United Microelectronics Corp. Sponsored ADR Aktie

Welcome, everyone, to UMC's 2026 Third Quarter Earnings Conference Call. For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference is finished. Please visit our website, www.umc.com under the Investor Relations, Investors Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Thank you, and welcome to UMC's conference call for the third quarter of 2026. I'm joined by Mr. Jason Wang, CEO of UMC; and Mr. Chitung Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial results, followed by our CEO's key message to address UMC's focus and fourth quarter 2026 guidance. Once our CEO and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financials section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now I would like to introduce UMC's CFO, Mr. Chitung Liu, to discuss UMC's third quarter 2026 financial results.

Thank you, Michael. I'd like to go through the third quarter 26 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4. The third quarter of 2026, consolidated revenue was TWD 74.24 billion with gross margin rate of 34%. Net income attributable to the shareholder of the parent was TWD 16.43 billion, and earnings per ordinary share were TWD 1.32. Capacity utilization rate in the third quarter reached 92% compared to 85% in the previous quarter. And overall, EPS for the quarter was TWD 1.32. And on Page 5, revenue grew 8% sequentially to reach TWD 74.2 billion. As we stated earlier, gross margin rate also improved from 32.5% in the previous quarter to 34% in this quarter or TWD 25.2 billion. And EPS per U.S. ADS is USD 0.206.

For the year-over-year comparison on Page 6, revenue grew 16.1% to TWD 204 billion. and gross profit also grew 30.8% year-over-year to TWD 65.3 billion or 32% of the gross margin rate. With the help of the nonoperating income, overall net income attributable to the shareholder of the parent grew 136.5% year-over-year to reach TWD 74.86 billion for the first 9 months of the year. EPS for the first 3 quarters reached TWD 6 in NT terms or USD 0.945 per ADS in U.S. dollar terms.

On Page 7, our balance sheet at the end of third quarter. Total equity is TWD 470 billion with cash account for about TWD 142 billion on the September 30. For EPS -- sorry, for blended ASP in the third quarter was relatively stable, remained firm compared to the previous quarter on Page 8. For revenue breakdown on Page 9, there's a very little change for quarter 2 compared to quarter 3 of 2026 for revenue breakdown by geography. On Page 10, our revenue breakdown by customer type also remained virtually unchanged for IDM was about 14% of the total revenue and fabless account for the others. For revenue breakdown by application, consumer stayed unchanged at around 32% when communication and computer also stayed quarter-over-quarter unchanged.

On Page 12, our 22- and 28-nanometer revenue still account for more than 1/3, reach about 35% of the total pie chart and 40-nanometer is around 16% and 65-nanometer is about 19% -- our quarterly capacity continued to increase slightly, mainly coming from our 12i facility in Singapore. And for quarter 4 of 2026, we expect the capacity for overall UMC reached about 1.3 12-inch equivalent -- 1.33 million for 12-inch equivalent capacity by Q4 2026. And capacity compared to the last quarter's estimate still remain unchanged around USD 2 billion. So the above is the summary of UMC results for third quarter of 2026. More details are available in the report, which has been posted on our website. I will now turn the call over to CEO of UMC, Mr. Jason Wang.

Thank you, Chitung. Good evening, everyone. Here, I would like to share UMC's third quarter results. In the third quarter, we saw a healthy demand across all market segments, driving a 7.3% growth in wafer shipments to more than 1.2 million 12-inch equivalent wafers, a record high. Our overall fab utilization rate reached 92% with several of our 12-inch fabs operating at full capacity, while 8-inch operations also saw a strong recovery. By technology node, our 22/28-nanometer business had another record-breaking quarter with 22-nanometer revenue now accounting for 18.3% of wafer sales as the customer continue to tape out new products, including display drivers, automotive radar and Wi-Fi ICs. In new business area, active customer engagements for advanced packaging and silicon photonics remain robust. We expect this engagement to translate into accretive growth over the coming quarters as we ramp existing projects and support new product tape-out.

Looking ahead to the fourth quarter, we expect the positive demand momentum to sustain, supporting stable shipments and utilization rate. Revenue from our specialty technology portfolio will continue to grow sequentially. driven in part by the ramp-up of our advanced packaging and silicon photonics businesses. We have seen a significant increase in demand for this new business area, and we are in the process of converting some existing capacity to address near-term unfulfilled demand. In the longer run, our dual track expansion plan in Singapore and Tainan will be crucial to ensure UMC's capacity growth can keep pace with our customers' needs. We are pleased to announce our Board of Directors today approved an additional capital expenditure budget of approximately USD 3.2 billion, which will enable us to accelerate our expansion schedule as we continue to align with customers on their product road map and requirements.

Now let's move on to fourth quarter 2026 guidance. Our wafer shipment will increase by low single digits. ASP in USD will remain firm. Gross margin will be comparable to the preceding quarter. Capacity utilization rate will be in the low 90% range. Our 2026 cash-based CapEx budget will be at USD 2 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

[Operator Instructions]

First question will be coming from Sunny Lin, UBS.

Several questions from my side. So number one, now that UMC will finish 2026 on a high note, any early view for 2027 based on the current visibility?

Yes. For 2027 early view, we expect the growth momentum established in 2026 will continue into the next year, supported by the healthy demand across our core business and growing opportunity in differentiated technology and high-value applications. If we look at in 2026, our growth has been driven primarily by high wafer shipment, improving utilization and customer share gain. Looking ahead to 2027, we expect further growth, although with utilization already above 90% and several technologies operating at or near full capacity, our shipment growth will increasingly be constrained by available manufacturing capacity.

So it remains a key growth -- AI remains a key growth driver, creating demand across power management, FPGA and connectivity application. Meanwhile, silicon photonics and advanced packaging are emerging as a new growth engine for UMC, addressing the next-generation optics connectivity, power delivery and memory bandwidth requirement for AI infrastructure. So beyond AI, we continue to see opportunity from customer market share gains and increasing foundry share across premier smartphone, automotive, industrial and other specialty applications despite uneven recovery in some end markets. With customer demand in selected technology already exceeding our available capacity, we see opportunity to capture greater value from our existing manufacturing footprint to improve pricing and richer product or technology mix in 2027, alongside continued shipment growth.

So while 2026 growth was driven primarily by volume and utilization, we expect 2027 to become increasing value driven with higher value per wafer and differentiated technology and contribute more to UMC revenue growth and long-term earnings potential.

Very helpful and encouraging. And so on the pricing side, how should we think about the ASP environment for UMC, especially going to 2027? How are the negotiations with key clients progressing for the coming few quarters?

I mean we are engaging with customers right now for our 2027 pricing, and we're seeing a significant shift in pricing environment heading into 2027, supported by strengthening the customer demand and increasing tight capacity in selected technologies. We see clear opportunity for pricing improvement across both our 8-inch and 12-inch business while maintaining our disciplined and value-based pricing approach. Importantly, we expect 2027 to mark a turning point in our blended ASP trajectory, moving from an environment of ASP erosion toward to a meaningful positive uplift beginning in the first quarter. While we anticipate a 10% blended ASP increase year-over-year, this is more than an incremental pricing improvement. It reflects both a more constructive pricing environment and our increasing ability to capture value through a richer product and technology mix. Our record high 22-nanometer revenue contribution and continued specialty technology momentum will also provide a strong foundation while silicon photonics and advanced packaging create additional higher value growth opportunity as they scale.

Also, maybe a quick follow-up. So you mentioned 10% year-over-year improvement. Is that initial view for your blended ASP improvement going to Q1?

No, that will be on a year-over-year basis.

So 10% will be your target through 2027, not just for Q1?

Yes, as a whole, year-over-year a 2026 year compared to 2027 year-over-year, yes.

And we will provide Q1 ASP guidance for the next quarter's earnings call.

Got it. And then maybe on the CapEx. You just mentioned an additional $3 billion budget on top of the $5 billion budget announced a quarter ago. And so now could you share a bit more color on how that translates into a capacity expansion in the coming few years? And then on silicon photonics and advanced packaging, how are you seeing the market demand overall in coming years?

I mean we are accelerating selected investment because several of our new growth business are moving from technology development into a commercial execution, which is faster than our original capacity road map anticipated. We are seeing 3 things happen at the same time. The market is expanding as the AI infrastructure drives higher requirement for bandwidth, power delivery, memory performance and system integration. Our customer engagements are also progressing from qualification into production ramps and capacity planning. And at the same time, our solution road map is moving forward with the product already in mass production and additional product completing tape-outs, customer validation and new generation of products already under development.

And our focus now is shifting from whether this opportunity will materialize to how quickly can we expand capacity to meet the customer demand. Under our current expansion road map, we are targeting monthly capacity approximately 18,000 wafer for silicon photonics, 22,000 for DTC and silicon capacitor and 20,000 for TFLN modulators. This next phase of the capacity will start its ramp in late 2028 and reach its planned scale by 2030. This is not -- well, this is not a broad-based capacity expansion. We are directing our capital toward customer-backed growth opportunity that will fuel UMC's next phase of growth. So that will give you a bit of why we're accelerating and milestone that we plan for those CapEx. For your question on the silicon photonics and advanced packaging, we believe UMC is well positioned to capture the next wave of AI infrastructure opportunity through our competitive silicon photonics performance and proven manufacturing execution and advanced packaging capability.

So in silicon photonics, our data indicate that our PIC technology outperformed peers in key parameters, such as propagation loss supported by our manufacturing high production yield now. Our 12-inch PIC platform already supported 1.6T optical application, while our 8-inch TFLN platform has completed 1.6T system validation with an industry-leading yield. Building on this achievement, our road map extends towards 300G per lane and ultimately, 400G per lane solution for next-generation 3.2T applications, supported by hybrid bonding, TSV and chip-to-wafer integrations. For the advanced packaging, we are making progress in 2 key solution areas, a DTC for power delivery and customized memory stacking.

Our discrete DTC solution for mobile entered mass production this quarter. For AI and server application, our substrate embedded DTC solution has a completed tape-out and functional verified. With our customized memory stacking solution has passed initial customer verification to address the growing bandwidth requirement of AI inference -- all the achievements they demonstrate UMC's ability to translate technology innovation into the commercial execution now. By combining the device performance, manufacturing expertise and close customer cooperation, we are expanding our role in next-generation AI infrastructure, helping the customer to address the 3 critical requirements into fast optical connectivity, more efficient power delivery and high memory bandwidth. So that's why we believe we are in a great position to capture those opportunities.

So it does sound like your capabilities are pretty competitive. But then for both silicon photonics and also advanced packaging, say, for DTC or silicon competitors, some of your peers are also building more supply. And so should we be concerned about maybe potential overbuild, say, if AI demand slows down at one point? How should we think about the overbuild risk?

Well, I mean, we look at this on twofold, right? I mean one is the demand side. Well, first, we are seeing a very strong demand driven by the AI-related applications for silicon photonics and advanced packaging. In silicon photonics, we have been working with a leading customer. We recently achieved significant milestone with multiple hyperscalers have qualified our 1.6T optical transceiver platform. Our 12-inch PIC platform supports the 1.6T application and the 8-inch platform has completed the 1.6T validation and already demonstrated manufacturing yield, I mean, with the road map that going to the next generation. And with all this and advanced packaging, our discrete solution, like I said, and the -- our first interposer with DTC solution for the AI and server application has completed tape-out with a key customer.

And those -- the focus of the customer discussion already moved to that from validation to customer demand planning. So our current expansion plan are tied to those customer commitments in terms of the demand. But how about the overbuild, based on what we see today, we do not believe we are building ahead of the market. Demand for silicon photonics and related AI infrastructure are growing faster than qualified capacity is being added. And we continue to monitor our peers' expansion and timing of the new industry supply closely, too. Oversupply, overcapacity is an industry question, not just an UMC question. We look at how quickly end demand is growing relative to the capacity being added by overall industry. Based on the customer demand and industry capacity plan we see today, we believe the market can support expansion we are planning.

And meanwhile, UMC has been building the capacity in phases to mitigate risk. At the same time, we remain cautious and disciplined in how we add capacity. Most importantly, our capacity expansion is backed by customer commitment, like I said earlier, and tied with the customer product road map, production ramp and capacity requirements. Even with all this expansion, we expect customer demand to exceed our planned capacity according to the customer, underscoring the strength of the commercial opportunity ahead and our decision to accelerate the selected investment.

Got it. Sounds good. Sorry, last question, if I may. We recall a quarter ago, you quantified the AI-related sales to be about USD 300 million for 2026. And you have a target to triple or more than triple to over $1 billion by 2029. And so now with the accelerated expansion for both silicon photonics and advanced packaging, how should we think about your AI revenue by 2029?

Well, okay. First of all, you remember now our AI-related business span a broad range of specialty semiconductor solutions, supports power management, connectivity, FPGA as well as our growing advanced packaging and silicon photonics. All those applications are becoming increasingly important contributor to our growth going forward. So we are expanding our capacity like we reported and investing in technology, manufacturing infrastructure to address all those growing demand. Our AI-related revenue, it is close to $300 million in 2026. But looking ahead in 3 years, we expect our AI exposure will probably exceed 1/4 of our revenue now.

1/4 of UMC sales maybe by 2029?

Yes.

Next one, Laura Chen, Citi.

Just a quick follow-up on the 10% increase on pricing. It's more like a blended ASP increasing or like-to-like increase into next year?

It is blended, yes. So it's more than incremental pricing improvement. It reflects both the pricing environment improved and our increase captured the other products, rich product and a different product mix, yes.

Okay. Got it. Very clear. And also, we think we have various different plans for AI-related applications. Can you give us more color about that? What the capacities -- how much the capacity we are planning for the silicon photonics, including in Taiwan and also mainly in Singapore. And also on the TFLN, we are ahead of our peers. So just wondering, can you also give us update about the capacity buildup plan and in maybe 2 years, how big the capacities we are looking for?

Given the current milestone and the facility and tool schedules, is we're doing all the expansion in phases, and we will continue updating you in terms of progress. Meanwhile, we're still working closely with our supplier. Hopefully, we can accelerate and expedite those installations. Meanwhile, as I mentioned earlier, if I look at the overall CapEx plan and which are approved by our Board, the capacity buildup is approximately 18,000 for silicon photonics, 22,000 for DTC, which is silicon capacitor and 20,000 for TFLN modulator. And at this current stage, we project the initial install will happen in late 2028 and going into 2029 and reach the scale by 2030. Now for the location-wise, we are focused on the silicon photonics in Singapore facility and the silicon capacitor in our Tainan facility and the TFLN will be in our 8-inch operation.

