon wafer consisting of a thin layer of oxide, on top of which semiconductor devices are built. | |
SRAM | Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. | |
Transistor | Tri-terminal semiconductor device in which input signal (voltage or current depending on the type of transistor) controls output current. An individual circuit that can amplify or switch electric current. This is the building block of all integrated circuits. | |
Volatile memory | Memory products which lose their data content when the power supply is switched off. | |
8-inch wafer equivalents | Standard unit describing the equivalent amount of 8-inch wafers produced after conversion, used to quantify levels of wafer production for purposes of comparison. Figures of 8-inch wafer equivalents are derived by converting the number of wafers of all dimensions (e.g., 6-inch, 8-inch and 12-inch) into their equivalent figures for 8-inch wafers. 100 6-inch wafers are equivalent to 56.25 8-inch wafers. 100 12-inch wafers are equivalent to 225 8-inch wafers. |
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PART I.
ITEM 1 | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2 | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3 | KEY INFORMATION |
A. | [RESERVED] |
B. | Capitalization and Indebtedness |
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. | Risk Factors |
Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.
Risks Related to Our Business and Financial Condition
Any global systemic political, economic and financial crisis could negatively affect our business, results of operations, and financial condition.
In recent times, several major systemic economic and financial crises negatively affected global business, banking and financial sectors, including the semiconductor industry and markets. These types of crises cause turmoil in global markets that often result in declines in electronic products sales from which we generate our income through our goods and services. In addition, these crises may cause a number of indirect effects such as undermining the ability of our customers to remain competitive when faced with the financial and economic challenges created by adverse political and macro-economic conditions and companies struggling to survive in the wake of these crises. For example, we are currently experiencing an economic downturn in the semiconductor industry that has resulted and is likely to result in reduced demand for consumer electronics and other products incorporating semiconductors. In addition, even when these crises have abated, there could be in the future lingering effects from these types of crises on our business, including significant reduction in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products; customer insolvencies and bankruptcies; and counterparty failures negatively impacting our treasury operations. Any future systemic political, economic or financial crises could cause revenues for the semiconductor industry as a whole to decline dramatically, and if the economic conditions or financial condition of our customers were to deteriorate, additional accounting related allowances may be required in the future and such additional allowances could increase our operating expenses and therefore reduce our operating income and net income. Any disruption in global trade conditions such as the increase in tariffs or the escalation of regional trade tension will indirectly impact global business environment which may adversely impact our business, results of operations and financial condition.
The seasonality and cyclical nature of the semiconductor industry and periodic overcapacity make us particularly vulnerable to significant and sometimes prolonged economic downturns.
The semiconductor industry has historically been highly cyclical and, at various times, has experienced significant downturns. Since most of our customers operate in semiconductor-related industries, variations in order levels from our customers can result in volatility in our revenues and earnings. Because our business is, and will continue to be, largely dependent on the requirements of semiconductor companies for our services, downturns in the semiconductor industry will lead to reduced demand for our services.
Our operating revenues are also typically affected by seasonal variations in market conditions that contribute to the fluctuations of the average selling price of semiconductor services and products. The seasonal sales trends for semiconductor services and products closely mirror those for consumer electronics, communication and computer sales. We generally experience seasonal lows in the demand for semiconductor services and products during the first half of the year, primarily as a result of inventory correction by our customers. Any change in the general seasonal variations, which we cannot anticipate, may result in materially adverse effects on our revenues, operations and businesses.
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Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our future performance.
Our revenues, expenses and results of operations have varied significantly in the past and may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. Our business and operations have at times in the past been negatively affected by, and are expected to continue to be subject to the risk of the following factors:
• | the seasonality and cyclical nature of both the semiconductor industry and the markets served by our customers; |
• | our customers’ adjustments in their inventory; |
• | the loss of a key customer or the postponement of orders from a key customer; |
• | the rescheduling and cancellation of large orders; |
• | our ability to obtain equipment, raw materials, electricity, water and other required utilities on a timely and economic basis; |
• | pandemic and outbreaks of other contagious diseases; |
• | regulatory development and changes affecting our business operations globally; |
• | global and regional geopolitical conditions, including arms conflicts and wars; |
• | environmental events, such as fires and earthquakes, or industrial accidents; and |
• | technological changes. |
Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter comparisons to predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations. In addition, our operating results may be below the expectations of public market analysts and investors in some future periods. In this event, the price of the common shares or ADSs may underperform or fall.
A decrease in demand for or selling prices of communication devices, consumer electronics and computer goods may decrease the demand for our services and reduce our margins.
Our customers generally use the semiconductors produced in our fabs in a wide variety of applications. We derive a significant percentage of our operating revenues from customers who use our manufacturing services to make semiconductors for communication devices, consumer electronics, PCs and other computers. The semiconductor industry experienced several downturns due to recent major financial crises and natural disasters. These downturns resulted in a reduced demand for our services and hence decreased our revenues and earnings. Any significant decrease in the demand for communication devices, consumer electronics, PCs or other computers may further decrease the demand for our services. In addition, if the average selling price of communication devices, consumer electronics, PCs or other computers decline significantly, we will be pressured to further reduce our selling prices, which may reduce our revenues and, therefore, reduce our margins significantly. As demonstrated by downturns in demand for high technology products in the past, market conditions can change rapidly, without apparent warning or advance notice. In such instances, our customers will experience inventory buildup and/or difficulties in selling their products and, in turn, will reduce or cancel orders for wafers from us. The timing, severity and recovery of these downturns cannot be predicted accurately or at all. When they occur, our business, profitability and price of the common shares and ADSs are likely to suffer. In addition, we may not be able to verify or guarantee the creditworthiness of some of our customers. If customers fail to make payments on a timely basis and accumulate substantial accounts receivable, we may not be able to collect payments or may incur substantial costs and expenses to pursue legal remedies to recover such losses, which may have an adverse effect on our financial conditions and results of operations.
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Overcapacity in the semiconductor industry may reduce our revenues, earnings and margins.
The prices that we can charge our customers for our services are significantly related to the overall worldwide supply of integrated circuits and semiconductor products. The overall supply of semiconductor products is based in part on the capacity of other companies, which is outside of our control. For example, in light of the current market conditions, some companies, including our largest competitors, have announced plans to increase capacity expenditures significantly. We believe such plans, if carried out as planned, will increase the industry-wide capacity and are likely to result in overcapacity in the future. In periods of overcapacity, if we are unable to offset the adverse effects of overcapacity through, among other things, our technology and product mix, we may have to lower the prices we charge our customers for our services and/or we may have to operate at significantly less than full capacity. Such actions could reduce our margin and profitability and weaken our financial condition and results of operations. We cannot give any assurance that an increase in the demand for foundry services in the future will not lead to overcapacity in the near future, which could materially adversely affect our revenues, earnings and margins.
Any problem in the semiconductor outsourcing infrastructure can adversely affect our operating revenues and profitability.
Many of our customers depend on third parties to provide mask tooling, assembly and test services, and we and our customers may not be able to control or direct such third parties to provide these services timely or at costs reasonable to our customers. If these customers cannot timely obtain these services on reasonable terms, they may not order any foundry services from us. This may significantly reduce our operating revenues and negatively affect our profitability.
We may be unable to implement new technologies as they become available, which may result in the decrease of our profitability and the loss of customers and market share.
The semiconductor industry is characterized by rapidly evolving and constantly changing technology. If we do not anticipate the technology evolution and rapidly adopt new and innovative technology, we may not be able to produce sufficiently advanced services at competitive prices. Our competitors may adopt new technology before we do and reduce our ability to compete effectively in the market. If we are unable to begin offering advanced services and processes on a competitive and timely basis, we may lose customers to our competitors providing similar technologies, which may cause our operating revenues to decline unless we can replace lost customers with new customers. In addition, the market prices for advanced technology and services tend to fall over time. As a result, if we are unable to offer new advanced services and processes on a competitive and timely basis, we may need to reduce prices that we set for our existing services and processes, which would have a negative effect on our profitability. We also depend upon the introduction of new technologies on a timely basis in order to benefit from the relatively higher prices such new technologies offer in the earlier stages of their life cycles. If we are unable to introduce new technologies on a timely and competitive basis, we may not be able to benefit from the relatively higher prices for new technologies, and our average selling price and profits would decrease accordingly.
We may be unable to provide leading technology to our customers if we lose the support of our technology partners.
Enhancing our manufacturing process technologies is critical to our ability to provide services for our customers. We intend to continue to advance our process technologies through internal research and development and alliances with other companies. In addition to our internal research and development team focused on developing new and improved semiconductor manufacturing process technologies, we are also dependent on some of our technology partners to advance certain process technology portfolios. In addition, we currently have patent cross-licensing agreements with several companies, including International Business Machines Corporation, or IBM. Some mask and equipment vendors also supply our technology development teams with masks and equipment needed to develop more advanced processing technologies. If we are unable to continue any of our joint development arrangements, patent cross-licensing agreements and other agreements, on mutually beneficial economic terms, if we re-evaluate the technological and economic benefits of such relationships, if we are unable to enter into new technology alliances and arrangements with other leading and specialty semiconductor companies, or if we fail to secure masks and equipment from our vendors in a timely manner sufficient to support our ongoing technology development, we may be unable to continue providing our customers with leading edge mass-producible process technologies and may, as a result, lose important customers, which would have a materially adverse effect on our businesses, results of operations and financial condition.
In addition, some of our customers rely upon third-party vendors, or intellectual property (IP) vendors, for the IP they embed into their designs. Although we work and collaborate with IP vendors with respect to such matters, there can be no guarantee that we will be successful or that the vendors will deliver according to our requirements or the needs of our customers. Failures to meet the targets or to deliver on a timely basis could cause customers to cancel orders and/or shift capacity to other suppliers.
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The outbreak of infectious disease may materially and adversely affect our business and operations as well as our financial condition and results of operations
Any outbreak of contagious diseases, including but not limited to Zika virus, Ebola virus, avian or swine influenza or severe acute respiratory syndrome, may disrupt our ability to adequately staff our business and may generally disrupt our operations. An occurrence of a major pandemic, such as the recent COVID-19 pandemic, can materially and adversely affect our operations and the semiconductor markets in which we conduct our business. We have significant operations in China, Taiwan and the Asia Pacific region, including supply chain and manufacturing facilities and sales and marketing channels. If potential outbreak occurs in these areas, we may experience a decline of sales activities and customer orders; reduction of operation and workforce at our fabs; difficulties in international travels and communications; regulatory restrictions; reduction of research and development activities; and other risks resulting from the outbreak. Any of these factors may adversely affect our business, financial conditions and results of operations. However, we cannot predict the impact of future infectious disease on the semiconductor industry in the future, and any increase in such demand may not be sustainable and we may experience a decline in our sales activities and customer orders.
Our business may suffer if we cannot compete successfully in our industry.
The worldwide semiconductor foundry industry is highly competitive. We compete with dedicated foundry service providers such as Taiwan Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai) Corporation, Globalfoundries Inc., as well as the foundry operation services of some integrated device manufacturers, such as Intel, Samsung Electronics, or Samsung, SK Hynix and Toshiba Corporation, or Toshiba. Integrated device manufacturers principally manufacture and sell their own proprietary semiconductor products, but may also offer foundry services. Other competitors such as Dongbu Anam Semiconductor, Hua Hong, Powerchip, TowerJazz, Vanguard and XMC have initiated efforts to expand and develop substantial additional foundry capacity. New entrants and consolidations in the foundry business are likely to initiate a trend of competitive pricing and create potential overcapacity in legacy technology. Some of our competitors have greater access to capital and substantially greater production, research and development, marketing and other resources than we do. As a result, these companies may be able to compete more aggressively over a longer period of time than we can.
The principal elements of competition in the wafer foundry market include:
• | technical competence; |
• | time-to-volume production and cycle time; |
• | time-to-market; |
• | research and development quality; |
• | available capacity; |
• | manufacturing yields; |
• | customer service and design support; |
• | price; |
• | management expertise; and |
• | strategic alliances. |
Our ability to compete successfully also depends on factors partially outside of our control, including product availability, IP, including cell libraries that our customers embed in their product designs, and industry and general economic trends.
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We may not be able to implement our planned growth if we are unable to obtain the financing necessary to fund the substantial capital expenditures we expect to incur.
Our business and the nature of our industry require us to make substantial capital expenditures leading to a high level of fixed costs. The costs of facilities, tools and equipment to make semiconductors with advanced technology continue to rise, with each generation typically significantly more expensive than the larger-in-size more mature technologies which preceded. We expect to incur significant capital expenditures in connection with our growth plans. These capital expenditures will be made in advance of any additional sales to be generated by new or upgraded fabs as a result of these expenditures. Given the fixed-cost nature of our business, we have in the past incurred, and may in the future incur, operating losses if our revenues do not adequately offset our capital expenditures. Additionally, our actual expenditures may exceed our planned expenditures for a variety of reasons, including changes in:
• | our growth plan; |
• | our process technology; |
• | our research and development efforts and patent license arrangements; |
• | market conditions; |
• | interest rates; |
• | exchange rate fluctuations; and |
• | prices of equipment. |
We cannot assure you that additional financing will be available on satisfactory terms, if at all. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans or delay the deployment of our services, which could result in a loss of customers and limit the growth of our business.
We depend on a small number of customers for a significant portion of our operating revenues and any loss of these customers would result in significant declines in our operating revenues.
We have been largely dependent on a small number of customers for a substantial portion of our business. Our top ten customers accounted for 53.7%, 54.5% and 52.4% of our operating revenues in 2020, 2021 and 2022, respectively. Our largest customer from our wafer fabrication segment accounted for 11.5%, 10.3% and 8.6% of our operating revenues in 2020, 2021 and 2022, respectively. We expect that we will continue to depend upon a relatively limited number of customers for a significant portion of our operating revenues. We cannot assure you that our operating revenues generated from these customers, individually or in the aggregate, will reach or exceed historical levels in any future period. Loss or cancellation of business from significant changes in scheduled deliveries to, or decreases in the prices of services sold to any of these customers could significantly reduce our operating revenues.
Our customers generally do not place purchase orders far in advance, which makes it difficult for us to predict our future revenues, adjust production costs and allocate capacity efficiently on a timely basis. In addition, due to the cyclical nature of the semiconductor industry, our customers’ purchase orders have varied significantly from period to period. As a result, we do not typically operate with any significant backlog, except in periods of extreme capacity shortage. The lack of significant backlog and the unpredictable length and timing of semiconductor cycles make it difficult for us to forecast our revenues in future periods. Moreover, our expense levels are based in part on our expectations of future revenues, and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. We expect that in the future our operating revenues in any quarter will continue to be substantially dependent upon purchase orders received in that quarter.
Moreover, the increasing trend in mergers and acquisitions activities in the semiconductor industry could reduce total available customer base, which could potentially result in a loss of customers.
Our operations and business will suffer if we lose one or more of our key personnel without adequate replacements.
Our future success to a large extent depends on the continued services of our Chairman and key executive officers. We do not carry key person insurance on any of our personnel. If we lose the services of any of our Chairman or key executive officers, it could be difficult to find and integrate replacement personnel in a short period of time, which could harm our operations and the growth of our business.
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We may have difficulty attracting and retaining skilled employees, who are critical to our future success.
The success of our business depends upon attracting and retaining experienced executives, engineers and other employees to implement our strategy. The competition for skilled employees is intense in our industry, which is exacerbated by the shortage of qualified personnel with appropriate experiences and expertise. We expect demand for personnel in Taiwan to increase in the future as new wafer fabrication facilities and other businesses are established in Taiwan. We also expect demand for experienced personnel in other locations to increase significantly as our competitors establish and expand their operations. Some of our competitors are willing to offer better compensation than what we do to our executives, engineers and other employees. We do not have long-term employment contracts with any of our employees. If we were unable to retain our existing personnel or attract, assimilate and recruit new experienced personnel in the future, it could seriously disrupt our operations and delay or restrict the growth of our business.
Our transactions with affiliates and shareholders may hurt our profitability and competitive position.
We have provided foundry services to several of our affiliates and shareholders. We currently do not provide any preferential treatment to any of these affiliates and shareholders. However, we may in the future reserve or allocate our production capacity to these companies if there is a shortage of foundry services in the market to enable these companies to maintain their operations and/or to protect our investments in them. This reservation or allocation may reduce our capacity available for our other customers, which may damage our relationships with other customers and discourage them from using our services. This may hurt our profitability and competitive position.
If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company may be adversely affected.
We are required to comply with the R.O.C. and the U.S. securities laws and regulations in connection with internal controls. As a public company in the United States, our management is required to assess the effectiveness of our internal control over financial reporting using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), or the COSO criteria, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may decline to issue an opinion as to the effectiveness of our internal control over financial reporting, or may issue a report that is qualified or adverse. During the course of the evaluation of internal control over financial reporting, we or our independent registered public accounting firm may identify control deficiencies that we may not be able to remediate prior to the date of our first assessment of internal control over financial reporting. Our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements or prevent fraud, which in turn could harm our business and negatively impact the trading price of our securities.
Although effective internal controls can provide reasonable assurance with respect to the preparation and fair presentation of financial statements, they may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. If we fail to maintain the adequacy of our internal controls, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common shares and ADSs.
The trend of adopting protectionist measures in certain countries, including the United States, could have a material adverse impact on our results of operations and financial condition.
Governments in the United States, PRC and certain other countries have implemented fiscal and monetary programs to stimulate economic growth as a result of the recent economic downturn, and many of these programs include protectionist measures that encourage the use of domestic products and labor. Recent policy developments by the governments in US, China and elsewhere also suggest an increased unwillingness to allow international companies to invest in or acquire local businesses. Since many of our direct customers and other downstream customers in the supply chain are located in or have operations in the countries where protectionist measures were adopted, such protectionist measures may have a material adverse effect on demand for our manufacturing services.
10
We may decide to make strategic acquisitions of other companies, assets or businesses and such acquisitions may introduce significant risks and uncertainties, including risks related to integrating the acquired assets or businesses.
In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, certain strategic acquisitions, mergers and alliances that involve significant risks and uncertainties. Even if we have identified a suitable target or partner for a strategic transaction, there is no guarantee that we will be able to negotiate a successful agreement at pricing favorable to us or to consummate the transaction in a timely manner, or at all. Furthermore, we may incur significant costs in pursuing such strategic transaction and invest in a substantial amount of time and effort without a guarantee that such transaction will be completed. Successful acquisitions and alliances in the semiconductor industry are difficult to accomplish because they require efficient integration and aligning of product offerings and manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of integration and alignment may be increased by the necessity of coordinating geographically separated organizations, the complexity of the technologies being integrated and aligned and the necessity of integrating personnel with disparate business backgrounds and combining different corporate cultures. Furthermore, there is no guarantee that we will be able to identify a viable target for strategic acquisition, and we may incur significant costs and resources in such effort that may not result in a successful acquisition. In addition, we may also issue equity securities to pay for future acquisitions or alliances, which could be dilutive to existing shareholders. We may also incur debt or assume contingent liabilities in connection with acquisitions and alliances, which could impose restrictions on our business operations and harm our operating results.
Currency fluctuations could increase our costs relative to our revenues, which could adversely affect our profitability.
More than half of our operating revenues are denominated in currencies other than New Taiwan dollars, primarily in U.S. dollars. On the other hand, more than half of our costs of direct labor, raw materials and overhead are incurred in New Taiwan dollars. Although historically we hedged a portion of the resulting net foreign exchange position through the use of foreign exchange spot transactions, or currency forward contracts, we are still affected by fluctuations in foreign exchange rates among the U.S. dollar, the New Taiwan dollar and other currencies. Any significant fluctuation in exchange rates may impact on our financial condition and the U.S. dollar value of the ADSs and the U.S. dollar value of any cash dividends we distributed, which could have an adverse effect on the market price of the ADSs.
Risks Relating to Manufacturing
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and other disruptions that can significantly increase our costs and delay product shipments to our customers.
Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified to improve manufacturing yields and product performance. Impurities or other difficulties in the manufacturing process or defects with respect to equipment or supporting facilities can lower manufacturing yields, interrupt production or result in losses of products in process. As system complexity has increased and process technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. Although we have been enhancing our manufacturing capabilities and efficiency, from time to time we have experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. In the past we have encountered the following problems:
• | capacity constraints due to changes in product mix or the delayed delivery of equipment critical to our production, including scanners, steppers and chemical stations; |
• | construction delays during expansions of our clean rooms and other facilities; |
• | difficulties in upgrading or expanding existing facilities; |
• | manufacturing execution system or automatic transportation system failure; |
• | unexpected breakdowns in our manufacturing equipment and/or related facilities; |
• | changing or upgrading our process technologies; |
• | raw materials shortages and impurities; and |
• | delays in delivery and shortages of spare parts and in maintenance for our equipment and tools. |
Should these problems persist or repeat, we may suffer delays in delivery and/or loss of business and revenues. In addition, we cannot guarantee that we will be able to increase our manufacturing capacity and efficiency in the future to the same extent as in the past.
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Our profit margin may substantially decline if we are unable to continuously improve our manufacturing yields, maintain high capacity utilization and optimize the technology mix of our silicon wafer production.
Our ability to maintain our profitability depends, in part, on our ability to:
• | maintain high capacity utilization, which is defined as the ratio of the wafer-out quantity of 8-inch wafer equivalents divided by our estimated total 8-inch equivalent capacity in a specified period. The estimated capacity figures may vary depending upon equipment delivery schedules, pace of migration to more advanced processing technologies and other factors affecting production ramp-ups; |
• | maintain or improve our manufacturing yields, which is defined as the percentage of usable devices manufactured on a wafer; and |
• | optimize the technology mix of our production by increasing the number of wafers manufactured by utilizing different processing technologies. |
Our manufacturing yields directly affect our ability to attract and retain customers, as well as the price of our services. Our capacity utilization affects our operating results because a large percentage of our operating costs are fixed. Our technology mix affects utilization of our equipment and process technologies, as well as the prices we can charge, either of which can affect our margins. If we are unable to continuously improve our manufacturing yields, maintain high capacity utilization or optimize the technology mix of our wafer production, our profit margin may substantially decline.
We may have difficulty in ramping up production in accordance with our schedule, which could cause delays in product deliveries and decreases in manufacturing yields.
As is common in the semiconductor industry, we have from time to time experienced difficulties in ramping up production at new or existing facilities or effecting transitions to new manufacturing processes. As a result, we have suffered delays in product deliveries or reduced manufacturing yields. We may encounter similar difficulties in connection with:
• | the migration to more advanced process technologies, such as 45/40 and 28-nanometer and more advanced process technology; |
• | the joint development with vendors for more powerful tools (both in production and inspection) needed in the future to meet advanced process technology requirements; and |
• | the adoption of new materials in our manufacturing processes. |
We may face construction delays, interruptions, infrastructure failure and delays in upgrading or expanding existing facilities, or changing our process technologies, any of which might adversely affect our production schedule. Our failure to achieve our production schedule could delay the time required to recover our investments and seriously affect our profitability.
Our production schedules could be delayed and we may lose customers if we are unable to obtain raw materials and equipment in a timely manner.
We depend on our suppliers for raw materials. To maintain competitive manufacturing operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of quality materials at acceptable prices. Although we source our raw materials from several suppliers, a small number of these suppliers account for a substantial amount of our supply of raw materials because of the consistent quality of their products. For example, in 2020, 2021 and 2022, we purchased a majority of our silicon wafers from five makers, Shin-Etsu Handotai Corporation, or Shin-Etsu, GlobalWafers, Siltronic and Sumco Group (including Sumco Corporation and Formosa Sumco Technology Corporation) and Soitec. From time to time, our suppliers have extended lead time or limited the supply of required materials to us because of capacity constraints. Consequently, from time to time, we have experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.
In addition, from time to time we may reject materials that do not meet our specifications and quality standards, resulting in declines in output or manufacturing yields. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies in a timely manner. Furthermore, the recent global supply chain disruption may adversely affect our ability to acquire and purchase raw materials in sufficient quantities or at all, or in a timely manner. If the supply of materials is substantially diminished or if there are significant increases in the costs of raw materials, we may be forced to incur additional costs to acquire sufficient quantities of raw materials to sustain our operations, which may increase our marginal costs and reduce profitability.
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We also depend on a limited number of manufacturers and vendors that make and maintain the complex equipment we use in our manufacturing processes. We also rely on these manufacturers and vendors to improve our technology to meet our customers’ demands as technology improves. In periods of unpredictable and highly diversified market demand, the lead time from order to delivery of this equipment can be as long as fourteen to forty-two months. If there are delays in the delivery of equipment or in the availability or performance of necessary maintenance, or if there are increases in the cost of equipment, it could cause us to delay our introduction of new manufacturing capacity or technologies and delay product deliveries, which may result in the loss of customers and revenues.
We may be subject to the risk of loss due to fire because the materials we use in our manufacturing processes are highly flammable.
We use highly flammable materials such as silane and hydrogen in our manufacturing processes and may therefore be subject to the risk of loss arising from fires. The risk of fire associated with these materials cannot be completely eliminated. We maintain insurance policies to reduce losses caused by fire, including business interruption insurance. However, our insurance coverage is subject to deductibles and self-insured retention and may not be sufficient to cover all of our potential losses. If any of our fabs were to be damaged or cease operations as a result of a fire, it would temporarily reduce manufacturing capacity and reduce revenues.
We and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.
Most of our assets and many of our customers and suppliers are located in certain parts of Taiwan. Our operations and the operations of our customers and suppliers are vulnerable to earthquakes, floods, droughts, power losses and similar events that affect the locations of our operations. The occurrence of any of these events could interrupt our services and cause severe damages to wafers in process, or cause significant business disruptions. For example, given the prolonged period in the lack of rainfall particularly acute in southern Taiwan which may impact our manufacturing capacity and may cause us to lose important customers, therefore may have a potentially adverse and material impact on our operational and financial performance. Besides the potential risks that may be caused by water shortage, we have in the past experienced severe earthquakes which adversely affected our wafer manufacturing operations in Taiwan. Although we had adopted practices in compliance with ISO 22301 business continuity standards which ensured the safety of our employees and minimized supply disruptions resulting from the earthquake and we recovered partially the losses resulting for this earthquake from our insurance policy, there is no guarantee that our business continuity practices will always be effective. There is also no guarantee that any future damages or business loss from severe natural disasters will be covered by such insurance, that we will be able to collect from our insurance carriers, should we choose to claim under our insurance policies, or that such coverage will be sufficient. Furthermore, the cost of insurance policies may increase in the future that will make it more expensive for us to obtain and maintain adequate insurance policies. In addition, our manufacturing facilities have occasionally experienced insufficient power supplies, and our operations have been disrupted.
Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health, or ESH, regulations.
The semiconductor manufacturing process requires the use of various gases, chemicals, hazardous materials and other substances such as solvents and sulfuric acid which may have an impact on the environment. We are always subject to ESH regulations, and a failure to manage the use, storage, transportation, emission, discharge, recycling or disposal of raw materials or to comply with these ESH regulations could result in (i) regulatory penalties, fines and other legal liabilities, (ii) suspension of production or delays in operation and capacity expansion, (iii) a decrease in our sales, (iv) an increase in pollution cleaning fees and other operation costs, or (v) damage to our public image, any of which could harm our business. In addition, as ESH regulations are becoming more comprehensive and stringent, we may incur a greater amount of capital expenditures in technology innovation and materials substitution in order to comply with such regulations, which may adversely affect our results of operations.
Climate change may negatively affect our business.
There is increasing concern that climate change is occurring and may have dramatic effects on human activity without aggressive remediation steps. The change in temperature would result in increased severity and frequency of extreme weather events such as cyclones, floods, water stress, high temperature and increasing risk of extinction for the world’s species. Public expectations for reductions in greenhouse gas emissions and climate-related risks could result in increased energy, water, transportation and raw material costs, which raised shareholder’s concern and caused several international standards and questionnaires being revised to request enterprises disclosing their risks and financial impacts. Consequently, our climate change risk assessment tool was developed and related departments participated in the identification work.
As climate change continues to be severe, the international community not only pays attention to the energy transition, but also successively establishes mechanisms for monetizing the impact of carbon emissions on society and the environment, such as carbon pricing mechanism, carbon border adjustment mechanism, etc. For example, we have an advanced 12-inch wafer fab in Singapore. The Singapore government introduced a carbon tax from 2019 onwards, making it the first country in Southeast Asia to promote this measure. In Taiwan, “Climate Change Response Act” was promulgated in February 2023 to accelerate the goal of achieving net-zero carbon emissions by 2050 with additional stringent requirements such as carbon tariffs on imports of carbon-intensive products and a carbon-fee charging to urge enterprises for GHG reduction.
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In addition, government’s energy management measures may cause power shortage and affect our business operation. For example, China government requested enterprises to reduce electricity consumption in 2022. Although UMC’s plants in China have not been directly affected, there is no guarantee that such reduction in consumption will not occur in the future.
We have developed climate change risk assessment tool and related departments participated in the identification work. Adaptation and mitigation measures are developed in response to the identified climate change risk. Furthermore, we also disclosed risk and opportunity of climate change according to the framework of TCFD (Task Forced on Climate-related Financial Disclosures) in UMC Sustainability Report and our official website. Since 2021, UMC meets the TCFD performance assessment at management level of “Pioneer” which verified by SGS Taiwan Ltd. annually, endorsing that our climate change risk assessment system and associated financial disclosure data are highly credible and transparent.
Disruptions in the international trading environment may seriously decrease our international sales.
A substantial portion of our operating revenues is derived from sales to customers located in countries other than the countries where our fabs are located. We operated fabs in Taiwan, Singapore, China and Japan. For the years ended December 31, 2020, 2021 and 2022, we generated approximately 27.0%, 27.4% and 31.7% of our operating revenues, respectively, from countries other than those where our fabs are located. We expect sales to customers from countries outside of Taiwan, Singapore, China and Japan will continue to represent a significant portion of our operating revenues. The success and profitability of our international activities depend on certain factors beyond our control, such as general economic conditions, labor conditions, political stability, tariff, tax laws, import duties, intellectual property rights, export control and foreign exchange controls of the countries in which we sell our products, and the political and economic relationships between these countries. As a result, our manufacturing services will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns.
These disruptions in the international trading environment affect the demand for our manufacturing services and change the terms upon which we provide our manufacturing services overseas, which could seriously decrease our international sales.
Political, Economic, Regulatory and Legal Risks
We face substantial political risks associated with doing business in Taiwan, particularly due to the tense relationship between the R.O.C. and the People’s Republic of China, or the PRC, that could negatively affect the value of your investment.
Our principal executive offices and most of our assets and operations are located in Taiwan. Accordingly, our business, financial condition and results of operations and the market price of our common shares and the ADSs may be affected by changes in R.O.C. governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established between the R.O.C. and the PRC in the past few years, such as the adoption of the Economic Cooperation Framework Agreement and memorandum regarding cross-strait financial supervision, we cannot assure you that relations between the R.O.C. and PRC will not become strained again, in particular, considering the increasingly tense relationship between the United States and the PRC. For example, the PRC government has refused to renounce the use of military force to gain control over Taiwan and, in March 2005, passed an Anti-Secession Law that authorized non-peaceful means and other necessary measures should Taiwan move to gain independence from the PRC. Past developments in relations between the R.O.C. and the PRC have on occasions depressed the market prices of the securities of companies in the R.O.C. Such initiatives and actions are commonly viewed as having a detrimental effect to reunification efforts between the R.O.C. and the PRC. Relations between the R.O.C. and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.
Our business depends on the support of the R.O.C. government and other government authorities in countries and regions where we operate, and a decrease in these supports may reduce our net income.
We, like many R.O.C. technology companies, have benefited from substantial tax incentives provided by the R.O.C. government and other government authorities in countries and regions where we operate under various different tax incentive programs, which are subject to the review and approval by the relevant tax authorities on the case by case basis. Although we will make our best efforts to meet the requirements under different incentive schemes and make the relevant applications, we cannot assure you that the tax authorities will grant the approval as we apply. Our application may be denied for reasons outside of our control, including changes in tax incentive regulations and criteria for qualifications. Additionally, the tax incentives granted, taken as a whole, may not be as favorable to us as those currently in effect. If any of the above occurs, our net income may decrease.
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Our future tax obligations may adversely affect our net income.
We operate in various jurisdictions, which involve different tax regimes and application of tax regulations. Applicable taxes for which we make provisions could increase significantly as a result of changes in applicable tax laws in the countries where we operate.
Some of the above-mentioned tax incentives maybe subject to the investment milestone and comply with the terms and conditions set forth in the agreements with the government. Failure to fulfill the investment milestone or the terms and conditions would result in termination or revocation of the incentives. The local authority may have the rights to revoke these incentive rewards even if the company received tax benefits that it had enjoyed during the applicable period by the applicable tax laws or regulations.
In addition, the Organization for Economic Cooperation and Development (“OECD”) create the Base Erosion and Profit Shifting (BEPS) Actions, which contemplates changes to numerous international tax principles. These changes may increase our income tax rate in future, which may adversely affect our net income.
Compliance with U.S. Conflict Minerals Law may affect our ability or the ability of our suppliers to purchase raw materials at an effective cost.
We are subject to U.S. disclosure rules on conflict minerals adopted by the SEC, pursuant to which we are required to conduct due diligence of our supply chain and file an annual report to disclose whether conflict minerals utilized by us originated in the Democratic Republic of the Congo (DRC) or an adjoining country. We have filed the conflict mineral disclosure report every year since 2014 in order to comply with such rules, we will continue to verify the relevant information with our vendors and suppliers and file the required report but we cannot assure you that we will be able to collect all the information required to comply with such regulations. If we are not able to confirm such information with vendors, or if we discover that some vendors are sourcing conflict minerals from prohibited countries, we may decide or be required to discontinue our relationship with such vendors, which may negatively impact our ability to obtain adequate supplies of materials needed for the manufacturing of our products and services. The failure to obtain necessary information or to maintain adequate supplies of materials from supply chains outside the DRC and adjoining countries may delay our production, increasing the risk of losing customers and business.
Similarly, many jurisdictions have promulgated regulations with the intention to deter human rights violations within supply chains. Possible violation by our suppliers may not be known to us and is beyond our control. While we believe our suppliers comply with applicable human rights requirements, there can be no guarantee that they will continue to do so, or that we will be able to obtain the necessary information on their activities to comply with whatever future requirements may be enacted.
Cyberattacks and data security breaches may adversely affect our operations and damage our reputation.
Our business and operations depend upon reliable and uninterrupted information technology services, including the integrity of our web-based and electronic customer service systems. Although we have implemented what we believe are reasonable precautions to prevent accidental and/or malicious disruption of these services, there can be no assurance that our preventive measures will preclude failure of the information technology, web-based and electronic customer service systems upon which our business depends. Our systems might also be damaged by natural or man-made events or by computer viruses, physical or electronics break-ins, cyber-attacks and similar disruptions affecting the global Internet. Disruption of these systems could adversely affect our ability to operate our business and to serve our customers, thereby negatively affecting our financial performance.
In addition, in the course of our operations, we receive confidential information from and about our customers, vendors, partners and employees. Although we take what we believe are reasonable precautions to protect such information from disclosure to or interruption, there are no guarantees our precautions will prevent accidental or malicious access to such information. In the event of such unauthorized access, our reputation could be adversely affected, customers and others may not entrust us with their confidential information, which would negatively affect our operations, and we may incur costs to remedy the breach. Furthermore, the loss of confidential information of third parties may result in legal claims against us, in which case we will incur additional costs and expenses to defend such litigation.
Moreover, many jurisdictions have proposed stringent regulations concerning data privacy, and such regulations may impose additional legal requirements that make our operations more expensive and/or less efficient. In addition, should we experience a breakdown in our systems or failure in our precautions that results in a violation of such regulations, we may suffer adverse customer reaction and face governmental penalties.
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Intellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from providing services to customers.
As is typical in the semiconductor industry, we or our customers may receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.
Any litigation or arbitration regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. We have in the past and may from time to time in the future become involved in litigation that requires our management to commit significant resources and time.
Because of the complexity of the technology involved and the uncertainty of litigation generally, any intellectual property arbitration or litigation involves significant risks. Any claim of intellectual property infringement against us may require us to:
• | incur substantial legal and personnel expenses to defend the claims or to negotiate for a settlement of claims; |
• | pay substantial damages or settlement to the party claiming infringement; |
• | refrain from further development or sale of our products; |
• | enter into costly royalty or license agreements that might not be available on commercially reasonable terms or at all; |
• | cross-license our technology with a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; |
• | indemnify our distributors, end customers, licensees and others from the costs of and damages of infringement claims; and |
• | curtail or modify our operations in response to regulatory inquiries relating to the alleged infringement, which may result in additional costs and expenses. |
In addition, because we have a global operation, we may be subject to intellectual property disputes and litigation in foreign jurisdictions with divergent laws and practices, which will make it more costly and time consuming for us to initiate or defend such litigations. Furthermore, if we are engaged or involved in a high profile intellectual property dispute or litigation in foreign countries with stringent national security regulations, such as the U.S. and China, we may be subject to heightened scrutiny by government agencies in such countries, which may lead to adverse actions taken by such government agencies, including prolonged investigation and litigation, which can negatively affect our operations and damage our reputation. Any intellectual property claim or litigation could harm our business, results of operations, financial condition and prospects.
Geopolitical developments could further impact Company’s operations affecting our business
Rising political or economic tensions between US and China have led to restrictions on the shipment and distribution of certain goods, including tools and equipment used in the semiconductor industry, which have triggered a trade war. Additional measures from governments may lead to tariff increases, embargoes, policy interventions, and government subsidies. U.S.-China tension has also affected cross-strait relations, and the rise in escalations have increased the uncertainty of future business environment affecting Company’s operations and investments including revenue, delivery time, goodwill, and investment plans. For example, a sharp increase in US or European tariffs may favor local/domestic manufacturers while hurting exports which may drive up costs of the Company’s products which is manufactured in Asia. This would reduce demand from our customers towards UMC impacting our business and operations; the United States Export Control Act regulates exports to certain countries if the content originating from the U.S. exceeds a certain ratio of the product, this will affect UMC’s direct or indirect supply to specific customers; restrictions on the export of high-tech materials or equipment may affect UMC’s production and capacity expansion plans, which may disrupt shipments and damage the Company’s goodwill, while investment restrictions and regulatory changes may potentially affect the Company’s strategic planning, operational and financial performance. In addition, political tensions in the Taiwan Strait, including any threat of potential military confrontation between China and Taiwan, as well as U.S. involvement of any such military operations, may discourage customers to place orders with us. We cannot predict the geopolitical development in the future and if the geopolitical landscape further deteriorates, potential supplies such as materials could be disrupted and ceased, which will negatively affect our financial performance.
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Geopolitical and economic conflicts between the United States and China may adversely affect our business
Geopolitical conflicts and tensions between the United States and China have threatened and destabilized trading relationships and economic activities between the two countries. Because we have operations in both countries, such conflicts and tensions may negatively impact our business. At various times during recent years, the United States and China have had disagreements over political and economic issues, including but not limited to, the recent imposition of tariffs by the U.S. on goods imported from China and to the U.S. government’s efforts to restrict transfer and sharing of technologies, including semiconductor technologies, between the two countries. In addition, the U.S. government may enact new and more restrictive export control regulations that may reduce our ability to ship and sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations. In addition, disagreements between the United States and China with respect to their political, military or economic policies toward Taiwan may contribute to further controversies. These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China, causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance.
Conflicts between Ukraine and Russia could lead to sourcing risks of indirect materials which could affect Company’s business and profitability
The ongoing war between Ukraine and Russia has resulted in the imposition of trade barriers, such as sanctions and import and export controls, which could increase our manufacturing costs, limit our access to certain supplies, make our pricing less competitive, increase the cost of energy and power, and limit our ability to offer our products and services in some markets or source key materials and key production equipment, which may have adverse direct or indirect effects on our sales.
Risks Related to the Common Shares and ADSs and Our Trading Markets
Restrictions on the ability to deposit common shares into our ADS program may adversely affect the liquidity and price of the ADSs.
The ability to deposit common shares into our ADS program is restricted by R.O.C. law. Under current R.O.C. law, no person or entity, including you and us, may deposit common shares into our ADS program without specific approval of the R.O.C. FSC except for the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:
(A) | distribution of share dividends or free distribution of our common shares; |
(B) | exercise of the preemptive rights of ADS holders applicable to the common shares evidenced by ADSs in the event of capital increases for cash; or |
(C) | delivery of our common shares which are purchased in the domestic market in Taiwan directly by the investor or through the depositary or are already in the possession of the investor to the custodian for deposit into our ADS program, subject to the following conditions: (a) the re-issuance is permitted under the deposit agreement and custody agreement, (b) the depositary may accept deposit of those common shares and issue the corresponding number of ADSs with regard to such deposit only if the total number of ADSs outstanding after the issuance does not exceed the number of ADSs previously approved by the R.O.C. FSC, plus any ADSs issued pursuant to the events described in (A) and (B) above and (c) this deposit may only be made to the extent previously issued ADSs have been withdrawn. |
As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs on the NYSE may differ from the prevailing market price of the equivalent number of our common shares on the Taiwan Stock Exchange.
Holders of our ADSs will not have the same proposal or voting rights as the holders of our common shares, which may affect the value of your investment.
Except for treasury common shares and common shares held by our subsidiaries which meet certain criteria provided under the R.O.C. Company Act, each common share is generally entitled to one vote and no voting discount will be applied. However, except as described in this Annual Report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attached to the common shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attached to the common shares represented by the ADSs. The voting rights attached to the common shares evidenced by our ADSs must be exercised as to all matters brought to a vote of shareholders collectively in the same manner.
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Moreover, holders of the ADSs do not have individual rights to propose any matter for shareholders’ votes at our shareholders’ meetings. However, holders of at least 51% of the ADSs outstanding at the relevant record date may request the depositary to submit to us one proposal per year for consideration at our annual ordinary shareholders’ meeting, provided that such proposal meets certain submission criteria and limitations, including the language and the length of the proposal, the time of submission, the required certification or undertakings, and the attendance at the annual ordinary shareholders’ meeting. However, if the proposal submitted by the depositary does not qualify, we have no obligation to allow the depositary to modify such proposal.
Furthermore, if holders of at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner regarding a resolution, including election of directors, the depositary will appoint our Chairman, or his designee, to represent the ADS holders at the shareholders’ meetings and to vote the common shares represented by the ADSs outstanding in the manner so instructed. If by the relevant record date, the depositary has not received instructions from holders of ADSs holding at least 51% of the ADSs to vote in the same manner for any resolution, then the holders will be deemed to have instructed the depositary to authorize and appoint our Chairman, or his designee, to vote all the common shares represented by ADSs at his sole discretion, which may not be in your interest. As a result of these rules and restrictions, holders of ADSs have limited ability to vote or be represented with respect to any actions to be taken by shareholders of the Company.
The rights of holders of our ADSs to participate in our rights offerings may be limited, which may cause dilution to their holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act of 1933, as amended (the “Securities Act”), or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings.
Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of ADSs may have an adverse effect on the value of your investment.
