Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Randy Abrams from Credit Suisse. Please proceed.
Randy Abrams - Credit Suisse
First question on the gross margins, I want to see if you could outline some of the key changes on your gross margins to allow them to match where they got last year at much lower utilization? Maybe a few things within that, if you could talk about depreciation, where you see it now running in 2009 based on US$1.5 billion CapEx, and potentially into 2010 directionally. How do you see gross margins now if we were to get utilization to improve further?
Lora Ho
On your question regarding margin, I think you see that in our second quarter guidance margin actually increased quite significantly. For these two quarters, I think it's mainly contributed by the much higher utilization. In the first quarter, our utilization was below 40%. In the second quarter, it was 70% plus. So, on these kind of conditions, every percentage of utilization is very sensitive to our gross margin. So this is the major contribution of the improvement.
In addition to that, we have done some cost reduction activities, both structurally and also one-time cost reductions. We have been starting doing that in the fourth quarter and also continue through the first quarter and second quarter. So this is another area that improved our margin in the second quarter.
Your second question about depreciation for '09 and '10, FOR 2009, with the US$1.5 billion capital expenditure, we expect the depreciation will be flattish to 2008. Last year, our overall depreciation and amortization accounts for around NT$81 billion. The number for 2009 will be about the same. For 2010, it's probably too early but we think the overall depreciation will go down in 2010. In terms of what kind of magnitude, it depends on the capital expenditure spending for 2010. The trend is to go down because some of the equipments in 12-inch will be coming down from depreciation by 2010.
So that is the overview of our depreciation status.
Randy Abrams - Credit Suisse
If you could talk about the capacity utilization, where are you now on 12-inch versus 8-inch? Did you have to turn away business just due to lead times expanding or customers' placing rush orders and wanting shorter lead times? Do you see any pockets of over ordering, just as you've tried to turn on capacity and not gotten the cycle times that customers demand?
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