Sure. And just also very quickly on the -- I know probably we will talk more next year. But I think given the high utilization rate is already like 90% plus and also pricing into next year is more favorable. So are we seeing that any structural gross margin upside from -- based on current visibility?

So certainly, the price increase is likely to happen in the first quarter. So we are also seeing some headwinds from the increased raw material costs, which we need to work hard to offset the impact. So it's our view that the structural profitability remains intact. So EBITDA margin, certainly, we will see in good shape if we compare to the previous cycle. But due to the stronger-than-expected CapEx led by stronger customer demand, -- so depreciation will be higher and gross margin as a result is unlikely to see near the previous high level. So we will maintain a disciplined spending and try to capture the megatrend of the AI growth opportunity.

Next one, Haas Liu, Bank of America.

I think just starting from price hike by 10% year-on-year, you clarified it is going to be on a blended basis. Would you be able to share on a like-for-like basis, how much is it going to be hiking? And how much of that of the price hike is related to the cost pass-through? And how much of that is because of the tighter supply-demand landscape?

Well, I mean, the -- well, first of all, if we look at the -- on a very high level, we -- like I said, we expect 2027 will mark a turning point. The ASP trajectory will moving from historically erosion to uplift. And so we are talking to our customers and across the broad range of the applications. Now the conversation actually is more complicated. The one is there are current contractual relationship, a portion of that. And secondly, focus on different low-end application and technology. So there are various -- there is a mix of the pricing adjustment. So therefore, it's a lot easier to look at this on the blended basis. And so instead of going to every specific area because they are quite complex in terms of the mix.

Okay. Because the reason why I'm asking this question is because your utilization has been improving by 16% from fourth quarter last year to fourth quarter this year based on your guidance, but your pricing has been relatively stable. So just wondering why your customers suddenly decided to accept this price hike by 10% into 2027. If in the past couple of quarters, you have been strive to improve your utilization by 16%, but the blended has been -- blended pricing has been relatively more stable, but now you are seeing an inflection of that. Is it because of the product mix or cost pass-through that your customers decided to share the burden with you?

Well, I mean both, right? I mean the product mix is part of it and part of it is really reflecting the inflationary cost increase. We are seeing, like Chitung mentioned earlier, we are seeing a some of the rising cost headwinds and also additional depreciation associated with our investment. So while we're anticipating that while the overall -- the customer demand are increasing and increasing tight capacity on selected technology. So a combination of those resulting in the conversation with the customer. And I think the customer understand the overall industry tightness in terms of capacity and also understand the rising cost, so in a variable space. So that's why I think we -- I think this is naturally a conversation that we will have at this current point with the customer. And we usually do this on a yearly basis. So again, we started this conversation in Q3. And with the alignment going into Q4, we are at a very late stage of those conversations. So we have fairly confidence with the guidance that we just provided.

Got it. That is very helpful. And second question is probably just on your current expectation for the consumer end market demand into 2027 because the supply chain seems to be suggesting that the unit demand across smartphones, TVs and PCs could be down from the unit demand perspective. And so if that negatively affects your utilization, keeping at around low 90 percentage levels instead of further hiking to close to full levels, will your customers be able to request for some price discounts or pushback on the price hike through 2027? And how will you deal with it?

Well, I mean, first of all, let me kind of explain about the utilization outlook. We are expecting the capacity utilization to remain at a very healthy level. In this year, we improved from 85% in Q2 to above 90% in the second half of 2026 already with several of our 8-inch and 12-inch fabs operating at a full loading at this current point. And we are seeing the AI-driven upside demand such as power management and FPGA, which we cannot fulfill the demand today and the backlog PO is piling up. We will continue to optimize the production efficiency by debottling the key steps and transferring the technology across different fabs to maximize the output. But operationally, there are minor mismatch between our demand and capacity configuration. So when you see less than 100%, it doesn't mean the fab is not fully loaded. So it's really more of the mismatch between the demand and capacity configuration.

And so we are working diligently to address this capacity configuration mismatch. We are upgrading our manufacturing capability to support our long-term product mix optimization as well. For instance, we are converting one of our 8-inch fabs to expanding TFLN capacity. And while we're converting that and the loading will be lower, but it doesn't mean that the facility is not being occupied and worked on. So while we're strengthening our silicon photonics road map and position UMC future growth, all those are critical for our future growth. And so we are managing that through this activity. So that said, the 90-some percent it doesn't translate to a vacancy in terms of capacity. It's more of a mismatch situation.

Okay. Yes. And just a quick question before jumping back to the queue. It is very encouraging to see that you've approved CapEx -- additional CapEx to support your new businesses, including silicon photonics, TFLN and silicon capacitor. But would you be able to provide the time frame on your spending through the next few years? Because last time you guided 2027 CapEx could be up to like USD 3 billion. But now with the incremental CapEx, would you be able to just provide an update on that? And relatedly is how should we think about the economies of scale of your new business, including TFLN, silicon capacitor as well as silicon photonics that by 2029, when the capacity start to ramp to a certain scale, would those business be -- the gross margins for those business -- will they be comparable to the corporate average or still going to be below because of the higher depreciation burden...

I mean, first of all, we can provide you the updated when the update is more clear to us. Like you know, we have Board approval and now we are closely working with the supplier to make sure that we can accelerate and expedite the schedule. So once those information are conclude, and we'll be able to give you more concrete outlook in terms of milestone. Meanwhile, we are phasing in the different capacity in a different time frame. And -- but since we're still in motion of that negotiation, and we're probably not the right time to provide you that. But on a high level, we feel very comfortable with those demand. And we -- only thing we worry about now is we can't really get them fast enough to our facility. So let us work on that. And when going into the Q1 next year, we should give you a more clear picture with the next phase. Now in terms of the -- each of the economics, I mean, scale and benefit to our business. The silicon photonics will ramp in 2027 following the advanced packaging in 2028 because of modality reason. We -- and I think all those will be accretive to our current model because right now, they are above our current corporate average, higher than our corporate average in our -- compared to...

So by the time these new business start to ramp in 2028, 2029, those business should be carrying higher than corporate average margins even with higher depreciation.

That's what we have modeled right now.

Under the same circumstance for the same ramp, if you compare to, say, previously '22/28, of course, the curve looks better.

[Operator Instructions] Next, we have Charlie Chan, Morgan Stanley for questions.

Again, congratulations for a very strong execution results. So my first question is probably to Jason that I know previously asked about some concern about the non-AI part of demand offsetting the AI side, right? But realistically, do you see any kind of cuts recently from non-AI segment? And do you have a preliminary assumption for next year's PC smartphone demand and your observation on those end market inventory.

I mean right now, we expect a positive demand momentum to sustain from 2026 into 2027, Q4 and 2027. So on a high level, we see the momentum will continue to sustain. And obviously, the AI remains a key growth driver. So there's no worry on the AI side. Beyond AI, we continue to see opportunity from customer market share gain as well and increased the foundry share. That's for UMC because we're primarily serving the premier smartphone and automotive and industrial space, and we see a healthy automotive industry recovery at this point. And so I think we have less concern automotive industry. And however, on the smartphone since we have less exposure in the mid and low-end smartphone, we think we have less exposure in that space. While we do project the market outlook in that space is weaker than the others. Meanwhile, in near term, we also see some decline in computer because we see a soft demand in the computer AI, LCD controller, DDI and WiFi space. So while the communication and automotive industry and AI remains -- non-AI, the communication, the automotive industrial remains robust, we do see some weakness show up in the PC space.

Got it. So those kind of things are all being considered. -- and I'm sorry, but I hope to clarify a little bit about blended ASP up 10% because 12-inch blended ASP and 12-inch mix increase will bring up a lot of blended ASP, right? But I want to make sure are you [Audio Gap] that you have a different product line then TFLN?

I'm sorry, can you repeat that?

Okay. So blended ASP increased by 10%. Is that 12-inch plus blended ASP or different product mix? So you are referring to the 12-inch to be up 10%?

Company-wide blended ASP as we reported, although we didn't disclose the number, but we do have an annual number for 2026. And the 10% we are referring is for the whole company on the whole year 2027. It's going to be plus 10% year-over-year increase, including like-for-like price increase as well as the richer product mix.

Okay. Okay. But you don't want to break it down to like, for example, if you remove the 12-inch mix change, what would be kind of likely to like ASP increases? Would you be able to...

It's a very complicated process and some of the technology are totally different for different products. So it's very difficult to give you a generalized idea. But 10% is probably the best indication for now.

Got it. And last one is probably kind of a very open question. Yes, because we kind of think AI demand strength is no-brainer, right? I think we just talk about -- we are not worried about AI demand, but the recent capital infrastructure demand, no matter your cloud financing, there's ARR issue, right? So I'm not sure how visible is this real kind of AI demand, especially for your product that you have exposed to. How can you be sure is that so undersupply? Yes, just a kind of open question because capital markets reaction seems they don't believe that the AI demand will be so sustainable into next year.

Well, I mean the AI demand is not in general AI demand. So when we talk about what we are serving really in selected technology and focus. For instance, on the optical space, I think the ramp-up just starting. And so it's more of a -- could be a replacement mode. And so to us, I think the silicon photonics is really a new space that we're entering and as well as the industry is entering into. The PIC platform that we're offering, the TFLN is all associated with that. While the industry is moving from the 1.6T -- moving into 1.6T and for the future, 3.2T, we actually think this demand will be continued robust. The advanced packaging is really a solution that we're talking about the DTC deep trench capacitor solution, right? And they are more of a device that can be implemented in multiple different areas. the power integration, all those power will continue driving the industry going forward. So I think with all those solutions, I think the market will be continue -- the demand will continue to be robust.

Got you. So even like AI processor slowdown, those kind of migration, like 1.6 to 3.2, et cetera, those will continue. So you are not that worried about the overall AI demand expansion pace.

Yes. Because if you just look at it, the truly -- what drives that demand is the compute and also power, and speed, right? So really, I mean, the optical speed requirement and the power integration requirement is more forward-looking type of applications. We're not talking about the AI, we talk about technology migration to support the future growth and meeting the system requirements.

Understood. Very clear. Yes, I also agree that DTC, the capacity is a very important trend.

Next one, Gokul Hariharan, JPMorgan.

First of all, I just want to clarify, Jason, you mentioned long-term AI revenues can be 25%. Was it 25% of current revenue, roughly $9 billion? Or do you think it will grow to 25% of revenues in 2030, which is probably a much bigger number? Just wanted to clarify that.

I'm referring to the revenue in the next 3 years, 3 years from today, yes.

Okay. So in 3 years, it can be 25% of total revenue?

Yes. Right.

Okay. Okay. Understood. And could you talk a little bit about your -- any indication on revenue contribution from silicon photonics and the embedded deep trench capacitor for next year, given those seem to be ramping earlier? And also on silicon photonics, any aspirations you have in terms of where you want your market positioning to be given you are starting off later than competition, but you also have some unique advantages here?

I mean the -- we are currently running at full capacity. So we said this year will be somewhere at the $300 million range. And for the new fab, the vast majority of the capacity will start coming in line in late 2028. So 2027 is still going to be under the constraint. So while we try to optimize, like I said, we try to reconfigure some of our facility. Hopefully, we can optimize some of the short term, but we are under the constraint for 2027. So we'll probably be able to shed some light in the next quarter. But again, it's not going to be significant because the capacity is not available yet. So that's the revenue for 2027. And what was your second question, I'm sorry?

Yes. Secondly, what is your aspiration from a silicon photonics market share perspective, given you are starting a little bit later than your competitors and -- but you also are kind of migrating straight to 12-inch? You're already starting to see some like at least test results, which are comparable or better than your competition. Just wanted to highlight and think about like where we could end up in silicon photonics market share.

Of course, yes. I mean the aspirations are very high, and we have very high confidence in terms of decision and moving into a 12-inch directly without going through the 8-inch. Right now, I think the decision actually did pay off. We have demonstrated with our 12-inch PIC technology we already demonstrated better performance in the many of the key parameters and our customer and their end customer. And right now, the product is being validated and qualified by the end customer as well.

And with the production yields get to the manufacturing level, we think our 12-inch PIC platform is ready to support the customer for their current 1.6T optical application and going into the next generation as well. Now the TFLN is a little bit different situation. I think we're much, much ahead of anyone else in the TFLN development. And I think the customer also see a benefit between the integration of the putting TFLN modulator with our 12-inch PIC solution. And so because that -- I mean, our advanced packaging preparation is also bear fruit now because with hybrid bonding, the chip-to-wafer capability, I think those actually will help us to even become even more competitive because combination of the silicon photonics solution along with the packaging capability, and that is putting us in a unique position. So we feel very competitive in those spaces.

Yes. So just a follow-up on the TFLN engagement, Jason. Is this mainly going to be HyperLight whom you're going to be supporting? Or are there a broader set of customers that you've already got beyond HyperLight, which I think you already invested in them and kind of publicly announced as well?

Yes. I mean we announced the HyperLight partnership and because HyperLight was a very early adopter of the TFLN. And so I think we're very pleased with that program. And because we already demonstrated with HyperLight and we've seen a very strong interest in the TFLN solution now, not just on HyperLight, many different customers in the space.

Okay. Okay. And maybe on the 2027, given your capacity constraint, any read on how much capacity can you still squeeze out on an overall basis, let's say, for 12-inch? Can we do mid-single-digit capacity growth next year? Or is it still like low single digit potentially next year?

Well, I guess my reaction is just not enough. So I think we want to improve that number any way we can. Right now, the biggest -- the best way to explain that is probably not enough.

Okay. So Chitung, I just wanted to also lastly examine the gross margin puts and takes. Obviously, price increase blended ASP of 10% or thereabouts is quite positive. If you carry the utilization gains from Q4 into all of next year, it also is positive. Could you give us some indication on how depreciation is going to shape up? I think last quarter, you mentioned depreciation will be moving higher, but it looks like the pace might be a little bit more. So are we saying that we are largely going to be in the similar gross margin range? Or can we still squeeze out some gross margin expansion into next year even with the heavier investments coming through?

So depreciation is going to be certainly higher and maybe a couple of years in a row, and we are talking about low single-digit depreciation growth at least for 2027, if not more for 2028. So for gross margin, this is going to be a big number to offset. And on top of that, we also have rising raw material costs, et cetera. And so like I mentioned earlier, we feel more confident to have a healthy EBITDA margin structure. But for gross margins for next 2 years, at least, depreciation along with the rising raw material costs is going to put pressures on our overall financial gross margin.