Your ability to convert proceeds received from your ownership of ADSs depends on existing and future exchange control regulations of the Republic of China. Under the current laws of the Republic of China, an ADS holder or the depositary, without obtaining further approvals from the R.O.C. Central Bank of China, or the CBC, or any other governmental authority or agency of the Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect of:
• | the proceeds of the sale of common shares represented by ADSs or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and |
• | any cash dividends or distributions received from the common shares represented by ADSs. |
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the CBC will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.
Under the Republic of China Foreign Exchange Control Law, the Executive Yuan of the Republic of China may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls or other restrictions in the event of, among other things, a material change in international economic conditions.
Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation and bylaws governing R.O.C. corporations. The rights of our shareholders to bring shareholders’ suits against us or our board of directors under R.O.C. law are much more limited than those of the shareholders of U.S. corporations. Therefore, our public shareholders may have more difficulty protecting their interests in connection with actions taken by our management, members of our board of directors or controlling shareholders than they would as shareholders of a U.S. corporation. Please refer to “Item 10. Additional Information—B. Memorandum and Articles of Association—Rights to Bring Shareholders’ Suits” included elsewhere in this Annual Report for a detailed discussion of the rights of our shareholders to bring legal actions against us or our directors under R.O.C. law.
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Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw common shares from our ADS program and become our shareholders, which may make ownership burdensome.
Non-R.O.C. persons wishing to withdraw common shares represented by their ADSs from our ADS program and hold our common shares represented by those ADSs are required to, among other things, appoint a local agent or representative with qualifications set forth by the applicable R.O.C. laws and regulations to open a securities trading account with a local brokerage firm, pay R.O.C. taxes, remit funds and exercise shareholders’ rights. In addition, the withdrawing holders are also required to appoint a custodian bank or a securities firm with qualifications set forth by the R.O.C. FSC to hold the securities in safekeeping, make confirmations, settle trades and report all relevant information, in which the securities firm is appointed as the custodian, the payments shall be held in safekeeping in a special account opened in a bank approved by the R.O.C. FSC. Without making this appointment and opening of the accounts, the withdrawing holders would not be able to subsequently sell our common shares withdrawn from a depositary receipt facility on the Taiwan Stock Exchange. Under R.O.C. law and regulations, except under limited circumstances, PRC persons are not permitted to withdraw the common shares underlying the ADSs or to register as shareholders of our company. Under the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors promulgated by the R.O.C. Executive Yuan on April 30, 2009, as amended, only qualified domestic institutional investors, or QDIIs and limited entities or individuals, are permitted to withdraw the common shares underlying the ADSs, subject to compliance with the withdrawal relevant requirements, and only QDIIs, and limited entities or individuals who meet the qualification requirements set forth therein are permitted to own common shares of an R.O.C. company listed for trading on the Taiwan Stock Exchange or the Taipei Exchange, provided that among other restrictions generally applicable to investments made by PRC persons, their shareholdings are subject to certain restrictions as set forth in the abovementioned regulations and that such mainland area investors shall apply for a separate approval if their investment, individually or in aggregate, amounts to or exceeds 10 percent of the common shares of any R.O.C. listed company.
You may not be able to enforce a judgment of a foreign court in the R.O.C.
We are a company limited by shares incorporated under the R.O.C. Company Act. Most of our assets and most of our directors, executive officers and experts named in the registration statement are located in Taiwan. As a result, it may be difficult for you to enforce judgments obtained outside Taiwan upon us or such persons in Taiwan. We have been advised by our R.O.C. counsel that any judgment obtained against us in any court outside the R.O.C. arising out of or relating to the ADSs will not be enforced by R.O.C. courts if any of the following situations shall apply to such final judgment:
• | the court rendering the judgment does not have jurisdiction over the subject matter according to R.O.C. law; |
• | the judgment or the court procedure resulting in the judgment is contrary to the public order or good morals of the R.O.C.; |
• | the judgment was rendered by default, except where the summons or order necessary for the commencement of the action was legally served on us within the jurisdiction of the court rendering the judgment within a reasonable period of time or with judicial assistance of the R.O.C.; or |
• | judgments of the R.O.C. courts are not recognized in the jurisdiction of the court rendering the judgment on a reciprocal basis. |
We may be considered a passive foreign investment company, which could result in adverse U.S. federal income tax consequences for U.S. investors.
We do not believe that we were a passive foreign investment company, or PFIC, for 2022 and we do not expect to become one in the future, although there can be no assurance in this regard. Characterization as a PFIC could result in adverse U.S. federal income tax consequences to you if you are a U.S. investor.
For example, if we are a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. federal income tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. federal income tax purposes if either (i) 75% or more of our gross income in a taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in a taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of common shares and ADSs, which is subject to change. See “Taxation—U.S. Federal Income Tax Considerations For U.S. Persons—Passive Foreign Investment Company.”
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The trading price of the common shares and ADSs may be adversely affected by the general activities of the Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our common shares, increases in interest rates and the economic performance of Taiwan.
Our common shares are listed on the Taiwan Stock Exchange and our ADSs are listed on New York Stock Exchange. The trading price of our ADSs may be affected by the trading price of our common shares on the Taiwan Stock Exchange and the economic performance of Taiwan. The Taiwan Stock Exchange is smaller and, as a market, more volatile than the securities markets in the United States and some European countries. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities, and there are currently limits on the range of daily price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange is particularly volatile during times of political instability, such as when the relationship between Taiwan and the PRC becomes tense. Moreover, the Taiwan Stock Exchange has experienced disturbance caused by market manipulation, insider trading and payment defaults, and the government of Taiwan has from time to time intervened in the stock market by purchasing stocks listed on the Taiwan Stock Exchange. The recurrence of these or similar events could deteriorate the price and liquidity of our common shares and ADSs.
The market price of the ADSs may also be affected by general trading activities on the U.S. stock exchanges, which recently have experienced significant volatility with respect to trading prices of technology companies. Fluctuation in interest rates and other general economic conditions may also influence the market price of the ADSs.
ITEM 4 | INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
Our legal and commercial name is United Microelectronics Corporation, commonly known as “UMC”. We were incorporated under the R.O.C. Company Law as a company limited by shares in May 1980 and our common shares are listed on the Taiwan Stock Exchange since 1985. Our principal executive office is located at No. 3 Li-Hsin 2nd Road, Hsinchu Science Park, Hsinchu, Taiwan, R.O.C, and our telephone number is 886-3-578-2258. Our Internet website address is www.umc.com. The information on our website does not form part of this Annual Report. Our ADSs have been listed on the NYSE under the symbol “UMC” since September 19, 2000. In 2022, we were ranked among the top 5% of companies for the eighth consecutive year in the Corporate Governance Evaluation conducted by the Taiwan Stock Exchange and Taipei Exchange. The assessment was conducted across over 1,600 public companies in Taiwan.
We are one of the world’s largest independent semiconductor foundries and a leader in semiconductor manufacturing process technologies. Our primary business is the manufacture, or “fabrication”, of semiconductors, sometimes called “chips” or “integrated circuits”, for others. Using our own proprietary processes and techniques, we make chips to the design specifications of our many customers. Our company maintains a diversified customer base across industries, including communication devices, consumer electronics, computer, and others, while continuing to focus on manufacturing for high growth, large volume applications, including networking, telecommunications, internet, multimedia, PCs and graphics. We sell and market mainly wafers which in turn are used in a number of different applications by our customers. The following table presented the percentages of our wafer sales by application for the years ended December 31, 2020, 2021 and 2022.
Years Ended December 31, | ||||||||||||
Application |
2020 | 2021 | 2022 | |||||||||
% | % | % | ||||||||||
Communication |
52.1 | 46.2 | 45.2 | |||||||||
Consumer |
24.3 | 26.6 | 26.2 | |||||||||
Computer |
13.9 | 16.7 | 14.6 | |||||||||
Others |
9.7 | 10.5 | 14.0 | |||||||||
|
|
|
|
|
|
|||||||
Total |
100.0 | 100.0 | 100.0 | |||||||||
|
|
|
|
|
|
We focus on the development of leading manufacturing process technologies designed for mass production. We were among the first in the foundry industry to enter into commercial operation with such advanced capabilities as producing integrated circuits with line widths of 0.25, 0.18, 0.15, 0.13 micron and 90, 65/55, 45/40, 28, 22 and 14 nanometer. The arrival of 5G technologies have increased the penetration rate in smartphones, wearables, and other devices associated with the Internet of Things which will spur a new wave of semiconductor related applications driving long term silicon content and wafer demand. More powerful semiconductors are required to drive multimedia functions (e.g., processing visual data) and to resolve network bandwidth issues. At the same time, the trend towards portable personal electronic devices have resulted in products that are becoming physically smaller and consuming less power. Process technology must also have the ability to shrink form factors of products aggressively to cater to this trend. Such technology must demonstrate the ability to integrate multiple functions, reduce the size of components needed for operation and lower IC power consumption. Dedicated semiconductor foundries need to achieve this process improvement and at the same time develop multiple process technologies to satisfy varying needs of communication, consumer and computer products. We believe our proprietary process technologies will enable us to continue to offer our customers significant performance benefits for their products, faster time-to-market production, cost savings and other competitive advantages.
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We provide high quality service based on our performance. In today’s marketplace, we believe it is important to make available not only the most effective and flexible processes, but also the best solutions to enable customers to design integrated circuits capable of incorporating entire systems on a chip. Through these efforts, we intend to be the foundry solution for SoC customer needs. To achieve this goal, we believe it is necessary to timely develop and offer the IP and design support that customers need to ensure their specific design blocks function seamlessly with the other design blocks of the integrated circuit system in the manner intended. Accordingly, we have a dedicated IP and design support team that focuses on timely development of IP and processes specifically designed for our customers in order to ensure products that operate and perform as intended. Our design service team actively cooperates with our customers and vendors to identify, early in the product/market cycle, the offerings needed to ensure that our coordinated offerings are available in a streamlined and easy-to-use manner. This ensures the timely delivery of service offerings from the earliest time in the customer design cycle, resulting in a shorter time-to-volume production. We also provide our customers with real-time online access to production data and specifications, resulting in superior communication and efficiency. We further address our customers’ needs using our advanced technology and proven methodology to achieve fast cycle time, high yield, production flexibility and close customer communication. For example, we select and configure our clean rooms and equipment and develop our processes to maximize the flexibility in meeting and adapting to rapidly changing customer and industry needs. As a result, we believe that our cycle time, or the period from customer order to wafer delivery, and our responsiveness to customer request changes are among the fastest in the dedicated foundry industry. We believe our leading technology and high volume capability is a major competitive advantage.
Our technology and service have attracted two principal types of foundry industry customers: fabless design companies and integrated device manufacturers. Fabless design companies design, develop and distribute proprietary semiconductor products but do not maintain internal manufacturing capacity. Instead, these companies depend on third party manufacturing sources. Integrated device manufacturers, in contrast, generally have integrated internally some or all functions—manufacturing as well as design, development, sales and distribution.
Our primary customers, in terms of our sales revenues, include premier integrated device manufacturers, such as Texas Instruments and Intel Mobile, plus leading fabless design companies, such as MediaTek, Realtek, Qualcomm and Novatek. In 2022, our company’s top ten customers accounted for 52.4% of our operating revenues. We believe our success in attracting these customers is a direct result of our commitment to high quality service and our intense focus on customer needs and performance.
In 2014, we and Fujitsu Semiconductor Limited, or Fujitsu, announced a joint venture agreement where we invested ¥5 billion as an initial investment and received approximately 9.3% of the issued and outstanding share capital to become a minority shareholder of a newly formed subsidiary of Fujitsu named Mie Fujitsu Semiconductor Limited, or MIFS, which will operate a 300mm wafer manufacturing facility located in Kuwana, Mie, Japan. In 2015, we increased our ownership interest in MIFS to approximately 15.9% by making an additional capital investment of NT$1.36 billion. Through this relationship with us, MIFS was able to expand its business globally as a pure-play foundry company by strengthening its production and development capacity in a cost competitive manner. On June 29, 2018, our board approved the acquisition of the remaining 84.1% in MIFS from Fujitsu and the transaction was completed on October 1, 2019 at a consideration of JPY¥54.4 billion. Upon completion of the transaction, MIFS became one of our wholly-owned subsidiaries and was renamed “United Semiconductor Japan Corporation”, or USJC. We believe the acquisition of USJC aligns with our growth strategy which prioritizes on differentiating process technologies to fulfill the growing market demand across logic and specialty markets, and the acquisition provided us with an enhanced capability to gain market share in key geographical areas, including Japan. The 300mm fab based in Japan provides a capacity of approximately 36,500 per month, specializing in the manufacturing of 90nm, 65nm, 55nm and 40nm products.
In 2014, we established United Semiconductor (Xiamen) Co., Ltd., or USCXM, based in Xiamen, Fujian Province, China that focuses on 12-inch wafer foundry services. USCXM manufactures 12-inch wafers and offer 28 nanometer, 40 nanometer and 55 nanometer process technologies. We obtained the initial investment approval from the R.O.C. government on December 31, 2014 with US$300 million invested by HJ (Hejian Technology Suzhou) and US$450 million by UMC. The initial groundbreaking event of USCXM took place in March 2015 and the grand opening ceremony took place in November 2016. In November 2017, we obtained approval from the R.O.C. government for a US$600 million capital investment in USCXM which was completed in September 2018. USCXM successfully commenced commercial mass production by the end of 2016 and has carried out production on both 40nm and 28nm technology nodes in 2017. In February 2020, our subsidiary HeJian Technology’s board of directors approved an investment of US$500 million in USCXM over the next few years. In addition, we intend to purchase additional equity interest of USCXCM from certain existing shareholders as approved by our board in April 2022. We obtained approval from the R.O.C. government on October 26, 2022 for a US$120 million capital investment by HJ and a US$664 million capital investment by UMC, respectively.
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Please refer to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” for a discussion of our capital expenditures in the past three years and the plan for the current year.
On January 15, 2021, we sold all 4,000,000 common shares of Hut 8 Mining Corporation with a total consideration of approximately NT$310 million at average unit price of NT$77.54.
On April 28, 2021, our board approved the private placement investment in TGVest Asia Partners II(Taiwan), L.P. by paying no more than NT$1,200 million. According to Limited Partnership Agreement, capital contributions will be made by capital call notices.
On September 3, 2021, our board and the Boards of Directors of FORTUNE and Chipbond Technology Corporation, or Chipbond, approved the proposal of a share exchange transaction in accordance with Article 156-3 of the Company Law. Under this proposal, Chipbond’s capital increased by the issuance of 67,152,322 new ordinary shares in exchange for 61,107,841 new common shares issued by us and 16,078,737 common shares of UMC held by FORTUNE. The share exchange ratio was one UMC common share to 0.87 ordinary share of Chipbond. After the completion of the share exchange transaction, UMC and FORTUNE jointly hold approximately 9.09% of the equity in Chipbond, and Chipbond hold approximately 0.62% of the equity in UMC. Following the issuance and exchange of new shares, UMC and Chipbond will establish a long-term strategic partnership.
On February 24, 2022, we announced that our board has approved a plan to build a new advanced manufacturing facility next to its existing 300mm fab in Singapore. This greenfield fab is expected to provide a monthly capacity of 30,000 wafers. The new fab will be one of the most advanced semiconductor foundries in Singapore utilizing our proprietary 22/28nm processes. We expect the new fab will play an important role in satisfying growing demand in these markets and help alleviate the structural shortage of foundry capacity, especially on 22/28nm processes.
On April 26, 2022, DENSO Corporation, or DENSO, a leading mobility supplier, and USJC announced that the companies have agreed to collaborate on the production of power semiconductors at USJC’s 300mm fab in order to serve the growing demand in the automotive market. An insulated gate bipolar transistor (IGBT) line will be installed at USJC’s wafer fab, which will be the first such facility in Japan to produce IGBTs on 300mm wafers. DENSO will contribute its system-oriented IGBT device and process technologies while USJC will provide its 300mm wafer manufacturing capabilities to bring the 300mm IGBT process into mass production.
Our Strategy
To maintain and enhance our position as a market leader, we have adopted a business strategy with a focus on a partnership business model designed to accommodate our customers’ business needs and objectives and to promote their interests as our partners. We believe that our success and profitability are inseparable from the success of our customers. The goal in this business model is to create a network of partnerships and alliances among integrated device manufacturers, IP and design houses, as well as foundry companies. We believe that we and our partners will benefit from the synergy generated through such long-term partnerships or alliances and the added value to be shared among the partners. The key elements of our strategy are:
Operate as a Customer-Driven Foundry. We plan to operate as a customer-driven foundry. The increasing complexity of 40 nanometer, 28 nanometer, and more advanced technologies has impacted the entire semiconductor industry, as ICs can now be designed with greater gate density and higher performance while incorporating the functions of an entire system on a single chip. These designs have created a new market of 5G communications, AIoT, automotive as well as the increase of silicon content per device. We collaborate closely with our customers as well as partners throughout the entire supply chain, including equipment, electronic design automation tool and IP vendors to work synergistically toward each customer’s SoC solution. We also possess experience and know-how in system design and architecture to integrate customer designs with advanced process technologies and IP. We believe the result is a higher rate of first-pass silicon success for our SoC solutions. Our customer-driven foundry solutions begin with a common logic-based platform, where designers can choose the process technologies and transistor options that best fit their specific application. From there, technologies such as radio frequency complementary metal-oxide-semiconductor, or RF CMOS, and embedded Flash memories can be used to further fine-tune the process for customers’ individual needs. Furthermore, as IP has become critical resources for SoCs, our portfolio includes basic design building blocks as well as more complex IP of optimized portability and cost, developed both internally and by third-party partners. With advanced technology, a broad IP portfolio, system knowledge and advanced 300-millimeter manufacturing, we offer comprehensive solutions that help customers deliver successful results in a timely fashion.
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Build up Customer-focused Partnership Business Model. We have focused on building partnership relationships with our customers, and we strive to help our customers achieve their objectives through close cooperation. Unlike the traditional buy-and-sell relationship between a foundry and its customers, we believe our partnership business model will help us understand our customers’ requirements and, accordingly, better accommodate our customers’ needs in a number of ways, such as customized processes and services that optimize the entire value chain (not just the foundry portion) and IP-related support. We believe that this business model will enable us to deliver our products to our customers at the earliest time our customers require for their design cycle, resulting in shorter time-to-market and time-to-volume production. Furthermore, we believe we will provide more cost-effective services by focusing our research and development expenditures on the specific requirements of our customers. We believe our partnership business model will help us not only survive a market downturn, but also achieve a better competitive position.
Continue to Focus on High Growth Applications and Customers and Actively Explore New Market Opportunities. We believe one measure of a successful foundry company is the quality of its customers. We focus our sales and marketing on customers who are established or emerging leaders in industries with high growth potential. Our customers include industry leaders such as MediaTek, Realtek, Novatek and Texas Instruments. We seek to maintain and expand our relationships with these companies. We strive to demonstrate to these customers the superiority and flexibility of our manufacturing, technology and service capabilities and to provide them with production and design assistance. We are also making efforts to further diversify our customer portfolio in order to maintain a balanced exposure to different applications and different customers. We believe these efforts strengthen our relationships with our customers and enhance our reputation in the semiconductor industry as a leading foundry service provider.
In addition to customer diversification, we have also been actively exploring new market opportunities in consumer electronics such as Internet of Things.
Maintain Our Leading Position in Mass-Producible Semiconductor Technology and Selectively Pursue Strategic Investments in New Technologies. We believe that maintaining and enhancing our leadership in mass-producible semiconductor manufacturing technology is critical to attract and retain customers. Our reputation for technological excellence has attracted both established and emerging leaders in semiconductor industries who work closely with us on technology development. In addition, we believe our superior processing expertise has enabled us to provide flexible production schedules to meet our customers’ particular needs. We plan to continue enhancing capital expenditures in research and development and building internal research and development expertise, to focus on logic and specialty process development to accelerate access to next-generation and specialized technologies. In addition to research and development, in April 2021, we announced an expansion of 300mm Fab 12A Phase 6 (P6) in Taiwan’s Tainan Science Park through a collaboration model where the program is supported by customers’ multi-year product alignment. As part of the agreement, these customers will provide us with a loading protection mechanism to ensure that P6 fab utilization rates will be maintained at healthy levels. Furthermore, on February 24, 2022 our board of directors approved a plan to build a new advanced manufacturing facility next to our existing 300mm fab (Fab12i) in Singapore. The first phase of this greenfield fab is expected to have a monthly capacity of 30,000 wafers with production expected to commence in first half of 2025. The new fab (Fab12i P3) will utilize 28nm and 22nm process technologies.
Our continuous technology development efforts and capital investment have allowed us to acquire new customers and opportunities, which enabled us to grow our business. We believe our progress in developing more advanced process technologies has benefited our customers in the fields of computers, communications, consumer electronics and others with special preferences in certain aspects of the products, such as the ultimate performance, density and power consumption.
Moreover, we expect to strengthen our leading position and increase our market share by collaborating with DENSO. In 2022, we agreed to jointly work on the production of power semiconductors at USJC’s 300mm fab in order to serve the growing demand in the automotive market. This cooperation will leverage our robust portfolio of advanced specialty technologies and IATF 16949 certified fabs in diversified locations, where we are well placed to serve demand across auto applications, including advanced driver assistance systems, infotainment, connectivity, and powertrain.
We also recognize that every company has limited resources and that the foundry industry is ever-evolving. Accordingly, we believe we should invest in new research and development technology intelligently and in a cost-effective manner to achieve the ultimate output of the resulting technology. In doing so, we balance the rate of return of our research and development with the importance of developing a technology at the right time to enhance our competitive edge without unduly diluting our profitability. We intend to avoid investments in technologies that do not present a commercial potential for volume production. We believe that to develop the earliest and most advanced semiconductor technology without regard to its potential for near term volume production may prove costly to our operations and would not strengthen our competitive position. We perceive a benefit to defer investment in the premature equipment needed to claim the earliest advanced technology and instead to purchase a more advanced and less expensive version of equipment from vendors who design such equipment based on pre-production lessons learned from the earliest technology.
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Maintain Scale and Capacity Capabilities to Meet Customer Requirements, with a Focus on 12-inch Wafer Facilities for Future Expansion. We believe that maintaining our foundry capacity with advanced technology and facilities is critical to the maintenance of our industry leadership. Our production capacity is currently among the largest of all semiconductor foundries in the world. We intend to increase our 12-inch wafer production capacity to meet the needs of our customers and to fully capitalize on the expected growth of our industry. We expect our future capacity expansion plans will focus on 12-inch wafer facilities in order to maintain our technology leadership. 12-inch wafers offer manufacturing advantages over 8-inch wafers due to, among other reasons, the greater number of chips on each wafer and the advantages only offered on newer 12-inch capable equipment. In addition, 12-inch wafer facilities present a more cost-effective solution in achieving an economic scale of production. We intend to carefully monitor current market conditions in order to optimize the timing of our capital spending. We also plan to continue to expand our capacity and capabilities to meet customer requirements in different markets and expand our global presence by making strategic investments in other companies. For example, in 2014, we invested in MIFS in Japan with Fujitsu Semiconductor Limited and in USCXM in China with the Xiamen Municipal People’s Government and Fujian Electronics & Information Group that focus on manufacturing semiconductors using 12-inch wafers. These investments enable us to achieve a greater economy of scale with respect to 300mm wafer operations for advanced node process technologies. We also licensed our advanced technologies to these invested companies in order to provide feasible technology solutions to fulfill their needs. On October 1, 2019, we acquired all the remaining equity interest in MIFS from Fujitsu Semiconductor Limited. As such, MIFS became one of our wholly-owned subsidiaries and was renamed as USJC.
B. | Business Overview |
Manufacturing Facilities
To maintain a leading position in the foundry business, we have placed great emphasis on achieving and maintaining a high standard of manufacturing quality. As a result, we seek to design and implement manufacturing processes that produce consistent, high manufacturing yields to enable our customers to estimate, with reasonable certainty, how many wafers they need to order from us. In addition, we continuously seek to enhance our production capacity and process technology, two important factors that characterize a foundry’s manufacturing capability. Our large production capacity and advanced process technologies enable us to provide our customers with volume production and flexible and quick-to-market manufacturing services. All of our fabs operate 24 hours per day, seven days per week. Substantially all maintenance at each of the fabs is performed concurrently with production.
The following table sets forth operational data of each of our manufacturing facilities as of December 31, 2022.
Wavetek | Fab 8A | Fab 8C | Fab 8D | Fab 8E | Fab 8F | Fab 8S | Fab 8N | Fab 12A | Fab 12i | Fab 12X | Fab 12M | |||||||||||||
Commencement of |
1989 | 1995 | 1998 | 2000 | 1998 | 2000 | 2000 | 2003 | 2002 | 2004 | 2016 | 2005 | ||||||||||||
Estimated full |
28,233 | 64,000 | 38,400 | 34,325 | 39,225 | 46,050 | 37,100 | 81,700 | 100,372 | 54,807 | 26,500 | 36,500 | ||||||||||||
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month |
wafers per month | |||||||||||||
Wafer size |
6-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 12-inch | 12-inch | 12-inch | 12-inch | ||||||||||||
(150mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (300mm) | (300mm) | (300mm) | (300mm) |
(1) | Measured in stated wafer size. |
(2) | The capacity of a fab is determined based on the capacity ratings given by manufacturers of the equipment used in the fab, adjusted for, among other factors, actual output during uninterrupted trial runs, expected down time due to set up for production runs and maintenance and expected product mix. |
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Our fabs are located in the R.O.C., Singapore, PRC and Japan. The following table sets forth the size and primary use of our facilities and whether such facilities, including land and buildings, are owned or leased. The land in the Hsinchu and Tainan Science Parks is leased from the R.O.C. government. The land in the Pasir Ris is leased from statutory boards of the Singapore government. The land in the Suzhou Industrial Park and Xiang’an District is leased from the PRC government.
Location |
Size (Land/Building) |
Primary Use |
Land (Owned or Leased) |
Building (Owned or Leased) | ||||
(in square meters) | ||||||||
Fab 8A, No. 3, 5, Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 300094, R.O.C. |
43,130 / 83,699 | 8-inch wafer production |
Leased (expires in December 2033) | Owned | ||||
Fab 8C & Fab 8D, No. 6, 8, Li-Hsin 3rd Rd., Hsinchu Science Park, Hsinchu, Taiwan 300094, R.O.C. |
33,784/100,609 | 8-inch wafer production |
Leased (expires in December 2033) | Owned | ||||
Fab 8E, No. 17, Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 300094, R.O.C. |
35,779 / 76,315 | 8-inch wafer production |
Leased (expires in February 2036) | Owned | ||||
Fab 8F, No. 3, Li-Hsin 6th Rd., Hsinchu Science Park, Hsinchu, Taiwan 300096, R.O.C. |
23,774 / 65,736 | 8-inch wafer production |
Leased (expires in February 2038) | Owned | ||||
Fab 8S, No. 16, Creation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 300093, R.O.C. |
20,365 / 65,614 | 8-inch wafer production |
Leased (expires in December 2023) | Owned | ||||
Fab 8N, No. 333, Xinghua St., Suzhou Industrial Park, Suzhou, Jiangsu Province 215025, P.R.C. |
215,621 /100,908 | 8-inch wafer production |
Leased (expires in December 2052) | Owned | ||||
Fab 12A, No. 18, 20, Nan-Ke 2nd Rd., & No. 57, Nan-ke 3rd Rd., Tainan Science Park, Sinshih, Tainan, Taiwan 744092 & 744094, R.O.C. |
247,798 / 633,904 | 12-inch wafer production |
Leased (expires in June 2042) | Owned | ||||
Fab 12i, No. 3, Pasir Ris Drive 12, Singapore 519528 |
197,954 / 146,509 | 12-inch wafer production |
Leased (expires in July 2052) | Owned | ||||
Fab 12X, No. 899, Wan Jia Chun Road, Xiang’an District, Xiamen, Fujian Province 361101, P.R.C. | 250,753 / 348,565 | 12-inch wafer production |
Leased (expires in January 2065) | Owned | ||||
Fab 12M, No. 2000, Mizono, Tado-cho, Kuwana, Mie, 511-0118, Japan |
307,293 / 151,753 | 12-inch wafer production |
Owned | Owned | ||||
United Tower, No. 3, Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 300094, R.O.C. |
8,985 / 85,224 | Administration office |
Leased (expires in December 2033) | Owned | ||||
Neihu Rd. Office, 8F, No. 68, Sec. 1, Neihu Rd., Taipei, Taiwan 114066, R.O.C. |
626 / 4,817 | Administration office | Owned | Owned | ||||
Testing Building, No. 1, Chin-Shan, 7th St., Hsinchu, Taiwan 300063, R.O.C. |
10,762 /41,318 | Leased to several companies | Owned | Owned | ||||
R&D Building, No. 18, Nan-Ke 2nd Rd., Tainan Science Park, Sinshih, Tainan, Taiwan 744092, R.O.C. |
42,000 / 47,396 | Research and development | Leased (expires in December 2023) | Owned | ||||
Wavetek, No. 10, Chuangxin 1st Rd., Hsinchu Science Park, Baoshan Township, Hsinchu, Taiwan 300092, R.O.C. |
27,898 / 34,609 | 6-inch wafer production | Leased (expires in December 2034) | Owned |
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Process Technology
Process technology is a set of specifications and parameters that we implement for manufacturing the critical dimensions of the patterned features of the circuitry of semiconductors. Our process technologies are currently among the most advanced in the foundry industry. These advanced technologies have enabled us to provide flexible production schedules to meet our customers’ particular needs.
UMC has been constantly strengthening its independent R&D capabilities and fabrication in semiconductor process technologies, especially dedicated to the R&D of logic and specialty processes in the recent years. The Company will adhere to its R&D strategy to establish independent R&D capabilities and will work with important partners, such as IDM and fabless, to develop key process technologies through technology licensing. We will also work with suppliers of photomask, packaging, equipment, material, and EDA to accelerate market launch schedule in order to fulfill the Company’s promise to provide customers with innovative and reliable process technologies.
We pioneered the production of numerous semiconductor products. Our continued enhancement of our process technologies has enabled us to manufacture semiconductor devices with smaller geometries. In 2013, we successfully developed and released into production 28nm Poly-SiON and High-k/metal gate technologies. In 2015, we provided a High-k/ metal gate with high performance compact, or HPC, solution and improved to a high-performance compact plus, or HPC+, solution by the end of 2017 for speed-intensive and optimized power consumption products. We and Cadence Design Systems collaborate on certification of analog/mixed-signal flow for 28HPC+ process. Certification enables customers to leverage the integrated, comprehensive AMS solution to facilitate accelerated designs on our most advanced 28nm node. In 2018, we developed 22nm ULP (ultra-Low Power) and ULL (ultra-Low Leakage) technology to provide cost effective solutions and to obtain better chip performance for IoT applications. We also joined the IBM chip alliance, for advanced process development. With IBM’s know-how and support, we aim to continue to improve our internally developed 14nm FinFET technology, so as to offer a 14nm competitive low-power enhanced technology for mobile computing and communication products. In March 2017, we commenced the shipment of 14nm wafers to customers and have achieved production quality yields for the advanced process that is being utilized for consumer electronic applications. UMC’s 14nm FinFET technology features 55% higher speed and twice the gate density over 28nm process technology. The 14nm process also consumes approximately 50% less power than for 28nm. We also partnered with Avalanche for joint development and production of MRAM to replace embedded flash in 2018 for 22nm technologies.
Our 22nm technology readiness follows silicon validation on world’s smallest USB 2.0 test vehicle. The latest specialty process offering provides competitive performance and a seamless migration path from 28nm to 22nm. We are offering a 22uLP version that has compatible design rules and the same mask count at the foundry’s 28nm technology, and also a 22uLL version. UMC 22uLP and 22uLL form a super set to support a voltage domain from 1.0V to 0.6V, allowing customers to enjoy the benefits of both technologies on system-on-chip (SoC) designs. The 22nm platform is supported by our foundation IP and is ideal for a wide variety of semiconductor applications including consumer ICs for set top box, digital TV, surveillance, power or leakage sensitive IoT chips (with Bluetooth or WiFi) and wearable products that require longer battery life.
Furthermore, we have also successfully developed specialty technologies such as 55/40/28nm embedded memory used for MCU and automotive products, 55/40/28nm embedded high voltage device used for display drivers, 55nm BSI-CSI for image sensors and 110/55nm BCD for power management circuits. We also developed ReRAM for advanced node embedded solutions, and RF-SOI technologies of 110/90/55nm nodes covering both custom and platform for RF device applications. All of these specialty technologies can provide system on chip solutions.
The table below sets forth our actual process technology range, categorized by line widths, or the minimum physical dimensions of the transistor gate of integrated circuits in production by each fab in 2022, and the estimated annual full capacity of each fab, actual total annual output and capacity utilization rates in 2020, 2021 and 2022:
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Year Ended December 31, 2022 Range of |
Years Ended December 31, | |||||||||||||||||
Years of | Process | 2020 | 2021 | 2022 | ||||||||||||||
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Commencement of Operation |
Technologies (in microns) |
(in thousands of 8-inch wafer equivalents, except percentages) |
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Wavetek |
1989 | 5 to 0.25 | 209 | 185 | 189 | |||||||||||||
Fab 8A |
1995 | 3 to 0.18 | 802 | 755 | 765 | |||||||||||||
Fab 8C |
1998 | 0.35 to 0.11 | 452 | 459 | 459 | |||||||||||||
Fab 8D |
2000 | 0.18 to 0.09 | 371 | 380 | 410 | |||||||||||||
Fab 8E |
1998 | 0.6 to 0.15 | 449 | 457 | 469 | |||||||||||||
Fab 8F |
2000 | 0.18 to 0.11 | 485 | 514 | 550 | |||||||||||||
Fab 8S |
2000 | 0.25 to 0.11 | 373 | 408 | 443 | |||||||||||||
Fab 8N |
2003 | 0.5 to 0.11 | 917 | 917 | 952 | |||||||||||||
Fab 12A |
2002 | 0.13 to 0.014 | 2,348 | 2,408 | 2,633 | |||||||||||||
Fab 12i |
2004 | 0.13 to 0.040 | 1,414 | 1,442 | 1,474 | |||||||||||||
Fab 12X |
2016 | 0.080 to 0.022 | 489 | 639 | 706 | |||||||||||||
Fab 12M |
2005 | 0.13 to 0.040 | 879 | 889 | 981 | |||||||||||||
Total estimated capacity |
— | — | 9,188 | 9,453 | 10,031 | |||||||||||||
Total output (actual) |
— | — | 8,902 | 9,871 | 10,092 | |||||||||||||
Average capacity utilization |
— | — | 96.9 | % | 104.4 | % | 100.6 | % |
Capacity and Utilization
The fabs in Taiwan that we own directly are named Wavetek, Fab 8A, Fab 8C, Fab 8D, Fab 8E, Fab 8F, Fab 8S and Fab 12A. All of them are located in the Hsinchu Science Park except for Fab 12A located in the Tainan Science Park. The fab in Singapore is named Fab 12i. The fabs in China are named Fab 8N and Fab 12X, located in Suzhou and Xiamen, respectively. The fab in Japan is named Fab 12M located in Mie.
Our average capacity utilization rate was 96.9% in 2020, 104.4% in 2021 and 100.6% in 2022.
Equipment
Because the performance and productivity of our manufacturing capability depends substantially on the technology node of our capital equipment, we always purchase equipment that not only meet the criteria of our existing process requirement, but also have the capability to be upgraded to match our future demand. The principal equipment we use to manufacture semiconductor devices are scanners/steppers, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputters, CVD equipment, probers, testers and so on. We own all of the production equipment except for a few demonstration tools.
Our policy is to purchase performance proven equipment from vendors with dominant market share to ensure our continued competitiveness in the semiconductor field.
Although some equipment is only available from limited qualified vendors and/or is manufactured in limited quantities, we believe that our relationships with equipment suppliers are strong enough to allow us to leverage our position as a major customer to purchase equipment with competitive terms.
Although we face the challenge of procuring the right equipment in sufficient quantity necessary for ramp-up or expansion of our fabrication facilities under constraint of short lead times, we have not in the past experienced any material problems in procuring the latest generation equipment on a timely basis even in periods of unpredictably high market demand. We manage the risks through procurement process via timely internal cross-division communications, efficient market information collection, early slot booking and constant communications with our suppliers.
Raw Materials
Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases and various types of precious sputtering targets. These raw materials are generally available from several suppliers. Our policy with respect to raw material purchases, similar to that for equipment purchases, is to select only a small number of qualified vendors who have demonstrated quality and reliability on delivery time of the raw materials. We may have long-term supply contracts with our vendors if necessary.
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Our general inventory policy is to maintain sufficient stock of each principal raw material for production and rolling forecasts of near-term requirements received from customers. In addition, we have agreements with several key material suppliers under which they hold similar levels of inventory in their warehouses for our use. However, we are not under any obligation to purchase raw material inventory that is held by our vendors for our benefit until we actually order it. We typically work with our vendors to plan our raw material requirements on a monthly basis, with indicative pricing generally set on a quarterly basis. The actual purchase price is generally determined based on the prevailing market conditions. In the past, prices of our principal raw materials have not been volatile to a significant degree. Although we have not experienced any shortage of raw materials that had a material effect on our operations, and supplies of raw materials we use currently are adequate, shortages could occur in various critical materials due to interruption of supply or an increase in industry demand.
The most important raw material used in our production processes is silicon wafer, which is the basic raw material from which integrated circuits are made. The principal makers for our wafers are Shin-Etsu, GlobalWafers, Siltronic, Sumco Group and Soitec. We have in the past obtained and believe that we will continue to be able to obtain a sufficient supply of silicon wafers. We believe that we have close working relationships with our wafer suppliers. Based on such long-term relationships, we believe that these major suppliers will use their best efforts to accommodate our demand.
We use a large amount of water in our manufacturing process. We obtain water supplies from government-owned entities. We also use substantial amounts of dual loop electricity supplied by Taiwan Power Company in the manufacturing process. We maintain back-up generators that are capable of providing adequate amounts of electricity to maintain the required air pressure in our clean rooms in case of power interruptions. We believe our back-up devices are reasonably adequate in preventing business interruptions caused by power outages and emergency situations.
Quality Management
We believe that our advanced process technologies and reputation for high quality and reliable services and products have been important factors in attracting and retaining leading international and domestic semiconductor companies as customers.
We structure our quality management system in accordance with the latest international quality standards and our customers’ strict quality and reliability requirements. Our quality management system incorporates comprehensive quality control programs into the entire business flow of foundry operation including, among others, new process development management, production release control, incoming raw material inspection, statistical process control and methodology development, process change management, technical documentation control, product final inspection, metrology tool calibration and measurement system analysis, quality audit program, nonconformity management, customer complaint disposition, eight-discipline problem solving and customer satisfaction monitoring.
We set high quality standards to ensure consistent high yielding and reliable product performance. Our quality program is continually enhanced through top-down annual Business Policy Management and bottom-up Total Quality Management activities. In addition, our efforts to observe best practices among fabs in the foundry industry have also contributed to the improvement of our overall quality management system.
Many of our customers perform physical production site qualification process in the early development phase and routine quality conformance audits in the volume production phase. These audits include both quality system review and physical fabrication area inspection for verification of conformity with the international quality standard and customers’ quality requirement. Our quality management system and quality control programs have been qualified and routinely audited by numerous customers who are recognized as world-class semiconductor companies with best-in-class quality standards.
Our Quality Assurance Division and Reliability Technology and Assurance Division collaborate to provide quality and reliability performance to customers. With our wafer processing quality and reliability conformance monitoring program, we monitor the product quality and reliability at various stages of the entire manufacturing process before shipment to customers.
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All our fabs are certified in compliance with IATF 16949 and QC080000 IECQ HSPM standards. IATF 16949 sets the criteria for developing a fundamental quality management system emphasizing on customer satisfaction in quality management, continual improvement, defect prevention and variation and waste reduction. QC080000 IECQ HSPM sets the criteria for developing a process management system for hazardous substances and focuses on developing environmentally friendly manufacturing processes. We are committed to continuously improve our quality management system and to deliver high quality product to our customers.
Services and Products
We primarily engage in wafer fabrication for foundry customers. To optimize fabrication services for our customers, we work closely with them as they finalize circuit design and contract for the preparation of masks to be used in the manufacturing process. We also offer our customers turnkey solutions by providing subcontracted assembly and test services. We believe that this ability to deliver a variety of foundry services in addition to wafer fabrication enables us to accommodate the needs of a full array of integrated device manufacturers, system companies and fabless design customers with different in-house capabilities.
Wafer manufacturing requires many distinct and intricate steps. Each step in the manufacturing process must be completed with precision in order for finished semiconductor devices to work as intended. The processes require taking raw wafers and turning them into finished semiconductor devices generally through five steps: circuit design, mask tooling, wafer fabrication, assembly and test. The services we offer to our customers in each of these five steps are described below.
Circuit Design. At this initial design stage, our engineers generally work with our customers to ensure that their designs can be successfully and cost-effectively manufactured in our facilities. We have assisted an increasing number of our customers in the design process by providing them with access to our partners’ electronic design analysis tools, IP and design services, as well as by providing them with custom embedded memory macro-cells. In our Silicon Shuttle program, we offer customers and IP providers early access to actual silicon samples with their desired IP and content in order to enable early and rapid use of our advanced technologies. The Silicon Shuttle program is a multi-chip test wafer program that allows silicon verification of IP and design elements. In the Silicon Shuttle program, several different vendors can test their IP using a single mask set, greatly reducing the cost of silicon verification for us and the participating vendors. In our alliances with them, we coordinate with leading suppliers of IP, design and ASIC services to ensure their offerings are available to our customers in an integrated, easy to use manner which matches customers’ need to our technologies. With a view to lowering customer design barriers, we expanded our design support functions from conventional design support to adding IP development to complement third-party intellectual properties and to provide customers with the widest range of silicon-verified choices. Our offerings range from design libraries to basic analog mixed-mode intellectual properties which, together, have helped shorten our customer’s design cycle time.
Mask Tooling. Our engineers generally assist our customers to design and/or obtain masks that are optimized for our advanced process technologies and equipment. Actual mask production is usually provided by independent third parties specializing in mask tooling.
Wafer Fabrication. As described above, our manufacturing service provides all aspects of the wafer fabrication process by utilizing a full range of advanced process technologies. During the wafer fabrication process, we perform procedures in which a photosensitive material is deposited on the wafer and exposed to light through the mask to form transistors and other circuit elements comprising of a semiconductor. The unwanted material is then etched away, leaving only the desired circuit pattern on the wafer. As part of our wafer fabrication services, we also offer wafer probing services, which test, or probe, individual die on the processed wafers and identify dice that fail to meet required standards. We prefer to conduct wafer probing internally to obtain speedier and more accurate data on manufacturing yield rates.
Assembly and Testing. We offer our customers turnkey solutions by providing the option to purchase finished semiconductor products that have been assembled and tested. We outsource assembly and test services to leading assembly and test service providers, including Siliconware Precision Industries Co., Ltd., or Siliconware, and Advanced Semiconductor Engineering Inc. in Taiwan. After final testing, the semiconductors are shipped to our customers’ designated locations.