I'd also like to echo what Chitung just said. I mean we are expecting ASP improvement, and we are expecting higher utilization and all those will provide support to our profitability for 2027. And at the same time, we are anticipating a rising cost headwind and additional depreciation, which is associated with our investment decision. Our priority now is to maintain a healthy profitability profile while continuing to invest in differentiated technology and support our long-term growth. So that will give you some color on how we feel about this gross margin.

And ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. Thank you.

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact [email protected]. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 3Q '26. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.

Welcome, everyone, to UMC's 2026 Second Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations Investors Event section.

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

Thank you, and welcome to UMC's conference call for the second quarter of 2026. I'm joined by Mr. Jason Wang, the CEO of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial results, followed by our CEO's key message to address UMC's focus and third quarter 2026 guidance. Once our CEO and CFO complete their remarks, there will be a Q&A section.

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

During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risk that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and ROC securities authorities.

During this conference, you may view our financial presentation material, which is being broadcast live through the Internet.

Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu to discuss UMC's second quarter 2026 financial results.

Thank you, Michael. I'd like to go through the 2Q '26 investor conference presentation material, which can be downloaded or view in real time from our website.

Starting on Page 4. Second quarter of 2026, Consolidated revenue was TWD 68.73 billion with gross margin at 32.5%. Net income attributable to the shareholders of the parent was TWD 42.26 billion, and earnings per ordinary share was TWD 3.39. Utilization rate in quarter 2 climbed to 85% from 79% in the previous quarter, and total wafer shipment in the second quarter reached 1.13 million, 12-inch wafer equivalent.

On Page 5, we will start the sequential comparison. Revenue grew 12.6% quarter-over-quarter to reach TWD 68.7 billion. Gross margin rate increased by almost over a 3 percentage basis points to 32.5% or TWD 22.3 billion. And because of the recent stock market performance, our investment and dividend income together reached TWD 30 billion in the third quarter under the nonoperating income and expenses, which helped our net income to reached TWD 42.2 billion. And for the net income attributable to the shareholder of the parent is TWD 42.26 billion or an EPS of TWD 3.39 per share in the second quarter.

On Page 6, for the first 6 months of the year, the annual comparison for the first half, our revenue grew 11.3% year-over-year to TWD 129.77 billion in the first 6 months of 2026. Gross margin rate also grew by over 3 percentage basis points to 30.9% or TWD 40.1 billion in the first 6 months of 2026. For the net nonoperating income, similar for what happened in the second quarter, for the first half of the total nonoperating income reached TWD 35.6 billion, which leads our -- net income to reach TWD 58.4 billion in the first 6 months of the year. EPS was TWD 4.68 in the first half of 2026.

On Page 7, cash on hand is around TWD 124.7 billion, with total equity reached TWD 443.9 billion at the end of second quarter of 2026.

On Page 8, our blended ASP increased by a low single-digit percentage in the second quarter of 2026.

For revenue breakdown on Page 9, Asia remained our largest revenue pool, around 66% of total revenue, and North America reached about 22%.

On Page 10, IDM didn't really change much. This quarter is around 15% versus 14% in the previous quarter.

For Sales breakdown by application on Page 11, and there's almost no change for the revenue among 3 major segments.

So revenue breakdown by technology on Page 12. Our total revenue under 40nm still around 52%, with 22nm/28nm is becoming our largest revenue pool, represent 37% of the total revenue.

Our quarterly capacity has shown some increase in our Singapore site, Fab 12i for the second quarter, and there will be a more meaningful increase in the coming quarter to reach 192,000 12-inch wafer capacity for our Singapore site.

On Page 14, our annual CapEx budget has raised or increased to $2 billion from the previous number of $1.5 billion, which we will elaborate in more detail later during the conference call. So this above is the summary of UMC results for second quarter of 2026. More details are available in the report, which has been posted on our website.

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

Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's second quarter results. In the second quarter, our wafer shipment increased 10.6% quarter-on-quarter driven by strong demand in communications and consumer segments, further improving utilization rate to 85%. Revenue from our 22/28nm business continues to set record high with 22nm revenue representing 17.5% of the second quarter sales.

Earlier this month, we announced the company's first mass production delivery of a 12-inch photonics IC to a customer, a major milestone for UMC that demonstrates the company's high-volume silicon photonics manufacturing capabilities on 12-inch wafers. As we prepare to launch our silicon photonics platform available for general customer use in 2027.

Looking ahead to the third quarter, we expect demand momentum to remain stable across the computer, communication and consumer segments with the shipment projected to increase by high single digits, driven by strong demand of power management IC, sensors and microcontrollers.

Our 8-inch portfolio is also seeing a strong rebound and utilization is expected to improve significantly in the third quarter. With our 12-inch capacity already at a healthy utilization rate supporting core business, we must also prepare in advance to ensure UMC is well positioned to capture future opportunities driven by AI.

To ensure we are ready to scale rapidly to support our customers, we announced today that our Board of Directors has approved a plan to expand cleanroom capacity at our Singapore P4 facility and to construct a new fab in Tainan, Taiwan. The plan will be executed in phases, enabling UMC to remain focused on capital discipline with the pace of facility deploying capacity to fulfill customer demand. As a result, 2026 capital expenditure budget will be revised upward to USD 2 billion.

Now, let's move on to the third quarter 2026 guidance. Our wafer shipment will increase by high single digits. ASP in U.S. dollar will remain firm. Gross margin will be in the mid-30% range. Capacity utilization rate will be greater than 90%. To support the growing customer demand in silicon photonics advanced packaging, the 2026 CapEx will be raised to USD 2 billion from USD 1.5 billion.

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

Yes. Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Now we'll have our first question, Laura Chen from Citi.

Congratulations for the good result and outlook. It's great to see that UMC has a good progress on the silicon photonics and also see that power management IC improvement. So I assume that these are all prepared for the AI-related business. So I'm just wondering for the longer term, does UMC have any indication or target of your AI-related revenue? And can you also give us a breakdown of products that you are aiming for?

Well, the -- first of all, our AI-related business is driven by the specialty semiconductor solution, supported a broad range of applications, including the power management, connectivity, FPGA as well as our growing advanced packaging and silicon photonics business. Those are the focus. This business will have already begun important -- become a contributor to our growth in 2026. The current revenue for 2026 is projected to close to approximately $300 million for this year. And looking ahead, in 3 years, we expect the AI exposure to exceed USD 1 billion.

Very helpful. My second question is about, like, the overall demand outlook. We know that Q3, we will see the deterioration rate improvement. But I think consumer electronics demand in general is still quite weak. So what's the management view about the sustainability into probably Q4? Or do you have any visibilities into maybe early next year?

Well, right now, what we see from the market is the worldwide demand is improving with a broader and more sustainable momentum. But it remains more AI-led. AI is leading that and it's building over into memory, connectivity and power segment. Now, AI demand recovery is still mixed across different end device markets and supply reduction plus inventory normalization but moving to the market towards more of a balanced and predictable environment. So we do see the future outlook is increased in terms of visibility.

For the AI-related demand, while they coming -- remain very strong, what may be changing is the XPU demand remains strong. Besides that, the bottleneck is not only on compute, but also on memory, connectivity, power management that I mentioned earlier. In the near term, we are seeing upside to our silicon photonics, power and FPGA-related products, particularly in our 40nm and 65nm technologies.

For the non-AI, it's uneven. So we will not categorize the current environment as a full-blown broad-based recovery yet. In the near term, we do acknowledge that consumer segment, including the handset, PC and notebook will experience a year-over-year decline. However, for UMC, our wafer shipment will grow year-on-year on 22/28nm as well as our 8-inch business.

In conclusion, our 2026 wafer shipment will increase both driven by our own foundry share gain as well as a customer share gain in both AI and non-AI market. The 8-inch loading will improve to mid-80% range, while mature 12-inch loading will also increase quarter-on-quarter on AI-related demand.

Okay. In that case, can I also just quickly check what's your view on the ASP trend into the second half?

I mean, the -- our pricing strategy has always remained consistent. We are not trying to maximize the short-term pricing based on the market cycle. Instead, we focus on maintaining a sustainable business model through value-based pricing that reflects our differentiated technology, manufacturing capability and long-term partnership with customers. As the demand in industry conditions continue to improve, we are working with the customers to ensure pricing appropriately reflected that value while supporting continuous investment in technology and capacity.

Next one, Gokul Hariharan, JPMorgan.

So Jason, could you talk a little bit about your -- the capacity expansion plan at Singapore P4 as well as your plan to construct a new fab in Tainan? Like, what are the kind of milestones we should look at? And what are the kind of phases that you are looking to kind of phase this capacity in? I think how should we compare it to your previous plan about 4, 5 years back when you had this new phase in Tainan and then you also build out the Singapore fab? Is it similar scale or is going to be much smaller scale?

Okay. Let me maybe start off what drives that, right? What drives that decision that we made today. When we map out the industry growth over the next 5 years, we see several important trends. Within the AI data center, while growth in compute and memory will remain high, we also see the connectivity and power also growing at a high CAGR, driven by the need for more bandwidth and more efficient power.

The second is the automotive electrification trend continues. They are not just for EV, but for autonomy and infotainment applications. This third is when we look at this emerging applications such as the robotics, satellites, we know that again, very, very high growth in compute, memory, sensing, connectivity and power. These industry trends, combined with our entry into the advanced packaging such as logic and memory stacking as well as the silicon photonics, will accelerate growth within the UMC addressable market.

Within our existing portfolio, we also see that advanced packaging is enabling our customers to think differently about new architectures and designs of their products. Since we believe we are ahead of our peers in advanced packaging, this is leading to share gain and many new opportunities. Therefore, we actually believe the TAM actually will grow significantly compared to the past.

Consistent with this long-term outlook, in terms of how to do this, we're going to execute each expansion phases we will pursue is based on the market validation, this alignment and customer commitment, which will provide both long-term capacity assurance to our partners and loading protection to UMC. So that's truly the systems behind the decision as well as how we want to execute this.

You also have a follow-on question in terms of scale?

The details and the schedule.

The milestone and the schedule, right? For right now, for the Singapore, we will invest in the cleanroom for our P4 facility and the 2 purchase to expanding our silicon photonics capacity. In Tainan, the construction of 12A, P7 and P8 will set up a robust foundation for the UMC to scale the advanced packaging alongside with the customers, long-term product road map, but that's only going to be more of the foundation. We're building the shelf for the 12A, P7 and P8. The cleanroom installation at this time is focused on the Singapore P4.

And from the milestone line, we -- now the Board has approved it and then we're going to start engaging with the follow-on activities and then we will report back in terms of the install schedule once we get the confirmation from our [ installers ].

Got it. Understood. And just follow up on the Intel collaboration on the 12nm now that we are likely to start recognizing some revenues next year. How should we think about how meaningful these 12nm base revenues are going to be? And is it going to be like gross margin accretive given you have like a revenue sharing and a profit sharing kind of agreement with them? Could you talk a little bit more about how we should model this contribution going into next year?

Well, first, let me update the 12 current status. The -- overall, the 12nm cooperation project with Intel is advancing smoothly, and we anticipate the product tape-out will commence in 2027. So all the PDK will be ready in May 2026, and the customer design and design in and ready to tape-out in 2027. So 2027 was still at the early stage of ramping the product, I would say, probably at a pilot stage. The production will probably be more meaningful in 2028. So at the current status of the 12nm, in terms of the business model, there will be accreted to our current models -- current financials.

Okay. Maybe one last question on gross margins, Jason and Chi-Tung. So you are already about guiding for about 90% utilization and gross margin is kind of reaching mid-30s. Any thoughts about how you think gross margins could progress in this cycle because it feels like in the past cycles where utilization had reached above 90%, gross margins were probably at a higher level given you probably had a little bit more price leverage.

So I just wanted to understand how you think about like where gross margins can reach given the demand seems to be pretty strong and utilization continue to improve. Can we go beyond 40% gross margins like we did in -- back in 2022 or that is a little bit of a challenge right now?

So our utilization rate and operating income has increased versus last year, we will continue to improve our fundamental, and we do expect the new project like silicon photonic and advanced packaging will enhance our EBITDA margin, but the higher depreciation expenses will certainly have a swing impact on the gross margin.

So I think with the announcement of the new fab in Tainan and also the new cleanroom in Singapore, no doubt, the depreciation expenses will increase as a result. So we are confident to deliver higher profit numbers and also improve -- enhance our EBITDA margins. But gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Okay. Chi-Tung, I think previously, we were expecting maybe after this year, depreciation curve could kind of taper down. Is that still the case? Or should we expect that there is still some increase in depreciation next year as you bring on some of the new cleanroom and some new phases?

Yes, the newclean room and the new shell in China certainly changed the curve. And now we are expecting the depreciation to increase by low teens for over the next 2 years at least.

So low teens each year over the next few years or low teens...

Early it will be each year, at least, yes.

Next one, Charlie Chan, Morgan Stanley.

Jason, Chi-Tung, yes. So just some quick follow-up about a previous topic. So first of all, I know you kind of gaining share, but how about your customers' chip inventory, right, because the end market seems to be pretty challenging. So according to our analysis, it seems like your -- some of you have fabless revenue is kind of undergoing your wafer shipment. So I'm wondering whether you're concerned about the chip inventory accumulated at your customer side.

Well, I mean, Charlie, the first -- I mean, we're always cautious about the inventory situation, right? I mean -- but not to the level that we need to be worried at this point. For the first quarter '26, the DOI level is actually rose slightly. They've gone up a little bit. What we see is really coming from, one, PC was strongest driver of inventory buildup as the AI infrastructure build cycle is still ongoing. In the PC -- I mean the HPC was the strongest driver.

In the PC segment, early stocking and shipments occurred in response to rising memory prices, we are seeing that. The inventory and the DOI for the smartphone and consumer segment are rising simultaneously, indicating the end market remains weak. So there are some areas are weaker. And although the demand in automotive and industrial side is stable, their DOI remained higher than the historical average.

For the Q2 '26, while we're tracking that the overall consumer spending remains weak, and we expect the semiconductor sales to stay strong in 2026, so which will drive the DOI by several days again. But certainly, we're not to the level that we need to be worried, but we are cautious and continue tracking the progress of that.

I see. Yes. So with that kind of impact your kind of negotiation with customers to passing through the cost because you're kind of increasing your investments, right? Do you think there's some dynamic change for you to reflect your value next year?

Well, I mean, first of all, the market outlook for us is we remain optimistic because it's driven by both AI-related and non-AI-related demand. While those demand and industry continues to improve, the pricing environment become more constructive, so the discussion -- engaging discussion with customers is actually a constructive discussion, giving that visibility, and we expect the annual pricing trend to be better than we anticipated, and we're even expecting more meaningful pricing uplift in 2027.

Okay. Okay. Great to hear. Yes. And can I follow up a little bit about advanced packaging business plan because I think it's a pretty into me that you want to extend your event advanced packaging cleanroom for two phases. My understanding is that for 2.5D, your previous focus was more about the interposer production, and you do have some 3D IC, but this is more for RF.

First of all, are you going to do like the full stack of 2.5D, for example, CoWoS and for the 3D IC, are you going to do not just the RF, but also some AI accelerator kind of products. And lastly, we noticed that your Vice Chairman right now kind of move to Unimicron. So I'm not sure whether we can link these two development together. UMC very aggressive advanced packaging and your kind of partnership with the Unimicron in substrate will be even closer than before. Should we think in that way?

I mean from our advanced packaging offering, I'll start off with that, you're absolutely right. We start with the interposer solution and follow with the RFSOI 3D IC, the chiplet solution. But it's actually -- offering is actually more than that now. The overall addressable market is projected to more than double by 2030 in our addressable market because it expanded from the 2.5D interposer with DTC, discrete DTC, 3D wafer to wafer stacking which that's what you're referring to the RFSOI and the memory to memory stacking as well.

Our customer engagement is building up. with more than 10 active customers now and over 35 new products in discussions and expect to tape out in 2026 and early 2027, and we actually feel pretty optimistic about this advanced packaging space. We -- and that's why we start to deploy the facility preparation.

Now, we have -- like you said, we have already entered production for the 3D wafer-of-wafer hybrid bonding, bridge die and discrete DTC, but they will follow by the wafer-to-wafer stacking as well. So we'll continue to broaden our advanced packaging offering, and -- but not to the CoWoS solution because it's not a platform solution. It's advanced packaging capability serving various different combinations of a solution, both from our existing offering to even the new offering, new integration options. So we see many different new exciting opportunities there, but not a CoWoS, okay?

Now, in terms of the ecosystem, I mean, we're working with entire ecosystem in terms of the -- our solution to serve our customers. So it's not going to be limited to any one particular.

Okay. Any kind of a strategic angle or synergy or partnership between you and Unimicron going forward besides the kind of financial investment?

At this point, it is mainly driven by the financial. It's one of our investor portfolio company, and we remain as an investor. And so not at this current point. But once there is an opportunity, right, in the ecosystem, we will definitely explore that with them.

Okay. And last one, if I may. Just the AI-related revenue. So Jason, did you say that your overall revenue from AI already exceeded the USD 1 billion. What was that, your comments?

Yes, close to $300 million this year. And in 3 years, we will exceed $1 billion.

Okay. Then, how would you define the AI-related revenue? I believe all I can see silicon photonics, silicon interposers. But what's your definition about your AI revenue?

Well, the solution associated with AI as end product, including the connectivity, power management, those are all category of AI [indiscernible].

Okay. So silicon photonic can be considered as the connectivity.

Yes, as part of the connectivity solution, yes.

Next one, Sunny Lin, UBS.

Congrats on the very strong outlook. So I want to follow up on the new expansions. So may I double confirm that these 2 new expansion will be mainly for silicon photonics and advanced packaging, not for a typical foundry business. And Jason, you just mentioned that you do think advanced packaging overall the addressable market for UMC should more than double by 2030.

Would you be able to share with us the addressable market that you are forecasting for UMC in the coming few years? And would it be fair to assume that maybe we see that the capacitor -- embedded capacitor may be the major one? Or how should we think about the contributions from the various projects that you are working on?

Yes. I mean, first of all, for the announced the cleanroom preparation in our Singapore P4 facility is prepared for the silicon photonics capacity. And the Tainan facility of the P7 is prepared for the advanced packaging.

And in terms of the advanced packaging addressable market growth, that includes the DTC, like you said, and the interposer with DTC, discrete DTC, the wafer-to-wafer stacking and the memory to memory stacking, a very broad offering of advanced packaging. Now the DTC does play a major part of that, and that's a very significant part of that. Since that we have more than 35 different products taking out, there's a high percentage of those are considered the DTC.

Got it. Very helpful. So would you be able to share with us any color about the size of the addressable market that you are looking at? And also it would be helpful for us to think about the trajectory for your revenue coming from advanced packaging. And so would it be fair to assume that your advanced packaging should see inflection point when your new supply starts to be on board? And given the lead time for expansion, would that be mainly maybe in like late '28, '29 time frame?

Yes. I think given the current construction time frame, it's been stretched out. There's a lot of activity going on in the construction side. So from a timing standpoint, we do looking at somewhere greater than 20 months in terms of lead time. And so that will put us into '28 and '29 cycle. However, like the earlier question, we -- in terms of milestone, I will probably like to share them when I have more specific data because right now, we're getting roughly a 20 months of lead time on the construction. But since we're just approved today, and we're engaging that discussion, and we'll probably report back when we have more specific.

Got it. And maybe a question on your Singapore expansion for the P3. And so now given the stronger demand outlook, how should we think about the capacity that you are going to ramp by end of this year and also by end of 2027?

Yes. Part of the approval budget CapEx today, that includes some of the capacity expansion in our P3 facility. And in the existing facility, we will be adding the BCD, which is power management solution as well as silicon photonics. And for the 12A in Taiwan, we will start putting some of the CMS, which we call customized memory stacking and the DTC solution in our 12A in Tainan. Meanwhile, we're also putting some test on the capacity setup in our 8-inch facility. So that will be underway now. That's all going to happen within our existing facility.

Got it. So sorry, just to add one question on Singapore P3. So is there a target for your capacities maybe, let's say, by end of this year and end of next year?

Yes. I mean once we release this given the tooling time and install, we expect we will see some production ramp on this in, I would say, late '27, early '28.

Got it. Okay. Maybe last one on silicon photonics. So now given you have 2 solutions, one on 12-inch that you licensed from imec and the other one on 8-inch by TFLN. And so would you be able to share some color regarding the respective strength of two solutions? And how should the client choose? And based on your current development, which one do you think may drive more meaningful revenue contribution in coming years?

Okay. Let me maybe start off. For silicon photonics, we are releasing the 12-inch solution. And that's which we believe is the -- that will be the best solution for our customers and how to differentiate while our other competitors do on 8-inch. The 12-inch will offer better process control, which will give us better performance. For example, the propagation loss, better yield, and we have demonstrated that on silicon wafers already to our customers.

For the TFLN, we have the world's first TFLN modulator in production already, and we are working on the 40G per lane and for the 3.2T, that is based on the TFLN for the customer today. So we think that's actually the best solution for beyond the 400G. And combining the 2, there will be an integration option for those 2 and we can implement the TFLN with our silicon photonics, the PIC and the through our advanced packaging solution.

And along with that, we can offer the optical IO, the OIO, which is interposer with the PIC through our advanced packaging. And we also can provide TFLN a component for the CPO solution. And so we think there's a lot of various combination of this and between the 2. And so we think that we have a unique position on that.

Next one, Haas Liu, Bank of America.

Congrats on the great results. My first question is regarding your CapEx outlook in the next couple of years. You mentioned that AI revenue could be in 3 years could be at around USD 1 billion contribution. So how should we think about that your CapEx growth trajectory in the next few years to achieve that goal? And relatedly, I think how should we also think about your equipment investment as a percentage of your CapEx in the next 2 years? Because it seems that you meaningfully revised up your depreciation outlook for the next 2 years.

For CapEx, today's Board meeting approved nearly USD 5 billion already. So that's the number we will work with for the next -- over the next 2 years or maybe 3 years. And as our CEO pointed out, this is going to be a phased construction or phase expansion strategy. So we will adjust accordingly based upon customer commitments and our customer wins. So we don't really have a full number, but to start with USD 5 billion for the next 2 to 3 years is probably the beginning.

And in terms of depreciation, as I mentioned, earlier it will be low teens increase year-over-year for at least this year as well as 2027. And for 2028, it will depend on the CapEx number based upon the factors I just highlighted.

Got it. That's very clear. So in the next 2 years in 2027 and also 2028, your CapEx will be at least USD 5 billion for the new investments?

Total will be -- today's Board approved USD 5 billion, which will be spent across 2026 and '27. And the '28 numbers will depend on the phase expansion.

Got it. Very clear. And then I think just regarding that capacity expansion plan you are targeting and the AI revenue mix you are targeting that it seems like in 3 years based on our model that your AI revenue could reach 10% of your total sales versus low single digits this year. Would you be able to try to -- or do you have any view on which part of the applications could actually be the main drivers?

You mentioned a couple of drivers, for example, like connectivity, silicon photonics and also power management IC. But would you be able to rank it in terms of the growth rate or from the revenue contribution perspective, which part of the application is going to be the key driver?

Obviously, from the growth standpoint, because the silicon photonics and the advanced packaging is still at early stage. So from the compound annual growth rate standpoint, they are the fastest growing and the highest growth rate. And -- but we also believe on the existing -- our current existing solution will also grow. And so -- and it's driven by the -- also the AI and non-AI space. So those will also grow in a lower pace growth rate.

Okay. Yes. And that's my follow-up question is just regarding your strategic positioning. We start ramping your capacity for silicon photonics and advanced packaging in 2028. I was just wondering compared to your peer solutions, which probably have already been in the market for a few years, what do you think your strength is compared to them? Is it from a technology road map perspective or your customer relationships? Or is it still coming from the demand spill over, which could actually -- you could also capture some of the fast expanding addressable market within that big pie.

Well, I mean, I think on the silicon photonics, like I mentioned earlier, we are the first offering the 12-inch solution, and we believe that's actually a better process compared to the 8 inches on the market today. So it offers much better performance and the process control. So we think there's a huge differentiation there. So I think that's the technology process advantage.

So for the TFLN [indiscernible], we also believe that's the best option for anything beyond the 400G in the market today, and we're going to be massive -- putting the mass production on that as well. So I think there's a big technology differentiation, not a spillover. I mean there's -- on the existing solution, I think there will be there will be multiple factors. And -- but in a much lower growth rate is because some of the spillover reason. But despite the existing technology also has our own driver that drives the growth. But coming back to the silicon photonics, which is the biggest, highest driver as well as the advanced packaging, I think we have a very good differentiation there.

Okay. Yes. And I think just a quick follow-up before jumping back to the queue is that your gross margins had a pretty nice uplift in the second quarter. And I think the guidance for the third quarter near term is also pretty solid as well. Would you be able to quantify the factors supporting your gross margins? For example, like utilization, pricing and FX, any of these are positives or negatives? Could you just try to share with us in a more quantitative way?

So the higher quarter 3 gross margin guidance is mainly attributed to the higher utilization rate. So loading was 85% in second quarter. Our guidance for the third quarter is 90% plus. And Yes, there will be multiple factors, including ASP product mix and utilization rate, foreign exchange rate and depreciation, et cetera, et cetera. So our focus is certainly to enhance our profitability. But as I mentioned earlier, for the next 2, 3 years, we will continue to improve, deliver better results for EBITDA margin and gross margin will come along with the depreciation curve.

Yes, that sounds great. And I think just one more is probably just on your power IC exposure. Could you share with us how much of your revenue is coming from these products, no matter it is for which end markets? And I think second thing is probably just on the utilization by inch and also 12-inch. Last time, you mentioned that 12-inch was still slightly higher than 8-inch. But what's your view right now for same quarter and third quarter?

I mean the 12-inch is still above corporate average. We believe the -- we look at the -- we expect the Q3, the loading will be greater than 90% and 12-inch is greater than corporate average and the 8-inch is below. And I think I actually mentioned that earlier, I think the 8-inch will reach 85%.

Okay. So your power IC exposure is how much percentage of your sales now?

I mean we categorize that is the part of our specialty offering. And the specialty offering today is representing 50% of our revenue today.

Next one, Katherine Yu, Goldman Sachs.

So my first is on -- I would like to know what's our strategy on more advanced nodes going forward because we're now working with Intel on 12nm and where does that go from here? Or is it fair to think that we could enter more advanced nodes, say, 7nm and below? And if so, what would be this model look like? And maybe I'll put it this way, that what are the key factors that we need to see before we're committed to expanding beyond 12nm?

I think the simple answer to that is we have to first deliver the 12nm. We have to prove the business model as well as deliver the 12nm. And so the overall, the 12nm collaboration project is going smoothly. And so I think the 12nm need to be the solid foundation for us to explore the next generation. But meanwhile, the 12nm representing more than just the pure logic today, we actually are already expanding that to the high-voltage from the 12nm, which is 14 [indiscernible].

And there are more in terms of derivative and specialty technologies in discussion right now. So there's a lot of activity and lots of work that we have to get done for the 12nm today. But yes, I mean, the simple way to look at it is we have to execute the 12nm and then we will explore beyond.

All right. So is it fair to say that beyond maybe enter into 7nm and beyond might be after 2028?

Well, I mean, if there is a discussion, we'll probably have more clear milestone.

Yes. This is really need to be a mutual beneficiary collaboration and the current focus is on 12nm only. Again, UMC is always open to find the best solution to have a low asset type of migration. But again, without a successful 12nm, it's going to be difficult.

Got it. So my second question is on how would you characterize the current cycle now versus the chip shortage cycle in 2021? I think the last time was a more broad-based supply-driven super cycle with utilization over 100% with pretty aggressive ASP increases almost every quarter. And this time, the recovery looks more narrow to more concentrated on AI. So do you agree that the nature of the demand has actually fundamentally changed?

And the key question I want to ask is that how should we think about your margin trajectory going forward and the pricing power this time versus the last up cycle? Do you think it's possible for your gross margin to surpass the level -- the peak level that we saw in 2022 in the coming years?

Well, maybe start off with the outlook. I mean, we -- like you said, we are seeing the AI-related segment remain as the primary growth driver for the entire industry. And with the continuous commercial deployment of edge AI application, demand for chips or in general purpose server is also expecting to rise, but that's also related to AI. In contrast, the non-AI demand is still mixed across different end markets, end device market. While the overall semiconductor industry is projected to grow higher to maybe low 20% range this year compared to earlier year, increase of low 20%, we think mainly driving by the AI.

So yes, it is different than the previous. It's not a broad-based recovery. And I will probably have Chi-Tung talk about the gross margin. But before that, and I have the same answer on the previous about the ASP is we do see the demand and the industry conditions is improving. So the pricing environment has become more constructive. So we think the pricing trend will be better.