Customers and Markets
Our primary customers, in terms of our sales revenues, include premier integrated device manufacturers, such as Texas Instruments and Intel Mobile, plus leading fabless design companies, such as MediaTek, Realtek, Qualcomm and Novatek. Although we are not dependent on any single customer, a significant portion of our operating revenues has been generated from sales to a few customers. Our top ten customers accounted for approximately 52.4% of our operating revenues in 2022.
Set forth below is a geographic breakdown of our operating revenues in 2020, 2021 and 2022 by the location of our customers.
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Years Ended December 31, | ||||||||||||
Region |
2020 | 2021 | 2022 | |||||||||
% | % | % | ||||||||||
Taiwan |
36.8 | 37.9 | 31.4 | |||||||||
Singapore |
14.7 | 13.7 | 14.0 | |||||||||
China (including Hong Kong) |
12.8 | 14.6 | 16.6 | |||||||||
Japan |
8.7 | 6.4 | 6.3 | |||||||||
USA |
13.9 | 11.4 | 12.6 | |||||||||
Europe |
3.6 | 2.6 | 3.2 | |||||||||
Others |
9.5 | 13.4 | 15.9 | |||||||||
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Total |
100.0 | 100.0 | 100.0 | |||||||||
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We believe our success in attracting these end customers is a direct result of our commitment to high quality service and our intense focus on customer needs and performance. As an independent semiconductor foundry, most of our operating revenue is generated by our sales of wafers. The following table presented the percentages of our wafer sales by types of customers for the years ended December 31, 2020, 2021 and 2022.
Years Ended December 31, | ||||||||||||
Customer Type |
2020 | 2021 | 2022 | |||||||||
% | % | % | ||||||||||
Fabless design companies |
87.8 | 85.4 | 84.1 | |||||||||
Integrated device manufacturers |
12.2 | 14.6 | 15.9 | |||||||||
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Total |
100.0 | 100.0 | 100.0 | |||||||||
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We focus on providing a high level of customer service in order to attract customers and maintain their ongoing loyalty. Our culture emphasizes responsiveness to customer needs with a focus on flexibility, speed and accuracy throughout our manufacturing and delivery processes. Our customer-oriented approach is especially evident in two types of services: customer design development services and manufacturing services. We believe that our large production capacity and advanced process technology enable us to provide better customer service than many other foundries through shorter turn-around time, greater manufacturing flexibility and higher manufacturing yields.
We work closely with our customers throughout the design development and prototyping processes. Our design support team closely interacts with customers and IP vendors to facilitate the design process and to identify their specific requirements for IP offerings. We are responsive to our customers’ requirements in terms of overall turn-around time and production time-to-market by, for example, helping our customers streamline their IP offering processes and delivering prototypes in a timely and easy-to-use fashion. We also maintain flexibility and efficiency in our technical capability and respond quickly to our customers’ design changes.
For IP offerings, we work with several leading IP vendors from digital, memory and analog fields in the semiconductor industry to deliver quality IP blocks that have been silicon validated using our advanced processes. Our alliances with major electronic design automation vendors provide our customers with digital/analog reference design procedures and easy-to-use design solutions. By continuously enhancing our IP offerings, reference design procedures and design services through collaboration with major vendors, we aim to provide complete, accurate and user-friendly design solutions to our customers.
As a design moves into manufacturing production, we continue to provide ongoing customer support through all phases of the manufacturing process. The local account manager works with our customer service representative to ensure the quality of our services, drawing upon our marketing and customer engineering support teams as required.
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We offer an online service, “MyUMC”, which gives our customers easy access to our foundry services by providing a total online supply chain solution. MyUMC offers 24-hour access to detailed account information such as manufacturing, engineering and design support documents through each customer’s own customized start page. The features that are available to customers through MyUMC include (i) viewing the status of orders from the start of production to the final shipping stages; (ii) designing layouts to shorten customers’ tape out time; (iii) collecting customer engineering requests; (iv) gathering and downloading documents for design purposes; and (v) accessing online in real-time the same manufacturing data used by our fab engineers.
We also have system-to-system connecting services to provide direct data exchange between our system and our customers’ systems. These services, which include our “UMC Design View Room Cloud Service”, facilitate our design collaborations with our customers to help reduce the cost of chip designs and reduce the time to market. In order to continue to improve our information security management, our Information Technology Division received the certification of ISO/IEC 27001:2005 in 2008 and renewed ISO/IEC 27001:2013 in 2015.
In addition, we have established a data-driven advanced semiconductor smart manufacturing system to provide world-class quality production, ensure information security and service quality, as well as improve customer satisfaction, operational and R&D efficiency. We achieved this by integrating a spectrum of innovative digital technologies, including Internet of Things, big data, cloud, artificial intelligence and information technology, and our enterprise information and semiconductor expertise.
We price our products on a per die or per wafer basis, taking into account the complexity of the technology, the prevailing market conditions, the order size, the cycle time, the strength and history of our relationship with the customer and our capacity utilization. Our main sales office is located in Taiwan, which is in charge of our sales activities in Asia. United Microelectronics (Europe) BV, our wholly-owned subsidiary based in Amsterdam, assists our sales to customers in Europe. Our sales in North America are made through UMC Group (USA), our subsidiary located in Silicon Valley. We also have sales offices in China, Japan and Korea to support our customers in those regions.
We advertise in trade journals, organize technology seminars, hold a variety of regional and international sales conferences and attend a number of industry trade fairs to promote our products and services. We also publish a corporate newsletter for our customers.
Information Security Risk Management
We have made information security risk analysis and have taken the mitigating measures as described below:
(1) Risk Management Organization
We have established an Enterprise Risk Management Committee to coordinate with key internal departments for risk management and control, jointly reviewing and managing internal and external risks of the company. In addition, we established the “Corporate Security Division” in 2018, which is responsible for our information security and physical security planning and related audit matters, and work together with our Information Technology Division to further strengthen information security.
(2) Information Security Policy (Internal Control and Protocol)
Our information security policy is based on the guiding principle: “To establish Information Security Management rules in accordance to customer’s requirement, to reach a consensus that information security is everyone’s responsibility through full awareness, to protect information Confidentiality, Integrity, Availability for the Company and Customer, and to provide safe production environment to ensure sustainable operation of the Company’s business.” Our major information security objectives are aimed at antivirus, anti-intrusion and anti-leakage through the building of multiple internal controls such as firewall, intrusion detection and antivirus systems to enhance our ability to defend against external attacks. Also, through regular educational and training programs, security operation/awareness is embedded and seamlessly integrated into every employee’s daily work.
(3) Establish Enterprise Risk Management System
According to the Enterprise Risk Management Committee management procedure, UMC assesses the risk level of information security, takes the appropriate actions and regularly reviews the effectiveness of these actions. The committee regularly reviews the possibility of risk occurrence and the potential change of severity over time to understand and assess the effectiveness of risk management programs and related control operations. We comply with multiple ISO certification standards in the areas of quality, environment, water resources, carbon footprint and green energy. Related information security certification includes ISO15408, ISO22301 and ISO27001.
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(4) Assessment of Information Security and Cyber Risks
We place particular emphasis on preventing information security and cyber risks, and have built a comprehensive multi-layer defense mechanism including firewall, intrusion detection, antivirus system, vulnerability scanning, patch management procedure and penetration testing. Our company followed the National Institute of Standards and Technology to establish a corporate information security framework and created corresponding metrics to strengthen information security management including 1. aiming to further improve the detection of irregularities and elevate preventive capabilities including protocols such as Security Orchestration, Automation, and Response (SOAR) and Endpoint Detection and Response (EDR), 2. optimize network security area of overall information systems and 3. increase the multi-factor authentication protection for host privileged account login.
(5) Information Security Management System (ISMS) Verification
Our ADRs have been listed on NYSE since 2000 and we had complied with the Sarbanes-Oxley Act (SOX 404) for internal control over financial reporting processes. We also strengthened our information security process by introducing ISO27001 information security management system certification to reduce security risk and production anomaly that may be caused by human error. Continuous improvement of PDCA is then carried out through annual recertification.
In 2014, a cross-division security committee was established. Based on the need to produce secure products like smart card ICs, we introduced ISO15408 (CC, Common Criteria) certification specifically designed for secure production procedures not only in data receiving, processing and destruction but also higher physical access control request for the purpose of securing entire production line. Continuous improvement of PDCA is then carried out through biennial recertification.
(6) Insurance against Information Security Risks
Based on a recent report, data leakage, virus infection, ransomware attacks and hacking event in Taiwan and throughout the world, many international and well-known companies have encountered significant operating loss. There is no guarantee that enterprises will not become the target of attacks despite reasonable security protection in place. In view of this, we obtained cyber security insurance to mitigate and reduce this risk. Such insurance policy has been in effect since January 2019 with retroactive option which can trace back to undiscovered pre-existing threats. The annual insurance coverage is US$10 million for all our fabs in Taiwan, Singapore and Japan.
(7) The Impact of Occurred Major Asset Security Incidents and Response Measures
In response to potential cyber-attacks, we upgraded the antivirus software with behavior-based detection capability and implemented strict information device in/out management, as well as updated critical patches for production line computers to defend against such worm-type viruses that may attack system vulnerabilities. We also set Access Control List (ACL) in production line network to grant necessary access between equipment tools, which can block virus from spreading and minimize its impact. SEMICON TAIWAN subsequently formed a task force to study equipment information security standards, of which we are a member, to contribute as a local enterprise responsibility.
In short, new invasive techniques are constantly evolving but past defense achievements do not necessarily mean or guarantee that anomaly breach will not occur in the future. Enterprises must keep pace with the ever-changing and growing information security threat and requires continuous improvement. UMC will uphold to “Integrity, Pragmatism, Agility, Ingenuity” as corporate culture and will fulfill ‘due care/due diligence’ management responsibility to provide customers with a secure production environment to reduce operational risk and reward shareholders with highest investment value as possible.
Competition
The worldwide semiconductor foundry industry is highly competitive, particularly during periods of overcapacity and inventory correction. We compete internationally and domestically with dedicated foundry service providers as well as with integrated device manufacturers and final product manufacturers which have in-house manufacturing capacity or foundry operations. Some of our competitors have substantially greater production, financial, research and development and marketing resources than we have. As a result, these companies may be able to compete more aggressively over a longer period of time than we can. In addition, several new dedicated foundries have commenced operations and compete directly with us. Any significant increase in competition may erode our profit margins and weaken our earnings.
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We believe that our primary competitors in the foundry services market are Taiwan Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai) Corporation and Globalfoundries Inc., as well as the foundry operation services of some integrated device manufacturers such as Samsung, Intel and Toshiba. Other competitors such as Dongbu Anam Semiconductor, Hua Hong Semiconductor Manufacturing Corp., X-FAB Semiconductors Foundries AG and Silterra Malaysia Sdn. Bhd. have initiated efforts to develop substantial new foundry capacity, although much of such capacity involves less cost-effective production than the 12-inch fabs for which we possess technical know-how. New entrants in the foundry business are likely to initiate a trend of competitive pricing and create potential overcapacity in legacy technology. The principal elements of competition in the semiconductor foundry industry include technical competence, production speed and cycle time, time-to-market, research and development quality, available capacity, manufacturing yields, customer service and price. We believe that we compete favorably with the new competitors on each of these elements, particularly our technical competence and research and development capabilities.
Intellectual Property
Our success depends on our ability to obtain patents, licenses and other intellectual property (IP) rights covering our production processes and activities. To that end, we have developed and acquired certain patents and patent licenses and intend to continue to seek patents on our production processes. As of December 31, 2022, we held 6,700 U.S. issued patents and 8,071 patents issued outside of the United States.
Our ability to compete also depends on our ability to operate without infringing on the proprietary rights of others. The semiconductor industry is generally characterized by frequent claims and litigation regarding patent and other IP rights. As is the case with many companies in the semiconductor industry, we have from time to time received communications from third parties asserting patents that allegedly cover certain of our technologies and alleging infringement of certain IP rights of others. We expect that we will continue to receive similar communications in the future. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and devote significant management resources to the defense of these claims, which could seriously harm our company. See “Item 3. Key Information—D. Risk Factors—Our inability to obtain, preserve and defend IP rights could harm our competitive position.”
In order to minimize our risks from claims based on our manufacture of semiconductor devices or end-use products whose designs infringe on others’ IP rights, we in general accept orders only from companies that we believe have established satisfactory reputation and for products that are not identified as risky for potential infringement claims. Furthermore, we obtain indemnification rights from customers. We also generally obtain indemnification rights from equipment vendors to hold us harmless from any losses resulting from any suit or proceedings brought against our company involving allegation of infringement of IP rights on account of our use of the equipment supplied by them.
We have entered into various patent cross-licenses with major technology companies, including a number of leading international semiconductor companies, such as IBM and AVAGO. Our cross licenses may have different terms and expiry dates. Depending upon our competitive position and strategy, we may or may not renew our cross licenses and further, we may enter into different and/or additional technology and/or IP licenses in the future.
Research and Development
UMC places significant importance on the dynamics of the semiconductor industry and continues to invest and develop semiconductor manufacturing process technology and know-how. In order to continue the development of logic and specialty technologies, optimize transistor performance, reduce power consumption, and continuously enhance our technical advantages, in 2020, 2021 and 2022, we spent NT$12,896 million, NT$12,935 million and NT$12,953 million (US$421 million), respectively, on research and development, which represented 7.3%, 6.1% and 4.6% respectively, of our operating revenues of such years. Our research and development efforts mainly focus on delivering comprehensive foundry solutions that consist of the key process technologies encompassing logic as well as specialty manufacturing technologies that address customers’ needs. These resources provide our foundry customers with improved opportunities to develop diverse product lines that supply the global semiconductor market. Our commitment to research and development can be illustrated by our 2022 research and development expenditures, which was approximately 4.6% of operating revenues, and a total of 348 domestic and foreign patents granted in 2022.
As of December 31, 2022, we employed 1,481 professionals in our research and development activities. In addition, other management and operational personnel are also involved in research and development activities but are not separately identified as research and development professionals. We will continue to invest in technology innovation, optimize capacity to enhance product mix and penetrate emerging applications. We believe that these efforts will create higher customer adoption of our logic and specialty technologies and expand our market share to fuel growth.
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Our Investments
Our investment holdings consist of equity interest in certain company and reflect current market valuations as these assets may change in accordance with market conditions.
The following table sets forth the sales of our investments in 2020:
Number of shares sold | Proceeds from disposal | |||||||||||
Investees |
(in millions) | (in NT$ millions) | ||||||||||
Solar Applied Materials Technology Corp. |
8 | 293 | ||||||||||
All-Stars XMI Ltd. |
0 | 255 | ||||||||||
Action Electronics Co., Ltd. |
18 | 241 | ||||||||||
Playnitride Inc. |
1 | 203 | ||||||||||
Excellence Optoelectronics Inc. |
5 | 188 |
The following table sets forth the sales of our investments in 2021:
Number of shares sold | Proceeds from disposal | |||||||||||
Investees |
(in millions) | (in NT$ millions) | ||||||||||
Octtasia Investment Holding Inc. |
4 | 425 | ||||||||||
Phison Electronics Corp. |
1 | 219 | ||||||||||
CNEX Labs, Inc. |
0 | 170 | ||||||||||
Hut 8 Mining Corp. |
1 | 159 | ||||||||||
Clientron Corp. |
8 | 156 |
The following table sets forth the sales of our investments in 2022:
Number of shares sold | Proceeds from disposal | |||||||||||
Investees |
(in millions) | (in NT$ millions) | (in US$ millions) | |||||||||
Excellence Optoelectronics Inc. |
9 | 201 | 7 | |||||||||
Lanhor Fund |
— | 195 | 6 | |||||||||
Lintes Technology Co., Ltd. |
1 | 125 | 4 | |||||||||
Mercuries Life Insurance Co., Ltd. |
20 | 117 | 4 | |||||||||
Winking Entertainment Ltd. |
2 | 112 | 4 |
Environmental, Safety and Health Matters
UMC implemented extensive ESH management systems since 1996. These systems enable our operations to identify applicable ESH regulations, assist in evaluating compliance status and timely establish loss preventive and control measures. The systems we implemented in all our fabs have been certified as meeting the ISO 14001 and ISO 45001 standards. ISO 14001 consists of a set of standards that provide guidance to the management of organizations to achieve an effective environmental management system. Procedures are established at manufacturing locations to ensure that all accidental spills and discharges are properly addressed. ISO 45001 is an international occupational health and safety management system standard, which may be applied to assess and certify our management systems. Our goal in implementing ISO 14001 and ISO 45001 systems is to continually improve our ESH management, comply with ESH regulations and to be a sustainable green foundry. UMC’s major ESH policies include:
Environmental Protection Aspects:
• | Fully comply with or go beyond requirements of environmental laws and regulations, and international conventions, striving for zero pollution and sustainable development. |
• | Integrate environmental management into the Company’s operational and management systems, and build an environmentally conscious company culture. |
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• | Actively set aggressive environmental management goals, regularly track and continuously improve environmental performance, and reduce environmental impact. |
• | Introduce and develop environmentally friendly technologies that can be applied to R&D, procurement, production operations, business facilities, distribution and logistics, products, and/or services to minimize environmental impact at each life cycle stage in order to achieve green design, green production, and green operations goals. |
• | Stay informed of environmental trends around the world, assess the associated opportunities and risks, engage in proper waste management, effectively utilize energy/resources, and promote circular economy. |
• | Conduct regular training on risk assessment and risk management to ensure employees understand the environmental impact of their work activities, enhance environmental protection awareness, and encourage responsible action. |
• | Enhance awareness of the Company’s environmental policy and environmental impact among both internal and external stakeholders (including the Company and its subsidiaries, value chain partners, civil society) through due diligence, active communication and engagement, and transparent information disclosure. |
• | Fulfill corporate social responsibility and cooperate with the government, the public and global business partners in ecological improvement and rehabilitation. |
Safety and Health Aspects:
• | Meet or exceed the requirements of industry safety and health laws, aiming for zero disaster. The company is committed to steady development while making safety a priority. |
• | Continue to promote safety and health management system and risk improvement processes to achieve and maintain world-class safety/health and risk management performance. |
• | Use advanced safety and health technologies as well as risk and disaster rescue techniques to aggressively enhance all safety aspects in a pioneering manner. |
• | Implement prevention management and auditing systems to ensure the safety of the work environment and operations, maintaining the physical and mental health of workers. |
• | Through communication, consultation and participation in decision-making with workers or their representatives, make it a responsibility for personnel of all levels to exercise influence, eliminate hazard factors, prevent occurrence of accidents and work-related illnesses, and promote effective safety and health interactions through cooperation and sharing. |
• | Continue conducting safety and health education and advocacy; encourage active participation in safety and health activities, allow for health and safety to be a habit and a way of life for all workers. |
As a member of the global community and a semiconductor industry leader, we have implemented measures to deal with environmental problems and mitigate climate change. We have introduced green concepts in our operations, including green commitment, management, procurement, production, products, recycling, office, education and marketing.
With respect to safety and health management, we realized that lowering the risks in equipment and processes can reduce accidents, but cannot guarantee the safety of all employees. In order to achieve the goal of “zero-accident”, we intend to promote the concept of “safety is my responsibility”. We have educated employees with the concepts of “be aware of your own safety as well as the safety of others” and “safety is everyone’s responsibility, and my personal accountability.”
Furthermore, we have implemented the FMEA method to foster employees’ capabilities in risk analysis. Therefore, we established a channel for communication to encourage and ensure the employees to fully express their opinions for professional response and assistance. By doing so, we hope to establish a culture of “Safety and health first” to further improve the quality of our working environment, and eventually to become a good example of global safety and health management.
The following list sets forth some of the important awards that we received in environmental protection, safety and health:
• | Selected as a member of Dow Jones Sustainability Indices (DJSI) World Index for the fifteenth straight year since 2008 and also named a constituent of Emerging Markets Index in 2022; |
• | Selected as component of MSCI ACWI ESG Leaders Index, MSCI Emerging Markets ESG Leaders Index, MSCI ESG Focus Indexes and MSCI ESG Universal Indexes; |
• | Selected as component of FTSE4Good All-World Index and FTSE4Good Emerging Index for eighth consecutive year, and FTSE4Good TIP Taiwan ESG Index since the launch of the index in 2017; |
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• | Recognized in CDP’s “A List” for transparency and action on both climate change and water security; |
• | Awarded “Top 10 Taiwanese Companies Sustainability Model Award” 3rd place (2022) and “Corporate Sustainability Report Award” (2008-2022) for fifteenth consecutive year by Taiwan Institute for Sustainable Energy; |
• | Awarded “Excellence in Corporate Social Responsibility” 6th place in large enterprise category by CommonWealth Magazine (2022); |
• | Awarded “National Enterprise Environmental Protection Award” by the Environmental Protection Administration of Executive Yuan, R.O.C. (2003-2022) for twentieth consecutive year; |
• | Awarded “The Best Participation of Green Procurement for Enterprises” by the Environmental Protection Administration of Executive Yuan, R.O.C. (2011-2022); |
• | Awarded “Excellent Occupational Safety and Health Executive Organization” by the Hsinchu Science Park, National Science and Technology Council (1998-2022). |
Climate Change
Our climate change policies include: (i) achieving carbon neutral status via carbon management, (ii) becoming a comprehensive low-carbon emissions solution provider, and (iii) leveraging corporate resources to cultivate a low-carbon emissions economy. In order to implement these policies, we set greenhouse gas reduction goals as to various phases. In the program of UMC Sustainability Strategy and Blueprint, we launched resource and energy productivity improvement plans which target to reduce the usage of water, electricity and waste per unit of product by 30%, 30% and 50% in 2030, respectively, compared to 2015. We also set the goal of reducing the F-GHG emissions per unit of product by 65% in 2025 compared to 2010.
In June 2021, we announced our pledge to reach net zero carbon emissions by 2050 and to take concrete steps to Net Zero Action as the first semiconductor foundry globally. UMC is vigorously responding to the Paris Climate Agreement goal and pursuing efforts to limit the global warming not exceeding 1.5°C. In addition, UMC was admitted into RE100, becoming the second semiconductor wafer foundry in this initiative, and committed to use 100% renewable energy by 2050. To reach net zero carbon emissions by 2050, UMC has three resolutions to cover direct emissions from fab operations, indirect emissions from energy consumption, and indirect emissions from value chain. The three resolutions are:
• | Persistent and proactive carbon emission reduction: Through continually developing advanced foundry process technologies, enhancing productivity and improving energy efficiency, UMC is able to minimize carbon emissions in both manufacturing stage of wafers and using stage of IC end products. |
• | 100% renewable energy: A 3-stage objective of 25% by 2025, 50% by 2030, and 100% by 2050 is set to substantially increase the proportion of consuming renewable energy, and UMC will also invite its value chain to support the low-carbon energy transition. |
• | Investment in net-zero technologies: UMC commits to invest in net zero emissions technologies and participate in Carbon Offset Projects to remove and offset carbon emissions that are inevitable or still subject to technical restrictions. |
In 2022, UMC’s GHG emissions reduction target has approved by the Science Based Targets initiative (SBTi). With 2020 as the base year, UMC targets 25% reduction in direct greenhouse gas emissions (Scope 1) and indirect emissions from electricity consumption (Scope 2) by 2030. The Company also aims to lower emissions from its value chain (Scope 3) by 12.3% in the same period. SBTi’s approval is a confirmation of our intended pathway to achieve net zero while also ensuring our reduction targets are in line with what the latest climate science says is needed to prevent the worst impacts of climate change. We also support timely disclosure of carbon information and ensuring data quality and engage third-party verifiers to ensure the quality of the data. We completed the verification on greenhouse gas emission and reduction records for all of our fabs on an annual basis. Since 2006, we have participated in the Carbon Disclosure Project formed by global institutional investors and disclosed our annual greenhouse gas emission volume, reduction goals and results. In 2022, UMC has been recognized in CDP’s “A List” for transparency and action on both climate change and water security. Out of nearly 15,000 companies scored in the annual evaluation, UMC is the only semiconductor firm globally to achieve a double “A” score.
Climate change will not only bring about negative impacts but also drive opportunities for semiconductor simultaneously. Consequently, we have been proactively searching for our own climate related opportunities by considering of market demand for energy-saving and our technique advantages. Our climate change opportunities were identified as green technologies of RF & Power and Logic Related which could reduce the power consumption and carbon emission, and bring double digit percent CAGR (Compound Annual Growth Rate) of revenue in 2023.
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Risk Management
Risk and safety matters are administered by our Risk Management and Environmental Safety Health Division. We are pursuing the goal of a highly protected risk status in the semiconductor industry through the implementation of strict engineering safety procedures, regular enforcement of safety codes and standards, and compliance of detailed industry safety guidelines.
Our risk control strategy has been implemented in many ways, including strengthening physical protection standards, redundancy/contingency design, enhancing emergency response abilities, constructing natural hazard early warning systems, and developing business continuity plan and crisis response exercise to achieve our continuous operation promise. The achievements in the recent years are as follows:
• | Contract with professional decontamination company, Belfor, to provide emergency treatment service and develop internal property salvage procedure. Conducted a management team (MT) crisis and strategy workshop to lean from relevant experience. |
• | Inherent safety design and rescue skill develop for emerging risk in UMC, including but not limit to: solar power generation system on the roof-top, lithium battery inside collaborative robot, and high fire load near tool buffer (NTB)…etc. |
• | Enhanced power distribution system’s reliability and early abnormality detection, such as gradually replace existing lead-acid UPS batteries with lithium-iron, install real-time leak current measurement of cable shielding conductors’ grounding system of HV distribution system, enlarge diesel generators installation rate to increase emergency power percentage and maintain diesel oil in a safety level...etc. |
• | Fixed-term contract for private water source and water trucks to overcome water shortage risk in the drought season. |
Furthermore, we have adopted the Triple Star Ranking System from AIG Insurance, a global leader in risk management and insurance, since 1999 to evaluate our risk management performance from third party’s point of view. All fabs have been ranked as top-class following AIG’s risk evaluation and risk improvement recommendations. We have also implemented proactive efforts in earthquake risk prevention. We believe our efforts contributed to our quick and exemplary recovery from three major earthquakes in Taiwan on September 21, 1999, March 4, 2010, and February 6, 2016, respectively. In order to reduce potential damages to our production facilities from earthquakes, we continue to import the latest anti-seismic technologies, a seismic isolation platform for newly installed reticle stocker and furnace. Furthermore, we implemented an earthquake warning system in Tainan production base that will provide us with enhanced response time in the event of an earthquake.
Nowadays, extreme weather has become a risk to various business operations. In order to understand the potential impact to us, we implemented a flood risk simulation project in 2014. Since Hsinchu Science-Based Industrial Park is located in higher terrain, where there is no potential flood risk. However, for Fab12A in Tainan, we had conducted a physical improvement plan by installing floodgates in specific entrances to upgrade the protection level to a 500-year flood. Moreover, Taiwan suffered its worst drought in 56 years in 2021, as the Hsinchu and Tainan Science Park were up to 17% and 13%, respectively. In the face of climate change and a more severe water shortage conditions in the future, we have implemented actions based on different water restriction stages, including formulating various water-saving measures and production scheduling adjustments. We also continue to hire water trucks and increase the capacity of contracted private water sources as a contingency plan. In the future, various options such as the use of reclaimed water and recycled water will be continuously evaluated to reduce water risks.
In addition, we are fully aware of the impact presented by business interruption. We are also devoted in the pursuit of corporate resilience and continuity by committing non-interrupted services to satisfy our valued customers and important shareholders. In 2013, Fab 12A was the first foundry in the world to receive ISO 22301 Business Continuity Management certification. Following our certification roadmap, BCMs framework will continuously import to others production sites by 2024. It demonstrates our commitment to carry out disaster response abilities and ensure continuous production objective.
Insurance
We maintain industrial all risk insurance for our buildings, facilities, equipment and inventories as well as third-party properties. The insurance for fabs and their equipment covers losses from physical damage and business interruption up to their respective policy limits except for policy exclusions, including damages and interruptions caused by natural disasters such as earthquake or typhoons. In addition, we purchase directors and officers liability insurance for our board directors and executive officers, covering the liabilities incurred in relation to his/her/its operation of business and legally responsible for. We also maintain public liability insurance for losses to third parties arising from our business operations. We believe that our insurance arrangement is adequate to cover all major types of losses relevant to the semiconductor industry practice. However, significant damage to any of our production facilities, whether as a result of fire or other causes, could seriously harm our business and we may not be able to recover all of our losses through insurance policy coverage.
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C. | Organizational Structure |
The following list shows our corporate structure as of December 31, 2022:
Company |
Jurisdiction of Incorporation |
Percentage of Ownership as of December 31, 2022 |
||||
UMC Group (USA) |
U.S.A. | 100.00 | % | |||
United Microelectronics (Europe) B.V. |
The Netherlands | 100.00 | % | |||
UMC Capital Corp. |
Cayman Islands | 100.00 | % | |||
TLC Capital Co., Ltd. |
Taiwan, R.O.C. | 100.00 | % | |||
Green Earth Limited |
Samoa | 100.00 | % | |||
Fortune Venture Capital Corp. |
Taiwan, R.O.C. | 100.00 | % | |||
UMC Investment (Samoa) Limited |
Samoa | 100.00 | % | |||
ECP Vita Pte. Ltd. |
Singapore | 100.00 | % | |||
Soaring Capital Corp. |
Samoa | 100.00 | % | |||
Unitruth Advisor (Shanghai) Co., Ltd. |
China | 100.00 | % | |||
Tera Energy Development Co., Ltd. |
Taiwan, R.O.C. | 100.00 | % | |||
United Microchip Corporation |
Cayman Islands | 100.00 | % | |||
Wavetek Microelectronics Corporation |
Taiwan, R.O.C. | 80.14 | % | |||
Everrich Energy Investment (HK) Limited |
China | 100.00 | % | |||
Everrich (Shandong) Energy Co., Ltd. |
China | 100.00 | % | |||
Wavetek Microelectronics Investment (Samoa) Limited |
Samoa | 80.14 | % | |||
Wavetek Microelectronics Corporation (USA) |
U.S.A. | 80.14 | % | |||
Best Elite International Limited |
British Virgin Islands | 100.00 | % | |||
Infoshine Technology Limited |
British Virgin Islands | 100.00 | % | |||
Oakwood Associates Limited |
British Virgin Islands | 100.00 | % | |||
Hejian Technology (Suzhou) Co., Ltd. |
China | 99.9985 | % | |||
UnitedDS Semiconductor (Shandong) Co., Ltd. |
China | 99.9985 | % | |||
United Semiconductor (Xiamen) Co., Ltd. |
China | 71.86 | % | |||
UMC Korea Co., Ltd. |
Korea | 100.00 | % | |||
Omni Global Limited |
Samoa | 100.00 | % | |||
United Microtechnology Corporation (California) |
U.S.A. | 100.00 | % | |||
Sino Paragon Limited |
Samoa | 100.00 | % | |||
United Semiconductor Japan Co., Ltd. |
Japan | 100.00 | % |
D. | Property, Plants and Equipment |
Please refer to “—B. Business Overview—Manufacturing Facilities” for a discussion of our property, plants and equipment.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None
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ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply to our financial information as prepared in accordance with IFRSs. You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and the notes to such statements included in this Annual Report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this Annual Report on Form 20-F.
For the convenience of readers, NT dollar amounts used in this section for, and as of, the year ended December 31, 2022 have been converted into U.S. dollar amounts using US$1.00 = NT$30.73, the foreign currency exchange rate on December 30, 2022 as released by the Board of Governors of the Federal Reserve System. The U.S. dollar conversion appears in parentheses next to the relevant NT dollar amount.
Overview
We are one of the world’s leading independent semiconductor foundries, providing comprehensive wafer fabrication services and technologies to our customers based on their designs.
Cyclicality of the Semiconductor Industry
As the semiconductor industry is highly cyclical, revenues varied significantly over this period. Recently, the semiconductor industry has undergone a shift in demand in response to several prevalent trends, including the widespread implementation of 5G communications, proliferation of Internet of Things, advancement and adoption of electrical vehicles and EV related technologies, all of which caused an increase in unit shipment and silicon content that positively impacted our sales and revenue. In addition, the Covid-19 pandemic, which has accelerated the transformation of digital and electronic devices, also partially contributed to the global shortage of semiconductor manufacturing capacity. Given the significant increase of demands for semiconductor products, we recently experienced substantial growth of our business that contributed to higher utilization rate at our fabs. Our average capacity utilization rate was 96.9%, 104.4% and 100.6% for the years ended December 31, 2020, 2021 and 2022, respectively. We believe that our operating results in 2020, 2021 and 2022 continue to reflect the ongoing uncertainty in the global economy.
Pricing
We price our products on either a per die or a per wafer basis, taking into account a variety of factors, including the complexity of the technology, the prevailing market conditions, the order size, the cycle time, the strength and history of our relationship with the customer and our capacity utilization. Because semiconductor wafer prices tend to fluctuate frequently, we conduct a regular review our pricing on a quarterly basis. As a majority of our costs and expenses are fixed or semi-fixed in nature, fluctuations in our products’ average selling price historically have had a substantial impact on our margins and profitability. Our average selling price increased by 14.6% from 2020 to 2021 and 21.3% from 2021 to 2022, which reflects the optimization in overall product mix as well as the strong market demand primarily due to the accelerated growth in the semiconductor industry.
We believe that our current level of pricing is comparable to that of other leading foundries in each respective geometry. We believe that our ability to provide a wide range of advanced foundry services and process technologies as well as large manufacturing capacity will enable us to provide competitive pricing with other leading foundries at a comparable price level.
Capacity Utilization Rates
Our operating results are characterized by relatively high fixed costs. In 2020, 2021 and 2022, approximately 66.4%, 66.3% and 67.7%, respectively, of our manufacturing costs consisted of depreciation, a portion of indirect material costs, amortization of license fees, indirect labor and utilities costs.
If our utilization rates increase, our costs would be allocated over a larger number of units, which generally leads to lower unit costs. As a result, our capacity utilization rates can significantly affect our margins. Our utilization rates have varied from period to period to reflect our production capacity and market demand. Our average capacity utilization rate was 96.9%, 104.4% and 100.6% for the years ended December 31, 2020, 2021 and 2022, respectively. Utilization rates were primarily affected by global macroeconomic factors. Other factors affecting utilization rates are efficiency in production facilities, product flow management, the complexity and mix of the wafers produced, overall industry conditions, the level of customer orders, mechanical failure, disruption of operations due to expansion of operations, relocation of equipment or disruption of power supply, acquisition and disposition of foundry assets, and fire or natural disaster.
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Our production capacity is determined based on the capacity ratings of the equipment in the fab, provided by engineers, adjusted for, among other factors, actual output during uninterrupted trial runs, expected down time due to set up for production runs and maintenance, expected product mix and research and development. Because these factors include subjective elements, our measurement of capacity utilization rates may not be comparable to those of our competitors.
Change in Product Mix and Technology Migration
Because the price of wafers processed with different technologies varies significantly, the mix of wafers that we produce is among the primary factors that affect our revenues and profitability. The value of a wafer is determined principally by the complexity and performance of the processing technology used to produce the wafer, as well as by the yield and defect density. Production of devices with higher levels of functionality and performance, with better yields and lower defect density as well as with greater system-level integration requires better manufacturing expertise and generally commands higher wafer prices. The increase in price generally has more than offset associated increases in production cost once an appropriate economy of scale is reached.
Prices for wafers of a given level of technology generally decline over the processing technology life cycle. As a result, we have continuously been migrating to increasingly sophisticated technologies to maintain the same level of profitability. We introduced our 28-nanometer technology to customers in 2011 and commenced large-scale commercial production in 2014. The development of 22nm started in 2018 and entered into volume production in 2021. The logic and specialty process technology offerings from 22nm as well as 28nm specialty technologies satisfy new market demand as customers adopt UMC’s latest 12” process solutions. Our 28nm and below technologies contributed approximately 13.6%, 19.9% and 23.8% of our foundry revenue in 2020, 2021 and 2022 respectively.
The table below sets forth a breakdown of percentage of our wafer sales by process technologies in 2020, 2021 and 2022.
Years Ended December 31, | ||||||||||||
Process Technologies |
2020 | 2021 | 2022 | |||||||||
% | % | % | ||||||||||
14 nanometers and under |
0.0 | 0.1 | 0.1 | |||||||||
28 nanometers |
13.6 | 19.8 | 23.8 | |||||||||
40 nanometers |
23.3 | 18.8 | 17.7 | |||||||||
65 nanometers |
17.4 | 18.8 | 18.2 | |||||||||
90 nanometers |
11.5 | 8.2 | 7.8 | |||||||||
0.11/0.13 micron |
11.1 | 11.5 | 11.8 | |||||||||
0.15/0.18 micron |
12.8 | 12.5 | 11.1 | |||||||||
0.25/0.35 micron |
7.8 | 7.8 | 7.1 | |||||||||
0.50 micron or higher |
2.5 | 2.5 | 2.4 | |||||||||
|
|
|
|
|
|
|||||||
Total |
100.0 | 100.0 | 100.0 | |||||||||
|
|
|
|
|
|
Manufacturing Yields
Manufacturing yield per wafer is measured by the number of functional dice on that wafer over the maximum number of dice that can be produced on that wafer. A small portion of our products is priced on a per die basis, and our high manufacturing yields have allowed us to achieve higher margins. In addition, with respect to products that are priced on a per wafer basis, we believe that our ability to deliver high manufacturing yields generally has allowed us to either charge higher prices per wafer or attract higher order volumes, resulting in higher margins.
We continually upgrade our process technologies. At the beginning of each technological upgrade, the manufacturing yield utilizing the new technology is generally lower, sometimes substantially lower, than the yield under the current technology. The yield is generally improved through the expertise and cooperation of our research and development personnel and process engineers, as well as equipment and at times raw material suppliers. Our policy is to offer customers new process technologies as soon as the new technologies have passed our internal reliability tests.
Investments
Most of our investments were made to improve our market position and for strategy considerations, a significant portion of which are in foundry-related companies including fabless design customers, raw material suppliers and IP vendors.
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We have, from time to time, disposed of investments for financial, strategic or other purposes in recent years. See “Item 4. Information on the Company—B. Business Overview—Our Investments” for a description of our investments.
Treasury Share and Repurchase Programs
We have from time to time announced plans, none of which were binding on us, to repurchase up to a fixed amount of our common shares on the Taiwan Stock Exchange at the price range set forth in the plans. On March 7, 2018, our board of directors resolved to purchase up to 200 million common shares on the Taiwan Stock Exchange at a price between NT$9.85 and NT$21.30 per share during the period from March 8, 2018 to May 7, 2018 for cancellation. On November 5, 2018, our board of directors resolved to purchase up to 300 million common shares on the Taiwan Stock Exchange at a price between NT$7.55 and NT$20.80 per share during the period from November 6, 2018 to January 5, 2019 for cancellation. On April 24, 2019, our board of directors resolved to purchase up to 200 million common shares on the Taiwan Stock Exchange at a price between NT$8.40 and NT$18.10 per share during the period from April 25, 2019 to June 24, 2019 for cancellation. Our board of directors further resolved to repurchase up to 200 million common shares on the Taiwan Stock Exchange during a two-month period from June 8, 2020 to transfer to employees. We repurchased the total of 105 million common shares from June 8, 2020 through August 7, 2020 at a price between NT$11.55 and NT$23.25, with an average price of NT$15.98 per share.
During 2020, 2021 and 2022, we purchased an aggregate of 105 million, nil and nil, common shares, respectively, and transferred nil million, 105 million and nil of such common shares that we repurchased under these plans to our employees as employee compensation in 2020, 2021 and 2022, respectively.
A. | Operating Results |
Operating Revenues
We generate our operating revenues primarily from the manufacture and sales of wafers that are fabricated at our foundries. We also derive a small portion of our operating revenues from wafer probe services that we perform internally as well as mask tooling services and assembly and test services that we subcontract to other companies.
Operating Costs
Our operating costs consist principally of:
• | overhead, including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, supplies, utilities and royalties; |
• | wafer costs; |
• | direct labor costs; and |
• | service charges paid to subcontractors for mask tooling, assembly and test services. |
Our total depreciation expenses were NT$46,164 million, NT$44,180 million and NT$41,328 million (US$1,345 million) in 2020, 2021 and 2022, respectively.
Operating Expenses
Our operating expenses consist of the following:
• | Sales and marketing expenses, which consist primarily of salaries and related personnel expenses, intellectual property development expenses, wafer sample expenses and mask expenses. Wafer samples are actual silicon samples of our customers’ early design ideas made with our most advanced processes and provided to those customers; |
• | General and administrative expenses, which consist primarily of salaries for our administrative, finance and human resource personnel, fees for professional services, and cost of computer and communication systems to support our operations; |
• | Research and development expenses, which consist primarily of salaries and related personnel expenses, research testing related expenses and depreciation on the equipment used for our research and development; and |
• | Expected credit losses. For notes, accounts receivable and contract assets, we apply a simplified approach in calculating expected credit losses (ECLs) and recognize a loss allowance based on lifetime ECLs at each reporting date. ECLs are measured based on our historical credit loss experience and customers’ current financial condition, adjusted for forward-looking factors, such as customers’ economic environment. |
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Net Other Operating Income and Expenses
Net other operating income and expenses consist primarily of:
• | amortization of deferred government grants related to machinery and equipment; |
• | gains or losses arising from disposal of property, plant and equipment; and |
• | net rental income or loss from property. |
Non-operating Income and Expenses
Our non-operating income and expenses primarily consist of the following:
1. | Other income, which consists of: |
• | interest income, which is primarily derived from time deposits; and |
• | dividend income, which is primarily derived from financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. |
2. | Other gains and losses, which principally consist of: |
• | gains or losses on valuation of financial assets and liabilities, which are primarily derived from disposal of and changes in the values of financial assets and liabilities classified as fair value through profit or loss; |
• | gains or losses on disposal of investments, which are primarily derived from our disposal of investments accounted for under the equity method. |
3. | Finance costs, which principally consist of: |
• | interest expenses, which are primarily derived from bonds payable and bank loans; and |
• | financial expenses, which are primarily derived from shareholder services proxy fee. |
4. | Share of profit or loss of associates and joint ventures, which is primarily derived from the recognition of investee companies’ net profit based on the ownership percentage we hold. |
Taxation
In R.O.C., the corporate income tax rate and unappropriated earnings tax rate are 20% and 5%, respectively. Based on our status as a company engaged in the semiconductor business in Taiwan, we have been granted exemptions from income taxes in Taiwan with respect to income attributable to capital increases for the purpose of purchasing equipment related to the semiconductor business for a period of five years following each such capital increase. In addition, our branch in Singapore enjoys tax exemption for income derived from tax-exempted activities under Singapore’s Income Tax Act and Economic Expansion Incentive (Relief from Income Tax) Act. These tax exemptions resulted in tax savings of approximately NT$2,383 million, NT$2,995 million and NT$4,355 million (US$142 million) in 2020, 2021 and 2022, respectively. Under the amendment to the R.O.C. Statute of Industrial Innovation in 2019, the amounts of unappropriated earnings from 2018 and thereafter used for constructing or purchasing buildings, qualified equipment and technology can qualify for deduction when computing the income tax on unappropriated earnings. We also benefit from other tax incentives generally available to technology companies in Taiwan, such as tax credits applicable against corporate income tax that range from 10% to 15% of qualified research and development expenditures and 3% to 5% of the amount of investment in certain qualified equipment and technology. These tax incentives resulted in tax savings of approximately NT$692 million, NT$958 million and NT$3,307 million (US$108 million) in 2020, 2021 and 2022, respectively.