So as for gross margin, we really don't compare ourselves to the historical data. I mean we certainly try very hard to deliver higher profit in absolute dollar terms back to our shareholders. And as I mentioned, because of the new fab ramp, both in Singapore and in Tainan, so the depreciation expenses and how we amortize them will have a big impact on the near-term gross margin. So I think we are a lot more confident to say our EBITDA margin will show steady growth over the next cycle or next few expansion phases. But the gross margin will be largely dependent upon how we book the depreciation.

And ladies and gentlemen, we thank you for all your questions, and that concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. Thank you.

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact [email protected]. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 2Q '26. Thank you for all your participation in UMC's conference. There will be a webcast replay within 2 hours, and please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.

Welcome, everyone, to UMC's 2026 First Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com under the Investor Relations, Investors Events section. Now I would like to introduce Mr. David Wong, Investor Relations Manager of UMC. Mr. Wong, please begin.

Thank you, and welcome to UMC's conference call for the first quarter of 2026. I'm joined by Mr. Chi-Tung Liu, CFO of UMC; and Mr. Michael Lin, Senior Director of Finance. In a moment, we will hear our CFO present the first quarter financial results, followed by our key message to address UMC's focus and second quarter 2026 guidance. Once our CFO completes the remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financials section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC securities authorities. During this conference, you may view our financial presentation material, which is being broadcasted live through the Internet. I would now like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's first quarter 2026 financial results.

Thank you, David. I'd like to go through the first quarter 2026 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the first quarter of 2026, consolidated revenue was TWD 61.04 billion, with gross margin at 29.2%. Net income attributable to the shareholders of the parent was TWD 15.7 billion and the earnings per ordinary share were TWD 1.29, which showed a pretty good growth compared to both last quarter as well as the same quarter of last year. On Page 5, first, starting from the sequential comparison. Revenue was basically flat or down 1.2% sequentially to TWD 61.04 billion. Gross margin at 29.2%, slightly declined from the previous quarter of 30.7% Net income attributable to shareholders of the parent now has increased 60% sequentially to TWD 15.17 billion, partially due to the strength of the stock market performance and the nonoperating income grew 50% to TWD 5.3 billion in the first quarter of 2026.

EPS as a result reached TWD 1.29. EPS per ADS is TWD 0.204 in the first quarter of '26. On Page 6, year-over-year comparison, revenue grew by 5.5% year-over-year, mainly due to shipment increase. gross margin also show a 2.5 percentage point improvement to 29.2% to TWD 17.8 billion in the first quarter of '26. And EPS also showed nearly more than 100% growth in the net income compared to TWD 7.7 billion in the first quarter of last year. On Page 7, our balance sheet highlights. Total equity reached TWD 406 billion and cash on hand still over TWD 100 billion at the end of first quarter of '26. On Page 8, our ASP declined slightly in the first quarter of '26, mainly due to a better-than-expected inch wafer shipment, which bring down the blended ASP.

On Page 9, our revenue breakdown by different geography, the change is very minor. We see some decline in Europe region from 11% in the previous quarter to 9% in this quarter. And the other region pretty -- stay relatively similar compared to Q4 '25. On Page 10, IDM show a bigger decline from 20% in the previous quarter to now 14% of the total revenue. On Page 11, Communication also declined 3% quarter-over-quarter to 39% when consumer increased by 4% to 32% in first Q '26. For technology breakdown, our revenue below 40-nanometer still remain over 50% of the total shipment and 22/28nm is around 34%, slightly declined from the previous quarter. On Page 13, there's some annual maintenance schedule or maintenance in the first quarter of '26 resulting in a slight decline in available capacity in the first quarter of '26, and we will see the total available capacity to go back to the previous level in the second quarter of '26.

On Page 14 is our overall budget annual CapEx, which for the time being, still stay around USD 1.5 billion. And the above is the summary of UMC's results for first quarter of 2026. Next, I would like to go to share our key messages. In the first quarter, our wafer shipment increased 2.7% sequentially on a relatively strong growth in the consumer segment, lifting overall utilization rate to 79%, which is a continued improvement. Despite decline in blended ASP during the quarter, which I explained earlier, this is partially reflected higher 8-inch wafer shipment and gross margin held firm at 29.2% and demand for our 22-nanometer logic and specialty process continue to gain momentum with 22-nanometer revenue now reached another record high and accounting for about 14% of total first quarter revenue.

At the end of this year, over 50 customers will have complete tape-out on our 22-nanometer platform for a very diverse range of applications, including display driver ICs, network chips and microcontrollers. We continue to invest in the next-generation technology beyond 22-nanometer. Our 12-nanometer collaboration with our partner will provide customers with technology continuity as well as U.S.-based manufacturing option. UMC also recently announced important development in the emerging business, including a strategic partnership to deploy Thin-Film Lithium Niobate, [TFLN] photonics for AI infrastructures. Going to second quarter, we expect strong wafer shipment growth across both 8-inch and 12-inch portfolios, supported by a strong rebound in the communications segment as well as healthy demand across computer, consumer and industrial markets.

With the current memory supply shortage and ongoing conflict in the Middle East are creating certain headwinds and market volatility, UMC continues to foresee resilient market demand. UMC will continue to monitor industry and macroeconomic development closely when prudently managing our business to cope with market dynamics amid evolving semiconductor landscape change. Now let's move on to second quarter 2026 guidance. Our wafer shipment will increase by high single digits and ASP in U.S. dollar terms will increase by low single digits. Gross margin will be approximately 30% and capacity utilization rate will be in the low 80% range. Our 2026 cash-based CapEx, as I mentioned earlier, so far, we will maintain around $1.5 billion budget.

So that concludes my comments, and thank you all for your attention. Now we are ready for questions.

[Operator Instructions] And our first question will be coming from Gokul Hariharan of JPMorgan.

First of all, on the pricing environment, I think last time, you guys have talked about pricing environment being more favorable. Any more improvement that you're seeing on the pricing front right now in terms of your discussions with customers? Is it mainly to reflect the higher operating costs? Or are you able to kind of recognize some price increases even beyond the operating cost improvement? And when I look at Q2 low single-digit Q-on-Q price increase, is that mainly a blended price increase because 12-inch is growing faster? Or is there a like-for-like price increase included here as well?

Yes. We recently sent out a letter to our customers talking about the price increase to happen in the second half of 2026. So the blended ASP in second quarter increase is mainly from the mix improvement. And I would say 22 and 28-nanometer will be the main help for the blended ASP increase in second quarter. And when the first half of '26 were underway, we are seeing resilient demand across a broad range of applications, including communication, industrial and consumer and even the AI-related segment for us. This momentum is contributing to a sustained and increasing tight capacity environment across UMC's portfolio. And to support such demand, UMC continue to enhance manufacturing efficiency and invest in technology and capacity to ensure reliable high-quality wafer supply.

So this ongoing investment, together with increasing key cost drivers, including raw materials, energy and logistics are essential to sustain our long-term operational excellence and service commitment. In light of these factors, we will implement a wafer price adjustment in the second half of 2026, which will set up a more favorable position for the upcoming 2027. So the pricing reflects both the evolving supply and demand environment and the continued investment required to support our customers' growth. So pricing adjustment will be based on the factors, including UMC's product mix strategy, capacity agreement and also the long-term partnership. So this pricing adjustment will be implemented.

Hopefully, we will do our best in a very disciplined and sustainable manner to ensure our operational health and continuing to support our customer growth and long-term success.

So just to follow up on that. I think if I remember right, I think your letter was like 8% to 10% for 8-inch and 12-inch. Are we seeing further potential for increasing price and what is the reception you're hearing from the customers that you've been in consultation with I think is there broad acceptance of this price increase? Or you see some degree of pushback given some of the customers, the demand seems to be still pretty sluggish?

Yes. One thing we don't want to do and we never really did is being opportunist to take advantage of customers. So that's something we will never do. So our pricing strategy has always been anchored in the value where we deliver our differentiated technology diversified manufacturing footprint and hopefully, again, world-class operational excellence. So these trends continue to enhance our customers' product competitiveness and strengthen their supply chain resilience. As the semi supply chain evolves, we are seeing market recognition of UMC value, and this is driving structurally higher and more sustainable demand, and we remain committed to investing in this core strength to reinforce virtuous cycle of value creation.

So in parallel, we continue to enhance ASP through structured product mix optimization. This includes strong momentum in our 22-nanometer platform and reduction in commoditized segment exposures. and thereby strengthening UMC's long-term ASP profile. And I'm pretty sure we didn't really mention anything numerical in our letter to customers. So it will be based upon different segments, different technology and our long-term partnership.

Got it. My second question on gross margin. So we had some improvement in utilization from mid-70s to low 80s in Q2 based on your guidance. Gross margin is still roughly hanging around 30% now. With this price increase, like how should we think about gross margins? Are we likely to get back to like high 30s or 40% kind of levels that we were in -- back in the '21, '22 kind of time frame? Or that might require a much bigger improvement in utilization?

So unfortunately, we're still in the peak of our depreciation increase cycle. And I think in the previous quarter, we mentioned our depreciation curve will only pick up starting from next year. So we're still seeing quarter after quarter depreciation expenses. So if you're asking about EBITDA margin, I think I will be more comfortable talking about a better upside. But if you talk about gross margin or operating margin, we still a lot of pressures from depreciation expenses increase, not to mention the recent geopolitical tension lead to raw material cost and the energy cost and logistic cost to increase. So our utilization rate will be in the low 80% range in Q2.

However, the margin uplift from higher shipments will be largely offset by the higher depreciation and higher utility costs, like I mentioned. For the remainder of the 2026, the fab in Singapore ramp-up will start in meaningful terms in the second half of 2026, which will continue to carry higher depreciation expenses over the next several quarters. And of course, from UMC's side, we will continue to proactively deploy cost reduction efforts, including multi-sourcing streamlining our operations, managing supply chain pricing and drive automation transformation. So all these measures will help UMC to partially offset the cost headwinds and maintain our -- hopefully enhance our EBITDA margin.

Next one, Charlie Chan, Morgan Stanley.

Also congratulations for a very strong guidance and outlook. But I do have some questions about the details, especially you comment about the Communications segment is very strong. So may I know, is that coming from AI-related networking or also the smartphone business? Are you are also seeing a rebound.

So first of all, communication was weaker in first quarter. So there will be a meaningful rebound in second quarter. And this will be driven for UMC will be driven by DDI, networking, FPGA and ISP. So those segments will show stronger growth in the communication segment for the second quarter.

Okay. And if I may, I think the company is also offering a lot of new technology no matter the silicon photonic foundry service or your advanced packaging, right? So can management talk about your future plan for those advanced packaging capacity expansion and also potential revenue contribution in the coming 2 years?

These are 2 questions. One is on packaging, one is on silicon photonics. So maybe David can help to answer the question.

As far as advanced packaging, as you're aware, we're seeing more engagements pick up on our advanced packaging solutions. And as you know, we're working with more than 10 customers on advanced packaging. And currently, we expect more than 35 new tape-outs in 2026. And we foresee that revenue for advanced packaging next year will be significantly higher. And as of now, we're in production with our -- for a bridge die solution and discrete DTC deep trench capacitor with more products that will ramp up shortly.

I know for the bridge die or DTC, are those working with other foundry partners? And is that part of the TSMC supply chain?

Yes. We don't really comment on our partnership. But as you know, as we talked about last quarter, these things are picking up a little bit of steam.

Okay. Okay. So on top of that, do you need to further expand your interposer capacity for that bridge die demand or the current capacity is sufficient for that bridge die? So I'm assuming that the interposers more wafer capacity, whereas the die. They're more advanced, right, but it doesn't really come much wafer capacity.

Yes. As far as capacity planning for all of our new businesses, that will be aligned with our customers as well as the market demand and our ramp-up schedule will be aligned with the market outlook.

Okay, Okay. Thanks, David.

So for silicon photonics, we're now working with industry-leading customers that will help us ramp on silicon photonics. Additionally, preliminary data shows that our silicon photonic performance is on par or better than our peers. This is a result of our manufacturing excellence and also the fact that we use 12-inch equipment versus peers. In addition, we're on track to deliver our PDK 1.0 in 2027, which is based on the imec license. We are also enabling integration for our customers by evaluating hybrid bond, TSV and chiplet integration.

Next question, Sunny Lin, UBS.

On the improving outlook. So my first question is to follow up on what you guided earlier this year. And so 3 months ago, you did guide better growth from second half of this year, driven by new products and market share expansion. And now Q2 is indeed pretty solid, but I wonder how should we think about going to second half? Do you still hold a view that for this year, you should see even stronger growth going to second half of the year?

So we remain optimistic about our overall 2026 business outlook. In the first half, we are seeing resilient demand across a broad range of applications such as communication, industrial consumer and AI-related. So this momentum, we think is continuing to sustain an increasingly tight capacity environment across UMC's portfolio. So we expect this momentum to continue into second half, especially our 22-nanometer logic and embedded HV platform, where we expect to grow in the high-teen percentage range for those segments second half compared to first half. There's also another driver coming from our 8-inch recovery, which is progressing to deliver good growth year-over-year because of a somewhat low base last year. So the stronger second half outlook support our expectation of a full year performance improvement.

I think we still stick to UMC is going to outperform the growth of our addressable market in 2026. And so we definitely, from UMC side, we committed to deliver a better performance and exceed last year's results. And hopefully, this will be a turning point for UMC to broaden our addressable market. And this ASP uplift we talked about in the second half, together with our strategic investment for the upcoming 12-nanometer silicon photonics and advanced packaging are all going to support UMC's sustainable long-term growth.

So may I follow up on full year outlook. And so I think several foundries have reported better outlook for 2026. And so one is for addressable market, do you see some upside for low single-digit growth?

So I think the UMC addressable market show some incremental improvement, but not really significantly different. And overall market, I think, is definitely better if you include all the AI boom. So overall, the semiconductor industry is projected now to grow by mid-teens in 2026. UMC's addressable market maybe slightly better, but still grew by the low single-digit percentage, which is, again, only slightly better than last quarter's forecast.

And my second question is if we look at a high level, there are a lot of concerns around disconnect between consumer end market and mature foundry improvement. And so maybe if you could help us understand why for this year, although smartphone and PC end market are showing some weakness, broader mature foundry space, including UMC, get to see improving demand throughout the year, it seems. And then for UMC. How should we think about your server exposure? What will be the key products that you get to serve from server? And then from here, would you be able to benefit from server opportunity as well?