The R.O.C. government enacted the R.O.C. Income Basic Tax Act, also known as the “Alternative Minimum Tax Act”, or the AMT Act, to impose an alternative minimum tax. AMT is a supplemental tax which is payable if the income tax payable pursuant to the R.O.C. Income Tax Act is below the minimum amount prescribed under the AMT Act. Most tax-exempt income under the R.O.C. Income Tax Act is considered to be taxable under the AMT Act, such as eligible income generated during tax holidays and capital gain from selling domestic securities, and tax credits are not allowed to deduct AMT. The tax rate for business entities is 12%.
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After taking into account the tax exemptions and tax incentives discussed above, we recorded NT$1,691 million, NT$7,918 million and NT$19,327 million (US$629 million) of income tax expenses in 2020, 2021 and 2022, respectively. Our effective income tax rate in 2022 was 17.63%.
Comparisons of Results of Operations
The following table sets forth some of our results of operations data as a percentage of our operating revenues for the periods indicated.
Years Ended December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
% | % | % | ||||||||||
Operating revenues |
100.0 | 100.0 | 100.0 | |||||||||
Operating costs |
(77.9 | ) | (66.2 | ) | (54.9 | ) | ||||||
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|
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Gross profit |
22.1 | 33.8 | 45.1 | |||||||||
Operating expenses |
||||||||||||
Sales and marketing |
(2.3 | ) | (2.2 | ) | (1.5 | ) | ||||||
General and administrative |
(3.8 | ) | (3.7 | ) | (3.5 | ) | ||||||
Research and development |
(7.3 | ) | (6.1 | ) | (4.6 | ) | ||||||
Expected credit impairment gains (losses) |
0.2 | 0.0 | (0.0 | ) | ||||||||
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Subtotal |
(13.2 | ) | (12.0 | ) | (9.6 | ) | ||||||
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Net other operating income and expenses |
3.5 | 2.5 | 1.9 | |||||||||
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Operating income |
12.4 | 24.3 | 37.4 | |||||||||
Non-operating income and expenses |
0.3 | 3.2 | 1.9 | |||||||||
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Income from continuing operations before income tax |
12.7 | 27.5 | 39.3 | |||||||||
Income tax expense |
(0.9 | ) | (3.8 | ) | (6.9 | ) | ||||||
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Net income |
11.8 | 23.7 | 32.4 | |||||||||
Total other comprehensive income (loss) |
1.4 | 1.7 | 1.5 | |||||||||
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Total comprehensive income (loss) |
13.2 | 25.4 | 33.9 | |||||||||
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Net income (loss) attributable to: |
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Shareholders of the parent |
12.9 | 24.0 | 32.1 | |||||||||
Non-controlling interests |
(1.1 | ) | (0.3 | ) | 0.3 | |||||||
Comprehensive income (loss) attributable to: |
||||||||||||
Shareholders of the parent |
14.3 | 25.7 | 33.6 | |||||||||
Non-controlling interests |
(1.1 | ) | (0.3 | ) | 0.3 |
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Operating revenues. Operating revenues increased by 30.8% from NT$213,011 million in 2021 to NT$278,705 million (US$9,069 million) in 2022, primarily due to an increase of 21.3% in average selling price from 2021 to 2022, an increased customer demand from 9,862 thousand 8-inch equivalent wafers in 2021 to 9,945 thousand 8-inch equivalent wafers in 2022, and a 6.4% depreciation of the NTD in 2022 from 2021.
Operating costs. Operating costs increased by 8.5% from NT$140,961 million in 2021 to NT$152,941 million (US$4,977 million) in 2022, primarily due to the increase in shipments and higher labor and utilities costs.
Gross profit and gross margin. Gross profit increased from NT$72,050 million in 2021 to NT$125,764 million (US$4,093 million) in 2022. Our gross margin increased from 33.8% in 2021 to 45.1% in 2022, primarily due to an increase of 21.3% in average selling price and a 6.4% depreciation of the NTD against the USD in 2022.
Operating income and operating margin. Operating income increased from NT$51,686 million in 2021 to NT$104,292 million (US$3,394 million) in 2022. Our operating margin increased from 24.3% in 2021 to 37.4% in 2022. The increase in operating margin was largely due to the increase in gross profit as described above. Operating expenses increased by 4.8% from NT$25,590 million in 2021 to NT$26,812 million (US$872 million) in 2022.
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Sales and marketing expenses. Our sales and marketing expenses decreased by 10.4% from NT$4,671 million in 2021 to NT$4,183 million (US$136 million) in 2022, mainly due to a decrease of NT$912 million (US$30 million) in IP and IP royalty expenses, partially offset by the increase of NT$330 million (US$11 million) in personnel expenses. Our sales and marketing expenses as a percentage of our operating revenues decreased from 2.2% in 2021 to 1.5% in 2022.
General and administrative expenses. Our general and administrative expenses increased by 21.1% from NT$7,990 million in 2021 to NT$9,673 million (US$315 million) in 2022, mainly due to an increase of NT$1,184 million (US$39 million) in personnel expenses. Our general and administrative expenses as a percentage of our operating revenues decreased from 3.7% in 2021 to 3.5% in 2022.
Research and development expenses. Our research and development expenses increased by 0.1% from NT$12,935 million in 2021 to NT$12,953 million (US$421 million) in 2022. The increase in research and development expenses was mainly due to increase of NT$604 million (US$20 million) in personnel expenses and NT$149 million (US$5 million) in research and development expenses of wafers, partially offset by the decrease of NT$629 million (US$20 million) in computer usage expenses. Our research and development expenses as a percentage of our operating revenues decreased from 6.1% in 2021 to 4.6% in 2022.
Expected credit impairment gains (losses). Our expected credit impairment gains (losses) decreased from NT$6 million in 2021 to NT$(3) million (US$(0) million) in 2022. The decrease in expected credit impairment gains (losses) was mainly due to the loss allowance on accounts receivable assessed by us primarily at an amount equal to the assets’ lifetime expected credit losses. Our expected credit impairment gains (losses) as a percentage of our operating revenues decreased from 0.0% in 2021 to (0.0)% in 2022.
Net other operating income and expenses. Net other operating income increased by 2.2% from NT$5,227 million in 2021 to NT$5,340 million (US$174 million) in 2022, mainly due to an increase of NT$339 million (US$11 million) in disposal gain of property, plant and equipment, partially offset by the decrease of NT$211 million (US$7 million) in government grants. Net other operating income and expenses as a percentage of our operating revenues decreased from 2.5% in 2021 to 1.9% in 2022.
Non-operating income and expenses. Non-operating income and expenses decreased by 21.7% from a gain of NT$6,810 million in 2021 to NT$5,333 million (US$174 million) in 2022, mainly due to a decrease in a gain of NT$3,567 million in share of profit or loss of associates and joint ventures and a decrease in other gains and losses from a gain of NT$866 million in 2021 to a loss of NT$1,135 million (US$37 million) in 2022, partially offset by an increase of NT$1,446 million in interest income caused by higher average interest rate and an increase of NT$2,038 million in exchange gain, net. The decrease in other gains and losses was resulted from a decrease of NT$4,140 million on valuation of financial assets and liabilities at fair value through profit or loss from a gain of NT$2,892 million in 2021 to a loss of NT$1,248 million (US$41 million) in 2022, and a one-time payment for worldwide settle agreement with Micron Technology, Inc. in 2021.
Other comprehensive income (loss). Our other comprehensive income increased from an income of NT$3,420 million in 2021 to an income of NT$4,192 million (US$136 million) in 2022. We attributed this change primarily to the increase of exchange differences on translation of foreign operations from a loss of NT$4,718 million in 2021 to a gain of NT$10,176 million (US$331 million) in 2022, which was resulted from the depreciation of the NTD against the USD in 2022. Such increase was partially offset by the decrease in unrealized gain (loss) from equity instruments investments measured at fair value through other comprehensive income from a gain of NT$5,451 million in 2021 to a loss of NT$4,717 million (US$153 million) in 2022.
Net income (loss) attributable to the shareholders of the parent. Due to the factors described above, our net income increased by 74.6% from NT$51,246 million in 2021 to NT$89,479 million (US$2,912 million) in 2022.
Comprehensive income (loss) attributable to the shareholders of the parent. Due to the factors described above, our comprehensive income increased by 71.3% from NT$54,667 million in 2021 to NT$93,671 million (US$3,048 million) in 2022.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
For the comparison of our operating results for the year ended December 31, 2021 to the year ended December 31, 2020, please refer to “Item 5. Operating and Financial Review and Prospects—Operating Results—Comparisons of Results of Operations—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” of our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2022.
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B. | Liquidity and Capital Resources |
The foundry business is highly capital intensive. Our development over the past three years has required significant investments. Additional expansion for the future generally will continue to require significant cash for acquisition of plant and equipment to support increased capacities, particularly for the production of 12-inch wafers, although our expansion program will be adjusted from time to time in response to market conditions and customer demand. In addition, the semiconductor industry has historically experienced rapid changes in technology. To maintain competitiveness at the same capacity, we are required to make adequate investments in plant and equipment. In addition to our need for liquidity to support the substantial fixed costs of capacity expansion and the upgrading of our existing plants and equipment for new technologies, as we ramp up production of new plant capacity, we require significant working capital to support purchases of raw materials for our production and to cover variable operating costs such as labor costs until production yields provide sufficiently positive margins for a fabrication facility to produce operating cash flows.
Resource for Liquidity
We have financed our capital expenditure requirements in recent years from operating cash inflows, bank borrowings, as well as the issuance of corporate bonds. Operating cash inflows significantly exceed operating income, reflecting the significant non-cash depreciation expense.
As of December 31, 2022, we had NT$173,819 million (US$5,656 million) of cash and cash equivalents and NT$706 million (US$23 million) of current financial assets at fair value through profit or loss. Cash equivalents included time deposits with original maturities of three months or less and repurchase agreements collateralized by government bonds and corporate notes. These agreements bore interest rates ranging from 0.16% to 0.24%, 0.14% to 0.21% and 0.43% to 0.62%, in 2020, 2021 and 2022, respectively. The terms of these agreements were typically less than one month. As of December 31, 2020, 2021 and 2022, we held repurchase agreements in the amount of NT$6,940 million, NT$10,001 million and NT$5,923 million (US$193 million), respectively.
In mid-June 2014, we issued an aggregate principal amount of NT$5,000 million of seven-year and ten-year domestic unsecured corporate bonds, with a denomination of NT$1 million per bond. The seven-year domestic unsecured corporate bond was issued with an aggregate principal amount of NT$2,000 million with an annual coupon bearing an interest rate of 1.7%. The ten-year domestic unsecured corporate bond was issued with an aggregate principal amount of NT$3,000 million with an annual coupon bearing an interest rate of 1.95%. The proceeds of this offering were used for repay debts. As of December 31, 2022, NT$3,000 million aggregate principal amount of these bonds were outstanding.
In mid-May 2015, we issued five-year US$600 million aggregate principal amount of currency linked zero coupon convertible bonds due 2020. The proceeds of this offering were used for purchasing machinery and equipment. In 2019 and 2020, certain bondholders had converted the outstanding principal amount of the convertible bonds totaling US$231 million into 498 million common shares. Upon the maturity date on May 18, 2020, we fully redeemed the remaining unconverted bonds at 98.76% of the principal amount totaling US$369 million.
In late March 2017, we issued another five-year and seven-year domestic unsecured corporate bonds totaling NT$8,300 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$6,200 million. Interest is due and payable annually at 1.15%, and the principal was repaid in March 2022. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,100 million. Interest is due and payable annually at 1.43%, and the principal will be repayable in March 2024 upon maturity. The proceeds of this offering were used for repay debts. As of December 31, 2022, NT$2,100 million aggregate principal amount of these bonds were outstanding.
In early October 2017, we issued another five-year and seven-year domestic unsecured corporate bonds totaling NT$5,400 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$2,000 million. Interest is due and payable annually at 0.94%, and the principal was repaid in October 2022. The seven-year domestic unsecured corporate bond was issued in the amount of NT$3,400 million. Interest is due and payable annually at 1.13%, and the principal will be repayable in October 2024 upon maturity. The proceeds of this offering were used for repay debts. As of December 31, 2022, NT$3,400 million aggregate principal amount of these bonds were outstanding.
In late April 2021, we issued another five-year, seven-year and ten-year domestic unsecured corporate bonds totaling NT$9,600 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$5,500 million. Interest is due and payable annually at 0.57%, and the principal will be repayable in April 2026 upon maturity. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,000 million. Interest is due and payable annually at 0.63%, and the principal will be repayable in April 2028 upon maturity. The ten-year domestic unsecured corporate bond was issued in the amount of NT$2,100 million. Interest is due and payable annually at 0.68%, and the principal will be repayable in April 2031 upon maturity. The proceeds of this offering were used for purchasing machinery and equipment and environmental protection related expenditures. As of December 31, 2022, NT$9,600 million aggregate principal amount of these bonds were outstanding.
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In early July 2021, we issued zero coupon exchangeable bonds due 2026. The exchangeable bond offerings consist of US$400 million bonds exchangeable into common shares of Novatek Microelectronics Corp., Ltd., or Novatek. As of December 31, 2022, no bonds had been exchanged into common shares of Novatek and we have repurchased and cancelled the outstanding principal amount of exchangeable bonds totaling US$187 million in 2022.
In mid-December 2021, we issued another five-year domestic unsecured corporate bonds totaling NT$5,000 million, with a face value of NT$1 million per unit. Interest is due and payable annually at 0.63%, and the principal will be repayable in December 2026 upon maturity. The proceeds of this offering were used for purchasing machinery and equipment. As of December 31, 2022, NT$5,000 million aggregate principal amount of these bonds were outstanding.
Operating Activities
In 2022, net cash provided by operating activities was NT$145,861 million (US$4,747 million), primarily due to net income before income tax of NT$109,626 million (US$3,567 million) and the add-back of non-cash items, such as depreciation and amortization in the amount of NT$44,170 million (US$1,437 million).
In 2021, net cash provided by operating activities was NT$90,352 million, primarily due to net income before income tax of NT$58,496 million and the add-back of non-cash items, such as depreciation and amortization in the amount of NT$47,075 million.
In 2020, net cash provided by operating activities was NT$65,745 million, primarily due to net income before income tax of NT$22,543 million and the add-back of non-cash items, such as depreciation and amortization in the amount of NT$48,908 million.
Investing Activities
In 2022, net cash used in investing activities was NT$54,427 million (US$1,771 million), primarily due to cash used to purchase equipment at our fabs amounting to NT$80,128 million (US$2,607 million) and partially offset by net decrease of financial assets measured at amortized cost amounting to NT$28,497 million (US$927 million).
In 2021, net cash used in investing activities was NT$62,163 million, primarily due to cash used to purchase equipment at our fabs amounting to NT$48,035 million and net increase in financial assets measured at amortized cost amounting to NT$15,009 million.
In 2020, net cash used in investing activities was NT$40,112 million, primarily due to cash used to purchase equipment at our fabs amounting to NT$26,345 million and net increase in financial assets measured at amortized cost amounting to NT$12,438 million.
Financing Activities
In 2022, net cash used in financing activities was NT$57,255 million (US$1,863 million), primarily due to NT$37,445 million (US$1,219 million) for cash distributed from additional paid-in capital and net decrease of bank loans of NT$20,782 million (US$676 million).
In 2021, net cash provided in financing activities was NT$12,490 million, primarily due to bonds issued of NT$25,704 million and net increase in guarantee deposits NT$14,219 million, partially offset by NT$19,871 million for cash dividend payment.
In 2020, net cash used in financing activities was NT$25,601 million, primarily due to bonds redemption of NT$13,703 million and NT$9,766 million for cash dividend payment.
We had bonds payable of NT$28,185 million (US$917 million) in the aggregate as of December 31, 2022.
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The following table sets forth our outstanding long-term bank loans as of December 31, 2022:
Unsecured long-term bank loans | Secured long-term bank loans | |||||||||||||||
(in NT$ millions) | (in US$ millions) | (in NT$ millions) | (in US$ millions) | |||||||||||||
Due in 2023 |
846 | 28 | 1,639 | 53 | ||||||||||||
Due in 2024 |
1,026 | 33 | 734 | 24 | ||||||||||||
Due in 2025 |
1,475 | 48 | 3,869 | 126 | ||||||||||||
Due in 2026 |
1,249 | 41 | 3,199 | 104 | ||||||||||||
Due in 2027 |
— | — | 2,586 | 84 | ||||||||||||
Due in 2028 & thereafter |
— | — | 2,656 | 87 |
The interest rates of our long-term bank loans range from 0.86% to 5.62%.
As of December 31, 2022, the current or exchangeable portion of bonds due within one year was NT$5,102 million (US$166 million), and the current portion of long-term bank loans due within one year was NT$2,485 million (US$81 million).
Capital Expenditures
We will continue to employ a ROI-driven approach in our capital expenditure planning as our expansion projects will be supported by customers who have signed multi-year supply agreements with us. As of December 31, 2022, our construction contracts amounted to NT$69,216 million (US$2,252 million) and the portion of the contracts not yet recognized was approximately NT$41,956 million (US$1,365 million). In 2020, 2021 and 2022, we incurred capital expenditures of approximately NT$28,104 million, NT$50,120 million and NT$82,420 million (US$2,682 million), respectively, primarily to purchase equipment for research and development and production at our fabs.
Wafer demand outlook continues to significantly outpace supply, driven by several prevalent industry trends, including widespread implementation of 5G communications, advancement and adoption in electrical vehicles and other EV related technologies, proliferation of IoT, all of which contributed to our rising customer demand and increase in silicon content in electronic products. Accordingly, we will continue to pursue expansion projects under our customers’ multi-year supply agreements, which enable us to mitigate the uncertainties and risks in the markets. During April 2021, we announced an expansion of 300mm Fab 12A Phase 6 (P6) in Taiwan’s Tainan Science Park through a collaboration model where the program is supported by customers’ multi-year product alignment. As part of the agreement, these customers will provide us with a loading protection mechanism to ensure that P6 fab utilization rates will be maintained at healthy levels. In addition, on February 24, 2022 the company’s board of directors has approved a plan to build a new advanced manufacturing facility next to its existing 300mm fab (Fab12i) in Singapore. The first phase of this greenfield fab will have a monthly capacity of 30,000 wafers with production expected to commence in first half of 2025. The new fab (Fab12i P3) will provide 28nm and 22nm process technologies.
Contractual Obligations
Our material cash requirement for known contractual obligation came from bonds, loans, lease obligation, commitment for purchase obligations, the guarantee deposits and financial liability for the repurchase of other investors’ investment. As of December 31, 2022, the total contractual cash obligations, including the amounts which has yet been recorded on our balance sheet as of December 31, 2022, are NT$216,537 million, among which NT$118,579 million will be due within 1 year and NT$97,958 million will be due after 1 year.
Transactions with Related Parties
See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” and Note 7 to our audited consolidated financial statements included in this Annual Report.
C. | Research, Development, Patents and Licenses, Etc. |
The semiconductor industry is characterized by rapid changes in technology, frequently resulting in obsolescence of process technologies and products. As a result, effective research and development is essential to our success. We invested approximately NT$12,896 million, NT$12,935 million and NT$12,953 million (US$421 million) in 2020, 2021 and 2022, respectively, in research and development, which represented 7.3%, 6.1% and 4.6%, respectively, of operating revenues for such years. We believe that our continuous spending on research and development will help us achieve positive results in the development of advanced and specialty technologies. Following the Company’s operation and development planning, the Company’s IP division has formulated strategies and plans for the protection and development of intellectual property to promote the steady growth of the number of patent rights. Status on the implementations is reported to the board of directors at least once a year. The Company was granted a total of 348 domestic and foreign patents in 2022, 199 of which are US patents, 37 ROC (Taiwan) patents 108 China patents and 4 patents from the rest of the world. The total accumulated number of UMC’s patents is 14,423, which can provide a thorough and strong IP foundation for UMC’s technologies.
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Our current research and development activities seek to optimize the use of available capacity by developing new process platforms into existing technology nodes. Although we emphasize firm-wide participation in the research and development process, we maintain central research and development teams primarily responsible for developing cost-effective technologies that can serve the manufacturing needs of our customers. Monetary incentives are provided to our employees if projects result in successful patents. We believe we have a strong foundation in research and development and intend to continue our efforts on technology developments. Our management believes in the value of continued support of research and development efforts and intends to continue our foundry position by providing customers with comprehensive technology and SoC solutions in the industry.
D. | Trend Information |
Please refer to “Item 5. Operating and Financial Review and Prospects—Overview” for a discussion of the most significant recent trends in our production, sales, costs and selling prices. In addition, please refer to discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments and events that we believe are reasonably likely to have a material effect on our operating revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
E. | Critical Accounting Estimates |
Please refer to Note 5 to our audited consolidated financial statements included elsewhere in this Annual Report.
ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | Directors and Senior Management |
The following table sets forth the name, age, position, tenure and biography of each of our directors and executive officers as of March 31, 2023. There is no family relationship among any of these persons.
The business address of our directors and executive officers is the same as our registered address.
Name |
Age | Position |
Year(s) with Us |
|||||||
Stan Hung |
62 | Chairman, Director and Chief Strategic Officer | 31 | |||||||
SC Chien |
65 | Co-president and Director (Representative of Hsun Chieh Investment Co., Ltd.) | 34 | |||||||
Jason Wang |
60 | Co-president and Director (Representative of Silicon Integrated Systems Corp.) | 15 | |||||||
Lih J. Chen (1) |
76 | Independent Director | 5 | |||||||
Jyuo-Min Shyu (1) |
69 | Independent Director | 5 | |||||||
Wenyi Chu (1) |
56 | Independent Director | 8 | |||||||
Kuang-Si Shiu (1) |
71 | Independent Director | 2 | |||||||
Wen-Shin Hsu (1) |
46 | Independent Director | 2 | |||||||
Ting-Yu Lin |
61 | Director | 17 | |||||||
Chitung Liu |
57 | Chief Financial Officer, Senior Vice President and Head of Corporate Governance | 22 |
(1) | Member of the Audit Committee and Remuneration Committee. |
Stan Hung is a director, Chief Strategic Officer and the Chairman of our company. Mr. Hung was our chief financial officer and senior vice president from 2000 to 2007. He was also the Chairman of ITE TECH. INC. from 2007 to 2008 and a director of EPISTAR Corporation from 2007 to 2016. Prior to re-joining United Microelectronics Corporation in 1991, Mr. Hung was a financial manager at Optoelectronics Corporation. He is also the chairman of Fortune Venture Capital Corp., TLC Capital Co. Ltd., Faraday Technology Corporation, UMC Capital Corp., a director of Triknight Capital Corporation, United Microelectronics (Europe) B.V. and an executive director of UnitedDS Semiconductor (Shandong) Co., Ltd. Mr. Hung received a bachelor’s degree in accounting from Tam Kang University in 1982.
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SC Chien is a director and the President of our company. Mr. Chien joined UMC in 1989 and has been responsible for overseeing departments involved in advanced technology development, specialty technology development and customer engineering. Mr. Chien is a representative institutional director of Hsun Chieh Investment Co., Ltd. and he is also a director of Fortune Venture Capital Corp., TLC Capital Co., Ltd., Unimicron Technology Corp. and UMC Capital Corp. Mr. Chien received a bachelor’s degree in chemical engineering from National Taiwan University.
Jason Wang is a director and the President of our company. Mr. Wang is a representative institutional director, Silicon Integrated Systems Corp. and also serves on the board of directors of UMC GROUP (USA) since 2004. Mr. Wang joined UMC as Vice President of Corporate Marketing in 2008, and from 2009 to 2014, served as President of UMC GROUP (USA) responsible for business operation efficiency enhancement and UMC North America strategic business development. Mr. Wang is also a director of Fortune Venture Capital Corp., TLC Capital Co., Ltd., United Microelectronics (Europe) B.V., UMC Capital Corp., United Microtechnology Corporation (California) and eJoule International Limited. Mr. Wang did his undergraduate study in Business Administration at San Jose State University.
Lih J. Chen is an independent director of our company. Professor Chen is the Distinguished Chair Professor of National Tsing Hua University and an Academician at Academia Sinica. He was also the President of National Tsing Hua University and the Deputy Ministers of National Science Council. Professor Chen received a Ph.D. degree in physics from University of California, Berkeley in 1974.
Jyuo-Min Shyu is an independent director of our company. Dr. Shyu is an Emeritus Professor at National Tsing Hua University. He was also the Minister of Ministry of Science and Technology and the President of Industrial Technology Research Institute. Dr.Shyu is also an independent director of Qisda Corporation and Far EasTone Telecommunications Co., Ltd., as well as a director of Iridium Medical Technology Co., Ltd, GeoThings, Inc. and Alpha Ring Asia Inc. Professor Shyu received a Ph.D. degree in Electrical Engineering and Computer Science from University of California, Berkeley in 1988.
Wenyi Chu is an independent director of our company. Professor Chu is a professor at the Department of Business Administration at National Taiwan University. Professor Chu was the chairwoman of Graduate Institute of Business Administration and the Dean of Department of Business Administration in National Taiwan University from 2012 to 2014. Professor Chu is also an independent director of Winmate Inc. Professor Chu received a Ph.D. degree in Strategy and International Management from London Business School, United Kingdom in 1997.
Kuang-Si Shiu is an independent director of our company. Mr. Shiu is also an independent director of Yuanta Financial Holdings Co., Ltd. and Yuanta Commercial Bank Co., Ltd. Mr. Shiu served in financial institutions for over 30 years, he was also formerly chairman & president of Mega Financial Holding Co., Ltd. and Mega International Commercial Bank Co., Ltd., chairman of Hua Nan Financial Holdings Co., Ltd., Hua Nan Commercial Bank Ltd. and Land Bank of Taiwan Co., Ltd. Mr. Shiu received a MBA degree in Indiana University in 1978.
Wen-Shin Hsu is an independent director of our company. Professor Hsu is a professor at the Department of Accounting at National Taiwan University. Professor Hsu is the Director of Global MBA in National Taiwan University from 2019, Associate Dean of International affairs of College of Management School in National Taiwan University from 2020. Professor Hsu is also an independent director of Unitech Printed Circuit Board Corp., and ANT Precision Industry Co., Ltd., director of Universal Venture Capital Investment Corporation and Taiwan Insurance Guaranty Fund. Professor Hsu received a Ph.D. degree in Accounting &Finance from Lancaster University in 2006.
Ting-Yu Lin is a director of our company. Mr. Lin is also the chairman of Sunrox International Inc., Sunrox Industries, Inc., and the director of Unimicron Technology Corp. Mr. Lin received a master’s degree in international finance from Meiji University in 1993.
Chitung Liu is the Chief Financial Officer and the Senior Vice President of our company. On March 6, 2019, Mr. Chitung Liu was appointed as our Head of Corporate Governance. Prior to joining our company in 2001, Mr. Liu was a managing director of UBS. Mr. Liu is the chairman of Hejian Technology (Suzhou) Co., Ltd., United Semiconductor (Xiamen) Co., Ltd. and a director of Fortune Venture Capital Corp., TLC Capital Co., Ltd., Unimicron Technology Corp., Novatek Microelectronic Corp., Yann Yuan Investment Co., Ltd., UMC Group (USA), Green Earth Limited, ECP Vita Pte. Ltd., UMC Capital Corp. and United Microchip Corporation. Mr. Liu received an executive MBA degree from National Taiwan University in 2009.
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B. | Compensation |
The aggregate compensation paid and benefits in kind granted to our directors in 2022 were approximately NT$52.6 million (US$1.7 million). The remuneration was out of our 2022 earnings distribution plan, and the distribution percentage for directors is 0.06%. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Dividends and Distributions”. Some of the remuneration was paid to the legal entities that certain directors represent. The aggregate compensation paid and benefits in kind granted to our executive officers in 2022 were approximately NT$2,603.8 million (US$84.7 million), which include NT$1,045.3 million (US$34 million) as bonus. The aggregate compensation paid and benefits in kind granted to our directors and senior management in 2022 were approximately NT$2,656.4 million (US$86.4 million), which include NT$1,045.3 million (US$34 million) as bonus.
C. | Board Practices |
All of our directors were elected in June 2021 for a term of three years at our annual general meeting of shareholders. Neither we nor any of our subsidiaries has entered into a contract with any of our directors by which our directors are expected to receive benefits upon termination of their services.
Audit Committee
Our board of directors established an audit committee in March 2005. In the annual general meeting held on June 13, 2008, we amended our articles of incorporation to introduce the mechanism of an Audit Committee. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Directors”. After the re-election of directors in the annual general meeting on July 7, 2021, our board of directors appointed Lih J. Chen, Jyuo-Min Shyu, Wenyi Chu, Kuang-Si Shiu and Wen-Shin Hsu to be members of the audit committee. Each audit committee member is an independent director who is financially literate with accounting or related financial management expertise. The audit committee meets as often as it deems necessary to carry out its responsibilities. Pursuant to an audit committee charter, the audit committee has responsibility for, among other things, overseeing the qualifications, independence and performance of our internal audit function and independent auditors, and overseeing the accounting policies and financial reporting and disclosure practices of our company. The audit committee also has the authority to engage special legal, accounting or other consultants it deems necessary in the performance of its duties.
Remuneration Committee
The R.O.C. Securities and Exchange Act, as amended on November 24, 2010, further introduced the mechanism of a “Remuneration Committee”, which requires publicly listed companies in the R.O.C., including our company, to adopt a remuneration committee. Pursuant to the Regulations Governing the Establishment and Exercise of Powers by Compensation Committees of Public Companies, the remuneration committee shall be composed of no less than three members commissioned by the board of directors. In addition, for a company with independent directors, such as us, at least one of the remuneration committee members shall be an independent director. We established a remuneration committee in accordance with Article 14-6 of the R.O.C. Securities and Exchange Act on April 27, 2011. We amended our articles of incorporation to implement the mechanism of our remuneration committee during the annual general meeting held on June 15, 2011. After the re-election of directors in the annual general meeting on July 7, 2021, our board of directors appointed Lih J. Chen, Jyuo-Min Shyu, Wenyi Chu, Kuang-Si Shiu and Wen-Shin Hsu to serve as members of the remuneration committee.
Pursuant to applicable SEC rules and NYSE listing standards, we as a foreign private issuer are required to disclose any significant ways in which our corporate governance practices differ from those followed by NYSE-listed U.S. domestic companies under the NYSE’s listing standards. A copy of the significant differences between our corporate governance practices and NYSE corporate governance rules applicable to U.S. companies is available on our website https://www.umc.com/upload/media/08_Investors/Corporate_Governance/Corporate_Governance/The_differences_between_the_UMCs
_corporate_governance_practices_and_those_required_of_domestic_companies_under_NYSE_listing_standards_20190306.pdf.
Nominating Committee
Our board of directors established a nominating committee in December 2017. Our nominating committee initially consists of Lih J. Chen, Jyuo-Min Shyu, Wenyi Chu, Kuang-Si Shiu and Wen-Shin Hsu each of whom is an independent director. The nominating committee is to assist the board to enhance the management mechanism and improve corporate governance for our sustainable development. The objectives of our nominating committee include: (i) to constitute the nomination policy and succession plans of the directors and the executives, and to review and propose the candidate list of the directors and the executives accordingly; (ii) to construct and to develop the operation of our board and the board committees, as well as to plan and assess the performance of the board, the board committees and the executives, and (iii) to enhance the corporate governance system and practices in order to protect the interests of our shareholders.
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D. | Employees |
As of December 31, 2022, we had 20,680 employees, which included 12,390 engineers, 7,461 technicians and 829 administrative staff performing administrative functions on a consolidated basis, where a majority of the employees work from our Taiwan R.O.C. offices and facilities. We have in the past implemented, and may in the future evaluate the need to implement, labor redundancy plans based on the work performance of our employees.
As of December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
Employees |
||||||||||||
Engineers |
11,377 | 11,606 | 12,390 | |||||||||
Technicians |
7,211 | 7,318 | 7,461 | |||||||||
Administrative Staff |
798 | 817 | 829 | |||||||||
|
|
|
|
|
|
|||||||
Total |
19,386 | 19,741 | 20,680 | |||||||||
|
|
|
|
|
|
Employee salaries are reviewed annually. Salaries are adjusted based on industry standards, inflation and individual performance. As an incentive, additional bonuses in cash may be paid at the discretion of management based on the performance of individuals. In addition, except under certain circumstances, R.O.C. law requires us to reserve from 10% to 15% of any offerings of our new common shares for employees’ subscription.
Our employees participate in our profit distribution pursuant to our articles of incorporation. Employees are entitled to receive additional bonuses based on a certain percentage of our allocable surplus income. On February 22, 2023, our board of directors proposed an employee bonus in cash in the aggregate amount of NT$9,160 million (US$298 million) in relation to retained earnings in 2022.
Our employees are not covered by any collective bargaining agreements. We believe we have a good relationship with our employees.
E. | Share Ownership |
As of March 31, 2023, each of our directors and executive officers held common shares and/or ADSs of UMC, either directly for their own account or indirectly as the representative of another legal entity on our board of directors, except for Lih J. Chen, Jyuo-Min Shyu, Wenyi Chu, Kuang-Si Shiu and Wen-Shin Hsu our independent directors. As of April 2, 2023, our most recent record date, Hsun Chieh Investment Co. held approximately 441 million of our common shares, representing approximately 3.53% of our issued and outstanding share capital; Silicon Integrated Systems Corp. held approximately 267 million of our common shares, representing approximately 2.1% of our issued and outstanding share capital; Chairman Mr. Hung held approximately 53 million of our common shares, representing approximately 0.4% of our issued and outstanding share capital; and Ting-Yu Lin held approximately 13 million of our common shares, representing approximately 0.1% of our issued and outstanding share capital.
ITEM 7 | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
The following table sets forth information known to us with respect to the beneficial ownership of our common shares as of (i) April 2, 2023, our most recent record date, and (ii) as of certain record dates in each of the preceding three years, for (1) the shareholders known by us to beneficially own more than 2% of our common shares and (2) all directors and executive officers as a group. Beneficial ownership is determined in accordance with SEC rules.
As of April 10, 2021 |
As of March 29, 2022 |
As of April 2, 2023 | ||||||||||||||
Number of common shares beneficially owned |
Number of common shares beneficially owned |
Number of common shares beneficially owned |
Number of common shares beneficially owned |
|||||||||||||
Name of Beneficial Owner |
||||||||||||||||
Hsun Chieh Investment Co., Ltd. (1) |
3.55 | % | 3.54 | % | 441,371,000 | 3.53 | % | |||||||||
Silicon Integrated Systems Corp. |
2.30 | % | 2.29 | % | 266,580,424 | 2.13 | % | |||||||||
Directors and executive officers as a group |
6.90 | % | 6.83 | % | 853,685,817 | 6.83 | % |
(1) | 36.49% owned by United Microelectronics Corporation as of March 31, 2023. |
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None of our major shareholders have different voting rights from those of our other shareholders. To the best of our knowledge, we are not directly or indirectly controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
For information regarding our common shares held or beneficially owned by persons in the United States, see “Item 9. The Offer and Listing—A. Offer and Listing Details—Market Price Information for Our American Depositary Shares” in this Annual Report.
B. | Related Party Transactions |
From time to time we have engaged in certain transactions with our affiliates. The sales and purchase prices with related parties are determined through mutual agreement in reference to market conditions.
The following table shows our aggregate equity ownership interest, on a consolidated basis, in major related fabless design companies that we enter into transactions from time to time as of April 2, 2023.
Name |
Ownership % | |||
Silicon Integrated Systems Corp. |
19.02 | |||
Faraday Technology Corp. |
13.78 |
We provide foundry services to these fabless design companies and the sales price was determined through arms-length negotiation and mutual agreement in reference to market conditions. We generated total of NT$2,110 million, NT$2,816 million and NT$5,784 million (US$188 million) of our operating revenues in 2020, 2021 and 2022, respectively, from the provision of our foundry services to these two companies. For more information, please refer to Note 7 to our audited consolidated financial statements included in this Annual Report.
C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8 | FINANCIAL INFORMATION |
A. | Consolidated Statements and Other Financial Information |
Please refer to Item 18 for a list of all financial statements filed as part of this Annual Report on Form 20-F.
Legal and Administrative Proceedings
We may, from time to time, become a party to various legal or administrative proceedings arising in the ordinary course of our business.
On August 31, 2017, the Taichung District Prosecutors Office indicted us based on the Trade Secret Act of R.O.C., alleging that our employees misappropriated the trade secrets of Micron Technology, Inc., or Micron, and of Micron Memory Taiwan Co., Ltd.. On June 12, 2020, an adverse ruling issued by the District Court of Taichung in a suit alleged that UMC, two of its current employees and a former employee engaged in the misappropriation of trade secrets. UMC appealed against the sentence. On November 26, 2021, UMC and Micron announced a settlement agreement between the two companies for all legal proceedings worldwide (the “Settlement Agreement”). Accordingly, Micron submitted a motion to withdraw the case. On January 27, 2022, the Intellectual Property and Commercial Court announced its ruling of this case and UMC was sentenced to a fine of NT$20 million, subject to a two-year term of probation.
On December 5, 2017, Micron filed a civil action with similar cause against us with the United States District Court, Northern District of California. Micron claimed entitlement to the actual damages, treble damages and relevant fees and requested the court to issue an order that enjoins us from using its trade secrets in question. In accordance with the Settlement Agreement, the court issued a dismissal of the case with prejudice in January 2022.
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On January 12, 2018, we filed three patent infringement actions with the Fuzhou Intermediate People’s Court against, among others, Micron (Xi’an) Co., Ltd. and Micron (Shanghai) Trading Co., Ltd., requesting the court to order the defendants to stop manufacturing, processing, importing, selling, and committing to sell the products deploying the infringing patents in question, and also to destroy all inventories and related molds and tools. On July 3, 2018, the Fuzhou Intermediate People’s Court granted preliminary injunction against the aforementioned two defendants, holding that the two defendants must immediately cease to manufacture, sell, and import products that infringe our patent rights. The court approved withdrawal of one of the patent infringement actions on our motion while the other two actions are still on trial. In accordance with the Settlement Agreement, UMC submitted a motion to withdraw the case, and the motion is currently pending.
The amounts of aforementioned fine from ruling of the Intellectual Property and Commercial Court and the worldwide settlement between UMC and Micron have no material financial and operational effect on UMC’s business for the years presented.
Other than the abovementioned legal proceedings, we are not currently involved in any litigation or other proceedings that may have, or have had in the recent past, significant effects on our financial position or profitability.
Dividend Policy
As for our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Dividends and Distributions”. On June 12, 2018, our shareholders approved a cash dividend of NT$0.7 per common share for an aggregate of NT$8,557,023,101. On June 12, 2018, our board of directors resolved to adjust the cash dividend ratio to NT$0.71164307 per common share because the number of outstanding common shares had changed as a result of our repurchase of treasury common shares. On June 12, 2019, our shareholders approved a cash dividend of NT$0.58 per common share for an aggregate of NT$6,916,104,855. On June 19, 2019, our board of directors resolved to adjust the cash dividend ratio to NT$0.58989396 per common share because the number of outstanding common shares had changed as a result of our repurchase of treasury common shares. On June 10, 2020, our shareholders approved a cash dividend of NT$0.75 per common share for an aggregate of NT$9,765,154,720. On June 29, 2020, our board of directors resolved to adjust the cash dividend ratio to NT$0.80395653 per common share because the number of outstanding common shares had changed as a result of our repurchase of treasury common share and the conversion of convertible bonds. On July 7, 2021, our shareholders approved a cash dividend of NT$1.60 per common share for an aggregate of NT$19,875,842,389. On July 7, 2021, our board of directors resolved to adjust the cash dividend ratio to NT$1.59988820 per common share because the number of outstanding common shares had changed as a result of cancellation and issuance of Restricted Stock Awards. On May 27, 2022, our shareholders approved to distribute cash from additional paid-in capital of NT$3.0 per common share for an aggregate of NT$37,446,370,452. On February 22, 2023, our board of directors proposed dividends of NT$45,017,096,342 (approximately NT$3.60 per common share), which are expected to be approved at our annual general meeting on May 31, 2023.
The following table sets forth the cash dividends per share and stock dividends per share as a percentage of common shares outstanding paid during each of the years indicated in respect of common shares outstanding at the end of each such year, except as otherwise noted.
Cash Dividend per Share |
Stock Dividend per Share |
Total Number of Common Shares Issued as Stock Dividend |
Number of Outstanding Common Shares at Year End |
|||||||||||||
NT$ | NT$ | |||||||||||||||
2016 |
0.56501906 | — | — | 12,624,318,715 | ||||||||||||
2017 |
0.50 | — | — | 12,624,318,715 | ||||||||||||
2018 |
0.71164307 | — | — | 12,424,318,715 | ||||||||||||
2019 |
0.58989396 | — | — | 11,724,318,715 | ||||||||||||
2020 |
0.80395653 | — | — | 12,422,401,493 | ||||||||||||
2021 |
1.59988820 | — | — | 12,483,247,566 |
(1) | We declare stock dividends in an NT dollar amount per share, but we pay the stock dividends to our shareholders in the form of common shares. The amount of common shares distributed to each shareholders is calculated by multiplying the dividend declared by the number of common shares held by the given shareholders, divided by the par value of NT$10 per share. Fractional common shares are not issued but are paid in cash. |
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B. | Significant Changes |
For the significant subsequent events following the close of the last financial year up to the date of this Annual Report on Form 20-F, please refer to Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report.
ITEM 9 | THE OFFER AND LISTING |
A. | Offer and Listing Details |
Market Information for Our Common Shares
Our common shares have been listed on the Taiwan Stock Exchange under the symbol “2303” since July 1985. There is no public market outside Taiwan for our common shares.
Market Information for Our American Depositary Shares
Our ADSs have been listed on the NYSE under the symbol “UMC” since September 19, 2000. The outstanding ADSs are identified by the CUSIP number 910873405. Each of our ADSs represents the right to receive five common shares.
As of March 31, 2023, there were a total of 134,334,926 ADSs listed on the NYSE. With certain limited exceptions, holders of common shares who are not R.O.C. persons are required to hold these common shares through a brokerage or custodial account in the R.O.C. As of March 31, 2023, 671,674,630 common shares were registered in the name of a nominee of JPMorgan Chase & Co., the depositary under the deposit agreement. JPMorgan Chase & Co. has advised us that, as of March 31, 2023, 134,320,675 ADSs representing these 671,603,375 common shares were held of record by Cede & Co., and 14,251 ADSs were held by U.S. registered shareholders. We have no further information as to common shares held or beneficially owned by U.S. persons.
B. | Plan of Distribution |
Not applicable.
C. | Markets |
The principal trading markets for our common shares are the Taiwan Stock Exchange and the New York Stock Exchange, on which our common shares trade in the form of ADSs.
D. | Selling Shareholders |
Not applicable.
E. | Dilution |
Not applicable.
F. | Expenses of the Issue |
Not applicable.
ITEM 10 | ADDITIONAL INFORMATION |
A. | Share Capital |
Not applicable.
B. | Memorandum and Articles of Association |
The following statements summarize the material elements of our capital structure and the more important rights and privileges of shareholders conferred by the R.O.C. law and our articles of incorporation.
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Objects and Purpose
The scope of business of UMC as set forth in Article 2 of our articles of incorporation, includes, among others, (i) integrated circuits; (ii) semiconductor parts and components; (iii) parts and components of microcomputers, microprocessors, peripheral support and system products; (iv) parts and components of semiconductor memory systems products; (v) semiconductor parts and components for digital transceiver product and system products; (vi) semiconductor parts and components for telecom system and system products; (vii) testing and packaging of integrated circuits; (viii) mask production; (ix) metals, derived fuels and chemical products generated simultaneously from our manufacturing process; (x) management consulting service in regard to sustainable development, energy/resources conservation technologies and semiconductor fab related affairs; (xi) clearance, recycle and disposal of waste and manufacturing outputs; research and development, design, production, sales, promotion and after-sale services related to our business; and (xii) export/import trade related to our business.
Directors
The R.O.C. Company Act and our articles of incorporation provide that our board of directors is elected by shareholders and is responsible for the management of our business. As of March 31, 2023, our board of directors consisted of nine directors, out of which five are independent directors. In the annual general meeting held on June 11, 2007, we amended our articles of incorporation to abolish the managing director mechanism. In the annual general meeting held on June 13, 2008, we amended our articles of incorporation to introduce the mechanism of an Audit Committee. The Chairman presides at all meetings of our board of directors, and also has the authority to represent our company. The term of office for our directors is three years, and our directors are elected by our shareholders by means of cumulative voting. The amendment to our articles of incorporation on June 11, 2007 also adopts a nomination system which provides that holders of one percent or more of the issued and outstanding shares of our company would be entitled to submit a roster of candidates to be considered for nomination to our company’s board of directors at an annual general meeting involving the election of directors. Pursuant to the R.O.C. Company Act, entity that owns our common shares may be elected as a director, in which case a natural person must be designated to act as the legal entity’s representative. A legal entity that is our shareholder may designate its representative to be elected as our director on its behalf. In the event several representatives are designated by the same legal entity, any or all of them may be elected. A director who serves as the representative of a legal entity may be removed or replaced at any time at the discretion of such legal entity, and the replacement director may serve the remainder of the term of office of the replaced director. As of March 31, 2023, two of our nine directors are representatives of other legal entities, as shown in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
According to the R.O.C. Company Act and the rules promulgated under the R.O.C. Securities and Exchange Act, a director who has a personal interest in a matter to be discussed at the meeting of the board of directors, shall explain the essential contents of such personal interest in the meeting of the board of directors. Moreover, where the spouse, a blood relative within the second degree of kinship of a director, or any company which has a controlling or subordinate relation with a director has interests in a matter to be discussed at the meeting of the board of directors, such director shall be deemed to have a personal interest in the matter. In case that such personal interest may impair the interests of us, such director shall abstain from joining the discussion and voting on such matter. In case that such director is the representative designated by a legal entity shareholder to be elected as our director and such legal entity shareholder has personal interest in the matter to be discussed at the meeting of the board of directors, the rules above mentioned shall also apply. Our articles of incorporation provide that our board of directors is authorized, by taking into account of the extent of his/her/its involvement of our operation activities and the value of his/her/its contribution, to determine the compensation for each director at a comparable rate adopted by other companies of the same industry regardless of the profit received by our company. In addition, according to our articles of incorporation, we may distribute a maximum of 0.2% of the annual profits before tax as remuneration to directors. Please refer to “—Dividends and Distributions” in this item below for more details. Our articles of incorporation do not impose a mandatory retirement age limit for our directors. Furthermore, our articles of incorporation do not impose a shareholding qualification for each director, while the laws and regulations require the aggregate shareholding of all directors, excluding independent directors, to meet certain thresholds considering the paid-in capital and the numbers of the independent directors. According to our current internal Loan Procedures, we shall not extend any loan to our directors.
In order to strengthen corporate governance of companies in Taiwan, effective from January 1, 2007, the amended R.O.C. Securities and Exchange Act authorizes the R.O.C. FSC, after considering certain factors, including the scale, shareholding structure and business nature of a public company, to require that a public company, such as our company, meet certain criteria, including having at least two independent directors but not less than one fifth of the total number of directors.
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In addition, pursuant to the R.O.C. Securities and Exchange Act, a public company is required to either establish an Audit Committee, or retain supervisors, provided that the R.O.C. FSC may, after considering the scale and business nature of a public company and other necessary situation, require the company to establish an Audit Committee in place of its supervisors. We have amended our articles of incorporation in the annual general meeting held on June 13, 2008, introducing the mechanism of an Audit Committee. On February 20, 2013, the R.O.C. FSC has ruled that a public company with certain scale or of certain business nature, including us, shall establish an Audit Committee instead of the supervisors. According to our articles of incorporation and audit committee charter, our Audit Committee is composed of all independent directors and performs the power and duties provided by applicable laws and regulations, including without limitation the powers and the duties of supervisors provided under the R.O.C. Company Act. A company is not allowed to maintain both supervisors and an Audit Committee, so we chose to eliminate our supervisors when we established our Audit Committee in 2009.
According to our current articles of incorporation, we may purchase directors and officers liability insurance for our directors, covering the liabilities incurred in relation to his/her/its operation of business and legally responsible for.
Common Shares
As of December 31, 2022, our authorized share capital was NT$260 billion, divided into 26 billion common shares, of which 12,504,748,984 common shares were issued and outstanding. All common shares presently issued are fully paid and in registered form, and existing shareholders are not subject to any capital calls. We do not have any outstanding warrants or option to purchase our common shares.
Preferred Shares
We amended our articles of incorporation in the annual general meeting held on June 10, 2020, adding Article 5-1, which provides the terms, and will serve as the basis of issuance, of Class A preferred shares. According to Article 5-1, the Class A preferred shares are, among others, convertible, redeemable, cumulative and with fixed duration and annual cash dividend rate. None of Class A preferred shares has been issued as of March 31, 2023.
Restricted Share Awards & Employee Compensation Program
To retain our employees, we issue equity-based compensation to the selected employees and management. The restricted shares will be awarded to if the financial performance meets 1) return on equity (ROE%) and 2) operating margin (OM%) criteria set forth in the Restricted Stock Awards Program.
The return on equity % (ROE%) and operating margin % (OM%) are used as performance indicators for the operational goals of the Company. The performance target for the two indicators are listed below, which shall be simultaneously fulfilled. Determination of fulfillment of the indicators will be based on the consolidated financial statements, audited by a certified public accountant, for the last fiscal year prior to the end of each vesting period.
Effective Date of Equity Based Compensation: July 9, 2020
Effective Date of Share Distribution: September 1, 2020
Equity Based Compensation Shares: 200.030 million shares
Effective Date of Share Distribution: June 9, 2021
Equity Based Compensation Shares: 1.268 million shares
Indicator |
Return on equity (ROE%) |
Operating margin (OM%) | ||
2 years after |
6% or above | 6% or above granting | ||
3 years after |
8% or above | 8% or above granting | ||
4 years after |
10% or above | 10% or above granting |
For the restricted share awards approved by the Board of Directors in 2022, the following performance indicators will be used as operational goals for the Company: return on equity % (ROE%), operating margin % (OM%) and Morgan Stanley Capital International (MSCI) ESG ratings. The performance targets and weighting for the indicators are listed below. Indicators that have achieved the target value, the number of vested shares in the year is calculated according to the corresponding weighting, otherwise, the corresponding weighting is 0%. The performance period refers to the fiscal year of the most recent annual financial statement audited by a certified public accountant before the vesting date. Performance indicators are based on the consolidated financial statements audited by a certified public accountant corresponding to the period required by the indicators.
Effective Date of Equity Based Compensation: October 6, 2022
Effective Date of Share Distribution: December 5, 2022
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Equity Based Compensation Shares: 23.0595 million shares
Indicator |
Weighting | Target | ||
Return on Equity (ROE%) |
30% | Higher than the Company’s average of the previous three years (Note 1) | ||
Earnings Per Share (EPS) |
30% | Higher than the Company’s average of the previous three years (Note 1) | ||
Morgan Stanley Capital International (MSCI) ESG rating |
40% | Rating is A or greater (Note 2) |
Note 1. Comparing the performance period with the average of the preceding three years
Note 2. The year of MSCI annual ESG rating is consistent with the performance period defined in the return on equity and earnings per share.
New Shares and Preemptive Rights
New shares may only be issued with the prior approval of our board of directors. If our issuance of any new shares will result in any change in our authorized share capital, we are required under R.O.C. Company Act to amend our articles of incorporation and obtain approval of our shareholders in a shareholders’ meeting. We must also obtain the approval of, or submit a registration with, the R.O.C. FSC and the Science Park Administration. According to the R.O.C. Company Act, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its employees. In addition, if a listed company intends to offer new shares for cash, at least 10% of the issue must also be offered to the public. This percentage can be increased by a resolution passed at a shareholders’ meeting, which will reduce the number of new shares in which existing shareholders may have preemptive rights. Unless the percentage of the common shares offered to the public is increased by a resolution, existing shareholders of the company have a preemptive right to acquire the remaining 75% to 80% of the issue in proportion to their existing shareholdings. According to the Corporate Merger and Acquisition Act of the R.O.C., as effective on February 8, 2002 and amended on May 5, 2004 and July 8, 2015 which took effect on January 8, 2016, if new shares issued by our company are solely for the purpose of merger, acquisition, share swap or spin-off, the above-mentioned restrictions, including the employee stock ownership plan, the preemptive rights of the existing shareholders and the publicity requirement of a listed company, to such issuance of new common shares may not be applied.
Shareholder
We only recognize persons registered in our register as our shareholders. We may set a record date and close our register of shareholders for specified periods to determine which shareholders are entitled to various rights pertaining to our common shares.
Transfer of Common Shares
Under the R.O.C. Company Act, a company may issue individual share certificates or no certificate at all, to evidence common shares. Our articles of incorporation, provide that we may deliver common shares in book-entry form instead of by means of issuing physical share certificates. We have issued our common shares in uncertificated/scripless form since 2007. Therefore, the transfer of our common shares is carried out on the book-entry system. The settlement of trading of our common shares is normally carried out on the book-entry system maintained by the Taiwan Depository and Clearing Corporation. Transferees must have their names and addresses registered on our register in order to assert shareholder’s rights against us. Our shareholders are required to file their respective specimen seals with our share registrar, Horizon Securities Co., Ltd.
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Shareholders’ Meetings
We are required to hold an annual ordinary shareholders’ meeting once every calendar year within six months from the end of each fiscal year. Our board of directors may convene an extraordinary meeting whenever the directors deem necessary, and they may do so if requested in writing by shareholders holding no less than 3% of our issued shares who have held these common shares for more than a year. At least 15 days’ advance written notice must be given of every extraordinary shareholders’ meeting and at least 30 days’ advance written notice must be given of every annual ordinary shareholders’ meeting. In addition, shareholder(s) who have continuously held more than 50% of our issued common shares for a period of three months or longer may convene an extraordinary shareholders’ meeting without any approval of our board of directors. The period during which a shareholder holds the shares and the number of shares held by a shareholder shall be determined based on our register of shareholders as of the book close date of the relevant extraordinary shareholders’ meeting. Unless otherwise required by law or by our articles of incorporation, voting for an ordinary resolution requires an affirmative vote of a simple majority of those present. A distribution of cash dividends would be an example of an ordinary resolution. The R.O.C. Company Act and, in the case of certain merger and acquisition deals, the Corporate Merger and Acquisition Act, also provides that in order to approve certain major corporate actions, including any amendment of our articles of incorporation, dissolution, merger or spin-off, share swap, entering into, amendment, or termination of any contract for lease of the company’s business in whole, or for entrusted business, or for joint operation with others, on regular basis, the transfer of all or an essential part of the business or assets, accept all of the business or assets of any other company which would have a significant impact on our operations, removing directors or the distribution of dividend in stock form, a special resolution shall be adopted by the holders of the majority of our common shares represented at a shareholders’ meeting at which holders of at least two-thirds of our issued and outstanding common shares are present; provided that, in the case of a public company, such as our company, such resolution may be adopted by the holders of at least two-thirds of the common shares represented at a shareholders’ meeting at which holders of at least a majority of our issued and outstanding common shares are present; provided, further, that in the case of merger, spin-off, transfer of all or essential part of business or asset, or share swap which meets the specific criteria provided under the Corporate Merger and Acquisition Act, such as short-form merger/spin-off/share swap or whale-minnow merger/spin-off/share-swap (as defined therein), such corporate action can be approved by a board resolution adopted by majority consent at a meeting with at least two-thirds of our directors present without shareholders’ approval. Notwithstanding the foregoing, in the event such transaction will result in our delisting, the approval from holders of at least two-thirds of our issued and outstanding common shares is required.
Voting Rights
Each common share and Class A preferred share, if issued, is generally entitled to one vote and no voting discount will be applied. However, treasury shares and our shares held by (i) an entity in which we own more than 50% of the voting shares or paid-in capital, or (ii) a third party in which we and an entity controlled by us jointly own, directly or indirectly, more than 50% of the voting shares or paid-in capital are not entitled to any vote. Except as otherwise provided by law or our articles of incorporation, a resolution can be adopted by the holders of a simple majority of the issued and outstanding shares represented at a shareholders’ meeting. The quorum for a shareholders’ meeting to discuss the ordinary resolutions is a majority of the issued and outstanding shares. Pursuant to the R.O.C. Company Act amended on December 28, 2011, the election of directors by our shareholders shall be conducted by means of cumulative voting rather than other voting mechanisms adopted in our articles of incorporation. Except as otherwise provided under applicable laws and regulations, in all other matters, a shareholder must cast all his or her votes in the same manner when voting on any of these matters.
Our shareholders may be represented at an ordinary or extraordinary shareholders’ meeting by proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or extraordinary shareholders’ meeting, unless such proxy has been revoked no later than two days before the date of the shareholders’ meeting. Voting rights attached to our common shares exercised by our shareholders’ proxy are subject to the proxy regulation promulgated by the R.O.C. FSC.
Authorized by the R.O.C. Company Act, the R.O.C. FSC has issued an administrative order on February 20, 2012 to require Taiwan Stock Exchange-listed companies, such as our company, and Taipei Exchange (previously known as “GreTai Securities Market”)-listed companies in the R.O.C. with NT$10 billion or more of paid-in share capital and with 10,000 or more shareholders as of the first date of the close period applicable to the shareholders’ meeting to adopt an e-voting system for the shareholders’ meeting. According to the administrative order by the R.O.C. FSC, commencing from January 1, 2018, all listed companies shall adopt the e-voting system for the shareholders’ meeting. The e-voting system provides a new platform for shareholders to exercise their voting rights online. As a company that meets the foregoing criteria, we have successfully adopted the e-voting system in the 2012 shareholders’ meeting and voted by poll on each agenda item for discussion.
Any shareholder who has a personal interest in a matter to be discussed at our shareholders’ meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another shareholder on such matter.
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According to the R.O.C. Company Act amended on January 4, 2012, a shareholder of a public company who holds common shares for others, such as a depositary, may choose to exercise his/her/its voting power separately. On April 13, 2012, R.O.C. FSC promulgated the Regulations Governing the Split Voting of the Shareholders and Compliance Matters for Public Companies, the implementation rules of such split voting method, which stipulates that the depository of the overseas depositary receipts may exercise its voting power separately in accordance with the instructions of the respective holders of the ADS. Notwithstanding the foregoing, before any amendment to the currently effective Deposit Agreement is made, holders of our ADSs generally will not be able to exercise voting rights on the common shares underlying their ADSs on an individual basis.
Dividends and Distributions
We are not allowed under R.O.C. law to pay dividends on our treasury shares. We may distribute dividends on our issued and outstanding shares if we have earnings. Before distributing a dividend to shareholders, among other things, we must recover any past losses, pay all outstanding taxes and set aside a legal reserve equivalent to 10% of our net income and other profit (or loss) items adjusted to the current year’s undistributed earnings other than net income until our legal reserve equals our paid-in capital, and a special reserve, if any.
At an annual ordinary shareholders’ meeting, our board of directors submits to the shareholders for their approval proposals for the distribution of dividends or the making of any other distribution to shareholders from our net income or reserves for the preceding fiscal year. Dividends are paid to shareholders proportionately. Dividends may be distributed either in cash or in common shares or a combination of cash and shares, as determined by the shareholders at such meeting. Previously, the employee bonus and directors’ remuneration were categorized as “profit sharing” items and were calculated and distributed based on earnings after tax basis. However, according to Articles 235 and 235-1 of the R.O.C. Company Act, both amended and added on May 20, 2015, employee bonus and directors’ remuneration shall no longer be a profit sharing item but shall be calculated based on earnings before tax and distributed as “expenses.” Our articles of incorporation currently in effect, provide that where we make profits before tax for the annual financial year, subject to a board resolution adopted by majority consent at a meeting with at least two-thirds of our directors present, we shall appropriate (i) no less than 5% of such annual profits before tax as employee bonus, and (ii) a maximum of 0.2% as directors’ remunerations. The employees eligible for the distribution include our employees and employees of our subsidiaries and the form of employee bonus may be made in stock or cash. The qualification of such employees is to be determined by our board of directors. Notwithstanding the foregoing, if we have accumulated losses of the previous years, we shall set aside the amount of such accumulated losses prior to the allocation of the employee bonus and the above directors’ remuneration. For the purpose of calculation of the above employee bonus and the directors’ remunerations, such “annual profits before tax” shall be without giving effect of the deduction and distribution of such employee bonus and the directors’ remunerations.
The remaining amount may be distributed according to the distribution plan proposed by our board of directors based on our dividend policy, and submitted to the shareholders’ meeting for approval. Our articles of incorporation also specify that the amount distributable as dividend shall be the sum of (x) the balance of our earnings deducted by (i) payment of all taxes and dues, (ii) deduction of any past losses, (iii) allocation of 10% of our net income as a statutory reserve (which may be exempted if the accumulated amount of legal reserve has amounted to our paid-in capital); and (iv) special reserve, if any, plus (y) the retained earnings of previous years; provided, however, that the cash dividend to Class A preferred shares, if issued, shall be distributed in priority to the distribution of dividend to the common shares. In the annual general meeting held in June 2005, our shareholders approved a change of the percentage of stock dividend issued to our shareholders, if any, to no more than 80% and cash dividend, if any, to no less than 20%.
In addition to permitting dividends to be paid out of net income, we are permitted under the R.O.C. Company Act to make distributions to our shareholders of additional common shares by capitalizing reserves, including the legal reserve and capital surplus of premiums from issuing stock and earnings from gifts received, or make such distributions by cash, if we do not have losses. However, where legal reserve is distributed by capitalization or in cash, only the portion of legal reserve which exceeds 25 percent of the paid-in capital may be distributed.
For information as to R.O.C. taxes on dividends and distributions, see “—R.O.C. Tax Considerations” in this Item.
Repurchase of Our Common Shares
An R.O.C. company may not acquire its own common shares, except under certain exceptions provided in the R.O.C. Company Act or the R.O.C. Securities and Exchange Act. Under the R.O.C. Company Act, a company may purchase up to 5% of its issued common shares for transfer to employees as employee compensation in accordance with a resolution of its board of directors, passed by a majority vote, at a meeting with at least two-thirds of the directors present.
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Under Article 28-2 of the R.O.C. Securities and Exchange Act, we may, by a board resolution adopted by majority consent at a meeting with two-thirds or more of our directors present, purchase up to 10% of our issued common shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the procedures prescribed by the R.O.C. FSC, for any of the following purposes:
• | to transfer our common shares to our employees as employee compensation; |
• | to transfer upon conversion of bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by us; or |
• | if necessary, to maintain our credit and our shareholders’ equity; provided that the common shares so purchased shall be canceled thereafter. |
We have from time to time announced plans, none of which was binding on us, to buy back up to a fixed amount of our common shares on the Taiwan Stock Exchange at the price range set forth in the plans disclosed in “Item 16E—Purchase Of Equity Securities By The Issuer And Affiliated Purchasers.” We may not spend more than the aggregate amount of the retained earnings, the premium from issuing stock and the realized portion of the capital reserve to purchase our common shares. Historically, we have cancelled some of the repurchased common shares and transferred some of the repurchased common shares to our employees as employee compensation. From June 8, 2020 through August 7, 2020, we purchased 105 million of our common shares on the Taiwan Stock Exchange at an average price of NT$15.98 per share to transfer to our employees as employee compensation. During 2020, 2021 and 2022, we purchased an aggregate of 105 million, nil and nil, common shares, respectively, and transferred 105 million, nil and nil of such common shares that we repurchased under these plans to our employees as employee compensation in 2020, 2021 and 2022, respectively.
We may not pledge or hypothecate any purchased common shares. In addition, we may not exercise any shareholders’ rights attached to such common shares. In the event that we purchase our common shares on the Taiwan Stock Exchange, our affiliates, directors, managers and their respective spouses and minor children and/or nominees are prohibited from selling any of our common shares during the period in which we purchase our common shares.
In addition to the share purchase restriction, the R.O.C. Company Act provides that our subsidiaries may not acquire our common shares or the equity securities of our majority-owned subsidiaries if the majority of the outstanding voting equity securities or paid-in capital of such subsidiary is directly or indirectly held by us.
Liquidation Rights
In the event of a liquidation, shareholders will be entitled to participate in any surplus assets after payment of all debts, liquidation expenses and taxes proportionately.
Rights to Bring Shareholders’ Suits
Under the R.O.C. Company Act, a shareholder may bring suit against us in the following events:
• | within 30 days from the date on which a shareholders’ resolution is adopted, a shareholder may file a lawsuit to annul a shareholders’ resolution if the procedure for convening a shareholders’ meeting or the method of resolution violates any law or regulation or our articles of incorporation. However, if the court is of the opinion that such violation is not material and does not affect the result of the resolution, the court may reject the shareholder’s claim. |
• | if the substance of a resolution adopted at a shareholders’ meeting contradicts any applicable law or regulation or our articles of incorporation, a shareholder may bring a suit to determine the validity of such resolution. |
Shareholders may bring suit against our directors under the following circumstances:
• | Shareholder(s) who have continuously held 1% or more of our issued common shares for a period of six months or longer may request in writing that the Audit Committee institutes an action against a director on our behalf. In case the Audit Committee fails to institute an action within 30 days after receiving such request, the shareholder (s) may institute an action on our behalf. In the event shareholder(s) institute an action, a court may, upon the defendant’s motion, order such shareholder (s) to furnish appropriate security. |
• | Shareholder (s) who hold more than 3% or more of our total issued common shares may institute an action with a court to remove a director of ours who has materially violated the applicable laws or our articles of incorporation or has materially damaged the interests of our company if a resolution for removal on such grounds has first been voted on and rejected by our shareholders and such suit is filed within 30 days of such shareholders’ vote. |
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• | In the event that any director, manager or shareholder holding more than 10% of our common shares or any respective spouses or minor children and/or nominees of any of them sells common shares within six months after acquisition of such common shares, or repurchases the common shares within six months after the sale, we may claim for recovery of any profits realized from the sale and purchase. If our board of directors or Audit Committee fail to claim for recovery, any shareholder may set forth a 30-day period for our board of directors or Audit Committee to exercise the right. In the event our directors or audit committee fail to exercise the right during such 30-day period, such requesting shareholder shall have the right to claim such recovery on our behalf. Our directors shall be jointly and severally liable for damages suffered by us as a result of their failure to exercise the right of claim. |
Other Rights of Shareholders
Under the R.O.C. Company Act and the Corporate Merger and Acquisition Act, dissenting shareholders are entitled to appraisal rights in the event of a spin-off or a merger and various other major corporate actions. Dissenting shareholders may request us to redeem all their common shares at a then fair market price to be determined by mutual agreement. If no agreement can be reached, the valuation will be determined by a court. Subject to applicable law, dissenting shareholders may, among other things, exercise their appraisal rights by notifying us in writing before the related shareholders’ meeting and/or by raising and registering their dissent at the shareholders’ meeting and also waive their voting rights.
One or more shareholders who have held 3% or more of the issued and outstanding shares one year or longer may require our board of directors to call an extraordinary shareholders’ meeting by sending a written request to our board of directors. In addition, shareholder(s) who have continuously held more than 50% of our issued shares for a period of three months or longer may convene an extraordinary shareholders’ meeting without any approval of our board of directors. The period during which a shareholder holds the shares and the number of shares held by a shareholder shall be determined based on our register of shareholders as of the book close date of the relevant extraordinary shareholders’ meeting.
Moreover, the R.O.C. Company Law allows shareholder(s) holding 1% or more of the total issued shares of a company to, during the period of ten days or more prescribed by the company, submit one proposal in writing or by way of electronic transmission containing no more than three hundred words (in terms of Chinese characters) for discussion at the annual ordinary shareholders’ meeting.
Financial Statements
For a period of at least 10 days before our annual ordinary shareholders’ meeting, we must make available our annual financial statements at our principal offices in Hsinchu, Taiwan, and our share registrar in Taipei for our shareholders’ inspection.
Transfer Restrictions
Our directors, managers and shareholders holding more than 10% of our shares are required to report any changes in their shareholding to us on a monthly basis. In addition, the number of common shares that they can sell or transfer on the Taiwan Stock Exchange on a daily basis is limited by R.O.C. law. Further, they may sell or transfer our common shares on the Taiwan Stock Exchange only after reporting to the R.O.C. FSC at least three days before the transfer, provided that such reporting is not required if the number of common shares transferred does not exceed 10,000 in one business day.
C. | Material Contracts |
Supply
UMC maintains long-term business relationship with major wafer material supplier. The main contract is as follow:
Contract Type |
Contracted Party |
Contract Period |
Key Content |
Restrictive Clause | ||||
Purchase | Shin-Etsu Handotai Taiwan Co., Ltd. | Indefinite | Wafer material supply | None |
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Patent and Technology Licenses
UMC values and protects intellectual property rights. With over 40 years of commitment to developing and securing semiconductor patents, UMC has achieved a predominant position in the semiconductor industry. UMC also enters into patent or technology license contracts with major semiconductor or technology patent holders to ensure that UMC’s customers are not subject to the risk of wafer process infringement. The following are patent licensing contracts received and given by UMC:
Contract Type |
Contracted Party |
Contract Period |
Key Content |
Restrictive Clause | ||||
Patent cross-license | International Business Machines Corporation | Jun. 25, 2009~ Jun. 30, 2029 |
Patent cross-licensing for semiconductor process, semiconductor device and semiconductor design. | None | ||||
Technology license | International Business Machines Corporation | From Jun. 29, 2012 | IBM licensed its 20nm CMOS and FinFET technology to UMC. | None | ||||
Patent license | Conversant Intellectual Property Management Inc. & Conversant IP (Taiwan) Inc. | From Feb. 08, 2018 | License for specific patents. | None | ||||
Patent cross-license | International Business Machines Corporation | Jun. 13, 2013~ Dec. 30, 2035 |
Patent cross-license for semiconductor process, semiconductor device and semiconductor design. | None | ||||
Technology license | HeJian Technology (Suzhou) Co., Ltd. | Jul. 11, 2013~ Jul. 10, 2028 |
UMC licensed its 0.13um process technology to HeJian Technology (Suzhou) Co., Ltd. | UMC signed and implemented the contract in accordance with the scope approved by the Investment Commission, Ministry of Economic Affairs. | ||||
Technology license | Mie Fujitsu Semiconductor Limited | From Aug. 29, 2014 | UMC licensed its 40nm process technology to Mie Fujitsu Semiconductor Limited. | None | ||||
Patent cross-license | Avago Technologies International Sales Pte. Limited | Sep. 29, 2018~ Dec. 31, 2023 |
Patent cross-license for semiconductor device related patents. | None | ||||
Patent cross-license | Katana Silicon Technologies, LLC | From Nov. 05, 2019 | License for specific patents. | None | ||||
Technology license | United Semiconductor (Xiamen) Co., Ltd. | Apr. 01, 2017~ Mar. 31, 2032 |
UMC licensed its 28nm process technology to United Semiconductor (Xiamen) Co., Ltd. | UMC signed and implemented the contract in accordance with the scope approved by the Investment Commission, Ministry of Economic Affairs. | ||||
Technology license | United Semiconductor (Xiamen) Co., Ltd. | Nov. 23, 2018~ Nov. 22, 2028 |
UMC licensed its 80/90nm process technology to United Semiconductor (Xiamen) Co., Ltd. | UMC signed and implemented the contract in accordance with the scope approved by the Investment Commission, Ministry of Economic Affairs. | ||||
Patent cross-license | Polaris Innovation Limited | From Mar. 20, 2020 | License for specific patents. | None |
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Construction
Contract Type |
Contracted Party |
Contract Date |
Key Content |
Restrictive Clause | ||||
Construction | Wholetech System Hitech Limited, Organo Technology Co., Ltd., ECO Technical Services Co., Ltd., Asia IC Mic-process Inc., Nova Technology Corp., Allis Electric Co. Ltd., L&K Engineering Co. Ltd., Mega Union Technology Inc. and others. |
From Jan., 2021 | For building the facilities of Fab 12A in the Southern Taiwan Science Park, UMC signed construction contracts with the vendors including but not limited to those major vendors listed in the second column. The total contracted amount exceeded NT$13.25 billion. | None | ||||
Construction | Xiamen Dobest Trading Co., Ltd., L&K Engineering (Suzhou) Co., Ltd., Hengyuan Allis Electric Co., Ltd., Top Chemical (Shenzhen) Co., Ltd. and others. |
Jan. 01, 2021~ Dec. 31, 2022 |
United Semiconductor (Xiamen) Co., Ltd. entered into construction contracts with the vendors including but not limited to those major vendors listed in the second column for building fab facilities. The total contracted amount exceeded US$6.31 million. | None | ||||
Construction | L&K Engineering (Suzhou) Co., Ltd. | Sep. 20, 2022~ Dec. 31, 2022 |
United Semiconductor (Xiamen) Co., Ltd. entered into construction contracts with the vendor listed in the second column for building fab facilities. The total contracted amount exceeded RMB¥15.92 million (excluding tax). | None | ||||
Construction | Suzhou Topco Construction Ltd. | August 01, 2021~ Jun. 30, 2022 |
HeJian Technology (Suzhou) Co., Ltd. entered into construction contracts with the vendors listed in the second column for HeJian New Phosphorus Wastewater Treatment System. The total contracted amount exceeded RMB¥12.87 million (excluding tax). | None | ||||
Construction | L&K Engineering (Suzhou) Co., Ltd. | May 01, 2021~ March 31, 2022 |
HeJian Technology (Suzhou) Co., Ltd. entered into construction contracts with the vendors listed in the second column for expanding HeJian’s 85K manufacture capacity. The total contracted amount exceeded RMB¥108.8 million (excluding tax). | None | ||||
Construction | Rsea Constructional Engineering (Chongqing) Co., Ltd. | Feb. 08, 2022~ Mar. 30, 2023 |
HeJian Technology (Suzhou) Co., Ltd. entered into construction contracts with the vendor listed in the second column for HeJian new WH3 warehouse construction. The total contracted amount exceeded RMB¥32.37 million (excluding tax). | None |
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D. | Exchange Controls |
Foreign Investment and Exchange Controls in Taiwan
We have extracted from publicly available documents the information presented in this section. Please note that citizens of the People’s Republic of China and entities organized in the People’s Republic of China are subject to special R.O.C. laws, rules and regulations, which are not discussed in this section.
General
Historically, foreign investments in the securities market of Taiwan were restricted. However, commencing in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market. Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan public securities market. Since March 1, 1996, non-resident foreign institutional and individual investors, called “general foreign investors”, are permitted to make direct investments in the Taiwan public securities market. On September 30, 2003, the Executive Yuan amended the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, or the Investment Regulations, under which the “Qualified Foreign Institutional Investors”, or QFII, designations have been abolished and the restrictions on foreign portfolio investors have been revised. According to the Investment Regulations, “Foreign Institutional Investor”, or FINI, means an entity which is incorporated under the laws of countries other than the R.O.C. or the branch of a foreign entity that is established within the territory of the R.O.C., and “Foreign Individual Investor”, or FIDI, means an overseas Chinese or a foreign natural person. In addition, the Investment Regulations also lifted some restrictions and simplified procedures of investment application.
On April 30, 2009, the R.O.C. FSC promulgated regulations allowing QDIIs under PRC regulations and certain other PRC persons to invest in the securities of R.O.C. companies. However, prior approval from the Investment Commission of the R.O.C. Ministry of Economic Affairs is required for QDIIs or certain other PRC persons to own 10% or more of the issued and outstanding share capital of a listed R.O.C. company.
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Foreign Ownership Limitations
Foreign ownership of the issued share capital in a Taiwan Stock Exchange-listed company or a Taipei Exchange-listed company has been limited to 50% in the past. Since December 30, 2000, the 50% limit has been lifted. Foreign investors can now hold such investments without any foreign ownership percentage limitations, unless the law has imposed restrictions otherwise.
Foreign Investors
Each FINI who wishes to invest directly in the R.O.C. securities market is required to register with the Taiwan Stock Exchange and obtain an investment identification number if the FINI is a non-resident and has no sub-investment accounts in the R.O.C. Each FIDI who wishes to invest directly in the R.O.C. securities market is also required to register with the Taiwan Stock Exchange and obtain an investment identification number. The R.O.C. FSC has lifted the limitation on the amount of investment in the R.O.C. securities market for a non-resident FIDI Except for some restrictions imposed by specific laws and regulations, the individual and aggregate foreign ownership of the issued share capital in a Taiwan Stock Exchange-listed company or a Taipei Exchange-listed company is not restricted. An R.O.C. custodian for a non-resident FINI or FIDI is required to submit to the CBC, and the Taiwan Stock Exchange a report of trading activities, inward and outward remittance of capital and status of assets under custody and other matters every month. Foreign institutional investors are not subject to any ceiling for investment in the R.O.C. securities market.
Foreign Investment Approval
Foreign investors (both institutional and individual) who wish to make direct investments in the common shares of R.O.C. companies are required to submit a “foreign investment approval” application to the Investment Commission of the R.O.C. MOEA, or other government authority and enjoy benefits granted under the Statute for Foreigner’s Investment and the Statute for Overseas Chinese’s Investment. The Investment Commission of the R.O.C. MOEA or other government authority reviews each foreign investment approval application and approves or disapproves the application after consultation with other governmental agencies, if necessary. Any non-R.O.C. person possessing a foreign investment approval may repatriate annual net profits and interests attributable to an approved investment. Investment capital and capital gains attributable to the investment may be repatriated with approval of the Investment Commission of the R.O.C. MOEA or other government authority.
In addition to the general restrictions against direct investments by foreign investors in R.O.C. companies, foreign investors are currently prohibited from investing in certain prohibited industries in Taiwan under the “Negative List”. The prohibition on direct foreign investment in the prohibited industries in the Negative List is absolute in the absence of a specific exemption from the application of the Negative List. Under the Negative List, some other industries are restricted so that foreign investors may directly invest only up to a specified level and with the specific approval of the relevant authority responsible for enforcing the legislation that the Negative List is intended to implement. Our business does not operate in a restricted industry under the Negative List.
In June 2009, the R.O.C. MOEA further allowed PRC persons to make direct investments in Taiwan. However, such direct investment is still subject to various restrictions, such as that that only the industries listed in the Positive List, as promulgated by the Executive Yuan, are legally permitted targets and that all the PRC persons who wish to make direct investments in R.O.C. are required to submit an “investment approval” application to the Investment Commission of the R.O.C. MOEA.
Exchange Controls
Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle foreign exchange transactions by the Ministry of Finance and the CBC. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency needed for the importation of merchandise and services may be purchased from the designated foreign exchange banks.
Aside from trade-related foreign exchange transactions, R.O.C. companies and residents may remit to and from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million, (or its equivalent) respectively in each calendar year; provided, however, that depending on the economic and financial situation as well as the need to maintain the order of foreign exchange market, the CBC may, at its discretion, to adjust such limits. These limits apply to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to register all medium- and long-term foreign debt with the CBC.
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In addition, foreign currency earned from or needed to be paid for direct investment or portfolio investments, which are approved by the competent authorities, may be retained or sold by the investors or purchased freely from the designated bank.
Aside from the transactions discussed above, a foreign person without an alien resident card (or who has relevant resident card with a validity of less than one year) or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to US$100,000 per remittance without obtaining prior approval or permit if required documentation is provided to Taiwan authorities. This limit applies to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.
Depositary Receipts
In April 1992, the R.O.C. SFB (the predecessor of the R.O.C. FSC) began allowing R.O.C. companies listed on the Taiwan Stock Exchange to sponsor the issuance and sale of depositary receipts evidencing depositary shares. Notifications for these issuances are still required. In December 1994, the Ministry of Finance began allowing companies whose shares are traded on the Taipei Exchange to sponsor the issuance and sale of depositary receipts evidencing depositary shares. On October 24, 2002, the R.O.C. SFB began allowing public companies that are not listed on the Taiwan Stock Exchange or the Taipei Exchange to sponsor the issuance and sale of depositary receipts by way of private placements outside the R.O.C.
A holder of depositary shares wishing to withdraw common shares underlying depositary shares is required to appoint a local agent or representative with qualifications set forth by the R.O.C. FSC to, among other things, open a securities trading account with a local brokerage firm, pay R.O.C. taxes, remit funds, and exercise shareholders’ right. In addition, the withdrawing holder is also required to appoint a custodian bank or a securities firm with qualifications set forth by the R.O.C. FSC to hold payments and the securities in safekeeping, make confirmations, settle trades and report all relevant information in which the securities firm is appointed as the custodian, and the payments be held in safekeeping in a special account opened in a bank approved by the R.O.C. FSC. Without making this appointment and the opening of accounts, the withdrawing holder would be unable to subsequently sell the common shares withdrawn from a depositary receipt facility on either the Taiwan Stock Exchange or the Taipei Exchange.
After the issuance of a depositary share, a holder of the depositary share may immediately, comparing to a three-month waiting period restriction which was lifted in 2003, request the depositary issuing the depositary share to cause the underlying common shares to be sold in the R.O.C. or to withdraw the common shares represented by the depositary receipt and deliver the common shares to the holder. On April 30, 2009 and July 3, 2009, the R.O.C. Executive Yuan approved the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors and the Regulations Governing Investment in Taiwan by Mainland Area Persons, respectively, under which qualified PRC persons are permitted to invest in Taiwan companies under limited circumstances, including purchase of the depositary receipts issued by a Taiwan company. However, prior approval from the Investment Commission of the R.O.C. Ministry of Economic Affairs is required for a qualified PRC person’s ownership of 10% or more of the issued and outstanding share capital of a listed R.O.C. company or certain other manners of investment by a qualified PRC person.
No deposits of common shares may be made in a depositary receipt facility and no depositary receipts may be issued against deposits without specific R.O.C. FSC approval, unless they are:
(A) | stock dividends; |
(B) | free distributions of common shares; |
(C) | due to the exercise by a holder of his or her preemptive rights in the event of capital increases for cash; or |
(D) | permitted under the deposit agreement and the custody agreement, due to the direct purchase of common shares or purchase through the depositary in the domestic market or the surrender of common shares under the possession of investors and then delivery of such common shares to the custodian for deposit in the depositary receipt facility, provided that the total number of depositary receipts outstanding after an issuance cannot exceed the number of issued depositary shares previously approved by the R.O.C. FSC in connection with the offering plus any depositary shares issued pursuant to the events described in (A), (B) and (C) above. These issuances may only be made to the extent previously issued depositary shares have been withdrawn. |
A depositary may convert New Taiwan dollars from the proceeds of the sale of common shares or cash distributions received into other currencies, including U.S. dollars. A depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion into New Taiwan dollars of subscription payments for rights offerings or conversion into foreign currencies from the proceeds from the sale of subscription rights for new common shares. It is expected that the CBC will grant this approval as a routine matter.
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A holder of depositary shares may convert NT dollars into other currencies from proceeds from the sale of any underlying common shares. Proceeds from the sale of the underlying common shares withdrawn from the depositary receipt facility may be used for reinvestment in securities listed on both the Taiwan Stock Exchange and the Taipei Exchange, provided that the investor designates a local securities firm or financial institution as agent to open an NT dollar bank account in advance.
E. | Taxation |
R.O.C. Tax Considerations
The following summarizes the principal R.O.C. tax consequences of owning and disposing of the ADSs or common shares to a holder of ADSs or common shares that is not a resident of the R.O.C. A foreign individual holder will be considered as not a resident of the R.O.C., or a non-R.O.C. resident, for the purposes of this section if he or she is not physically present in Taiwan for 183 days or more during any calendar year. An entity holder will be considered as not a resident of the R.O.C., or a non-R.O.C. resident, if it is organized under the laws of a jurisdiction other than Taiwan for profit making purpose and has no fixed place of business or other permanent establishment or business agent in the R.O.C. Prospective purchasers of ADSs or common shares should consult their own tax advisors concerning the tax consequences of owning ADSs or common shares in the R.O.C. and any other relevant taxing jurisdiction to which they are subject.
Dividends
Dividends, whether in cash or common shares, declared by us out of retained earnings and paid out to a holder that is not an R.O.C. resident in respect of common shares represented by ADSs are subject to R.O.C. withholding tax at the time of distribution. The rate of withholding is currently 21% of the amount of the distribution in the case of cash dividends or of the par value of the common shares distributed in the case of stock dividends. Under current practice adopted by tax authorities, a 21% withholding rate is applied to a non-R.O.C. resident ADS holder without requiring the holder to apply for or obtain foreign investment approval. As discussed in the section “—Tax Reform” below, certain of our retained earnings will be subject to a certain percentage of undistributed retained earnings tax. There is no withholding tax with respect to stock dividends declared out of our capital surplus of premiums from issuing stock resulting from the capital paid by the shareholders.
Capital Gains
In 2015, an amendment to the R.O.C. Income Tax Act then in effect, which deleted the provisions regarding the capital gain from securities transaction was adopted and took effect from January 1, 2016. Accordingly, under the R.O.C. law currently in effect, gains realized on R.O.C. securities transactions are primarily exempt from income tax.