Our technology predominantly support customer addressing high-end market segment. Those end demand tend to be more resilient even with recent memory tightness, supply is typically prioritized for those high-end, high-value devices. As a matter of fact, our value-added technology, including 28, 22 high voltage and RFSOI will help customers gain more shares in the high-end smartphone segment in 2026. This will also help UMC navigate the headwinds from the communication/mobile segment. So when we remain attentive to the potential impact from either memory tightness or our current -- our current assessment is that any potential headwinds are manageable and we will continue to monitor the situation closely with our customers. And the other factor is really UMC has been focused on the commoditized segment.

So any so-called generic commodity type of market segment, UMC will certainly try to scale down our exposures, and that will also help our overall position as a foundry. As for server, we don't really have a breakdown by the server end market, which we can maybe try to do that, but this is maybe 2 layers, 3 layers away from our market segment.

Next question, Haas Liu, Bank of America.

Congrats on the very good results and the guidance. I guess 2 questions from me. Starting from utilization. You reported in first quarter 79% and will be up to 80% plus or minus range in the second quarter. Would you be able to provide some of the breakdown between 8-inch versus 12-inch nodes and also your expectation for second half this year, judging from your guidance just now that you think second half will be better than first half, also separate between -- respective for - and also 12-inch in the second half?

It's around 80%, above 80%. So it was definitely 80-something and for the second quarter. And -- for Q2, we will see a stronger growth coming from 22 and 28 relatively speaking. And 8-inch will continue with some rebound. But it's really -- but our Japanese operation is below corporate average, which is more in the 65-nanometer, 80-nanometer technologies. So for quarter 2, even though 8-inch will show some improvement, it's still slightly below corporate average. And 12-inch as a whole, still slightly above corporate average, but the gap is certainly narrowing.

Okay. Got it. And second question is just regarding the pricing, right? You discussed about the like-for-like pricing, blended pricing outlook seems to be tracking better because of improving mix as well as improving utilization across the board. But I think 2 things. One is just on the pricing outlook for full year. I remember last time you mentioned it is going to be firm throughout this year. Would you be able to provide some update on that? And second thing is for the pricing on a like-for-like basis, would you be able to just share with us that your strategy on pricing? I understand there's a lot of macro factors moving -- a lot of moving factors in the macro environment that you might need to pass on the cost to your customers.

But would you be able to share if there's any time in the history that your customers have been willing to or were willing to accept the price hike when your utilization is at around low 80 percentage levels? So 2 questions here. First one is on the pricing outlook for full year. Any update on the -- versus the last time frame outlook? Second thing is just on your long-term view that regarding the pricing environment right now versus your long-term trajectory of the business, that 80%, is this sufficient enough for your customers to accept a price hike across the board?

Again, we really don't want to be perceived as opportunist to take advantage of our customers. So the pricing adjustment coming back to our pricing strategy. So the ASP improvements are fundamentally anchored in our value proposition and also the technology and manufacturing service, which is supported by a structured demand rather than short-term pricing tactics. So we are seeing customer market share gains along with ongoing structural shift in the foundry landscape, generating durable demand for UMC. And we want to emphasize our differentiated technology and global footprint, enable customers to strengthen their competitiveness across all segments, including AI communication, consumer and industrial automotive segment.

So like stated in our letter to customers, starting from the second half of 2026, we will implement disciplined pricing adjustment to mitigate some cost headwinds by maintaining customers' competitiveness. Meanwhile, hopefully, more product mix optimization driven by a strong 22-nanometer demand will continue to drive ASP expansion. Even though the steady recovery in 8-inch loading may partially offset the ASP -- blended ASP lift, our overall 8-inch recovery plan is progressing well with stable fab running nearly 100%.

That's great. That's very clear. And I think just a quick follow-up on that is probably the firm pricing outlook for full year you guided last time, is it still holding the same statement? Or is it actually incrementally better? And on the EBITDA margins, you stated -- you making just now that you have a better target on that. Would you be able to quantify it?

If we take out the increased depreciation largely coming from the Singapore fab ramps, with better loading and potentially some pricing adjustment in the second half, we are confident if you take out the depreciation the improved outlook should be able to offset some of the cost increase, especially in energy and logistics, et cetera. And our pricing outlook certainly with the price increase letter to customers is slightly better than the previous quarter.

Next one, [indiscernible], BNP.

[indiscernible] on the very good results and the guidance. My question is a follow-up to a previous one. So the consumer segment revenue seems very strong with a 4 percentage point increase in the product mix. So I wonder, is it because of the demand recovery or the pricing dynamic changes? And going forward into the second quarter and the full year, so how would you see the trend be like?

So consumer growth in Q1 was mainly driven by WiFi and DTV set-top box segment. For the second quarter, the growth will continue and will be driven by MCU, LCD controller and power-related products.

Next one, Laura Chen, Citi.

Can you hear me clearly?

Yes.

Congrats for the good results. I'm just wondering that the progress with Intel's engagement, we already have good progress per management as previous mentioned. Just wondering that for next year, if we start to see some progress in breakthrough, how should we think about that potentially again increasing maybe R&D force or any impact on our revenue and also expense?

So we cannot give revenue guidance now. I think the timing-wise, we are talking -- we are planning by later 2027, we will start to see initial commercial production. And in terms of investment, it's already happening, and that's also partially reflect in our increased R&D expenses. Maybe Michael can help me to comment more in some details. Yes. This 12-nanometer project work with Intel continue to go well. We remain on schedule to deliver the PDK and associated IP to customers in 2026. And we anticipate that the product tape-out will commence in 2027, which will making a significant step towards the commercial deployment and future revenue growth. And UMC and Intel are working closely to ensure this successful tape-out and efficient ramp-up to mass production for the 12-nanometer customer product.

So the application that we -- for this 12-nanometer project will be including the DTV, WiFi connectivity and high-speed interface product.

Sure. I'm also wondering that since the expansion in the U.S. is probably one of the direction UMC is looking for. So I'm just wondering that following the 12-inch technology, any plan to further engage with the more advanced node with Intel?

So we have to stick to whatever we have and to make it execute well and solid. So we cannot speculate the future. So our focus now is to deliver the 12-nanometer platform to customers. So in the future, if anything makes sense for both partners as well as our customers, certainly, we will consider to expand our collaboration to other derivative technologies. But for the time being, the only focus is on 12-nanometer platform.

And next one, Felix Pan, KGI.

I got 2 questions. So recently, there's a lot of rumor talking about UMC being in talks about the potential memory foundry business. I know it's a little bit unlikely and Chi-Tung, you also mentioned that you have to scale down the commodity business, but I still want to some clarification how the company see the opportunity for the strong memory demand, both the NAND or NOR. Is that possible to do anything business related to the memory? That's my first question.

Again, we will not be able to comment on, of course, market speculation like this. But our strength is really in the differentiated specialty technology, which elevate our competitiveness to collaborate with customers. So we will pursue long-term and sustainable business opportunities, which demonstrated by our current comprehensive technology portfolio such as embedded HV, embedded nonvolatile memory, BCD, RFSOI, et cetera, et cetera. And again, we will not do short-term opportunity chase. This is just not our way of managing business.

Okay. Okay. That's very clear. My second question regarding to the 8-inch tightness at the moment. So based on my understanding, this is primarily driven by the global leading foundries, they optimize their capacity. So they are exiting some business for the 8-inch foundry. So primarily, I think this is supply driven, but also we see some incremental demand improvement. So is that possible to break down how you see the 8-inch tightness is more demand driven or supply tightness driven? And if I can may have a follow-up -- to follow up the Haas previous question, what's the 8-inch utilization rate in first quarter?

We like to see this is really because of our competitiveness. So we always prepare ourselves to cope with industry dynamics, and we welcome any opportunity to support our customers. So we view this landscape shift as an opportunity rather than a given. So we want to work hard to further optimize our product mix and gradually improve our performance. So it's very difficult to differentiate the 2 factors you mentioned. And again, we like to think the only thing we can control is our own competitiveness and our technology portfolio. So we will continue to work hard to invest to broaden our technology portfolio and our service to our customers.

Okay. So -- and the first quarter utilization for 8-inch, if I may.

First quarter company-wide was 79%. And as I mentioned previously, it was 8-inch is below corporate average. But the situation -- the delta, the improvement in the second quarter is higher for 8-inch, although for second quarter, the 8-inch average closing still were below corporate average.

Next one, Bruce Lu, Goldman Sachs.

My question is regarding to the legacy node for 12-inch. Your competitor is talking about exiting the market. What's the real situation for UMC is facing right now? How much more business we can expect for the legacy node overflow or in different ways, but do we see the possibility to kick off another round of CapEx in -- especially in Singapore for LTA with the customer for the potential new business?

This is a very hypothetical question for us to answer. I mean it's very difficult. I mean it is somewhat similar to the fundamental of our 8-inch views. The only thing we can control is our own competitiveness and technology portfolio. And we think there's still plenty of upside there, no matter it's 8-inch or 12-inch legacy market segment. And of course, the market dynamic shift help us or have presented the opportunity, but it's really up to us to have the competitive edge to gain those opportunities. So those are the areas we are focusing right now. And if you talk about this advanced packaging, it's actually going to take some of the legacy part of the 12-inch capacity in our Singapore fab.

And if the market dynamic continues with customer demand, certainly, there's upside in terms of capacity for those 12-inch capacity in Singapore.

I should ask in different ways that earlier, so the previous investment is that you only take LTA for the new capacity expansion for your 12-inch. Is that still the case for the future capacity expansion?

We don't want to limit ourselves to the market opportunities. And back in 3, 4 years ago, when the market presents the need and we need the customers to share the investment risk, that's where the LTA comes from. And going forward, with all the new technology opportunities such as silicon photonics and advanced packaging, we will continue to work closely with our customers, including share the risk of further investment. But will that be in the form of LTA or any other forms, we cannot comment because we are still in the early stage of the technology development. And the outlook is promising, but it's still a little bit too early to comment.

Understand. So my second question is, can you comment a bit about like 14-nanometer high-voltage progress? Because I think we asked a question a couple of quarters ago when Jason answered that the driver IC might not need to go for 14-nanometer and beyond. But right now, TSMC is talking about like 14-nanometer high-voltage process, right? Is that the technology trend is getting clear that the driver IC will continue to migrate to the smaller geometry?

I think display comes first, we don't comment on competitors.

I'm asking about the driver IC technology trends, right?

So we have a proven track record for driver IC. And for the current industry-leading 22/28 OLED display solution, UMC is always recognized as a global leader. So when customers are migrating into FinFET and that's where our FinFET HV solution will continue to provide better performance, lower leakage and more die size savings. So again, it's all boils down to our own competitiveness, and we do have the upcoming FinFET HV solution as well.

Next one, Gokul Hariharan, JPMorgan.

So on the silicon photonics could you talk a little bit more about the kind of engagements that UMC is making? Are these mostly for pure pluggables and electronics? Or are you also engaging in some of the CPO-related projects? And given that you also have this PDK for the IM version of the technology coming out soon, how should we think about the ramp of this CP -- sorry, the photonics related revenues over the next couple of years? Should we expect some meaningful progress next year? Or do we have to wait for this imec-based IP to really be out there before we start to see some photonics related revenues really kind of hitting the P&L?

Yes. As far as the current silicon photonics, the key milestone is for us to release the PDK in 2027. That will be version 1.0. And obviously, it's based on the imec license. And as far as the current designs for PICs, they're basically pluggable solutions. But at the [indiscernible], we're also looking to enabling integration for customers by considering other hybrid bonds, TSV solutions or chiplet integrations that will help us be in a better position when CPO kind of takes place further down the road. But for now, it's pretty much all the -- a lot of the PICs discussions and designs that were under customer engagement.

Okay. That's clear. Secondly, on the mature 12-inch node. I think 2022 still seems to be pretty strong in terms of utilization. Could you comment a little bit on 40 and 65/55 status, like how is the utilization there, especially given you commented there is some slack in the Japan fab, which I think if I remember right, was 55 and 40-nanometer. And any forward-looking comments on how that utilization is likely to get filled given that you're also engaging some of the bridge die IC projects?

Yes. As far as for the 40-nanometer, 55 and 65-nanometer, short term, I think the revenue contribution for Q2 will be healthy. From a longer-term perspective, we're confident on the business outlook for UMC's 40-nanometer and 55 and 65-nanometer technologies. So we are seeing longer term, there's going to be more designs, and that will hopefully lift some of that long-term utilization rates.

Any products that you can call out here that are critical here to lift the utilization rate?

I think right now, they're under discussion on customer engagements. But once we've seen some real material uplift in UTR, we'll be more than happy to share them with you.

Ladies and gentlemen, in the interest of time, we'll take the last question. And the last one, Charlie Chan, Morgan Stanley.

So first question is really a follow-up on the pricing strategy. So as the previous caller just mentioned that you did send some letters to customers. So I'm wondering what's the customers' reaction, meaning are they kind of very happy to accept the price hike because they can also pass through to customers or given some end market difficulty, so some customers have some pushback. So it will be much easier if you can -- management can give us some like preliminary second half price hike assumption.

I cannot speak for our customers. Yes, we appreciate the long-term support -- and just like our vendors, those raw material supplier and the energy supplier to UMC, it's going to be a win-win for the longer term. We need those to continue to provide efficient manufacturing and continuous investment. So I'm pretty sure our customers understand where it is coming from, but the key is really how UMC can help them to increase their competitiveness in the longer term and gain more shares. So I think that's the key message we want to deliver to our customer and also we appreciate their long-term support.

Got it. And also a follow-up question to you. Laura's question about the Intel partnership. I want to associate that to my previous question about your advanced stage, especially you said bridge die and DTC, the deep trench capacitor. So is that the right way to think about that because Intel EMIB also need those bridge die and DTC discrete components. Do you think is the right way to think about UMC will be a very important partner for Intel's EMI [indiscernible] or Intel's advanced stage in supply chain?

There's a lot of speculation here, and we will not do that, and we have to respect our important partners. So again, our current focus is on 12-nanometer platform. Nothing else. And this is an important collaboration for both parties, and we have to make it work. And this is so important, especially for UMC. We are putting all the possible resources. We try to make sure we deliver.

But anyway, it sounds very reasonable because you have all the capability and technology that your key partner may want, but we look forward to your next update.

And that concludes today's Q&A session. I'll turn things over to UMC's IR Manager for closing remarks. Go ahead, please.

Thank you, everyone, for joining us today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at [email protected]. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 1Q '26. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.

Welcome, everyone, to UMC's 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section.

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

Thank you, and welcome to UMC's conference call for the fourth quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results followed by our President's key message to address UMC's focus and the first quarter 2026 guidance.

Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section.

During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities.

During this conference, you may view our financial presentation material, which is being broadcast live through the Internet.

Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2025 financial results.

Thank you, Michael. I'd like to go through the 4Q '25 investor conference presentation material, which can be downloaded or viewed in real time from our website.

Starting on Page 4, the fourth quarter of 2025. Consolidated revenue was TWD 61.81 billion, with a gross margin around 30.7%. The net income attributable to the stockholder of the parent was TWD 10.06 billion and the earnings per ordinary shares were TWD 0.81.

Utilization rate in the fourth quarter is stayed the same as the previous one, around 78%. For the sequential comparison, revenue grow 4.5% quarter-over-quarter to TWD 61.8 billion. Gross margin improved to over 30% to now 30.7% or gross margin of TWD 18.95 billion.

And the non-operating income remained similar to that of last quarter. And the net income overall contributed to shareholder of the parent is around TWD 10.05 billion or EPS of TWD 0.81 in Q4 of 2025.

For year-over-year comparison, on Page 6, revenue grew by 2.3% to reach TWD 237.5 billion for the whole year of 2025. Gross margin rate is around 29% or TWD 68.9 billion. And for the net income attributable to the shareholder of the parent for year 2025, is around TWD 41.7 billion or 17.6% net income rate. EPS for 2025 was TWD 3.34, which is a decline compared to that of TWD 3.8 in 2024.

On Page 7, our balance sheet at the end of 2025. Cash amounts still more than TWD 110 billion, with total equity of the company is now TWD 379.8 billion at the end of 2025.

For ASP on Page 8, you can tell for the last three quarters or four quarters, it pretty much remained similar level for our blended ASP for throughout the 2025.

For revenue breakdown on Page 9. For quarterly comparison, the change is mainly showing in the increase in Asia and Europe with now North America represents about 21% in Q4 of last year.

For the full year breakdown on Page 10, the change is similar. We see North America dropped from 25% in 2024 to 22% in 2025.

For Page 11, IDM for Q4 revenue still represent about 20%, almost no change. But for the full year number on Page 12, IDM account for 19%, increased by 3 percentage points to 19% in 2025.

For quarterly revenue breakdown by application, it remains almost similar quarter-over-quarter on Page 13.

For the annual performance on the application breakdown on Page 4 (sic) [ Page 14 ] consumer increased by 3 percentage points to 31% from 28% in the previous year. And we continue to see 22-nanometer to be our key driver of growth for the recent quarters and also forward-looking as well. So 22 and 28 nanometers revenue in Q4 '25 now represent 36% of the total revenue pool.

On Page 16. For the full year, the increase of 22 and 28 nanometers revenue is 3 percentage points, and we also show about 2 percentage point increase in 14-nanometer on a year-over-year comparison.

Capacity remained flat on a quarter-over-quarter comparison base, but it will decline by roughly 1% due to the annual maintenance schedule.

On Page 18, our latest forecast for 2026 CapEx plan is around USD 1.5 billion, which is slightly declined from USD 1.6 billion in the year of 2025. The above is a summary of UMC's results for Q4 2025. More details are available in the report, which has been posted on our website.

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

Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results. In the fourth quarter, our results were in line with the guidance with a flattish wafer shipments amid mild demand across most of the markets. The 4.5% revenue increase during the quarter was supported by favorable foreign exchange movements as well as a sequential growth in our 22- and 28-nanometer business, which continues to improve our product mix. With the 22- and 28-nanometer segment, 22-nanometer's revenue increased 31% quarter-on-quarter to a record high, accounting for more than 13% of total fourth quarter revenue.

Looking at the full year, UMC delivered solid performance in 2025 with shipment increasing 12.3% and revenue in U.S. dollar up 5.3% year-on-year. Going into the first quarter of 2026, we expect wafer demand to remain firm. UMC is confident that 2026 will be another growth year as a tape-out on our 22-nanometer platform accelerate, and other new solutions continue to gain business traction.

We have been working hard to lay the foundation for our next phase of growth, investing for the future in both capacity and technology. In 2025, we completed the new Phase III facility at our Singapore Fab 12i, which is already playing a central role in supporting customers to diversify supply chain.

At the same time, we are striving to expand our footprint in the U.S. through an innovative yet cost-effective modes of partnership, such as our 12-nanometer collaboration with Intel and the recently announced MoU with the Polar Semiconductor.

The leadership UMC has built over the past few years across specialty technologies, including embedded High Voltage, Non-Volatile Memory, and BCD, has and will continue to sustain stable business growth.

Looking ahead to 2026 and beyond, we expect advanced packaging and silicon photonics to serve as a new growth catalysts, positioning UMC to address the evolving needs of a high performance of applications across AI, networking, consumer, automotive and more.

Now let's move on to first quarter 2026 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2026 cash-based CapEx budget will be USD 1.5 billion.

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

Yes. Thank you, President Wang. [Operator Instructions] Now first question will be coming from Sunny Lin, UBS.

So, I have a few questions. Number one, Jason, may we have your thoughts on overall market outlook for 2026. And then for semi versus foundry? And if UMC can continue to outgrow your adjustable market for this year?

Sure. Well for 2026, we expect AI-related segment remains as the primary growth driver in semi-industry. And furthermore, with the continuous commercial deployment of Edge AI applications, demand for chip using a general purpose server is also expected to rise. In contracts, the adverse effect of the memory supply imbalance could put some pressure on specific consumer electronics. But overall, the semiconductor industry is projected to grow by mid-teens in 2026.

The question for foundry market, we believe that AI demand will remain strong and is the main contributor behind the low 20% growth projection in the foundry market this year. On the other hand, although the memory pricing may impact demand of the foundry market, at this time, we -- at UMC, we estimate that our addressable market will grow by low single-digit percentage. And UMC's growth was expected to outperform the average growth of our addressable market.

Got it. So, then my second question is on pricing. Lots of discussions and obviously, Chinese peers are raising pricing. So how should we think about the pricing outlook for mature foundry and for UMC through 2026? Would UMC be able to start to reflect better value? And if yes, which product categories should we expect more upside from here?

Okay. Well, we do anticipate a more favorable ASP environment in 2026 versus 2025. This outlook really reflects our disciplined pricing strategy and the positive impact from multiple reasons, product mix optimization, loading improvement and reduced exposure to more commoditized market segment. As you're referring to China players, we expect the strong growth momentum in our 22-nanometer demand to support our product mix in 2026 as well.

Overall, our pricing strategy remains consistent and is anchored to the value where we deliver technology differentiation and manufacturing excellence. So, we do think the 2026 pricing environment is more favorable now.

Now the question about which product, and I mean, we don't comment pricing on specific product or any specific node. But in general, we do see the environment is more favorable now.

No probolem. That's very helpful. And then a follow-up would be on the overall industry supply versus demand for the coming few years. TSMC on the recent earnings conference talked about the plan to optimize capacity for mature nodes to better support cloud AI demand in coming few years. So from your perspective, how should we think about the opportunity here? Are you starting to see more client engagement for new products in the coming few years?

We're always excited to see more customer engagement. So -- but more importantly is we need to prepare ourselves to cope with the market dynamics, and we welcome any opportunity to support our customers. So, we view this landscape shift as an opportunity to further optimize our product mix and gradually improve ASP and margin as well.

No, got it. Got it. And then maybe lastly, just on your Singapore expansion. How quickly are you planning to ramp capacity in 2026 and in 2027? And how should we think about the differentiation of products that you have for Singapore versus the Taiwan capacities for 22- and 28-nanometer? And then with that, how should we forecast the depreciation in 2026 and 2027?

Well, first of all, for the year of 2026, the capacity increase will be around 1.2% year-over-year for us. And for our Singapore facility, the expansion will start in the second half of 2026. And with capacity deployment ramp from second half of 2026 will continue into the 2027.

In terms of the node available in our Singapore facility, it's our strategy that we have a geographically diverse manufacturing booking between Taiwan, Singapore, Japan, U.S. and from a technology, no coverage standpoint, we would like to coverage most of the nodes. So the customer has a benefit of passing different sets of forecast.

As for the depreciation forecast, we are looking for some like low teen annual increase in the full year depreciation expenses. As for next year, we don't have the exact number here, but it's very likely to be the similar amount for 2026. So in a way, we will see the depreciation curve to peak either this year or next year with a very similar numbers.

Next one, Haas Liu, Bank of America.

Congrats on the results. I would actually like to follow-up on the pricing. If we look at the like-for-like pricing environment, based on your current mid- to high 70 percentage of the utilization, if we strip out any of the consideration of the product mix improvement, are you able to improve or just to pass on your higher manufacturing costs or material costs to your customers at this stage? Or you still receive a meaningful pushback from your customers?

Well, I mean, the pricing discussion is always ongoing. The overall pricing strategy remains consistent, as I mentioned earlier. In 2026, we do see some market dynamic changes, so forth. Certain customers we do have some adjusted pricing upward. And so -- and for a certain customer, we still have some of the pricing -- I mean, the onetime pricing adjustment at the beginning of the year to support their market share expansion, as well as the competitiveness. So net-net, within the environment more favorable now in 2026.

Okay. Yes. So, when you talk about you are supporting your customers to gain market share by strengthening their cost structure. Do you mean you are actually adjusting down your pricing for those customers? Or is it actually up for this year?

We have a mix of that. For certain customers, we have adjusted pricing upward. And for certain customers, we will apply the onetime price adjustment downward, yes.

Okay. Got it. And then just on the near term, a couple of your Fabless customers recently talked about earlier and also stronger inventory restocking because of the memory price hike. I was just wondering what impacts your first quarter outlook here, if your customers are seeing stronger inventory pulling in the traditional low season. Why is your shipment for first quarter is still relatively flat? And then, what's your puts and takes for the first quarter overall business outlook? Just wondering whether -- which part of the business is actually relatively stronger and weak?

For Q1, by segment, we are actually in line with our addressable market seasonality. We didn't see a significant changes due to the inventory restocking. But if you're looking into by applications, we expect the revenue contribution from consumer segment to increase driven by the WiFi and DTV and set-up box, while the revenue from the communication and automotive will decline due to a softer demand of ISP and DDI products.

Okay. That's pretty clear. And then since you just mentioned about seasonality, are you expecting this year's seasonality to look pretty similar to the previous few years that first quarter could be relatively light and second quarter and third quarter, you will be able to see a relative strength into the year?

I can have -- probably provide you with this. If we look at the whole year, with the new project of a multiple specialty technology across the embedded high-voltage, non-volatile memory, power management, IC, RF SOI, it supports the end markets in communication, consumer, automotive and AI servers which will ramp in second half 2026. So, we're more looking at this year that our second half will outperform the first year -- first half, I'm sorry, the second half will be better than the first half. So that may be the deviate from the traditional seasonality. But as far as for us, we think the overall shipment for the year will be a growth year and as well as second half will be better than the first half.

Okay. Yes. And last question before I jump back in the queue is that, just based on the comment you had just now, what is the underlying market unit demand assumption you have right now? Is it smartphone -- is it the overall smartphone market will actually grow or decline based on your current base case scenario that second half will be better? Or it is actually already factoring a relatively more conservative expectation that smartphone TV, PC, this kind of consumer markets will actually see a unit decline?

Always with the current forecast from our customers. I mean, we do see gains on product segments, all applications. We do see some share gains on those applications. So right now, the forecast does show us that's more of a share gain in the market -- end market demand associated.

Next one, Felix Pan, KGI.

I just have a couple of questions about the future growth driver, particularly in the remarks, you mentioned about the advanced packaging and silicon photonics. So my first question will be besides the Interposer, what else we might have, some engagement for advanced packaging? And for Interposer, what's the capacity expansion plan for 2026?

And my second question will be the silicon photonics, particularly in the Singapore fab, a lot of rumor about your potential customer. Is there any color, any client engagement or any contribution can generate from this segment? Any color will be grateful. Thanks.

Okay. A big question. So, let me see if I can cover -- cover that. And well, if I look back, I mean, I understand you asked for 2026. But let me look back this. We have delivered a very solid 2025 performance with a 12.3% shipment growth and 5.3% revenue growth, which outperformed our addressable market. This result is supported by our differentiated 22-nanometer technology and other specialty offering across both 12-inch and 8-inch amid a world-class market, a broad-based market demand recovery.

And building on the 2025, we do view 2026 as a year of both continuity and evolution. We believe the UMC will once again taking shares and outperform its addressable market, and we will also see several positive inflation.

First of all, as our guidance suggests, we are seeing a more favorable pricing environment. This will result of tighter supply globally as well as our differentiated technology and geographical footprint, which will drive our growth for the next few years. We are on track with our 12-nanometer cooperation with Intel, which should start see tape-out in 2027. Now that's the existing one.

And your question about silicon photonics and advanced packaging. Secondly, we see 2026 as a pivotal year for those high performance, high potential opportunities such like the silicon photonics and advanced packaging. And we are making those deliberate choice, working with INEX to invest and scale them into a significant driver for our future.

If you ask specifically about the advanced packaging. And there are two distinct opportunities for advanced packaging. One, we call enablers, the other we call 10 extenders. Major to explain this. I know it's long, but bear with me. So the fourth enabler, we are seeing the 2.5D and 3D packaging as well as the chiplet move well beyond just the data center and ultra high-end chip and start to spread across the broader market.

Over time, we expect that advanced packaging to be adopted even on mature nodes. A good example is RF SOI. We have mentioned many times where we're already in production. In addition to the RF SOI, we are also exploring other applications with leading partners and believe we are at least 2 to 3 years ahead of our competition.

What this really means for customers is better power efficiency, small form factor, and differentiated products. And for UMC, it is a strategic win-win. We believe our leadership in advanced packaging will enable us to capture more shares, sustain our higher ASC and drive better margin in many of our already established business in the long run.

On the 10 extenders, we also believe that advanced packaging will help UMC address new opportunities. For example, customers are coming to us for AI-related applications. This is not necessarily just the XPU related, but we are adding value by stacking memory with the logic, adding DTC to the stack or selling the discrete DTC. We are also working with our partners to enable a total solution. Meanwhile, we are working with more than 10 customers in advanced packaging currently and expand more than 20 new tape-outs in 2026. We foresee revenue in 2027 will be a significant year for us.

And the capacity question you have that capacity plan will be aligned with the customer ramp plan and market outlook.

You also asked about silicon photonics. For silicon photonics, we are developing solutions, which includes ASIC, OIO, OCS, and CPO. Our collaboration with INEX allow us to deliver industry standard PDK to our customers in 2027.