Subject to the AMT Act, gains realized from various securities transactions by an R.O.C.-resident entity shall be calculated as taxable income for the purpose of the AMT Act and may further be subject to income tax. If the above entity has held common shares for more than three (3) years, 50% of capital gain may be exempted from AMT. In addition, gains realized from transfers of ADSs by non-R.O.C. resident holders are not regarded as income from sources in the R.O.C. and, as a result, any gains derived therefrom are currently not subject to R.O.C. income tax.
Securities Transaction Tax
The R.O.C. government imposes a securities transaction tax that will apply to sales of common shares, but not to sales of ADSs. The securities transaction tax, which is payable by the seller, is generally levied on sales of common shares at the rate of 0.3% of the sales proceeds. Withdrawals of our common shares from our depositary facility are not subject to the R.O.C. securities transaction tax.
Preemptive Rights
Distribution of statutory preemptive rights for common shares by us in compliance with the R.O.C. Company Act is not subject to R.O.C. tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities are subject to the R.O.C. securities transaction tax, currently at the rate of 0.3% of the gross amount received, as well as the R.O.C. securities income tax. Proceeds derived from sales of statutory preemptive rights that are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains realized for non-R.O.C. resident entities and non-R.O.C. resident individuals. Subject to compliance with the R.O.C. law, we have sole discretion to determine whether statutory preemptive rights are evidenced by securities or not.
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Estate Taxation and Gift Tax
R.O.C. estate tax is payable on any property within the R.O.C. of a deceased individual who is a non-resident individual or a non-R.O.C. citizen and R.O.C. gift tax is payable on any property located within the R.O.C. donated by any such person. Under the Articles 13 and 19 of the R.O.C. Estate and Gift Tax Act, which became effective on May 12, 2017, tax brackets and rates of estate tax are as follows: (1) if the net taxable estate is no more than NT$50,000,000, the tax rate shall be 10%; (2) if the net taxable estate is more than NT$50,000,000 but no more than NT$100,000,000, the estate tax payable shall be NT$5,000,000 plus 15% for the amount in excess of NT$50,000,000; and (3) if the net taxable estate is more than NT$100,000,000, the estate tax payable shall be NT$12,500,000 plus 20% for the amount in excess of NT$100,000,000; tax brackets and rates of gift tax are as follows: (1) if the net taxable gifts are no more than NT$25,000,000, the tax rate shall be 10%; (2) if the net taxable gifts are more than NT$25,000,000 but no more than NT$50,000,000, the gift tax payable shall be NT$2,500,000 plus 15% for the amount in excess of NT$25,000,000; and (3) if the net taxable gifts are more than NT$50,000,000, the gift tax payable shall be NT$6,250,000 plus 20% for the amount in excess of NT$50,000,000. Under R.O.C. estate and gift tax laws, the common shares will be deemed located in the R.O.C. irrespective of the location of the owner. It is unclear whether a holder of ADSs will be considered to own common shares for this purpose.
Tax Treaties
The Republic of China does not have an income tax treaty with the United States. On the other hand, the Republic of China has income tax treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, North Macedonia, Eswatini, the Netherlands, the United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Italy, Japan, Canada, Poland, Austria, Czech Republic and Saudi Arabia which may limit the rate of Republic of China withholding tax on dividends paid with respect to common shares in Taiwan companies. It is unclear whether a non-R.O.C. holder of ADSs will be considered to own common shares for the purposes of such treaties. Accordingly, a holder of ADSs who is otherwise entitled to the benefit of a treaty should consult its own tax advisors concerning eligibility for benefits under the treaty with respect to the ADSs.
Tax Reform
An amendment to the R.O.C. Income Tax Act was enacted on January 1, 1998, to integrate the corporate income tax and the shareholder dividend tax with the aim of eliminating the double taxation effect for resident shareholders of Taiwanese corporations. In order to improve Taiwan’s tax system and to keep up with the trend of international tax reform, the R.O.C. Income Tax Act was further amended in 2018 to replace the old tax system which integrated the corporate income tax and the shareholder dividend tax. Except for limited exceptions, the amendment shall take effect retroactively from January 1, 2018.
Under this amendment, a 10% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 that are not distributed in the following year; while a 5% retained earning tax will be imposed for after-tax earnings generated from January 2018. The retained earnings tax so paid will further reduce the retained earnings available for future distribution. Under the old tax system, when we declared dividends out of those retained earnings, up to a maximum amount of half of the amount of such tax of the declared dividends was credited against the withholding tax imposed on the non-R.O.C. resident holders of our ADSs or common shares; while from January 1, 2019, the benefit no longer exists and no retained earnings tax is credited.
U.S. Federal Income Tax Considerations for U.S. Persons
The following is a summary of certain U.S. federal income tax consequences for beneficial owners of our common shares or ADSs that hold the common shares or ADSs as capital assets and that are U.S. holders that are not citizens of the R.O.C., do not have a permanent establishment in the R.O.C. and are not physically present in the R.O.C. for 183 days or more within a calendar year. You are a U.S. holder if you are, for U.S. federal income tax purposes, any of the following:
• | an individual citizen or resident of the United States; |
• | a corporation (or other entity or arrangement treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; |
• | a trust that is subject to the primary supervision of a court within the United States and that has one or more U.S. persons with the authority to control all substantial decisions of the trust; or |
• | a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
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This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. It is for general purposes only and you should not consider it to be tax advice. In addition, it is based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. This summary does not represent a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences). In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:
• | a dealer in securities or currencies; |
• | a trader in securities if you elect to use a mark-to-market method of accounting for your securities holdings; |
• | a financial institution or an insurance company; |
• | a tax-exempt organization; |
• | a regulated investment company; |
• | a real estate investment trust; |
• | a person liable for alternative minimum tax; |
• | a person holding common shares or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle; |
• | a partnership or other pass-through entity for U.S. federal income tax purposes; |
• | a person owning, actually or constructively, 10% or more of our stock (by vote or value); |
• | a person required to accelerate the recognition of any item of gross income with respect to our common shares or ADSs as a result of such income being recognized on an applicable financial statement; or |
• | a U.S. holder whose “functional currency” is not the U.S. dollar. |
We cannot assure you that a later change in law will not alter significantly the tax considerations that we describe in this summary.
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisor.
You should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the ownership and disposition of the common shares or ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.
In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of an ADS will be treated as the owner of the common shares underlying its ADS. Accordingly, deposits or withdrawals of common shares by U.S. holders for ADSs generally will not be subject to U.S. federal income tax.
Taxation of Dividends
Except as discussed below with respect to the passive foreign investment company rules, the amount of distributions (including amounts withheld in respect of R.O.C. withholding taxes) you receive on your common shares or ADSs (other than certain pro rata distributions of common shares to all shareholders) will generally be treated as dividend income to you if the distributions are made from our current and accumulated earnings and profits as calculated according to U.S. federal income tax principles. Such income (including withheld taxes) will be includible in your gross income as ordinary income on the day you actually or constructively receive it, which in the case of an ADS will be the date actually or constructively received by the depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date it is distributed. You will not be entitled to claim a dividend received deduction with respect to distributions you receive from us.
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With respect to non-corporate U.S. holders (including individuals), certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid by that corporation on common shares (or ADSs backed by such common shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs (which are listed on the NYSE), but not our common shares, are readily tradable on an established securities market in the United States. Thus, subject to the discussion below with respect to the passive foreign investment company rules, we believe that dividends we pay on our ADSs will meet the conditions required for these reduced tax rates. Since we do not expect that our common shares will be listed on an established securities market in the United States, we do not believe that dividends we pay on our common shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. Moreover, there can be no assurance that our ADSs will continue to be readily tradable on an established securities market in later years. Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d) (4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Non-corporate U.S. holders will also not be eligible for the reduced rates of taxation on dividends if we are a passive foreign investment company in the taxable year in which such dividends are paid or in the preceding taxable year. U.S. holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT dollars you receive (calculated by reference to the exchange rate in effect on the date you actually or constructively receive the dividend, which in the case of an ADS will be the date actually or constructively received by the depositary), regardless of whether the NT dollars are actually converted into U.S. dollars. If the NT dollars received as a dividend are converted into U.S. dollars on the date they are actually or constructively received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the NT dollars received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to their U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise dispose of the NT dollars will be ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.
Subject to certain limitations under the Code, you may be entitled to a credit or deduction against your U.S. federal income taxes for any R.O.C. taxes that are withheld from dividend distributions made to you. The election to receive a credit or deduction must be made annually, and applies to all foreign taxes for the applicable tax year. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay with respect to common shares or ADS will generally be considered passive category income from sources outside the United States. Furthermore, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on common shares or ADSs if you (1) have held the common shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or (2) are obligated to make payments related to the dividends. The rules governing the foreign tax credit are complex. We therefore urge you to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in your adjusted basis in the common shares or ADSs and thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the common shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).
It is possible that pro rata distributions of common shares or ADSs to all shareholders may be made in a manner that is not subject to U.S. federal income tax. In the event that such distributions are tax-free, the basis of any new common shares or ADSs so received will generally be determined by allocating the U.S. holder’s basis in the old common shares or ADSs between the old common shares or ADSs and the new common shares or ADSs, based on their relative fair market values on the date of distribution. For U.S. federal income tax purposes, any such tax-free share or ADS distribution generally would not result in foreign source income to you. Consequently, you may not be able to use the foreign tax credit associated with any R.O.C. withholding tax imposed on such distributions unless you can use the credit against U.S. federal income tax due on other foreign source income in the appropriate category for foreign tax credit purposes. You should consult your own tax advisors regarding all aspects of the foreign tax credit.
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Taxation of Capital Gains
Except as discussed below with respect to the passive foreign investment company rules, when you sell or otherwise dispose of your common shares or ADSs, you will generally recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized for the common shares or ADSs and your basis in the common shares or ADSs, determined in U.S. dollars. If you are an individual or other non-corporate holder, and the common shares or ADSs being sold or otherwise disposed of are capital assets that you have held for more than one year, your gain recognized will be eligible for reduced rates of taxation. Your ability to deduct capital losses is subject to limitations. Any gain or loss you recognize will generally be treated as U.S. source gain or loss for foreign tax credit limitation purposes. Consequently, you may not be able to use the foreign tax credit arising from any R.O.C. tax imposed on the disposition of common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.
If you pay any R.O.C. securities transaction tax, such tax is not treated as an income tax for U.S. federal income tax purposes, and therefore will not be a creditable foreign tax for U.S. federal income tax purposes. However, subject to limitations under the Code, such tax may be deductible. You are urged to consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.
Passive Foreign Investment Company
Based on the composition of our income and assets, and the valuation of our assets, we do not believe that we are currently (or that we were in 2021) a passive foreign investment company, or PFIC, and we do not expect to become one in the future, although there can be no assurance in this regard.
In general, a company is considered a PFIC for any taxable year if either:
• | at least 75% of its gross income is passive income, which generally includes income derived from certain dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), annuities or property transactions; or |
• | at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income. |
The 50% of value test is based on the average of the value of our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of the income of that company.
In addition, the determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. A decrease in the price of our common shares and ADSs may also result in our becoming a PFIC. If we are a PFIC for any taxable year during which you hold common shares or ADSs, you will be subject to special tax rules discussed below.
If we are a PFIC for any taxable year during which you hold common shares or ADSs and you do not make a timely mark-to market election as described below, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of common shares or ADSs. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common shares or ADSs will be treated as excess distributions. Under these special tax rules:
• | the excess distribution or gain will be allocated ratably over your holding period for the common shares or ADSs; |
• | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and |
• | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
If you hold common shares or ADSs in any year in which we are a PFIC, you are generally required to file Internal Revenue Service Form 8621.
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If we are a PFIC for any taxable year and any of our non-U.S. subsidiaries is also a PFIC, you would be treated as owning a proportionate amount (by value) of the common shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
Under certain circumstances, a U.S. holder, in lieu of being subject to the rules discussed above with respect to excess distributions and recognized gains, may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange (within the meaning of the applicable Treasury regulations). Under this method, any difference between the stock’s fair market value and its adjusted basis at the end of the year is accounted for by either an inclusion in income or, subject to limitations, a deduction from income, as described below. Under current U.S. Treasury Department guidance, the mark-to-market election may be available to holders of ADSs because the ADSs are listed on the NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. You should also note that only the ADSs and not the common shares are listed on the NYSE. Our common shares are listed on the Taiwan Stock Exchange, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that the common shares will be “regularly traded” for purposes of the mark-to-market election.
If you make an effective mark-to-market election, you will include in income each year that we are a PFIC as ordinary income the excess of the fair market value of your common shares or ADSs at the end of the year over your adjusted tax basis in the common shares or ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the common shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, in each year that we are a PFIC any gain you recognize upon the sale or other disposition of your common shares or ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.
Your adjusted tax basis in common shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You should consult your tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable under your particular circumstances.
Alternatively, a U.S. holder of common shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the PFIC as a “qualified electing fund” under Section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.
Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You should consult your own tax advisors concerning the U.S. federal income tax consequences of holding common shares or ADSs if we are considered a PFIC in any taxable year.
Information Reporting and Backup Withholding
In general, unless you are an exempt recipient such as a corporation, information reporting will apply to dividends in respect of the common shares or ADSs and to the proceeds from the sale, exchange or other disposition of your common shares or ADSs that are paid to you within the United States (and in some cases, outside of the United States). Additionally, if you fail to provide your taxpayer identification number, or fail either to report in full dividend and interest income or to make the necessary certifications of your exempt status, you may be subject to backup withholding.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service.
F. | Dividends and Paying Agents |
Not applicable.
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G. | Statement by Experts |
Not applicable.
H. | Documents on Display |
We have filed this Annual Report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this Annual Report, we incorporate by reference certain information we filed with the U.S. SEC. This means that we can disclose important information to you by referring you to another document filed separately with the U.S. SEC. The information incorporated by reference is considered to be part of this Annual Report.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Our Annual Report and some of the other information submitted by us to the SEC may be accessed through this web site.
I. | Subsidiary Information |
Not applicable.
ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of market risks, including changes in interest rates and foreign currency exchange rates, in the normal course of business.
We use financial instruments, including variable rate debt and swaps and foreign exchange spot transactions, to manage risks associated with our interest rate and foreign currency exposures through a controlled program of risk management in accordance with established policies. These policies are reviewed and approved by our board of directors and shareholders’ meeting. Our treasury operations are subject to internal audit on a regular basis. We do not hold or issue derivative financial instruments for speculatively purposes.
Our primary market risk exposures relate to interest rate movements on borrowings and exchange rate movements on foreign currency-denominated accounts receivable, capital expenditures relating to equipment used in manufacturing processes (including lithography, etching and chemical vapor deposition) and purchased primarily from Europe, Japan and the United States.
The following table provides information as of December 31, 2022 on our market risk sensitive financial instruments.
As of December 31, 2022 | ||||||||
Carrying Amount | Fair Amount | |||||||
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(in NT$ millions) | ||||||||
Time Deposits |
126,317 | 126,317 | ||||||
Accounts Receivable (denominated in foreign currency) |
27,657 | 27,657 | ||||||
Accounts Payable (denominated in foreign currency) |
4,201 | 4,201 | ||||||
Bonds Payable |
28,185 | 28,347 | ||||||
Long-term Loans |
19,279 | 19,279 |
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We primarily enter into debt obligations to support general corporate purposes including capital expenditures and working capital needs.
The tables below provide information of UMC as of December 31, 2022 about our financial instruments that are sensitive to changes in interest rates, including debt obligations and certain assets. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The information is presented in the currencies in which the instruments are denominated.
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Expected Maturity Dates | As of December 31, 2022 | |||||||||||||||||||||||||||
2023 | 2024 | 2025 | 2026 | 2027 and thereunder |
Total | Fair Value |
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(in millions, except percentages) | ||||||||||||||||||||||||||||
Time Deposits: |
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Fixed Rate (US$) |
3,152 | 3,152 | 3,152 | |||||||||||||||||||||||||
Average Interest Rate |
3.91 | % | 3.91 | % | 3.91% | |||||||||||||||||||||||
Fixed Rate (SGD) |
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Average Interest Rate |
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Fixed Rate (RMB¥) |
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Average Interest Rate |
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Fixed Rate (NT$) |
13,207 | 13,207 | 13,207 | |||||||||||||||||||||||||
Average Interest Rate |
0.92 | % | 0.92 | % | 0.92 | % | ||||||||||||||||||||||
Short-term Loans: |
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Variable Rate (US$) |
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Average Interest Rate |
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Variable Rate ((NT$) |
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Average Interest Rate |
||||||||||||||||||||||||||||
Variable Rate (€) |
||||||||||||||||||||||||||||
Average Interest Rate |
||||||||||||||||||||||||||||
Variable Rate (¥ JPY) |
||||||||||||||||||||||||||||
Average Interest Rate |
||||||||||||||||||||||||||||
Variable Rate (RMB¥) |
||||||||||||||||||||||||||||
Average Interest Rate |
||||||||||||||||||||||||||||
Unsecured Long-term Loans: |
||||||||||||||||||||||||||||
Variable Rate (NT$) |
667 | 667 | 666 | 800 | 2,800 | 2,800 | ||||||||||||||||||||||
Average Interest Rate |
1.61 | % | 1.61 | % | 1.61 | % | 1.78 | % | 1.66 | % | 1.66 | % | ||||||||||||||||
Variable Rate (US$) |
5 | 11 | 25 | 14 | 55 | 55 | ||||||||||||||||||||||
Average Interest Rate |
5.62 | % | 5.62 | % | 5.62 | % | 5.62 | % | 5.62 | % | 5.62 | % | ||||||||||||||||
Variable Rate (RMB¥) |
2 | 5 | 11 | 6 | 25 | 25 | ||||||||||||||||||||||
Average Interest Rate |
3.95 | % | 3.95 | % | 3.95 | % | 3.95 | % | 3.95 | % | 3.95 | % | ||||||||||||||||
Secured Long-term Loans: |
||||||||||||||||||||||||||||
Variable Rate (NT$) |
103 | 102 | 91 | 50 | 5 | 351 | 351 | |||||||||||||||||||||
Average Interest Rate |
1.98 | % | 1.98 | % | 1.98 | % | 1.98 | % | 1.98 | % | 1.98 | % | 1.98 | % | ||||||||||||||
Variable Rate (US$) |
||||||||||||||||||||||||||||
Average Interest Rate |
||||||||||||||||||||||||||||
Variable Rate (RMB¥) |
346 | 143 | 852 | 710 | 1,181 | 3,232 | 3,232 | |||||||||||||||||||||
Average Interest Rate |
4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % | ||||||||||||||
Bonds: |
||||||||||||||||||||||||||||
Unsecured (NT$) |
||||||||||||||||||||||||||||
Fixed Rate |
||||||||||||||||||||||||||||
Unsecured (NT$) |
||||||||||||||||||||||||||||
Fixed Rate |
||||||||||||||||||||||||||||
Unsecured (NT$) |
3,000 | 3,000 | 3,021 | |||||||||||||||||||||||||
Fixed Rate |
1.95 | % | 1.95 | % | 1.95 | % | ||||||||||||||||||||||
Unsecured (NT$) |
2,100 | 2,100 | 2,112 | |||||||||||||||||||||||||
Fixed Rate |
1.43 | % | 1.43 | % | 1.43 | % | ||||||||||||||||||||||
Unsecured (NT$) |
3,400 | 3,400 | 3,440 | |||||||||||||||||||||||||
Fixed Rate |
1.13 | % | 1.13 | % | 1.13 | % | ||||||||||||||||||||||
Unsecured (NT$) |
5,500 | 5,500 | 5,348 | |||||||||||||||||||||||||
Fixed Rate |
0.57 | % | 0.57 | % | 0.57 | % | ||||||||||||||||||||||
Unsecured (NT$) |
5,000 | 5,000 | 4,896 | |||||||||||||||||||||||||
Fixed Rate |
0.63 | % | 0.63 | % | 0.63 | % | ||||||||||||||||||||||
Unsecured (NT$) |
2,000 | 2,000 | 2,000 | |||||||||||||||||||||||||
Fixed Rate |
0.63 | % | 0.63 | % | 0.63 | % | ||||||||||||||||||||||
Unsecured (NT$) |
2,100 | 2,100 | 2,100 | |||||||||||||||||||||||||
Fixed Rate |
0.68 | % | 0.68 | % | 0.68 | % |
74
Foreign Currency Risk
Although the majority of our transactions are in NT dollars, some transactions are based in other currencies. The primary foreign currency to which we are exposed is the U.S. dollar. We have in the past, and may in the future, enter into short-term, foreign currency forward contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities, and firm commitments for operating expenses and capital expenditures denominated in U.S. dollars and other foreign currencies. The purpose of entering into these hedges is to minimize the impact of foreign currency fluctuations on the results of operations. We use the policy of natural hedging to reduce our foreign exchange exposure arising out of changes in the rates of exchange among the U.S. dollar and other foreign currencies. As a general matter, our natural hedging strategy relies on matching revenues and costs for the same currency or offsetting losses in one currency with gains in another.
As of December 31, 2022, we had no outstanding in foreign currency forward contracts to sell U.S. dollars against NT dollars. We believe we do not have material market risk as of December 31, 2022
ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities |
Not applicable.
B. | Warrants and Rights |
Not applicable.
C. | Other Securities |
Not applicable.
D. | American Depositary Shares |
Depositary Fees and Charges
Under the terms of the deposit agreement for our ADSs, an ADS holder may have to pay the following service fees to the depositary:
Service |
Fees | |
Issuance of ADSs |
Up to US$0.05 per ADS issued | |
Cancellation of ADSs |
Up to US$0.05 per ADS canceled | |
Distribution of cash dividends or other cash distributions |
Up to US$0.05 per ADS held | |
Distribution of ADSs pursuant to stock dividends, free stock distributions or exercises of rights |
Up to US$0.05 per ADS held | |
Distribution of securities other than ADSs or rights to purchase additional ADSs |
Up to US$0.05 per ADS held |
75
In addition, an ADS holder shall be responsible for the following charges:
• | taxes (including applicable interest and penalties) and other governmental charges; |
• | such registration fees as may from time to time be in effect for the registration of common shares or other deposited securities on the share register and applicable to transfers of common shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
• | such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of ADS holders and beneficial owners of ADSs; |
• | the expenses and charges incurred by the depositary in the conversion of foreign currency; |
• | such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to common shares, deposited securities, ADSs and ADRs; |
• | the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities; and |
• | Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients. |
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or un-certificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, The Depository Trust Company, or DTC, the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The fees and charges ADS holders may be required to pay may vary over time and may be changed by us and by the depositary. ADS holders will receive prior notice of such changes.
Depositary Payments
In 2022, pursuant to the terms of the deposit agreement, we received reimbursement of US$3.0 million from JPMorgan Chase & Co., the depositary for our ADR program through December 31, 2022. The reimbursement was to cover our expense related to ADR program, including:
• | investor relations efforts |
• | NYSE listing fees, SEC filing fees and accounting supporting fees for FASB & PCAOB |
• | fees in connection with annual financial and Sarbanes-Oxley Act of 2002 audit |
• | other ADR program-related expenses |
76
PART II.
ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15 | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
For the period ended on December 31, 2022, an evaluation has been performed under the supervision and with the participation of our management, including our Co-presidents and our Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Co-presidents and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for our company. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with International Financial Reporting Standards as issued by International Accounting Standards Board.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), or the COSO criteria, as amended regularly. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2022 based on the COSO criteria. Our independent registered public accounting firm, Ernst & Young has issued an attestation report with unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2022, which is included immediately following this report.
Changes in Internal Control over Financial Reporting.
During 2022, there was no material change to our internal control over financial reporting.
77
Attestation Report of the Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of United Microelectronics Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited United Microelectronics Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, United Microelectronics Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2022, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated April 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
78
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young |
Taipei, Taiwan |
Republic of China |
April 27, 2023
79
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined that Wenyi Chu, Wen-Hsin Hsu and Kuang Si Shiu, three of our independent directors and members of the audit committee, qualify as audit committee financial experts as defined in Item 16A of Form 20-F and are independent in accordance with the applicable requirements of Rule 10A-3 of the Securities Exchange Act of 1934, as amended.
The SEC has indicated that the designation of Dr. Chu, Dr. Hsu and Mr. Shiu as the audit committee financial experts does not: (i) make Dr. Chu, Dr. Hsu or Mr. Shiu an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities Act as a result of this designation; (ii) impose any duties, obligations or liability on Dr. Chu, Dr. Hsu or Mr. Shiu that are greater than those imposed on them as a member of the audit committee and our board of directors in the absence of such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or our board of directors.
ITEM 16B. | CODE OF ETHICS |
We amended the Code of Ethics for Directors and Officers in November 2017, and the Employee Code of Conduct in February 2020. The Employee Code of Conduct, which is applicable to all employees, replaced the code of ethics filed with the SEC in our 2003 annual report on Form 20-F. We have also created a separate code of ethics applicable to our directors and officers. A copy of each of the Code of Ethics for Directors and Officers and the Employee Code of Conduct are displayed on our website at http://www.umc.com/english/pdf/Code of Ethics.pdf and http://www.umc.com/english/pdf/Code of Conduct.pdf, respectively. Shareholders may request a hard copy of the Code of Ethics for Directors and Officers and the Employee Code of Conduct free of charge. Please contact the investor relations department of our company at ir@umc.com.
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young, our principal external auditors, for the years indicated.
Years ended December 31, | ||||||||||||
2021 | 2022 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Audit Fees (1) |
56,226 | 61,540 | 2,003 | |||||||||
Audit-related Fees (2) |
7,577 | 3,367 | 110 | |||||||||
Tax Fees (3) |
3,719 | 3,785 | 123 | |||||||||
|
|
|
|
|
|
|||||||
Total |
67,522 | 68,692 | 2,236 | |||||||||
|
|
|
|
|
|
(1) | Audit fees consist of fees associated with the annual audit, review of our quarterly financial statements, statutory audits and internal control review. They also include fees billed for those services that are normally provided by the independent accountants in connection with statutory and regulatory filings. |
(2) | Audit-related fees consist of fees billed for assurance and services related to the performance of the audit or review of our financial statements but not described in footnote (1) above. These services include certification of our Singapore Branch to Singapore authorities and application for corporation registration. |
(3) | Tax fees include fees billed for professional services rendered by Ernst & Young, primarily in connection with our tax compliance activities. |
All audit and non-audit services performed by Ernst & Young were pre-approved by our audit committee. In certain circumstances, the audit committee delegates to a designated member to pre-approve such audit and non-audit services. Pre-approval by a designated member should be reported to the audit committee at its upcoming meeting.
80
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
We have from time to time announced plans, which were not binding on us, to buy back our common shares up to a certain amount on the Taiwan Stock Exchange. On May 11, 2016, we announced our 17th share buy-back plan after our board of directors resolved to purchase up to 200 million shares on the Taiwan Stock Exchange at a price between NT$7.90 and NT$18.70 per share during the period from May 12, 2016 to July 11, 2016. On March 7, 2018, we announced our 18th share buy-back plan after our board of directors resolved to purchase up to 200 million shares on the Taiwan Stock Exchange at a price between NT$9.85 and NT$21.30 per share during the period from March 8, 2018 to May 7, 2018. On November 5, 2018, we announced our 19th share buy-back plan after our board of directors resolved to purchase up to 300 million shares on the Taiwan Stock Exchange at a price between NT$7.55 and NT$20.80 per share during the period from November 6, 2018 to January 5, 2019. On April 24, 2019, we announced our 20th share buy-back plan since our board of directors resolved to purchase up to 200 million shares on the Taiwan Stock Exchange at a price between NT$8.40 and NT$18.10 per share during the period from April 25, 2019 to June 24, 2019. On June 5, 2020, we announced our 21st share buy-back plan after our board of directors resolved to purchase up to 200 million shares on the Taiwan Stock Exchange at a price between NT$11.55 and NT$23.25 per share during the period from June 8, 2020 to August 7, 2020.
The table below sets forth the repurchases we made in the periods indicated.
Month |
Total Number of Common Shares Purchased |
Average Price Paid per Common Share (NT$) |
Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Program |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Program |
||||||||||||
March 2018 (from March 8, 2018) |
39,607,000 | 15.19 | 39,607,000 | 160,393,000 | ||||||||||||
April 2018 |
117,923,000 | 15.58 | 157,530,000 | 42,470,000 | ||||||||||||
May 2018 (till May 7, 2018) |
42,470,000 | 16.26 | 200,000,000 | — | ||||||||||||
November 2018 (from November 6, 2018) |
141,000,000 | 11.01 | 141,000,000 | 159,000,000 | ||||||||||||
December 2018 |
139,000,000 | 11.36 | 280,000,000 | 20,000,000 | ||||||||||||
January 2019 (till January 5, 2019) |
20,000,000 | 10.91 | 300,000,000 | — | ||||||||||||
April 2019 (from April 26, 2018) |
19,000,000 | 13.37 | 19,000,000 | 181,000,000 | ||||||||||||
May 2019 |
126,000,000 | 13.10 | 145,000,000 | 55,000,000 | ||||||||||||
June 2019 (till June 13, 2019) |
55,000,000 | 13.39 | 200,000,000 | — | ||||||||||||
June 2020 (from June 8, 2020) |
76,000,000 | 15.80 | 76,000,000 | 124,000,000 | ||||||||||||
July 2020 (till July 20, 2020) |
29,000,000 | 16.47 | 105,000,000 | 95,000,000 |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
ITEM 16G. | CORPORATE GOVERNANCE |
As a R.O.C. company listed on the New York Stock Exchange, or NYSE, we are subject to the U.S. corporate governance rules to the extent that these rules are applicable to foreign private issuers as defined under SEC rules. The following summary details the significant differences between our corporate governance practices and corporate governance standards for U.S. companies (i.e. non-foreign private issuers) under the NYSE listing standards.
The Legal Framework. In general, corporate governance principles for Taiwanese companies are set forth in the Company Act of the Republic of China, or the R.O.C. Company Act, the R.O.C. Securities Exchange Act and, to the extent they are listed on the Taiwan Stock Exchange, under listing rules of the Taiwan Stock Exchange. Corporate governance principles under provisions of R.O.C. law may differ in significant ways to corporate governance standards for U.S. companies listed on the NYSE. Committed to high standards of corporate governance, we have generally brought our corporate governance in line with U.S. regulations, including the formation and independence of an audit committee. However, we have not adopted certain recommended NYSE corporate governance standards where such standards are contrary to R.O.C. laws or regulations or generally prevailing business practices in Taiwan, as discussed in more detail below.
81
Independent Board Members. Under the NYSE listing standards applicable to U.S. companies, independent directors must comprise a majority of the board of directors. We currently have five independent directors out of a total of nine directors on our board of directors. Our standards for determining director independence substantially comply with the NYSE listing standards, which include detailed tests for determining director independence. In addition, even though our independent directors meet in committee meetings of which they are committee members, we do not hold executive sessions of non-management directors. Such requirement is contrary to the R.O.C. Company Act.
Board Committees. Under the NYSE listing standards, companies are required to have a nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying individuals qualified to become board members, the nominating/corporate committee must develop and recommend to the board a set of corporate governance principles. Our nominating committee currently consists of five of our independent directors. The nominating committee is expected to assist our board to constitute a nomination policy and succession plans of the directors and the executives. We currently do not have a corporate governance committee, as such committee is not required under R.O.C. requirements. Our board of directors is responsible for regularly reviewing our corporate governance standards and practices.
Under the NYSE listing standards, companies are required to have a compensation committee, composed entirely of independent directors. Under the R.O.C. Company Act, however, companies incorporated in the R.O.C. are not required to have a compensation committee with the same standards as the NYSE listing standards, but publicly listed companies in the R.O.C. must have a remuneration committee in accordance with the applicable laws and rules in the R.O.C. We have established a remuneration committee composed of all the independent directors and convened meetings accordance with the applicable laws and rules in the R.O.C. The remuneration committee is responsible for determining the form and amount of compensation for each of our directors and executive officers under our articles of incorporation and the remuneration committee charter. In addition to the compensation approved at the annual general meeting, in the event we have net income in any fiscal year, we will distribute 0.1% of our earnings after payment of all income taxes, deduction of any past losses and allocation of 10% of our net income for legal reserves, as remuneration to our directors pursuant to our articles of incorporation.
Equity Compensation Plans. The NYSE listing standards also require that a company’s shareholders must approve equity compensation plans. Under the corresponding requirements in the R.O.C. Company Act and the R.O.C. Securities Exchange Act, shareholders’ approval is required for the distribution of employee bonuses in the form of stock, while the board of directors has authority, subject to the approval of the R.O.C. Securities and Futures Bureau, to approve employee stock option plans and to grant options to employees pursuant to such plans and also has authority to approve share buy-back programs for the purpose of selling common shares so purchased to employees and the sale of such common shares to employees pursuant to such programs. We intend to continue to follow only the R.O.C. requirements.
ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
82
ITEM 17 |
FINANCIAL STATEMENTS |
ITEM 18 |
FINANCIAL STATEMENTS |
Page |
||||
F-1 | ||||
F-2 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-9 | ||||
F-11 |
ITEM 19 | EXHIBITS |
Exhibit Number |
Description of Exhibits | |
1.1 | Articles of Incorporation of the Company as last amended on June 10, 2020(1) | |
2.1 | Amended and Restated Deposit Agreement by and among the Company, JPMorgan Chase Bank, N.A., as depositary, and the Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary Receipts issued thereunder dated as of October 21, 2009(2) | |
2.2 | Form of Amendment No. 1 to the Amended and Restated Deposit Agreement among the Company, JPMorgan Chase Bank, N.A., as depositary, and the Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary Receipts issued thereunder (3) | |
2.3 | Description of Securities Registered Under Section 12 of the Exchange Act (17) | |
4.1 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Ko-Kuan Section, No. 20-22, Hsinchu, Taiwan, R.O.C., the site of Fab 6A (in Chinese with English summary translation)(4)(P) | |
4.2 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8A and United Tower (in Chinese with English summary translation)(5)(P) | |
4.3 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8C (in Chinese with English summary translation)(6)(P) | |
4.4 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8D (in Chinese with English summary translation)(7)(P) | |
4.5 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of second phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8E (in Chinese with English summary translation)(8)(P) | |
4.6 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Gin-Shan section, Hsinchu, Taiwan, R.O.C., the site of Fab 8F (in Chinese with English summary translation)(9)(P) | |
4.7 | Lease Agreement with Southern Taiwan Science Park Administration in relation to government-owned land located at Tainan Science Park, Tainan, Taiwan, R.O.C., the site of Fab 12A (in Chinese with English summary translation)(10)(P) | |
4.8 | Merger Agreement, entered into as of February 26, 2004, between United Microelectronics Corporation and SiS Microelectronics Corporation (English Translation)(11) |
84
* | Filed herewith. |
(1) | Incorporated by reference to Exhibit 1.1 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-15128) filed with the Commission on April 18, 2014. |
(2) | Incorporated by reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333- 162437) filed with the Commission on October 13, 2009. |
(3) | Incorporated by reference to Exhibit (a)(2) to the Registrant’s Registration Statement on Form F-6 (File No. 333- 172990) filed with the Commission on April 12, 2017. |
(4) | Incorporated by reference to Exhibit 4.1 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
(5) | Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
(6) | Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
(7) | Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
(8) | Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
85
(9) | Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
(10) | Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
(11) | Incorporated by reference to Exhibit 4.8 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (File No. 1-15128) filed with the Commission on June 17, 2004. |
(12) | Incorporated by reference to Exhibit 4.9 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
(13) | Incorporated by reference to Exhibit 4.10 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
(14) | Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on May 8, 2009. |
(15) | Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on March 25, 2005. |
(16) | Incorporated by reference to Exhibit 99.2 to the Form 6-K furnished to the Commission on May 26, 2006. |
(17) | Incorporated by reference to Item 12.D. in this Annual Report on Form 20-F for the fiscal year ended December 31, 2022. |
(P) | Paper exhibits |
86
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
UNITED MICROELECTRONICS CORPORATION
By: | /s/ CHITUNG LIU | |
Name: Chitung Liu | ||
Title: Director, Chief Financial Officer and Senior Vice President |
Date: April 27, 2023
87
Valuation for Slow-Moving Inventories | ||
Description of the Matter |
As of December 31, 2022, the Company’s net inventories amounted to NT$31,070 million. As the semiconductor industry is characterized by rapid changes in technology, management ha s to evaluate and estimate a reserve for slow-moving inventories that are expected to be written-off or otherwise disposed of at a future date.Auditing the valuation for slow-moving inventories was complex due to the judgmental nature of the Company’s estimation of the appropriate amount of the slow-moving inventories reserve, utilizing key inputs including historical usage, write-off activities and inventory aging. | |
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s slow-moving inventories reserve process. For example, we tested the control over management’s review of the reserve method and the key inputs used in the valuation process. To test the slow-moving inventories reserve, our audit procedures included, amongst others, evaluate the appropriateness of management’s methodology to determine inventory aging and inventory reserve percentages, compare slow-moving inventories reserve to historical usage and write-off activities, and test the accuracy and completeness of the underlying data used in such determination. We also recalculated inventory reserve for the application of the reserve percentages to the inventory aging categories. In addition, we evaluated the adequacy of disclosures of inventories. Please refer to Notes 5 and 6 to the Company’s consolidated financial statements. |
As of December 31, |
||||||||||||||||
Notes |
2021 |
2022 |
||||||||||||||
NT$ |
NT$ |
US$ |
||||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
4, 6(1) | |||||||||||||||
Financial assets at fair value through profit or loss, current |
4, 5, 6(2) | |||||||||||||||
Financial assets at fair value through other comprehensive income, current |
4, 5, 6(3) | |||||||||||||||
Financial assets measured at amortized cost, current |
4, 6(4) | |||||||||||||||
Contract assets, current |
4, 6(21) | |||||||||||||||
Accounts receivable, net |
4, 6(5) | |||||||||||||||
Accounts receivable-related parties, net |
4, 7 | |||||||||||||||
Other receivables |
4 | |||||||||||||||
Current tax assets |
4 | |||||||||||||||
Inventories, net |
4, 5, 6(6) | |||||||||||||||
Other current assets |
6(21) | |||||||||||||||
Total current assets |
||||||||||||||||
Non-current assets |
||||||||||||||||
Financial assets at fair value through profit or loss, noncurrent |
4, 5, 6(2), 7 | |||||||||||||||
Financial assets at fair value through other comprehensive income, noncurrent |
4, 5, 6(3) | |||||||||||||||
Financial assets measured at amortized cost, noncurrent |
4, 6(4) | |||||||||||||||
Investments accounted for under the equity method |
4, 6(7) | |||||||||||||||
Property, plant and equipment |
4, 6(8), 8 | |||||||||||||||
Right-of-use |
4, 6(9), 8 | |||||||||||||||
Intangible assets |
4, 6(10), 7 | |||||||||||||||
Deferred tax assets |
4, 6(26) | |||||||||||||||
Prepayment for equipment |
||||||||||||||||
Refundable deposits |
8 | |||||||||||||||
Other noncurrent assets |
||||||||||||||||
Total non-current assets |
||||||||||||||||
Total assets |
||||||||||||||||
Liabilities and Equity |
||||||||||||||||
Current liabilities |
||||||||||||||||
Short-term loans |
6(11), 6(28) | |||||||||||||||
Financial liabilities at fair value through profit or loss, current |
4, 6(12) | |||||||||||||||
Contract liabilities, current |
4, 6(21) | |||||||||||||||
Accounts payable |
||||||||||||||||
Other payables |
4, 6(20), 6(22), 7 | |||||||||||||||
Payables on equipment |
||||||||||||||||
Current tax liabilities |
4 | |||||||||||||||
Lease liabilities, current |
4, 6(9), 6(28) | |||||||||||||||
Other financial liabilities, current |
6(28), 9(6) | |||||||||||||||
Current portion of long-term liabilities |
4, 6(13), 6(14), 6(28) | |||||||||||||||
Other current liabilities |
4, 6(16), 6(17), 6(28), 7 | |||||||||||||||
Total current liabilities |
||||||||||||||||
Non-current liabilities |
||||||||||||||||
Contract liabilities, noncurrent |
4, 6(21) | |||||||||||||||
Bonds payable |
4, 6(13), 6(28) | |||||||||||||||
Long-term loans |
6(14), 6(28) | |||||||||||||||
Deferred tax liabilities |
4, 6(26) | |||||||||||||||
Lease liabilities, noncurrent |
4, 6(9), 6(28) | |||||||||||||||
Net defined benefit liabilities, noncurrent |
4, 6(15) | |||||||||||||||
Guarantee deposits |
6(28) | |||||||||||||||
Other noncurrent liabilities |
4, 6(16), 6(18), 6(20), 6(28), 9(6) | |||||||||||||||
Total non-current liabilities |
||||||||||||||||
Total liabilities |
||||||||||||||||
Commitments and contingencies |
9 | |||||||||||||||
Equity attributable to the parent company |
||||||||||||||||
Capital |
4, 6(19) | |||||||||||||||
Common stock - NT$ |
||||||||||||||||
Authorized: |
||||||||||||||||
Issued: |
||||||||||||||||
Issued: |
||||||||||||||||
Additional paid-in capital |
4, 6(19), 6(20) | |||||||||||||||
Premiums |
||||||||||||||||
Treasury stock transactions |
||||||||||||||||
Transactions with noncontrolling interests |
||||||||||||||||
Share-based payment |
||||||||||||||||
Other |
||||||||||||||||
Retained earnings |
6(19) | |||||||||||||||
Legal reserve |
||||||||||||||||
Special reserve |
||||||||||||||||
Unappropriated earnings |
||||||||||||||||
Other components of equity |
4, 6(20) | |||||||||||||||
Exchange differences on translation of foreign operations |
( |
) | ( |
) | ( |
) | ||||||||||
Unrealized gains or losses on financial assets measured at fair value through other comprehensive income |
||||||||||||||||
Unearned employee compensation |
( |
) | ( |
) | ( |
) | ||||||||||
Treasury stock |
4, 6(19), 6(20) | ( |
) | ( |
) | ( |
) | |||||||||
Total equity attributable to the parent company |
||||||||||||||||
Non-controlling interests |
6(19) | |||||||||||||||
Total equity |
||||||||||||||||
Total liabilities and equity |
||||||||||||||||
For the years ended December 31, | ||||||||||||||||||||
Notes | 2020 | 2021 | 2022 | |||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||
Operating revenues |
4, 6(21), 7 | |||||||||||||||||||
Operating costs |
4, 6(6), 6(10), 6(15), 6(20), 6(21), 6(22), 7 |
|
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses |
4, 6(5), 6(10), 6(15), 6(20), 6(22), 7 |
|
||||||||||||||||||
Sales and marketing expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
General and administrative expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Research and development expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Expected credit impairment gains (losses) |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net other operating income and expenses |
4, 6(16), 6(23) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating income |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating income and expenses |
||||||||||||||||||||
Interest income |
4 | |||||||||||||||||||
Other income |
4 | |||||||||||||||||||
Other gains and losses |
4, 6(24), 6(29) | ( |
) | ( |
) | |||||||||||||||
Finance costs |
6(24) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Share of profit or loss of associates and joint ventures |
4, 6(7) | |||||||||||||||||||
Exchange gain, net |
4 | |||||||||||||||||||
Exchange loss, net |
4 | ( |
) | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income from continuing operations before income tax |
||||||||||||||||||||
Income tax expense |
4, 6(26) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income (loss) |
6(25) | |||||||||||||||||||
Items that will not be reclassified subsequently to profit or loss |
||||||||||||||||||||
Remeasurements of defined benefit pension plans |
4, 6(15) | ( |
) | ( |
) | |||||||||||||||
Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income |
4 | ( |
) | ( |
) | |||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which will not be reclassified subsequently to profit or loss |
( |
) | ( |
) | ||||||||||||||||
Income tax related to items that will not be reclassified subsequently |
4, 6(26) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Items that may be reclassified subsequently to profit or loss |
||||||||||||||||||||
Exchange differences on translation of foreign operations |
( |
) | ( |
) | ||||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which may be reclassified subsequently to profit or loss |
( |
) | ||||||||||||||||||
Income tax related to items that may be reclassified subsequently |
4, 6(26) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive income (loss) |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to: |
||||||||||||||||||||
Shareholders of the parent |
||||||||||||||||||||
Non-controlling interests |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) attributable to: |
||||||||||||||||||||
Shareholders of the parent |
||||||||||||||||||||
Non-controlling interests |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Earnings per share (NTD) |
4, 6(27) | |||||||||||||||||||
Earnings per share-basic |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Earnings per share-diluted |
||||||||||||||||||||
|
|
|
|
|
|
|
|
Equity Attributable to the Parent Company |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital |
Retained Earnings |
Other Components of Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock |
Collected in Advance |
Additional Paid-in Capital |
Legal Reserve |
Special Reserve |
Unappropriated Earnings |
Exchange Differences on Translation of Foreign Operations |
Unrealized Gains or Losses on Financial Assets Measured at Fair Value through Other Comprehensive Income |
Unearned Employee Compensation |
Treasury Stock |
Total |
Non-Controlling Interests |
Total Equity |
||||||||||||||||||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2020 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Appropriation and distribution of 2019 retained earnings |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve |
— | — | — | — | ( |
) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Cash dividends |
— | — | — | — | — | ( |
) | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||
Special reserve reversed |
— | — | — | — | ( |
) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Net income (loss) for the year ended December 31, 2020 |
— | — | — | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) for the year ended December 31, 2020 |
— | — | — | — | — | ( |
) | ( |
) | — | — | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Total comprehensive income (loss) |
— | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based payment transaction |
— | — | — | — | — | — | ( |
) | — | |||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible bonds |
( |
) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method |
— | — | ( |
) | — | — | — | ( |
) | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||
Disposal of subsidiaries |
— | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
The differences between the fair value of the consideration paid or received from acquiring or disposing subsidiaries and the carrying amounts of the subsidiaries |
— | — | ( |
) | — | — | — | — | — | — | — | ( |
) | — | ||||||||||||||||||||||||||||||||||||||
Changes in subsidiaries’ ownership |
— | — | ( |
) | — | — | ( |
) | — | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
Adjustments due to reciprocal stockholdings held by subsidiaries and associates |
— | — | — | — | — | — | — | — | ( |
) | — | |||||||||||||||||||||||||||||||||||||||||
Disposal of equity instruments investments measured at fair value through other comprehensive income |
— | — | — | — | — | — | ( |
) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Non-Controlling Interests |
— | — | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
Others |
— | — | ( |
) | — | — | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance as of December 31, 2020 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to the Parent Company |
||||||||||||||||||||||||||||||||||||||||||||||||
Capital |
Retained Earnings |
Other Components of Equity |
||||||||||||||||||||||||||||||||||||||||||||||
Common Stock |
Additional Paid-in Capital |
Legal Reserve |
Special Reserve |
Unappropriated Earnings |
Exchange Differences on Translation of Foreign Operations |
Unrealized Gains or Losses on Financial Assets Measured at Fair Value through Other Comprehensive Income |
Unearned Employee Compensation |
Treasury Stock |
Total |
Non-Controlling Interests |
Total Equity |
|||||||||||||||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
|||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
Appropriation and distribution of 2020 retained earnings |
||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve |
— | — | — | ( |
) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends |
— | — | — | — | ( |
) | — | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||
Special reserve reversed |
— | — | — | ( |
) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Net income (loss) for the year ended December 31, 2021 |
— | — | — | — | — | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) for the year ended December 31, 2021 |
— | — | — | — | ( |
) | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total comprehensive income (loss) |
— | — | — | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Share-based payment transaction |
( |
) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method |
— | ( |
) | — | — | — | ( |
) | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||
Changes in subsidiaries’ ownership |
— | — | — | — | ( |
) | — | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Adjustments due to reciprocal stockholdings held by subsidiaries and associates |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Non-Controlling Interests |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share exchange |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Others |
— | — | — | ( |
) | — | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||
|
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|
|
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|
|
|
|
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|
|
|||||||||||||||||||||||||
Balance as of December 31, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
|
|
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|
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|
|
|
|
Equity Attributable to the Parent Company |
||||||||||||||||||||||||||||||||||||||||||||||||
Capital |
Retained Earnings |
Other Components of Equity |
||||||||||||||||||||||||||||||||||||||||||||||
Common Stock |
Additional Paid-in Capital |
Legal Reserve |
Special Reserve |
Unappropriated Earnings |
Exchange Differences on Translation of Foreign Operations |
Unrealized Gains or Losses on Financial Assets Measured at Fair Value through Other Comprehensive Income |
Unearned Employee Compensation |
Treasury Stock |
Total |
Non-Controlling Interests |
Total Equity |
|||||||||||||||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
|||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2022 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
Impact of retroactive applications |
— | — | — | — | ( |
) | — | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||
Adjusted balance as of January 1, 2022 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
|
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|
|||||||||||||||||||||||||
Appropriation and distribution of 2021 retained earnings |
||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Special reserve reversed |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Cash distributed from additional paid-in capital |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
Net income for the year ended December 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) for the year ended December 31, 2022 |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||
Total comprehensive income (loss) |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
|
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|
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|
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|
|||||||||||||||||||||||||
Share-based payment transaction |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Changes in subsidiaries’ ownership |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Adjustments due to reciprocal stockholdings held by subsidiaries and associates |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Non-Controlling Interests |
||||||||||||||||||||||||||||||||||||||||||||||||
Others |
( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
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|
|||||||||||||||||||||||||
Balance as of December 31, 2022 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
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|
|
|
For the years ended December 31, |
||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||
NT$ |
NT$ |
NT$ |
US$ |
|||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income before tax |
||||||||||||||||
Adjustments to reconcile net income before tax to net cash provided by operating activities: |
||||||||||||||||
Depreciation |
||||||||||||||||
Amortization |
||||||||||||||||
Expected credit impairment losses (gains) |
( |
) | ( |
) | ||||||||||||
Net loss (gain) of financial assets and liabilities at fair value through profit or loss |
( |
) | ( |
) | ||||||||||||
Interest expense |
||||||||||||||||
Interest income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Dividend income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Share-based payment |
||||||||||||||||
Share of profit of associates and joint ventures |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Gain on disposal of property, plant and equipment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Loss (gain) on disposal of investments |
( |
) | ( |
) | ||||||||||||
Loss on repurchases of bonds |
||||||||||||||||
Exchange loss (gain) on financial assets and liabilities |
( |
) | ( |
) |
||||||||||||
Loss (gain) on lease modification |
( |
) | ( |
) | ( |
) | ||||||||||
Amortization of deferred government grants |
( |
) | ( |
) | ( |
) |
( |
) | ||||||||
Others |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income and expense adjustments |
||||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Financial assets and liabilities at fair value through profit or loss |
||||||||||||||||
Contract assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Notes receivable and accounts receivable |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other receivables |
( |
) | ( |
) | ( |
) | ||||||||||
Inventories |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other current assets |
( |
) | ( |
) | ( |
) | ||||||||||
Contract fulfillment costs |
( |
) | ( |
) | ( |
) | ||||||||||
Contract liabilities |
( |
) | ( |
) | ||||||||||||
Accounts payable |
( |
) | ||||||||||||||
Other payables |
||||||||||||||||
Other current liabilities |
( |
) | ( |
) | ||||||||||||
Net defined benefit liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other noncurrent liabilities |
( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash generated from operations |
||||||||||||||||
Interest received |
||||||||||||||||
Dividend received |
||||||||||||||||
Interest paid |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income tax paid |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by operating activities |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Acquisition of financial assets at fair value through profit or loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from disposal of financial assets at fair value through profit or loss |
||||||||||||||||
Acquisition of financial assets measured at amortized cost |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from redemption of financial assets measured at amortized cost |
||||||||||||||||
Acquisition of investments accounted for under the equity method |
( |
) | ||||||||||||||
Proceeds from disposal of investments accounted for under the equity method |
||||||||||||||||
Increase in prepayment for investments |
( |
) | ||||||||||||||
Proceeds from capital reduction and liquidation of investments |
||||||||||||||||
Disposal of subsidiary |
( |
) | ||||||||||||||
Acquisition of property, plant and equipment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from disposal of property, plant and equipment |
||||||||||||||||
Increase in refundable deposits |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Decrease in refundable deposits |
||||||||||||||||
Acquisition of intangible assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Government grants related to assets acquisition |
||||||||||||||||
Increase in other noncurrent assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Decrease in other noncurrent assets |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|
|
For the years ended December 31, |
||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||
NT$ |
NT$ |
NT$ |
US$ |
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||
Increase in short-term loans |
||||||||||||||||
Decrease in short-term loans |
( |
) | ( |
) | ( |
) |
( |
) | ||||||||
Cash payments for the principal portion of the lease liability |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from bonds issued |
||||||||||||||||
Bonds issuance costs |
( |
) | ||||||||||||||
Redemption of bonds |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from long-term loans |
||||||||||||||||
Repayments of long-term loans |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Increase in guarantee deposits |
||||||||||||||||
Decrease in guarantee deposits |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Cash dividends and cash distributed from additional paid-in capital |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Treasury stock acquired |
( |
) | ||||||||||||||
Treasury stock sold to employees |
||||||||||||||||
Change in non-controlling interests |
( |
) | ||||||||||||||
Others |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||||||||||
Cash and cash equivalents at beginning of year |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at end of year |
||||||||||||||||
|
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|
|
1. | HISTORY AND ORGANIZATION |
2. | DATE AND PROCEDURES OF AUTHORIZATION OF FINANCIAL STATEMENTS FOR ISSUE |
3. | NEW ACCOUNTING PRONOUNCEMENT UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) |
(1) | The Company applied International Financial Reporting Standards, International Accounting Standards, and Interpretations issued, revised or amended which have been issued by the International Accounting Standards Board (IASB) and become effective for annual periods beginning on or after January 1, 2022. Except for the standards and interpretations disclosed below, there are no newly adopted or revised ones that have material impact on the Company’s financial position and performance. |
a. |
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37 ) |
(2) |
The Company has not adopted the following new, revised or amended IFRSs that have been issued by the IASB but not yet effective: |
New, Revised or Amended Standards and Interpretations |
Effective Date issued by IASB | |
Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure Initiative - Accounting Policies |
January 1, 2023 | |
Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” - Definition of Accounting Estimates |
January 1, 2023 | |
Amendment to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
January 1, 2023 | |
IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture |
To be determined by IASB | |
IFRS 17 “Insurance Contracts” |
January 1, 2023 | |
Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-current |
January 1, 2024 | |
Amendments to IFRS 16 “Leases” - Lease Liability in a Sale and Leaseback |
January 1, 2024 | |
Amendments to IAS 1 “Presentation of Financial Statements” - Non-current Liabilities with Covenants |
January 1, 2024 |
(3) |
The potential effects of adopting the standards or interpretations issued by IASB on the Company’s financial statements in future periods are summarized as below: |
a. |
IAS 1 “Presentation of Financial Statements” (IAS 1) - Disclosure Initiative - Accounting Policies (Amendment ) |
b. |
IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” (IAS 8) - Definition of Accounting Estimates (Amendment ) |
c. |
IAS 12 “Income Taxes” (IAS 12) - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment ) |
d. | IFRS 10 “Consolidated Financial Statements” (IFRS 10) and IAS 28 “Investments in Associates and Joint Ventures” (IAS 28) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment) |
e. | IFRS 17 “Insurance Contracts” (IFRS 17) |
f. |
IAS 1 “Presentation of Financial Statements” (IAS 1 ) - Classification of Liabilities as Current or (Non-current Amendment ) |
g. |
IFRS 16 “Leases” (IFRS 16) - Lease Liability in a Sale and Leaseback (Amendment ) |
h. |
IAS 1 “Presentation of Financial Statements” (IAS 1) - Non-current Liabilities with Covenants (Amendment ) |
4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(1) | Statement of Compliance |
(2) | Basis of Preparation |
(3) | General Description of Reporting Entity |
a. | Principles of consolidation |
b. | The consolidated entities as of December 31, 2021 and 2022 were as follows: |
Percentage of ownership (%) as of December 31, |
||||||||||||
Investor |
Subsidiary |
Business nature |
2021 | 2022 | ||||||||
UMC GROUP (USA) |
|
|||||||||||
UNITED MICROELECTRONICS (EUROPE) B.V. |
|
|||||||||||
UMC CAPITAL CORP. |
|
|||||||||||
GREEN EARTH LIMITED (GE) |
|
|||||||||||
TLC CAPITAL CO., LTD. (TLC) |
|
|||||||||||
UMC INVESTMENT (SAMOA) LIMITED |
|
Percentage of ownership (%) as of December 31, |
||||||||||||
Investor |
Subsidiary |
Business nature |
2021 | 2022 | ||||||||
FORTUNE VENTURE CAPITAL CORP. (FORTUNE) |
|
|||||||||||
UMC KOREA CO., LTD. |
|
|||||||||||
OMNI GLOBAL LIMITED (OMNI) |
|
|||||||||||
SINO PARAGON LIMITED |
|
|||||||||||
BEST ELITE INTERNATIONAL LIMITED (BE) |
|
|||||||||||
UNITED SEMICONDUCTOR JAPAN CO., LTD. (USJC) |
|
|||||||||||
WAVETEK MICROELECTRONICS CORPORATION (WAVETEK) |
|
|||||||||||
SOARING CAPITAL CORP. |
|
|||||||||||
UNITRUTH ADVISOR (SHANGHAI) CO., LTD. |
|
|||||||||||
UNITED MICROCHIP CORPORATION |
|
|||||||||||
TERA ENERGY DEVELOPMENT CO., LTD. (TERA ENERGY) |
|
|||||||||||
EVERRICH ENERGY INVESTMENT (HK) LIMITED (EVERRICH-HK) |
|
|||||||||||
EVERRICH (SHANDONG) ENERGY CO., LTD. |
|
|||||||||||
UNITED MICROTECHNOLOGY CORPORATION (CALIFORNIA) |
|
|||||||||||
ECP VITA PTE. LTD. |
|
|||||||||||
WAVETEK MICROELECTRONICS INVESTMENT (SAMOA) LIMITED (WAVETEK-SAMOA) |
|
|||||||||||
WAVETEK MICROELECTRONICS CORPORATION (USA) |
|
|||||||||||
INFOSHINE TECHNOLOGY LIMITED (INFOSHINE) |
|
|||||||||||
OAKWOOD ASSOCIATES LIMITED (OAKWOOD) |
|
|||||||||||
HEJIAN TECHNOLOGY (SUZHOU) CO., LTD. (HJ) |
|
Percentage of ownership (%) as of December 31, |
||||||||||||
Investor |
Subsidiary |
Business nature |
2021 | 2022 | ||||||||
UNITEDDS SEMICONDUCTOR (SHANDONG) CO., LTD. (UDS) |
||||||||||||
UNITED SEMICONDUCTOR (XIAMEN) CO., LTD. (USCXM) |
(4) | Business Combinations and Goodwill |
(5) | Foreign Currency Transactions |
a. | Exchange differences arising from foreign currency borrowings for an acquisition of a qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization. |
b. | Foreign currency derivatives within the scope of IFRS 9 are accounted for based on the accounting policy for financial instruments. |
c. | Exchange differences arising on a monetary item that is part of a reporting entity’s net investment in a foreign operation are recognized initially in other comprehensive income and reclassified from equity to profit or loss upon disposal of such investment. |
(6) | Translation of Foreign Currency Financial Statements |
(7) | Convenience Translation into U.S. Dollars |
(8) | Current and Non-Current Distinction |
a. | the Company expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; |
b. | the Company holds the asset primarily for the purpose of trading; |
c. | the Company expects to realize the asset within twelve months after the reporting period; or |
d. | the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. |
a. | the Company expects to settle the liability in normal operating cycle; |
b. | the Company holds the liability primarily for the purpose of trading; |
c. | the liability is due to be settled within twelve months after the reporting period; or |
d. | the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. |
(9) | Cash Equivalents |
(10) | Financial Instruments |
a. | Classification and subsequent measurement |
i. | Financial assets at fair value through profit or loss |
ii. | Financial assets at fair value through other comprehensive income |
(i) |
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and |
(ii) |
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
iii. |
Financial assets measured at amortized cost |
(i) |
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and |
(ii) |
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
b. |
Derecognition of financial assets |
i. |
the contractual rights to receive cash flows from the asset have expired; |
ii. | the Company has transferred assets and substantially all the risks and rewards of the asset have been transferred; or |
iii. | the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. |
c. | Impairment policy |
a. | Classification and subsequent measurement |
i. | Financial liabilities at fair value through profit or loss |
ii. | Financial liabilities measured at amortized cost |
b. | Derecognition of financial liabilities |
(11) | Inventories |
(12) | Investments Accounted for Under the Equity Method |
a. | Any excess of the acquisition cost over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as goodwill and is included in the carrying amount of the investment. Amortization of goodwill is not permitted. |
b. | Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities of an associate or a joint venture over the acquisition cost, after reassessing the fair value, is recognized as a gain in profit or loss on the acquisition date. |
(13) |
Property, Plant and Equipment |
(14) |
Lease |
a. | At the commencement date, lease liabilities should be recognized and measured at the present value of the lease payments that have not been paid at that date, using the Company’s incremental borrowing rate. The payments comprise: |
i. | fixed payments less any lease incentives receivable; |
ii. | variable lease payments that depend on an index or rate; |
iii. | amounts expected to be payable by the Company under residual value guarantees; |
iv. | the exercise price of a purchase option if the Company is reasonably certain to exercise; and |
v. |
payments for terminating the lease unless it is reasonably certain that early termination will not occur. |
b. | At the commencement date, the right-of-use |
i. | the amount of the initial measurement of the lease liabilities; |
ii. | any lease payments made at or before the commencement date; and |
iii. | any initial direct costs incurred. |
(1 5 ) |
Intangible Assets |
a. | Goodwill arising from business combinations is not amortized, and is tested for impairment annually or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicates that the goodwill is impaired, an impairment loss is recognized. Goodwill impairment losses cannot be reversed once recognized. |
b. | Software is amortized over the contract term or estimated useful life ( - |
c. | Patent and technology license fee: Upon signing of contract and obtaining the right to intellectual property, any portion attributable to non-cancellable and mutually agreed future fixed license fees for patent and technology is discounted and recognized as an intangible asset and related liability. The cost of the intangible asset is not revalued once determined on initial recognition, and is amortized over the useful life ( -non-current. |
d. | Others are mainly the intellectual property license fees, amortized over |
(1 6 ) |
Impairment of Non-Financial Assets |
(1 7 ) |
Bonds |
(1 8 ) |
Post-Employment Benefits |
(19) |
Government Grants |
(20) |
Decommissioning Liabilities |
(2 1 ) |
Treasury Stock |
(2 2 ) |
Share-Based Payment Transactions |
(23) | Revenue Recognition |
a. | identify the contract with a customer; |
b. | identify the performance obligations in the contract; |
c. | determine the transaction price; |
d. | allocate the transaction price to the performance obligations in the contract; and |
e. | recognize revenue when (or as) the entity satisfies its performance obligations. |
(24) |
Income Tax |
a. | When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; |
b. | In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. |
a. | Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; |
b. | In respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. |
a. | Acquired deferred tax benefits recognized within the measurement period that result from new information about facts and circumstances that existed at the acquisition date shall be applied to reduce the carrying amount of any goodwill related to that acquisition. If the carrying amount of that goodwill is nil, any remaining deferred tax benefits shall be recognized in profit or loss; |
b. | All other acquired deferred tax benefits realized shall be recognized in profit or loss, other comprehensive income or equity. |
(25) | Earnings per Share |
5. | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS |
(1) | The Fair Value of Level 3 Financial Instruments |
(2) | Inventories |
6. | CONTENTS OF SIGNIFICANT ACCOUNTS |
(1) |
Cash and Cash Equivalents |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Cash on hand and petty cash |
$ | $ | ||||||
Checking and savings accounts |
||||||||
Time deposits |
||||||||
Repurchase agreements collateralized by government bonds and corporate notes |
||||||||
Total |
$ | $ | ||||||
(2) | Financial Assets at Fair Value through Profit or Loss |
As of December 31, | ||||||||
2021 | 2022 | |||||||
NT$ | NT$ | |||||||
(In Thousands) | (In Thousands) | |||||||
Financial assets mandatorily measured at fair value through profit or loss |
||||||||
Common stocks |
$ | $ | ||||||
Preferred stocks |
||||||||
Funds |
||||||||
Convertible bonds |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
|||||
Current |
$ | $ | ||||||
Non-current |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
(3) | Financial Assets at Fair Value through Other Comprehensive Income |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Equity instruments |
||||||||
Common stocks |
$ | $ | ||||||
Preferred stocks |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
|||||
Current |
$ | $ | ||||||
Non-current |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
As of December 31, |
||||||||||
Type of securities |
Name of securities |
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||||
(In Thousands) |
(In Thousands) |
|||||||||
Common stock |
SILICON INTEGRATED SYSTEMS CORP. | $ | $ | |||||||
Common stock |
UNIMICRON HOLDING LIMITED | |||||||||
Common stock |
ITE TECH. INC. | |||||||||
Common stock |
CHIPBOND TECHNOLOGY CORPORATION | |||||||||
Common stock |
NOVATEK MICROELECTRONICS CORP. (NOVATEK) |
|||||||||
Common stock |
SHIN-ETSU HANDOTAI TAIWAN CO., LTD. | |||||||||
Preferred stock |
MTIC HOLDINGS PTE. LTD. |
a. | These investments in equity instruments are held for medium to long-term purposes and therefore are accounted for as fair value through other comprehensive income. UMC exchanged shares with CHIPBOND on November 5, 2021, and obtained |
b. | Dividend income recognized in profit or loss from equity instruments designated as fair value through other comprehensive income were listed below: |
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Held at end of period |
$ | |
$ | |||||
Derecognized during the period |
||||||||
Total |
$ | $ | ||||||
c. | UMC issued unsecured exchangeable bonds where the bondholders may exchange the bonds at any time on or after October 8, 2021 and prior to June 27, 2026 into NOVATEK common shares which UMC holds and accounts for as equity instruments investments measured at fair value through other comprehensive income. Please refer to Note 6(13) for the Company’s unsecured exchangeable bonds. |
(4) |
Financial assets measured at amortized cost |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Financial assets measured at amortized cost |
||||||||
Time deposits with original maturities over three months |
$ | $ | ||||||
Bonds |
||||||||
Total |
$ | |
$ | |||||
Current |
$ | $ | ||||||
Non-current |
||||||||
Total |
$ | $ | ||||||
(5) |
Accounts Receivable, Net |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Accounts receivable |
$ | $ | ||||||
Less: loss allowance |
( |
) | ( |
) | ||||
Net |
$ | $ | ||||||
Aging analysis of accounts receivable: |
||||||||
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Neither past due |
$ |
$ |
||||||
Past due: |
||||||||
≤ 30 days |
||||||||
31 to 60 days |
||||||||
61 to 90 days |
||||||||
91 to 120 days |
||||||||
≥ 121 days |
||||||||
Subtotal |
||||||||
Total |
$ |
$ |
||||||
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Beginning balance |
$ | $ | |
|||||
Net recognition (reversal) for the period |
( |
) | ||||||
|
|
|
|
|||||
Ending balance |
$ | |
$ | |||||
|
|
|
|
(6) | Inventories, Net |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Raw materials |
$ | $ | ||||||
Supplies and spare parts |
||||||||
Work in process |
||||||||
Finished goods |
||||||||
|
|
|
|
|||||
Total |
$ | $ |
||||||
|
|
|
|
a. | For the years ended December 31, 2020, 2021 and 2022, the Company recognized NT$ and NT$million in 2020 and 2021, respectively, were related to reversal of write-down of inventories, and NT$ |
b. | |
(7) |
Investments Accounted for Under the Equity Method |
a. |
Details of investments accounted for under the equity method are as follows: |
As of December 31, |
||||||||||||||||
2021 |
2022 |
|||||||||||||||
Investee companies |
Amount |
Percentage of ownership or voting rights |
Amount |
Percentage of ownership or voting rights |
||||||||||||
NT$ |
NT$ |
|||||||||||||||
(In Thousands) |
(In Thousands) |
|||||||||||||||
Listed companies |
||||||||||||||||
FARADAY TECHNOLOGY CORP. (FARADAY) (Note A) |
$ | $ | ||||||||||||||
UNIMICRON TECHNOLOGY CORP. (UNIMICRON) (Note B) |
||||||||||||||||
Unlisted companies |
||||||||||||||||
MTIC HOLDINGS PTE. LTD. (Note C) |
||||||||||||||||
PURIUMFIL INC. |
||||||||||||||||
UNITECH CAPITAL INC. |
||||||||||||||||
TRIKNIGHT CAPITAL CORPORATION |
||||||||||||||||
HSUN CHIEH CAPITAL CORP. |
||||||||||||||||
HSUN CHIEH INVESTMENT CO., LTD. |
||||||||||||||||
YANN YUAN INVESTMENT CO., LTD. |
||||||||||||||||
UNITED LED CORPORATION HONG KONG LIMITED |
||||||||||||||||
VSENSE CO., LTD. (Note C) |
||||||||||||||||
TRANSLINK CAPITAL PARTNERS I, L.P. (Note D) |
||||||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | $ | ||||||||||||||
|
|
|
|
Note A: | Beginning from June 2015, the Company accounts for its investment in FARADAY as an associate given the fact that the Company obtained the ability to exercise significant influence over FARADAY through representation on its Board of Directors. |
Note B: | Beginning from June 2020, the Company accounts for its investment in UNIMICRON as an associate given the fact that the Company obtained the ability to exercise significant influence over UNIMICRON through representation on its Board of Directors. |
Note C: | When the Company’s share of losses of an associate equals or exceeds its interest in that associate, the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of that associate. |
Note D: | The Company follows international accounting practices in equity accounting for limited partnerships and uses the equity method to account for these investees. |
b. | Financial information of associates: |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Profit from continuing operations |
$ | $ | $ | |||||||||
Other comprehensive income (loss) |
( |
) | ||||||||||
Total comprehensive income (loss) |
$ | $ | $ | ( |
) | |||||||
(8) |
Property, Plant and Equipment |
a. |
2021 |
Land | Buildings | Machinery and equipment |
Transportation equipment |
Furniture and fixtures |
Leasehold improvement |
Construction in progress and equipment awaiting inspection |
Total | |||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||||||||||||||
As of January 1, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Additions |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Disposals |
— | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ( |
) | ||||||||||||||||||
Transfers and reclassifications |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Exchange effect |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
As of December 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land | Buildings | Machinery and equipment |
Transportation equipment |
Furniture and fixtures |
Leasehold improvement |
Construction in progress and equipment awaiting inspection |
Total | |||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||||||||||||||
As of January 1, 2021 |
$ | — | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||
Depreciation |
— | — | ||||||||||||||||||||||||||||||
Disposals |
— | ( |
) | ( |
) | ( |
) | ( |
) | — | — | ( |
) | |||||||||||||||||||
Transfers and reclassifications |
— | — | — | — | — | |||||||||||||||||||||||||||
Exchange effect |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
As of December 31, 2021 |
$ | — | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net carrying amount: |
||||||||||||||||||||||||||||||||
As of December 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land | Buildings | Machinery and equipment |
Furniture and fixtures |
Total | ||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||
As of January 1, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
Transfers and reclassifications |
( |
) | ( |
) | — | ( |
) | |||||||||||||
Exchange effect |
( |
) | ( |
) | — | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2021 |
$ | $ | $ | — | $ | $ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
Land | Buildings | Machinery and equipment |
Furniture and fixtures |
Total | ||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||
As of January 1, 2021 |
$ | — | $ | $ | $ | $ | ||||||||||||||
Depreciation |
— | — | ||||||||||||||||||
Transfers and reclassifications |
— | ( |
) | ( |
) | — | ( |
) | ||||||||||||
Exchange effect |
— | ( |
) | — | ( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2021 |
$ | — | $ | $ | — | $ | $ | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net carrying amount: |
||||||||||||||||||||
As of December 31, 2021 |
$ | $ | $ | — | $ | $ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
b. |
2022 |
Land |
Buildings |
Machinery and equipment |
Transportation equipment |
Furniture and fixtures |
Leasehold improvement |
Construction in progress and equipment awaiting inspection |
Total |
|||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
|||||||||||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
|||||||||||||||||||||||||
As of January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Additions |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
Disposals |
— |
( |
) |
( |
) |
— |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Transfers and reclassifications |
— |
( |
) |
|||||||||||||||||||||||||||||
Exchange effect |
( |
) |
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
As of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
Buildings |
Machinery and equipment |
Transportation equipment |
Furniture and fixtures |
Leasehold improvement |
Construction in progress and equipment awaiting inspection |
Total |
|||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
|||||||||||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
|||||||||||||||||||||||||
As of January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Depreciation |
— |
— |
||||||||||||||||||||||||||||||
Disposals |
— |
( |
) |
( |
) |
— |
( |
) |
( |
) |
— |
( |
) | |||||||||||||||||||
Transfers and reclassifications |
— |
( |
) |
— |
( |
) |
— |
— |
( |
) | ||||||||||||||||||||||
Exchange effect |
— |
— |
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
As of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net carrying amount: |
||||||||||||||||||||||||||||||||
As of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
Buildings |
Machinery and equipment |
Furniture and fixtures |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
As of January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Disposals |
— |
— |
— |
( |
) |
( |
) | |||||||||||||
Transfers and reclassifications |
— |
( |
) |
|||||||||||||||||
Exchange effect |
( |
) |
— |
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
Land |
Buildings |
Machinery and equipment |
Furniture and fixtures |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
As of January 1, 2022 |
$ |
$ | $ |
|
|
|
$ | $ | ||||||||||||
Depreciation |
— | — |
|
|
||||||||||||||||
Disposals |
— | — | — |
|
|
( |
) |
( |
) | |||||||||||
Transfers and reclassifications |
— | ( |
) |
|
|
|
||||||||||||||
Exchange effect |
|
— | |
|
|
|
||||||||||||||
As of December 31, 2022 |
$ |
$ | $ |
|
|
|
$ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net carrying amount: |
|
|
|
|||||||||||||||||
As of December 31, 2022 |
$ |
$ | $ |
|
|
|
$ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c. |
Details of interest expense capitalized were as follows: |
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Interest expense capitalized |
$ | $ | ||||||
|
|
|
|
|
|
|
|
|
Interest rates applied |
||||||||
|
|
|
|
d. | Please refer to Note 8 for property, plant and equipment pledged as collateral. |
(9) | Leases |
a. |
The Company as a lessee |
(a) |
Right-of-use |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Land (including land use right) |
$ | $ | ||||||
Buildings |
||||||||
Machinery and equipment |
||||||||
Transportation equipment |
||||||||
Other equipment |
||||||||
|
|
|
|
|||||
Net |
$ | $ | ||||||
|
|
|
|
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
Depreciation |
(In Thousands) |
(In Thousands) |
||||||
Land (including land use right) |
$ | $ | ||||||
Buildings |
||||||||
Machinery and equipment |
||||||||
Transportation equipment |
||||||||
Other equipment |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
i. | For the years ended December 31, 2021 and 2022, the Company’s addition to right-of-use |
ii. | Please refer to Note 8 for right-of-use |
(b) | Lease Liabilities |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Current |
$ | $ | ||||||
Non-current |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
b. |
The Company as a lessor |
(10) | Intangible Assets |
Goodwill | Software | Patents and technology license fees |
Others | Total | ||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||
As of January 1, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
Additions |
— | |||||||||||||||||||
Write-off |
— | ( |
) | — | ( |
) | ( |
) | ||||||||||||
Reclassifications |
— | ( |
) | — | — | ( |
) | |||||||||||||
Exchange effect |
— | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Goodwill | Software | Patents and technology license fees |
Others | Total | ||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||
As of January 1, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
Amortization |
— | |||||||||||||||||||
Write-off |
— | ( |
) | — | ( |
) | ( |
) | ||||||||||||
Exchange effect |
— | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Goodwill |
Software |
Patents and technology license fees |
Others |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
As of January 1, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
Additions |
||||||||||||||||||||
Write-off |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||
Reclassifications |
( |
) | ( |
) | ||||||||||||||||
Exchange effect |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Goodwill |
Software |
Patents and technology license fees |
Others |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
As of January 1, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
Amortization |
||||||||||||||||||||
Write-off |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
Exchange effect |
( |
) | ( |
) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Operating costs |
$ | $ | ||||||
|
|
|
|
|||||
Operating expenses |
$ | $ | ||||||
|
|
|
|
(11) |
Short-Term Loans |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Unsecured bank loans |
$ | $ | ||||||
|
|
|
|
For the years ended December 31, | ||||||
2020 |
2021 |
2022 | ||||
Interest rates applied |
||||||
|
|
|
(12) |
Financial Liabilities at Fair Value through Profit or Loss, Current |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Embedded derivatives in exchangeable bonds |
$ | $ | ||||||
|
|
|
|
(13) |
Bonds Payable |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Unsecured domestic bonds payable |
$ | $ | ||||||
Unsecured exchangeable bonds payable |
||||||||
Less: Discounts on bonds payable |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total |
||||||||
Less: Current or exchangeable portion due within one year |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net |
$ | $ | ||||||
|
|
|
|
a. | UMC issued domestic unsecured corporate bonds. The terms and conditions of the bonds are as follows: |
Term |
Issuance date |
Issued amount |
Coupon rate | Repayment | ||||||
mid-June 2014 |
NT$ million |
the principal was fully repaid in June 2021. | ||||||||
mid-June 2014 |
NT$ million |
and the principal will be repayable in June 2024 upon maturity. | ||||||||
|
NT$ million |
the principal was fully repaid in March 2022. | ||||||||
|
NT$ million |
and the principal will be repayable in March 2024 upon maturity. | ||||||||
|
NT$ million |
the principal was fully repaid in October 2022. | ||||||||
|
NT$ million |
and the principal will be repayable in October 2024 upon maturity. | ||||||||
|
NT$ million |
and the principal will be repayable in April 2026 upon maturity. | ||||||||
|
NT$ million |
and the principal will be repayable in April 2028 upon maturity. | ||||||||
|
NT$ million |
and the principal will be repayable in April 2031 upon maturity. | ||||||||
mid-December 2021 |
NT$ million |
and the principal will be repayable in December 2026 upon maturity. |
b. | On July 7, 2021, UMC issued SGX-ST listed currency linked zero coupon exchangeable bonds. In accordance with IFRS 9, the value of the exchange right, call option and put option (together referred to as Option) of the exchangeable bonds was separated from the host and accounted for as “financial liabilities at fair value through profit or loss, current”. The effective rate of the host bond was |
i. | Issue Amount: US$ |
ii. | Period: July 7, 2021 - July 7, 2026 (Maturity Date) |
iii. | Redemption: |
(i) | UMC may, at its option, redeem in whole or in part at the principal amount of the bonds with an interest calculated at the rate of - per annum (the Early Redemption Amount) at any time after the third anniversary from the issue date and prior to the Maturity Date, if the closing price of the common shares of NOVATEK on the Taiwan Stock Exchange (the “TWSE”), converted into U.S. dollars at the prevailing exchange rate, for 20 out of 30 consecutive trading days prior to the publication of the redemption notice is at least |
(ii) | UMC may redeem the outstanding bonds in whole, but not in part, at the Early Redemption Amount, in the event that over |
(iii) | In the event of any change in ROC taxation resulting in increase of tax obligation or the necessity to pay additional interest expense or increase of additional costs to UMC, UMC may redeem the outstanding bonds in whole, but not in part, at the Early Redemption Amount. Bondholders may elect not to have their bonds redeemed but with no entitlement to any additional amounts or reimbursement of additional taxes. |
(iv) | All or any portion of the bonds will be redeemable at put price at the option of bondholders on July 7, 2024 at |
(v) | In the event that the common shares of NOVATEK cease to be listed or are suspended from trading for a period equal to or exceeding 30 consecutive trading days on the TWSE, each bondholder shall have the right to require UMC to redeem the bonds, in whole but not in part, at the Early Redemption Amount. |
(vi) | Upon the occurrence of a change of control (as defined in the indenture) of UMC, each bondholder shall have the right to require UMC to redeem the bonds, in whole but not in part, at the Early Redemption Amount. |
iv. | Terms of Exchange: |
(i) | Underlying Securities: Common Shares of NOVATEK |
(ii) | Exchange Period: The bonds are exchangeable at any time on or after October 8, 2021 and prior to June 27, 2026, into NOVATEK common shares. If for any reason UMC does not have sufficient NOVATEK common shares to deliver upon the exchange of any bond, then, UMC will pay to the exchanging bondholder an amount in U.S. dollars equal to the product of the volume-weighted average closing price per NOVATEK common share on the TWSE for five consecutive trading days starting from and including the applicable exercise date (as defined in the indenture) (or such fewer number of trading days as are available within ten days starting from and including the applicable exercise date) each converted into USD at the prevailing rate on the day preceding the applicable trading day and the number of NOVATEK common shares that UMC is unable to deliver. Provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the converting holder of the bonds to vote with respect to the shares it receives will be subject to certain restrictions. |
(iii) | Exchange Price and Adjustment: The exchange price was originally NT$ |
v. | Redemption on the Maturity Date: |
(i) | UMC shall have redeemed the bonds at the option of UMC, or the bonds shall have been redeemed at option of the bondholder; |
(ii) | The bondholders shall have exercised the exchange right before maturity; or |
(iii) | The bonds shall have been redeemed or repurchased by UMC and cancelled. |
(14) |
Long-Term Loans |
a. |
Details of long-term loans as of December 31, 2021 and 2022 were as follows: |
As of December 31, | ||||||||||
Lenders |
2021 | 2022 | Redemption | |||||||
NT$ | NT$ | |||||||||
(In Thousands) | (In Thousands) | |||||||||
Secured Long-Term Loan from Mega International Commercial Bank (1) |
$ | $ | | |||||||
Secured Long-Term Loan from Mega International Commercial Bank (2) |
— | | ||||||||
Secured Long-Term Loan from Mega International Commercial Bank (3) |
| |||||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (1) |
|
As of December 31, |
||||||||||
Lenders |
2021 |
2022 |
Redemption | |||||||
NT$ |
NT$ |
|||||||||
(In Thousands) |
(In Thousands) |
|||||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (2) |
interest payments. | |||||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (3) |
monthly interest payments. | |||||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (4) |
monthly interest payments. | |||||||||
Secured Long-Term Loan from Taiwan Cooperative Bank ( 5 ) |
interest payments. Interest-only payment for the first year. | |||||||||
Secured Syndicated Loans from China Development Bank and 6 others (1) (Note A) |
with semi-annually interest payments. Interest-only payment for the first and the second year. | |||||||||
Secured Syndicated Loans from China Development Bank and 6 others (2) |
semi-annually interest payments. Interest-only payment for the first and the second year. | |||||||||
Secured Long-Term Loan from First Commercial Bank |
monthly interest payments. Interest-only payment for the first year. | |||||||||
Secured Long-Term Loan from KGI Bank |
2026 with monthly interest payments. Interest-only payment for the first and the second year. | |||||||||
Secured Long-Term Loan from Shanghai Commercial Bank |
— | monthly interest payments. Interest-only payment for the first year. | ||||||||
Unsecured Long-Term Loan from Xiamen Bank |
| |||||||||
Unsecured Long-Term Loan from Bank of China |
quarterly interest payments. | |||||||||
Unsecured Long-Term Loan from Bank of Taiwan (1) |
monthly interest payments. | |||||||||
Unsecured Long-Term Loan from Bank of Taiwan (2) |
monthly interest payments. | |||||||||
Unsecured Revolving Loan from Mega International Commercial Bank (Note B) |
monthly interest payments. | |||||||||
Unsecured Revolving Loan from Taipei Fubon Bank (Note C) |
monthly interest payments. | |||||||||
Unsecured Revolving Loan from Chang Hwa Commercial Bank (Note D) |
monthly interest payments. | |||||||||
Unsecured Revolving Loan from KGI Bank (Note E) |
monthly interest payments. |
As of December 31, | ||||||||||
Lenders |
2021 | 2022 | Redemption | |||||||
NT$ | NT$ | |||||||||
(In Thousands) | (In Thousands) | |||||||||
Unsecured Revolving Loan from First Commercial Bank (1) (Note F and G) |
payments. | |||||||||
Unsecured Revolving Loan from First Commercial Bank (2) (Note F and G) |
| |||||||||
Unsecured Revolving Loan from First Commercial Bank (3) (Note F and G) |
| |||||||||
Unsecured Revolving Loan from Yuanta Commercial Bank (Note H) |
monthly interest payments. | |||||||||
|
|
|
|
|||||||
Subtotal |
||||||||||
Less: Current portion |
( |
) | ( |
) | ||||||
|
|
|
|
|||||||
Total |
$ | $ | ||||||||
|
|
|
|
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
Interest rates applied |
||||||||||||
|
|
|
|
|
|
Note A: |
USCXM, the subsidiary of UMC failed to comply with the loan covenant to maintain its financial ratio at certain level and therefore the loan was reclassified to current liabilities as of December 31, 2021. As of February 7, 2022, the bank exemption of 2021 have been obtained and the loan was reclassified to non-current liabilities. |
Note B: | UMC entered into a This line of credit will be reduced starting from the end of the two years and six months after the first use and every six months thereafter, with a total of six adjustments. As of December 31, 2021, the line of credit was fully used. The expiration date of the agreement was April 16, 2022. |
Note C: | UMC entered into a |
Note D: | UMC entered into a agreement offered UMC a revolving line of credit of NT$ line of credit will be reduced starting from the end of the third year after the first use and every three months thereafter, with a total of nine adjustments. As of December 31, 2021, the unused line of credit was NT$ 2022. |
Note E: | UMC entered into a |
Note F: | First Commercial Bank approved the |
Note G: | First Commercial Bank approved the |
Note H: | UMC entered into a |
b. | Please refer to Note 8 for property, plant and equipment and right-of-use |
c. | In 2016, HJ resolved to provide endorsement for USCXM’s syndicated loan from banks including China Development Bank. The maximum amount of endorsement for the years ended December 31, 2021 and 2022 were NT$ |
d. | In 2017, UMC resolved to provide endorsement for USCXM’s syndicated loan from banks including China Development Bank. The maximum am ount of endorsement for the years ended December 31, 2021 and 2022 were NT $NT $ |
(15) | Post-Employment Benefits |
a. | Defined contribution plan |
b. | Defined benefit plan |
i. |
Movements in present value of defined benefit obligation during the year: |
For the years ended December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Defined benefit obligation at beginning of year |
$ | ( |
) | $ | ( |
) | ||
Items recognized as profit or loss: |
||||||||
Service cost |
( |
) | ( |
) | ||||
Interest cost |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Subtotal |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Remeasurements recognized in other comprehensive income (loss): |
||||||||
Arising from changes in demographic assumptions |
( |
) | ||||||
Arising from changes in financial assumptions |
( |
) | ||||||
Experience adjustments |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Subtotal |
( |
) | ||||||
|
|
|
|
|||||
Benefits paid |
||||||||
|
|
|
|
|||||
Defined benefit obligation at end of year |
$ | ( |
) | $ | ( |
) | ||
|
|
|
|
ii. | Movements in fair value of plan assets during the year: |
For the years ended December 31, | ||||||||
2021 | 2022 | |||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||
Beginning balance of fair value of plan assets |
$ | $ | ||||||
Items recognized as profit or loss: |
||||||||
Interest income on plan assets |
||||||||
Contribution by employer |
||||||||
Benefits paid |
( |
) | ( |
) | ||||
Remeasurements recognized in other comprehensive income (loss): |
||||||||
Return on plan assets, excluding amounts included in interest income |
||||||||
|
|
|
|
|||||
Fair value of plan assets at end of year |
$ | $ | ||||||
|
|
|
|
iii. |
The defined benefit plan recognized on the consolidated balance sheets were as follows: |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||
Present value of the defined benefit obligation |
$ | ( |
) | $ | ( |
) | ||
Fair value of plan assets |
||||||||
|
|
|
|
|||||
Funded status |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net defined benefit liabilities, noncurrent recognized on the consolidated balance sheets |
$ | ( |
) | $ | ( |
) | ||
|
|
|
|
iv. | The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows: |
As of December 31, | ||||||||
2021 |
2022 | |||||||
Cash |
% | % | ||||||
Equity instruments |
% | % | ||||||
Debt instruments |
% | % | ||||||
Others |
|
% | % |
v. | The principal underlying actuarial assumptions are as follows: |
As of December 31, | ||||||||
2021 |
2022 | |||||||
Discount rate |
% | % | ||||||
Rate of future salary increase |
% | % |
vi. | Expected future benefit payments are as follows: |
Year |
As of December 31, 2022 | |||
NT$ (In Thousands) |
||||
2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
2028 and thereafter |
||||
|
|
|||
Total |
$ | |
||
|
|
vii. | Sensitivity analysis: |
As of December 31, 2021 | ||||||||||||||||
Discount rate | Rate of future salary increase | |||||||||||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||||||||
Decrease (increase) in defined benefit obligation |
$ | $ | ( |
) | $ | ( |
) | $ | ||||||||
|
|
|
|
|
|
|
|
As of December 31, 2022 |
||||||||||||||||
Discount rate |
Rate of future salary increase |
|||||||||||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||||||||
Decrease (increase) in defined benefit |
$ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||
|
|
|
|
|
|
|
|
(16) | Deferred Government Grants |
As of December 31, | ||||||||
2021 | 2022 | |||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||
Beginning balance |
$ | $ | |
|||||
Arising during the period |
||||||||
Recorded in profit or loss: |
||||||||
Other operating income |
( |
) | ( |
) | ||||
Exchange effect |
( |
) | ||||||
|
|
|
|
|||||
Ending balance |
$ | $ | ||||||
|
|
|
|
|||||
Current (classified under other current liabilities) |
$ | $ | ||||||
Non-current (classified under other noncurrent liabilities) |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
(17) | Refund Liabilities (classified under other current liabilities) |
As of December 31, | ||||||||
2021 | 2022 | |||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||
Refund liabilities |
$ | $ | ||||||
|
|
|
|
(18) | Decommissioning liabilities (classified under other noncurrent liabilities) |
As of December 31, | ||||||||
2021 | 2022 | |||||||
NT$ (In Thousands) |
NT$ (In Thousands) |
|||||||
Decommissioning liabilities |
$ | $ | ||||||
|
|
|
|
(19) | Equity |
a. | Capital stock: |
i. | UMC had |
ii. | UMC had respectively. The total number of common shares of UMC represented by all issued ADSs were |
iii. | On June 9, 2021 and December 5, 2022, UMC issued restricted stocks for its employees in a total of shares and |
iv. |
For the years ended December 31, 2021 and 2022, UMC has recalled and cancelled |
v. | On September 3, 2021, the Board of Directors’ meeting approved the share exchange transaction with CHIPBOND. UMC issued |
b. | Treasury stock: |
c. | Retained earnings and dividend policies: |
i. | Payment of taxes. |
ii. | Making up loss for preceding years. |
iii. | Setting aside paid-in capital. |
iv. | Appropriating or reversing special reserve by government officials or other regulations. |
v. | The remaining, if applicable, may be distributed preferentially as preferred shares dividends for the current year, and if there is still a remaining balance, in addition to the previous year’s unappropriated earnings, UMC shall distribute it according to the distribution plan proposed by the Board of Directors according to the dividend policy and submitted to the shareholders’ meeting for approval. |
Appropriation of earnings (in thousand NT dollars) |
Cash dividend per share (NT dollars) |
|||||||||||||||
2021 |
2022 |
2021 |
2022 |
|||||||||||||
Legal reserve |
$ |
$ |
||||||||||||||
Special reserve |
( |
) | ( |
) | ||||||||||||
Cash dividends |
$ | $ |
d. |
Non-controlling interests: |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Balance as of January 1 |
$ | $ | $ | |||||||||
Impact of retroactive applications |
( |
) | ||||||||||
Adjusted balance as of January 1 |
||||||||||||
Attributable to non-controlling interests: |
||||||||||||
Net income (loss) |
( |
) | ( |
) | ||||||||
Other comprehensive income (loss) |
( |
) | ||||||||||
Disposal of subsidiaries |
( |
) | ||||||||||
The differences between the fair value of the consideration paid or received from acquiring or disposing subsidiaries and the carrying amounts of the subsidiaries |
||||||||||||
Share-based payment transactions |
||||||||||||
Changes in subsidiaries’ ownership |
( |
) | ( |
) | ( |
) | ||||||
Non-controlling interests |
( |
) | ||||||||||
Derecognition of the non-controlling interests |
( |
) | ||||||||||
Ending balance |
$ | $ | $ | |||||||||
(20) |
Share-Based Payment |
a. | Treasury stock plan for employees |
b. | Restricted stock plan for employees |
c. | Stock appreciation right plan for employees |
Granted in September 2020 |
Granted in June 2021 |
|||||||
Share price of measurement date (NT$/ per share) |
$ | $ | ||||||
Expected volatility |
||||||||
Expected life |
||||||||
Expected dividend yield |
||||||||
Risk-free interest rate |
(21) |
Operating Revenues |
a. |
Disaggregation of revenue |
i. |
By product |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Wafer |
$ | $ | $ | |||||||||
Others |
||||||||||||
|
|
|
|
|
|
|||||||
Total |
$ | |
$ | |
$ | |||||||
|
|
|
|
|
|
ii. |
By geography |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Taiwan |
$ |
$ | $ | |||||||||
Singapore |
||||||||||||
China (includes Hong Kong) |
||||||||||||
Japan |
||||||||||||
USA |
||||||||||||
Europe |
||||||||||||
Others |
||||||||||||
Total |
$ |
$ | $ | |||||||||
iii. |
By the timing of revenue recognition |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
At a point in time |
$ |
$ | $ | |||||||||
Over time |
||||||||||||
Total |
$ |
$ | $ | |||||||||
b. |
Contract balances |
i. |
Contract assets, current |
As of January 1, |
As of December 31, |
|||||||||||
2021 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Sales of goods and services |
$ |
$ | $ | |||||||||
Less: Loss allowance |
( |
) |
( |
) | ( |
) | ||||||
Net |
$ |
|
$ | |
|
$ |
||||||
ii. |
Contract liabilities |
As of January 1, |
As of December 31, |
|||||||||||
2021 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Sales of goods and services |
$ | $ | $ | |||||||||
Current |
$ | $ | $ | |||||||||
Non-current |
||||||||||||
Total |
$ | |
$ | |
$ | |||||||
c. | The Company’s transaction price allocated to unsatisfied performance obligations amounted to NT$ |
d. | Asset recognized from costs to fulfill a contract with customer |
(22) | Operating Costs and Expenses |
For the years ended December 31, |
||||||||||||||||||||||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||||||||||||||||||||||
Operating costs |
Operating expenses |
Total |
Operating costs |
Operating expenses |
Total |
Operating costs |
Operating expenses |
Total |
||||||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
||||||||||||||||||||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||||||||||||||||||||
Employee benefit expenses |
||||||||||||||||||||||||||||||||||||
Salaries |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||||||||
Labor and health insurance |
||||||||||||||||||||||||||||||||||||
Pension |
||||||||||||||||||||||||||||||||||||
Other employee benefit expenses |
||||||||||||||||||||||||||||||||||||
Depreciation |
||||||||||||||||||||||||||||||||||||
Amortization |
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Employees’ compensation – Cash |
$ | $ | $ | |||||||||
Directors’ compensation |
(23) |
Net Other Operating Income and Expenses |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Government grants |
$ | $ | $ | |||||||||
Rental income from property, plant and equipment |
||||||||||||
Gain on disposal of property, plant and equipment |
||||||||||||
Others |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | $ | $ | |||||||||
|
|
|
|
|
|
(24) | Non-Operating Income and Expenses |
a. | Other gains and losses |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Gain (loss) on valuation of financial assets and liabilities at fair value through profit or loss |
$ | $ | $ | ( |
) | |||||||
Gain (loss) on disposal of investments |
( |
) | ( |
) | ||||||||
Others |
( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | $ | $ | ( |
) | |||||||
|
|
|
|
|
|
b. | Finance costs |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Interest expenses |
||||||||||||
Bonds payable |
$ | $ | $ | |||||||||
Bank loans |
||||||||||||
Lease liabilities |
||||||||||||
Others |
||||||||||||
Financial expenses |
||||||||||||
|
|
|
|
|
|
|||||||
Total |
$ | $ | $ | |||||||||
|
|
|
|
|
|
(25) |
Components of Other Comprehensive Income (Loss ) |
For the year ended December 31, 2020 | ||||||||||||||||||||
Arising during the period |
Reclassification adjustments during the period |
Other comprehensive income (loss), before tax |
Income tax effect |
Other comprehensive income (loss), net of tax |
||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||
Items that will not be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Remeasurements of defined benefit pension plans |
$ | ( |
) | $ | — | $ | ( |
) | $ | $ | ( |
) | ||||||||
Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income |
— | ( |
) | |||||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which will not be reclassified subsequently to profit or loss |
— | ( |
) | |||||||||||||||||
Items that may be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Exchange differences on translation of foreign operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which may be reclassified subsequently to profit or loss |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2021 |
||||||||||||||||||||
Arising during the period |
Reclassification adjustments during the period |
Other comprehensive income (loss), before tax |
Income tax effect |
Other comprehensive income (loss), net of tax |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Items that will not be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Remeasurements of defined benefit pension plans |
$ | ( |
) | $ | — | $ | ( |
) | $ | $ | ( |
) | ||||||||
Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income |
— | ( |
) | |||||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which will not be reclassified subsequently to profit or loss |
— | ( |
) | |||||||||||||||||
Items that may be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Exchange differences on translation of foreign operations |
( |
) | ( |
) | ( |
) | ||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which may be reclassified subsequently to profit or loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2022 |
||||||||||||||||||||
Arising during the period |
Reclassification adjustments during the period |
Other comprehensive income (loss), before tax |
Income tax effect |
Other comprehensive income (loss), net of tax |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Items that will not be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Remeasurements of defined benefit pension plans |
$ | $ | — |
$ | $ | ( |
) | $ | ||||||||||||
Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income |
( |
) | — |
( |
) | ( |
) | ( |
) | |||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which will not be reclassified subsequently to profit or loss |
( |
) | — |
( |
) | ( |
) | |||||||||||||
Items that may be reclassified subsequently to profit or loss: |
|
|||||||||||||||||||
Exchange differences on translation of foreign operations |
||||||||||||||||||||
Share of other comprehensive income (loss) of associates and joint ventures which may be reclassified subsequently to profit or loss |
( |
) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
$ | $ | $ | $ | $ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(26) | Income Tax |
a. | The major components of income tax expense (benefit) for the years ended December 31, 2020, 2021 and 2022 were as follows: |
i. | Income tax expense (benefit) recorded in profit or loss |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Current income tax expense (benefit): |
||||||||||||
Current income tax charge |
$ | $ | $ | |||||||||
Adjustments in respect of current income tax of prior periods |
( |
) | ( |
) | ( |
) | ||||||
Deferred income tax expense (benefit): |
||||||||||||
Deferred income tax related to origination and reversal of temporary differences |
||||||||||||
Deferred income tax related to recognition and derecognition of tax losses and unused tax credits |
||||||||||||
Adjustment of prior year’s deferred income tax |
( |
) | ( |
) | ||||||||
Deferred income tax arising from write-down or reversal of write-down of deferred tax assets |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Income tax expense recorded in profit or loss |
$ | $ | $ | |||||||||
|
|
|
|
|
|
ii. |
Deferred income tax related to components of other comprehensive income (loss) |
(i) |
Items that will not be reclassified subsequently to profit or loss: |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Remeasurements of defined benefit pension plans |
$ | $ | $ | ( |
) | |||||||
Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income |
( |
) | ( |
) | ( |
) | ||||||
Share of other comprehensive income (loss) of associates and joint ventures which will not be reclassified subsequently to profit or loss |
( |
) | ( |
) | ||||||||
Income tax related to items that will not be reclassified subsequently to profit or loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
(ii) Items that may be reclassified subsequently to profit or loss: |
||||||||||||
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Exchange differences on translation of foreign operations |
$ | $ | $ | |||||||||
Share of other comprehensive income (loss) of associates and joint ventures which may be reclassified subsequently to profit or loss |
( |
) | ||||||||||
Income tax related to items that may be reclassified subsequently to profit or loss |
$ | $ | $ | |||||||||
iii. Income tax charged directly to equity |
||||||||||||
For the years ended December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||
Current income tax expense (benefit): |
||||||||||||
Disposal of parent company’s stock by subsidiary recognized as treasury stock transactions |
$ | — | $ | ( |
) | $ | ||||||
Deferred income tax expense (benefit): |
||||||||||||
Recognize (reversal) of temporary difference arising from initial recognition of the equity component of the compound financial instrument |
— | |||||||||||
Adjustments of changes in net assets of associates and joint ventures accounted for using equity method |
( |
) | ( |
) | ||||||||
Income tax charged directly to equity |
$ | $ | ( |
) | $ | ( |
) | |||||
b. | A reconciliation between income tax expense (benefit) and income before tax at UMC’s applicable tax rate were as follows: |
For the years ended December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||
Income before tax |
$ | $ | $ | |||||||||
At UMC’s statutory income tax rate |
||||||||||||
Adjustments in respect of current income tax of prior periods |
( |
) | ( |
) | ( |
) | ||||||
Net changes in loss carry-forward and investment tax credits |
( |
) | ( |
) | ||||||||
Adjustment of deferred tax assets/liabilities for write-downs/reversals and different jurisdictional tax rates |
( |
) | ( |
) | ||||||||
Tax effect of non-taxable income and non-deductible expenses: |
||||||||||||
Tax exempt income |
( |
) | ( |
) | ( |
) | ||||||
Investment loss (gain) |
( |
) | ( |
) | ||||||||
Dividend income |
( |
) | ( |
) | ( |
) | ||||||
Others |
( |
) | ||||||||||
Basic tax |
||||||||||||
Estimated income tax on unappropriated earnings |
||||||||||||
Effect of different tax rates applicable to UMC and its subsidiaries |
( |
) | ||||||||||
Taxes withheld in other jurisdictions |
||||||||||||
Others |
||||||||||||
Income tax expense recorded in profit or loss |
$ | $ | $ | |||||||||
c. |
Significant components of deferred income tax assets and liabilities were as follows: |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Deferred income tax assets |
||||||||
Depreciation |
$ | $ | ||||||
Loss carry-forward |
||||||||
Pension |
||||||||
Refund liabilities |
||||||||
Allowance for inventory valuation losses |
||||||||
Investment loss |
||||||||
Unrealized profit on intercompany sales |
||||||||
Others |
||||||||
Total deferred income tax assets |
||||||||
Deferred income tax liabilities |
||||||||
Unrealized exchange gain |
( |
) | ( |
) | ||||
Depreciation |
( |
) | ( |
) | ||||
Investment gain |
( |
) | ( |
) | ||||
Bonds |
( |
) | ( |
) | ||||
Amortizable assets |
( |
) | ( |
) | ||||
Total deferred income tax liabilities |
( |
) | ( |
) | ||||
Net deferred income tax assets |
$ | $ | ||||||
d. | Movement of deferred tax |
For the years ended December 31, | ||||||||
2021 | 2022 | |||||||
NT$ | NT$ | |||||||
(In Thousands) | (In Thousands) | |||||||
Balance as of January 1 |
$ | $ | |
|||||
Amounts recognized in profit or loss during the period |
( |
) | ( |
) | ||||
Amounts recognized in other comprehensive income (loss) |
( |
) | ||||||
Amounts recognized in equity |
( |
) | ||||||
Exchange adjustments |
( |
) | ( |
) | ||||
Balance as of December 31 |
$ | |
$ | |||||
e. | The Company is subject to taxation in Taiwan and other foreign jurisdictions. As of December 31, 2022, income tax returns of UMC and its subsidiaries in Taiwan have been examined by the tax authorities through 20 20 , while in other foreign jurisdictions, relevant tax authorities have completed the examination through 2012. |
f. | UMC was granted income tax exemption for several periods with respect to income derived from the expansion of operations. The income tax exemption had expired on December 31, 2020. |
g. | UMC’s branch in Singapore obtained two tax incentives granted by the Singapore government for a period of five years from August 2020. The qualifying incomes are either tax-exempt or taxed at concessionary tax rate. The incentive period will end in July 2025. |
h. | The information of the unused tax loss carry-forward for which no deferred income tax assets have been recognized were as follows: |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Expiry period |
||||||||
1-5 years |
$ | $ | |
|||||
6-10 years |
||||||||
|
|
|
|
|||||
Total |
$ | $ | ||||||
|
|
|
|
i. | As of December 31, 2021 and 2022, deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$ |
j. | As of December 31, 2021 and 2022, the taxable temporary differences of unrecognized deferred tax liabilities associated with investments in subsidiaries amounted to NT$ |
(27) | Earnings Per Share |
a. | Earnings per share-basic |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Net income attributable to the parent company |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average number of ordinary shares for basic earnings per share (thousand shares) |
||||||||||||
|
|
|
|
|
|
|||||||
Earnings per share-basic (NTD) |
$ | $ | $ | |||||||||
|
|
|
|
|
|
b. | Earnings per share-diluted |
For the years ended December 31, |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
NT$ |
NT$ |
NT$ |
||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||
Net income attributable to the parent company |
$ | $ | $ | |||||||||
Effect of dilution |
||||||||||||
Unsecured convertible bonds |
||||||||||||
|
|
|
|
|
|
|||||||
Income attributable to shareholders of the parent |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average number of ordinary shares for basic earnings per share (thousand shares) |
||||||||||||
Effect of dilution |
||||||||||||
Restricted stocks for employees |
||||||||||||
Employees’ compensation |
||||||||||||
Unsecured convertible bonds |
||||||||||||
|
|
|
|
|
|
|||||||
Weighted-average number of ordinary shares after dilution (thousand shares) |
||||||||||||
|
|
|
|
|
|
|||||||
Earnings per share-diluted (NTD) |
$ | $ | $ | |||||||||
|
|
|
|
|
|
(28) | Reconciliation of Liabilities Arising from Financing Activities |
Non-cash changes |
||||||||||||||||||||
Items |
As of January 1, 2020 |
Cash Flows |
Foreign exchange |
Others (Note A) |
As of December 31, 2020 |
|||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Short-term loans |
$ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
Long-term loans (current portion included) |
( |
) | ||||||||||||||||||
Bonds payable (current portion included) |
( |
) | — | ( (Note C |
) ) |
|||||||||||||||
Guarantee deposits (current portion included) |
( |
) | ( |
) | (Note D |
) | ||||||||||||||
Lease liabilities |
( |
) | ( |
) | ||||||||||||||||
Other financial liabilities-noncurrent (Note B) |
— |
Non-cash changes |
||||||||||||||||||||
Items |
As of January 1, 2021 |
Cash Flows |
Foreign exchange |
Others (Note A) |
As of December 31, 2021 |
|||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Short-term loans |
$ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
Long-term loans (current portion included) |
( |
) | — | |||||||||||||||||
Bonds payable (current portion included) |
— | ( (Note E |
) ) |
|||||||||||||||||
Guarantee deposits (current portion included) |
( |
) | — | (Note D |
) | |||||||||||||||
Lease liabilities |
( |
) | ( |
) | ||||||||||||||||
Other financial liabilities (Note B) |
— | ( |
) |
Non-cash changes |
||||||||||||||||||||
Items |
As of January 1, 2022 |
Cash Flows |
Foreign exchange |
Others (Note A) |
As of December 31, 2022 |
|||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Short-term loans |
$ | $ | ( |
) | $ | $ | $ | |||||||||||||
Long-term loans (current portion included) |
( |
) | ||||||||||||||||||
Bonds payable (current portion included) |
( |
) | (Note E |
) |
||||||||||||||||
Guarantee deposits (current portion included) |
(Note D |
) | ||||||||||||||||||
Lease liabilities |
( |
) | (Note F |
) |
||||||||||||||||
Other financial liabilities (Note B) |
(29) |
Deconsolidation of Subsidiaries |
a. |
Derecognized assets and liabilities mainly consisted of: |
NT$ |
||||
(In Thousands) |
||||
Assets |
||||
Cash and cash equivalents |
$ | |||
Other current assets |
||||
|
|
|||
|
|
|||
Liabilities |
||||
Other payables |
( |
) | ||
|
|
|||
( |
) | |||
|
|
|||
Net assets of the deconsolidation |
$ | |
||
|
|
b. |
Consideration received and gain recognized from the deconsolidation: |
NT$ |
||||
(In Thousands) |
||||
Cash received |
$ | |||
Less: Net assets of the deconsolidation |
( |
) | ||
Add: Non-controlling interests |
||||
Other comprehensive income from equity reclassified to profit or loss due to derecognition |
||||
|
|
|||
Gain on deconsolidation (Note A) |
$ | |||
|
|
c. | Analysis of net cash outflow arising from deconsolidation of the subsidiary: |
NT$ | ||||
(In Thousands) | ||||
Cash received |
$ | |||
Net cash of subsidiary derecognized |
( |
) | ||
|
|
|||
Net cash outflow from deconsolidation |
$ | ( |
) | |
|
|
7. | SIGNIFICANT RELATED PARTY TRANSACTIONS |
a. | Significant intercompany transactions between consolidated entities were as follows: |
Entity |
Counterparty |
Transactions (Note A) | ||||||||
Account | Amount | Terms (Note B) | ||||||||
NT$ | ||||||||||
(In Thousands) | ||||||||||
UMC |
UMC-USA | Sales | $ | |||||||
UMC |
UMC-USA | Accounts receivable | — | |||||||
UMC |
UMC GROUP JAPAN | Sales | ||||||||
UMC |
USCXM | Sales | (Note C |
) |
||||||
UMC |
USCXM | Accounts receivable | — | |||||||
USCXM |
UMC-USA | Sales | ||||||||
USCXM |
UMC-USA | Accounts receivable | — | |||||||
HJ |
UMC-USA | Sales | ||||||||
HJ |
UMC-USA | Accounts receivable | — | |||||||
HJ |
UMC GROUP JAPAN | Sales | ||||||||
USJC |
UMC-USA | Sales | ||||||||
USJC |
UMC-USA | Accounts receivable | — |
Entity |
Counterparty |
Transactions (Note D) | ||||||||
Account |
Amount |
Terms (Note B) | ||||||||
NT$ |
||||||||||
(In Thousands) |
||||||||||
UMC |
UMC-USA | Sales | $ | |||||||
UMC |
UMC-USA | Accounts receivable | — | |||||||
UMC |
USCXM | Sales | (Note C |
) |
||||||
UMC |
USCXM | Accounts receivable | — | |||||||
UMC |
UDS | Sales | ||||||||
UMC |
UDS | Accounts receivable | — | |||||||
USJC |
UMC-USA | Sales | ||||||||
USJC |
UMC-USA | Accounts receivable | — | |||||||
USCXM |
UMC-USA | Sales | ||||||||
USCXM |
UMC-USA | Accounts receivable | — | |||||||
WAVETEK |
UMC-USA | Sales | ||||||||
WAVETEK |
UMC-USA | Accounts receivable | — | |||||||
WAVETEK |
UMC | Sales | ||||||||
HJ |
UMC-USA | Sales | ||||||||
HJ |
UMC-USA | Accounts receivable | — |
Entity |
Counterparty |
Transactions (Note D) | ||||||||
Account |
Amount |
Terms (Note B) | ||||||||
NT$ |
||||||||||
(In Thousands) |
||||||||||
UMC |
UMC-USA | Sales | $ | |||||||
UMC |
UMC-USA | Accounts receivable | — | |||||||
UMC |
USCXM | Sales | (Note C |
) |
||||||
UMC |
USCXM | Accounts receivable | — | |||||||
UMC |
UDS | Sales | ||||||||
UMC |
UDS | Accounts receivable | — | |||||||
UMC |
USJC |
Sales |
||||||||
UMC |
USJC |
Accounts receivable |
— | |||||||
USJC |
UMC-USA | Sales | ||||||||
USJC |
UMC-USA | Accounts receivable | — | |||||||
USCXM |
UMC-USA | Sales | ||||||||
USCXM |
UMC-USA | Accounts receivable | — | |||||||
USCXM |
UMC | Sales | ||||||||
USCXM |
UMC | Accounts receivable | — | |||||||
USCXM |
UDS |
Sales |
30 days | |||||||
USCXM |
UDS |
Accounts receivable |
— | |||||||
WTK |
UMC-USA | Sales | ||||||||
WTK |
UMC-USA | Accounts receivable | — | |||||||
WTK |
UMC |
Sales |
30 days | |||||||
HJ |
UMC-USA | Sales | ||||||||
HJ |
UMC-USA | Accounts receivable | — | |||||||
HJ |
UDS | Sales | Month-end 30 days | |||||||
HJ |
UDS | Accounts receivable | — |
Note A: |
The significant intercompany transactions listed above include downstream transactions. |
Note B: |
The sales price to the above related parties was determined through mutual agreement in reference to market conditions. |
Note C: |
UMC authorized technology licenses to its subsidiary, USCXM, in the amount of US$ |
Note D: |
The significant intercompany transactions listed above include downstream and upstream transactions. |
b. |
Significant transactions between the Company and other related parties were as follows: |
(i) |
Name and Relationship of Related Parties |
Name of related parties |
Relationship with the Company | |||
FARADAY TECHNOLOGY CORP. and its Subsidiaries |
Associate | |||
HSUN CHIEH INVESTMENT CO., LTD. |
Associate | |||
UNIMICRON TECHNOLOGY CORP. |
Associate | |||
SILICON INTEGRATED SYSTEMS CORP. |
The Company’s director | |||
PHOTRONICS DNP MASK CORPORATION |
Other related parties | |||
UNITEDVISION SEMICONDUCTOR CO., LTD. |
Other related parties | |||
UPI SEMICONDUCTOR CORP. |
Other related parties |
(ii) |
Operating revenues |
For the years ended December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||
Associates |
$ | $ | $ | |||||||||
Others |
||||||||||||
Total |
$ | $ | $ | |||||||||
(iii) | Accounts receivable, net |
As of December 31, |
||||||||
2021 |
2022 |
|||||||
NT$ |
NT$ |
|||||||
(In Thousands) |
(In Thousands) |
|||||||
Associates |
$ | $ | ||||||
Others |
||||||||
Total |
$ | |
$ | |
||||
(iv) | Refund liabilities (classified under other current liabilities) |
As of December 31, | ||||||||
2021 | 2022 | |||||||
NT$ | NT$ | |||||||
(In Thousands) | (In Thousands) | |||||||
Associates |
$ | $ | ||||||
Others |
||||||||
Total |
$ | |
$ | |
||||
(v) | Significant asset transactions |
For the year ended December 31, 2020 |
||||||||||
Trading Volume (In thousands of shares) |
Transaction underlying | Purchase price | ||||||||
NT$ | ||||||||||
(In Thousands) | ||||||||||
Associates |
Stock of WELLYSUN INC. |
$ | ||||||||
For the year ended December 31, 2021 |
||||||||||
Trading Volume (In thousands of shares) |
Transaction underlying | Purchase price | ||||||||
NT$ | ||||||||||
(In Thousands) | ||||||||||
Associates |
Stock of ARTERY TECHNOLOGY CORPORATION |
$ | ||||||||
Purchase price |
||||||||||||||
For the years ended December 31, |
||||||||||||||
2020 |
2021 |
2022 |
||||||||||||
NT$ |
NT$ |
NT$ |
||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||
Associates |
$ | |
$ | |
$ | |||||||||
(vi) Others |
||||||||||||||
Mask expenditure | ||||||||||||||
For the years ended December 31, | ||||||||||||||
2020 | 2021 | 2022 | ||||||||||||
NT$ | NT$ | NT$ | ||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||
Others |
$ | $ | $ | |||||||||||
Other payables of mask expenditure |
||||||||||||
As of December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||
Others |
$ | |
$ | |
$ | |||||||
c. | Key management personnel compensation |
For the years ended December 31, | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | ||||||||||
Short-term employee benefits |
$ | $ | $ | |||||||||
Post-employment benefits |
||||||||||||
Termination benefits |
||||||||||||
Share-based payment |
||||||||||||
Others |
||||||||||||
Total |
$ | $ | $ | |||||||||
8. | ASSETS PLEDGED AS COLLATERAL |
As of December 31, |
||||||||||||
2021 |
2022 |
Party to which asset(s) was pledged |
Purpose of pledge | |||||||||
NT$ |
NT$ |
|||||||||||
(In Thousands) |
(In Thousands) |
|||||||||||
Refundable Deposits (Time deposit) |
$ | |
$ | |
Customs |
|||||||
Refundable Deposits (Time deposit) |
Science Park Bureau |
|||||||||||
Refundable Deposits (Time deposit) |
Science Park Bureau |
|||||||||||
Refundable Deposits (Time deposit) |
National Property Administration, Ministry of Finance |
non-public use land for development | ||||||||||
Refundable Deposits (Time deposit) |
Bureau of Land Administration, Tainan City Government |
|||||||||||
Refundable Deposits (Time deposit) |
Liquefied Natural Gas Business Division, CPC Corporation, Taiwan |
|||||||||||
Refundable Deposits (Time deposit) |
Bank of China and Agricultural Bank of China |
|||||||||||
Refundable Deposits (Time deposit) |
CTBC Bank Singapore Branch |
|||||||||||
Refundable Deposits (Bank deposit) |
Shanghai Commercial Bank |
|||||||||||
Buildings |
Taiwan Cooperative Bank and Secured Syndicated Loans from China Development Bank and 6 others |
As of December 31, | ||||||||||||
2021 | 2022 | Party to which asset(s) was pledged |
Purpose of pledge | |||||||||
NT$ | NT$ | |||||||||||
(In Thousands) | (In Thousands) | |||||||||||
Machinery and equipment |
Taiwan Cooperative Bank, Mega International Commercial Bank, KGI Bank, First Commercial Bank, Shanghai Commercial Bank and Secured Syndicated Loans from China Development Bank and 6 others |
| ||||||||||
Transportation equipment |
Secured Syndicated Loans from China Development Bank and 6 others |
| ||||||||||
Furniture and fixtures |
Secured Syndicated Loans from China Development Bank and 6 others |
| ||||||||||
Right-of-use |
Secured Syndicated Loans from China Development Bank and 6 others |
| ||||||||||
|
|
|
|
|||||||||
Total |
$ | $ | ||||||||||
|
|
|
|
9. | SIGNIFICANT CONTINGENCIES AND UNRECOGNIZED CONTRACT COMMITMENTS |
(1) | As of December 31, 2022, amounts available under unused letters of credit for importing machinery and equipment were NT$ |
(2) | As of December 31, 2022, the Company entrusted financial institutions to open performance guarantee, mainly related to the litigations and customs tax guarantee, amounting to NT$ |
(3) | The Company entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$ |
(4) | The Company entered into several construction contracts for the expansion of its operations. As of December 31, 2022, these construction contracts amounted to approximately NT$ |
(5) | The Company entered into several wafer-processing contracts with its customers. According to the contracts, the Company shall provide agreed production capacity with the customers. |
(6) | The Board of Directors of UMC resolved in October 2014 to participate in a 3-way agreement with Xiamen Municipal People’s Government and FUJIAN ELECTRONIC & INFORMATION GROUP to form a company which will focus on 12’’ wafer foundry services. The Company obtained R.O.C. government authority’s approval for the investment and invested RMB¥non-controlling interests as required by IFRS 10 during the reporting period. At the end of each reporting period, the Company recognizes a financial liability for its commitment to the other investors in accordance with IFRS 9, at the same time derecognizing the non-controlling interests. Any difference between the financial liability and the non-controlling interests balance is recognized in equity. |
(7) | On August 31, 2017, the Taichung District Prosecutors Office indicted UMC based on the Trade Secret Act of R.O.C., alleging that employees of UMC misappropriated the trade secrets of MICRON TECHNOLOGY, INC. (“MICRON ”) and of MICRON MEMORY TAIWAN CO., LTD.. |
10. | SIGNIFICANT SUBSEQUENT EVENTS |
11. | FINANCIAL RISK AND FAIR VALUE DISCLOSURES |
(1) | Categories of financial instruments |
As of December 31, | ||||||||
Financial Assets |
2021 | 2022 | ||||||
NT$ | NT$ | |||||||
(In Thousands) | (In Thousands) | |||||||
Financial assets at fair value through profit or loss |
$ | $ | ||||||
Financial assets at fair value through other comprehensive income |
||||||||
Financial assets measured at amortized cost |
||||||||
Cash and cash equivalents (cash on hand excluded) |
||||||||
Receivables |
||||||||
Refundable deposits |
||||||||
Other financial assets |
||||||||
Total |
$ | $ | ||||||
As of December 31, | ||||||||
Financial Liabilities |
2021 | 2022 | ||||||
NT$ | NT$ | |||||||
(In Thousands) | (In Thousands) | |||||||
Financial liabilities at fair value through profit or loss |
$ | $ | ||||||
Financial liabilities measured at amortized cost |
||||||||
Short-term loans |
||||||||
Payables |
||||||||
Guarantee deposits (current portion included) |
||||||||
Bonds payable (current portion included) |
||||||||
Long-term loans (current portion included) |
||||||||
Lease liabilities |
||||||||
Other financial liabilities |
||||||||
Total |
$ | $ | ||||||
(2) | Financial risk management objectives and policies |
(3) | Market risk |
(4) |
Credit risk management |
(5) | Liquidity risk management |
As of December 31, 2021 |
||||||||||||||||||||
Less than 1 year |
2 to 3 years |
4 to 5 years |
> 5 years |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Non-derivative financial liabilities |
||||||||||||||||||||
Short-term loans |
$ | $ | — | $ | — | $ | — | $ | ||||||||||||
Payables |
— | — | — | |||||||||||||||||
Guarantee deposits |
— | |||||||||||||||||||
Bonds payable (Note) |
||||||||||||||||||||
Long-term loans |
||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||
Other financial liabilities |
— | — | ||||||||||||||||||
Total |
$ | $ | $ | $ | $ | |||||||||||||||
As of December 31, 2022 |
||||||||||||||||||||
Less than 1 year |
2 to 3 years |
4 to 5 years |
> 5 years |
Total |
||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
||||||||||||||||
Non-derivative financial liabilities |
||||||||||||||||||||
Payables |
$ | $ | $ | $ | $ | |||||||||||||||
Guarantee deposits |
||||||||||||||||||||
Bonds payable (Note) |
||||||||||||||||||||
Long-term loans |
||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||
Other financial liabilities |
||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | |||||||||||||||
(6) | Foreign currency risk management |
(7) | Fair value measurement |
a. | Assets and liabilities measured and recorded at fair value on a recurring basis: |
As of December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at fair value through profit or loss, current |
$ | $ | $ | $ | ||||||||||||
Financial assets at fair value through profit or loss, noncurrent |
||||||||||||||||
Financial assets at fair value through other comprehensive income, current |
||||||||||||||||
Financial assets at fair value through other comprehensive income, noncurrent |
||||||||||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss, current |
As of December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at fair value through profit or loss, current |
$ | $ | $ | $ | ||||||||||||
Financial assets at fair value through profit or loss, noncurrent |
||||||||||||||||
Financial assets at fair value through other comprehensive income, current |
||||||||||||||||
Financial assets at fair value through other comprehensive income, noncurrent |
||||||||||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss, current |
Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income |
|||||||||||||||||||||||||||||||
Common stock | Preferred stock | Funds | Convertible bonds | Total | Common stock | Preferred stock | Total | |||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||||||||||||||
As of January 1, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Recognized in profit (loss) |
( |
) | ( |
) | — | — | — | |||||||||||||||||||||||||
Recognized in other comprehensive income (loss) |
— | — | — | — | — | ( |
) | |||||||||||||||||||||||||
Acquisition |
— | — | — | |||||||||||||||||||||||||||||
Disposal |
( |
) | ( |
) | — | ( |
) | ( |
) | — | — | — | ||||||||||||||||||||
Return of capital |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Transfer out of Level 3 |
( |
) | — | — | — | ( |
) | — | — | — | ||||||||||||||||||||||
Exchange effect |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | — | — | |||||||||||||||||||
As of December 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss |
||||
Derivatives | ||||
NT$ (In Thousands) |
||||
As of January 1, 2021 |
$ | |||
Recognized in profit (loss) |
||||
Issuance |
||||
As of December 31, 2021 |
$ | |||
Financial assets at fair value through profit or loss |
Financial assets at fair value through other comprehensive income |
|||||||||||||||||||||||||||||||
Common stock |
Preferred stock |
Funds |
Convertible bonds |
Total |
Common stock |
Preferred stock |
Total |
|||||||||||||||||||||||||
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
NT$ |
|||||||||||||||||||||||||
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
(In Thousands) |
|||||||||||||||||||||||||
As of January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Recognized in profit (loss) |
( |
) |
( |
) |
( |
) |
( |
) |
— |
— |
— |
|||||||||||||||||||||
Recognized in other comprehensive income (loss) |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
Acquisition |
— |
— |
— |
— |
||||||||||||||||||||||||||||
Disposal |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
— |
— |
— |
|||||||||||||||||||
Return of capital |
— |
— |
( |
) |
— |
( |
) |
— |
— |
— |
||||||||||||||||||||||
Transfer out of Level 3 |
( |
) |
— |
— |
— |
( |
) |
— |
— |
— |
||||||||||||||||||||||
Exchange effect |
— |
— |
— |
|||||||||||||||||||||||||||||
As of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss |
||||
Derivatives | ||||
NT$ (In Thousands) |
||||
As of January 1, 2022 |
$ | |||
Recognized in profit (loss) |
( |
) | ||
Derecognition |
( |
) | ||
As of December 31, 2022 |
$ | |||
As of December 31, 2021 | ||||||||||
Category |
Valuation technique |
Significant unobservable inputs |
Quantitative information |
Interrelationship between inputs and fair value |
Sensitivity analysis of interrelationship between inputs and fair value | |||||
Unlisted stock | Market Approach | Discount for lack of marketability |
The greater degree of lack of marketability, the lower the estimated fair value is determined. |
A change of | ||||||
Embedded derivatives in exchangeable bonds |
Binomial tree valuation model |
Volatility |
The higher the volatility, the higher the estimated fair value is determined. |
A change of |
As of December 31, 2022 | ||||||||||
Category |
Valuation technique |
Significant unobservable inputs |
Quantitative information |
Interrelationship between inputs and fair value |
Sensitivity analysis of interrelationship between inputs and fair value | |||||
Unlisted stock | Market Approach | Discount for lack of marketability |
The greater degree of lack of marketability, the lower the estimated fair value is determined. |
A change of | ||||||
Embedded derivatives in exchangeable bonds |
Binomial tree valuation model |
Volatility |
The higher the volatility, the higher the estimated fair value is determined. |
A change of |
b. | Assets and liabilities not recorded at fair value but for which fair value is disclosed: |
As of December 31, 202 1 |
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Fair value measurements during reporting period using |
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Items |
Fair value | Level 1 | Level 2 | Level 3 | Carrying amount |
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NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
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Bonds payables (current portion included) |
$ | $ | $ | $ | — | $ | ||||||||||||||
Long-term loans (current portion included) |
— | — | ||||||||||||||||||
As of December 31, 2022 |
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Fair value measurements during reporting period using |
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Items |
Fair value | Level 1 | Level 2 | Level 3 | Carrying amount |
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NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
NT$ (In Thousands) |
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Bonds payables (current portion included) |
$ | $ | $ | $ | $ | |||||||||||||||
Long-term loans (current portion included) |
12. | OPERATING SEGMENT INFORMATION |
(1) | The Company determined its operating segments based on business activities with discrete financial information regularly reported through the Company’s internal reporting protocols to the Company’s chief operating decision maker. The Company only has wafer fabrication operating segment as the single reporting segment. The primary operating activity of the wafer fabrication segment is the manufacture of chips to the design specifications of our customers by using our own proprietary processes and techniques. There was no material difference between the accounting policies of the operating segment and those described in Note 4. Please refer to the Company’s consolidated financial statements for the related segment revenue and operating results. |
(2) | Geographic non-current assets information |
As of December 31, |
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2021 |
2022 |
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NT$ |
NT$ |
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(In Thousands) |
(In Thousands) |
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Taiwan |
$ | |
$ | |||||||||||||
Singapore |
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China (includes Hong Kong) |
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Japan |
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USA |
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Europe |
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Others |
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Total |
$ | $ | ||||||||||||||
(3) | Major customers |
For the years ended December 31, |
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2020 |
2021 |
2022 |
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NT$ |
NT$ |
NT$ |
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(In Thousands) |
(In Thousands) |
(In Thousands) |
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Customer A |
$ | $ | $ | |||||||||
13. | CAPITAL MANAGEMENT |
As of December 31, |
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2021 |
2022 |
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NT$ |
NT$ |
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(In Thousands) |
(In Thousands) |
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Total liabilities |
$ | $ | ||||||
Less: Cash and cash equivalents |
( |
) | ( |
) | ||||
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Net debt |
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Total equity |
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Total capital |
$ | |||||||
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Debt to capital ratios |
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