In addition to platform preparation, we also work with the customer on captive technology of 12-inch PIC aiming for possible product, which is expected to ramp this year. We will also combine our advanced packaging know-how with the silicon photonics as many of the applications require the integration and different substrates, process, technology and materials.

Looking ahead to achieve 1.6T bandwidth and beyond, we're working with both customers and vendors for the test finding on heterogeneous material such as the TFLM. Those technologies could also be used in additional applications such as quantum computing. Again, we hope to integrate the new material the advanced packaging technology as well. So those are all integrated altogether. That's why I gave you a bit of a longer answer. I hope that explains it.

Yes. Okay. But just -- let me just a quick follow up and rephrase my question. So for silicon photonics, what's the earliest timetable we can see the revenue contribution, like most likely?

For the 12-inch PIC, for the pluggable product, we'll be expecting to ramp this year.

Okay. And about the -- because as I know about the Interposer, currently is the -- Interposer is also the bottleneck for our partner to expand their capacity. So, is there any color we can give -- how much capacity growth for the Interposer, like how much year-on-year growth or something like that?

Well, right now, the capacity planning will be aligned with the customer for the 2027 ramp. So, we will probably provide you some clarity when that comes. Right now, in 2026, we will focus on the tape-out.

Next one, Gokul Hariharan, JPMorgan.

Could you go a little bit deeper into that advanced packaging comment that you made? What is the involvement level of UMC in some of these advanced packaging solutions? Are you doing full stack? Or is it basically like previously where you were largely focused on the Interposer side of the equation? And in terms of the tape-outs that you have, what are the nature of these tape-outs? Are these mostly data center ASIC-related products? Or is this a much wider array of products other than just data center ASIC?

Sure. Well, first of all, we have reported in our advanced packaging space. We have building up some of the capability from wafer-to-wafer stacking and TSC as well as Interposer, the 2.5D and the many different capabilities. And then the way we see it, like I explained, for the enabler is we can apply those to many of the current products that we currently serve. And then -- and one example I mentioned is the RF SOI. So we have wafer-to-wafer hybrid bonding with the RF SOI solution for the mobile space already.

And then, some of the capability can be built for the DTC for the stacking as well as some of the customers looking at discrete DTC already. And we are combining some of the capability into segments, the logic and the memory. Of course, we do not provide memory ourselves. So the customer will have to provide memory wafer to us. And so then we can provide wafer-to-wafer hybrid bonding on those.

So on one hand, the way we see it is advanced packing is a capability per se, and it implies to the product and then we call it enabler and also expander. And the -- meanwhile, the product coverage is all the way from the mobile space, power management discussion, the AI-related -- AI-related product and also for the BCD application as well.

So they were -- it's our belief is for a better reason or for the higher performance reason, and many different applications will start adapting the advanced packaging. So we think this is going to be a broad success on the advanced packaging space.

Got it. And any plans to further expand your Interposer capacity? I think we had expanded, I think up to 6,000 and then kind of stopped it there. Now some of that demand seems to be kind of coming back for some of -- one of your customers in China. So, is there any plans to expand the capacity further?

There are discussions around that. Right now, if you look at the technology itself, we have some common tools in place already, which that we can leverage of our 40-nanometer capacity, of our 65-nanometer capacity. From those common tool space, we're already allocating to this area. Now for the unique tools, then we will put in the plan for the future expansion and for the customer ramp profile. And we believe that will probably happen in 2027.

Got it. Understood. That's clear. Another question I had is on the -- just your expectations for the communication, consumer segment which is north of 70% of revenue, given all these concerns about smartphone, PC. How are you budgeting for this? Are your customers telling you that they are really concerned about this memory cost inflation? Or right now, you still don't really hear that from the customers that that's going to be a big issue from a unit perspective going through the year?

Well, we're also cautious about that topic. As of today, we have not observed any demand impact on our customers' forecast for the year, despite the recent surge in that price. And our technology predominantly supported customers addressing the higher end of the market segment, where the demand tends to be more resilient in the past and in the period of memory tightness. So, because the supply usually typically prioritize in such high-end higher-value device. While we remain attentive to the potential impact on the memory market and our current assessment is that any potential headwinds are probably manageable, and we will continue monitoring the situation properly with our customers together.

Got it. My last question is on the geographic split of revenues. I think, could you talk a little bit about the Intel 12-nanometer progress? And any color on how you will be booking revenues or profits from this partnership given the fabless, Intel fab, while you are essentially the provider of customers and some degree of IP as well into it?

And secondly, on the Xiamen's fab, what's the strategy for the Xiamen's fab medium to long term, given many of your semiconductor peers in Taiwan have kind of progressively exited capacity in Mainland China?

Well, for the 12-nanometer project with Intel, overall, the 12-nanometer cooperation project with Intel continues to advance smoothly. We remain on schedule to deliver the PDK and associated IP to customer in 2026. Furthermore, we anticipate the product tape-out will commence in 2027, making the significant step towards to commercialized deployment and future revenue growth.

Right now, UMC and Intel are working closely to ensure successful tape-outs and an efficient ramp up for the mass production. As the project advance, it is expected to further strengthen USD position in the U.S., right, for customer as well for us. Because the geo diversification manufacturing.

Right now, the application on the 12-nanometer cooperation, including products on digital TV, WiFi connectivity and high-speed interface products. In terms of the business model, and it's probably not available for us to comment. But it is a win-win strategy that we see and will be very synergetic for both parties as well as for our customers. And we have very high confidence this will be a win-win model.

Okay. And any thoughts for the Xiamen capacity?

Yes. For the Xiamen, I kind of touched that earlier as well. I look at Xiamen, not just Xiamen itself, our core part of our competitive advantage is our geographically diverse manufacturing footprint. And the Xiamen play one of the important space for us and particularly for the local customer. So -- and at this point, the fab is actually at a full capacity. We are running at a full utilization as well. And we see -- we continue seeing many different engagements coming to this and we will across regionally optimize it from the customer engagement and product loading standpoint.

Okay. Just one more on blended ASP. I think, Jason, you mentioned that the ASP environment is more favorable this year. But overall utilization is still in the mid-70s as of Q1, right? So do you expect that this year, we could see a scenario that we could see blended ASPs moving up meaningfully like 5% to 10% or something like that, like we have had in the past or that requires a much higher level of utilization that is probably not happening this year, given your low single-digit foundry growth expectation?

Sure. I mean, the high utilization is one of the important factors, but that's not the only factor. We want to make sure the pricing strategy is enabled not only ourselves and our customers to be competitive as well. So -- but we do see the pricing environment is getting more favorable to foundry because of the loading reason. And so -- but the magnitude of that, we probably have to continue to manage it. And if we have a clarity, we will share that with you.

Next one Alex Chang, BNP.

I just have a very quick one. I just saw the company announced that they started the mass production of SuperFlash Generation 4. So just wonder how much revenue contribution from the non-volatile memory business in the past quarter or maybe past year? And also how much revenue is contributed by the power management ICs for the server-related applications?

I mean, we don't have a breakdown to provide. And the way that we break it down is based on specialty technology that includes the high-voltage and non-volatile memory and the PCB space. Right now, the specialty revenue representing about 50% of our overall revenue. And I can let you know the high voltage is about 30% of that. And the rest of that, I would say, is a combination of the non-volatile memory as well as the DCB.

Next one is Laura Chen from Citi.

I just want to follow up on the deterioration rate and also the gross margin outlook. Jason, you mentioned that the pricing environment seems to be improving more favorable. And together with firm shipment and better product mix as well as the utilization rate, so how should we think about the gross margin trend? You guided that will be high 20% for Q1. But with these favorable factors, how should we think about the margins throughout the year? That's my first question.

Yes. Gross margin can be highly dependent upon utilization rate, ASP, product mix, depreciation and foreign exchange rate. So there's a lot of variables. So beyond this quarter, it's difficult for us to give a firm outlook. For the first quarter guidance, which is high 20s, is mainly due to the higher cost, especially the higher depreciation expenses. As I mentioned, it will grow by low teens in the full year of 2026.

As for 2026, we will continue to cope with higher depreciation expenses as well as the other inflationary pressure for our production, raw material and other costs. To mitigate and cope with the headwinds, we will continue with our cost reduction efforts and also all the activities to improve our productivity and drive operation efficiency. And these measures hopefully will help UMC to deliver a stable EBITDA margin and ensure our long-term financial resilience to remain intact. As a matter of fact, our 2025 EBITDA margin is actually a good improvement compared to that of 2024.

Yes, sure. And also, I think for the advanced packaging and as well as the silicon photonics is one of the key things that UMC may have a great opportunity. We know that UMC has already working on advanced packaging, previously on Interposer, probably now we'll see more various different design. So could you share with us what's about the revenue contribution of your advanced packaging right now? And how would that look like in 2, 3 years?

Currently, the Interposer was exposed to very limited customer base and also narrow application. While we have engaged with more than 10 customers and expecting more than 20 new tape-outs in 2026, we do foresee that revenue of packaging -- advanced packaging growth in 2027 will be significant.

So, significantly means that, could that be like 5%, 10% or higher?

I am expecting more than that. But I mean, if you're referring to the overall revenue contribution, we'll probably give you more guidance later. But if you're looking at the packaging itself, it's going to be significantly larger than what we're shipping today.

Next, we'll have Bruce Lu, Goldman Sachs for questions.

I want to go a little bit deeper for the silicon photonics. I mean, as you might know that your peers like GlobalFoundries, Taiwan Semi, pretty vocal about that. Can you tell us how big do you think the addressable market for silicon photonics for you guys in 2 years? And how do you win market? What is the competitive advantage for you in this business? I mean, other than working with INEX?

Well, I mean, the Singapore facility is not going to only serving the silicon photonics. Singapore facility is one of our important manufacturing site, they serve our worldwide customers, all different applications. And so it's part of our geographical diverse manufacturing strategy. So...

No, no, no, my question is for silicon photonics, our business strategy?

The silicon photonics strategy in Singapore. Okay.

No, no, no, no. I'm sorry, let me rephrase my question. So the growth driver for UMC, one of it is the CPO, I'm assuming having more business in the silicon photonics. In -- for your peers like GlobalFoundries or Taiwan Semi, they are pretty vocal about the silicon photonics and have meaningful revenue contribution already. For UMC perspective, what is your competitive advantage for UMC to win this business? And how much business you can win or how big is the addressable market for you in 2 years?

Got it. So, for the silicon photonics, our strategy is simple. Our cooperation with INEX allowed us to deliver the industry standard PDK to our customer in 2027, particularly in 12-inch. So many of our competitors is today at 8-inch and we are focused on this in 12-inch. And as we believe the 12-inch will have that advantage. And right now, we already have certain products that have proven that performance is a better and a pluggable product, and which we will expect to ramp this year.

And meanwhile, we're also combining the silicon photonics with our advanced packaging know-how, so for many different type of applications then we can integrate that. So by doing that, we think we will be even providing even more value from advanced packaging combining with silicon photonics at 12-inch. I think that's where we believe we are competitive.

But that's mostly for plug-in, right? Because if you don't have the EIC, the pure CPO product might not be your key growth driver?

You're correct. We're not looking at a completely CPO package. We're looking at particularly in the PIC and OIO and OCS.

I see. I understand. That's very clear. Next one is -- and we see that the progress for the Intel project for 12 nanometers is pretty smooth. I just want to know what is the next step? I mean, when we can see a further collaboration in 10, 7 nanometers and beyond? I mean, obviously, whatever you said, the advantage at 12-inch, you can also use the same argument for 7-nanometer. What's stopping you to do that?

Well, you're also right on that. And our focus right now is on delivering the 12-nanometer platform to customers. In the future, should it make sense for both UMC and Intel as well as our customers, we will surely consider expanding our collaboration to other derivatives as well as the technologies. Yes.

But what is stopping now? What is the show stopper now?

It's not -- I won't call it stopping. I think the focus is a focus on 12-nanometer. We have to deliver a 12-nanometer today, and make sure that we deliver that program. We execute it well. And I think anything that makes sense on that, unlike you said, I think there will be a discussion, yes.

I see. Because we already assumed that you can deliver something in '27. So given that working for 7 nanometers, maybe you need 2, 3 years, we want to see the project kickoff as soon as possible.

[Operator Instructions] Now we'll have our last question, [ Sappho ] Neuberger Berman.

It's been a while. And congrats on the progress you've made throughout this couple of years. I just have a few questions. The first one is, on the market dynamics, I think previously, Sunny has asked about the TSMC is shrinking or defocusing on this mature foundry process. And it looks like not just TSMC, but also the other foundries are -- seems to be doing some leading-edge logic foundry seems to be doing the same thing. And also Powerchip recently just reached agreement with Micron as well as Intel fab, which means they're trying to streamline and re-org some of the foundry process, too. So it seems like there's a lot of supply is kind of being taken away because of the rolling out effects from the AI and crowding out some of these older nodes.

On the supply side, it seems to be that actually decreasing. And on the demand side, if you look at, I think, TI just to report overnight. I think it seems like that there's been more obvious recovery on the analog MCU space. So on demand side, that's also improving. But the supply side, that's actually decreasing. So it looks like supply-demand dynamics is moving to a more favorable situation. I think that's the point why you were mentioning the pricing dynamics favorable this year.

So I'm just curious about your view, if we try to compare the current like the mature foundries dynamic situation right now versus, I mean, back in 2021 when there is a severe shortage back then. How would you compare this time around versus last cycle?

I mean, that's a really good question. I mean, we saw on the market movement, the changes. And we also deep dive on this demand and supply outlook. And we think whether this is short term or long term. If you look at the driver behind us, we see -- you mentioned this is truly more of the AI phenomenon ripple effect. And so we see that AI remains to be very strong, at least in the foreseeable future. And I think this momentum will continue driving the overall demand.

And meanwhile, in many of this -- the capability -- AI capability we portfoliating to even the other end market devices in the Edge AI as well. So as in this will continue. And from an economic standpoint, building any of the mature facility is not justifiable. So we do think that this could last longer compared to the over time. And I think the situation could be more of a structure going forward.

And -- but again, this is at a very early stage of this market movement. So we'll pay attention to it, and we'll continue monitoring the progress. Meanwhile, like I said earlier, I think it is more a favorable pricing environment. But more importantly is we need to prepare ourselves to cope with this market dynamic. So we are welcoming all the opportunity that for us to engage in supporting the customer.

And -- but the important focus today is we have to get ourselves ready to capture those opportunities.

Got it. Another question I have is your earlier comments on the pricing. I think the -- you offer some of the annual -- maybe some discount to some of our strategic clients for their share again, but also net-net wise, also seems to be pricing is going up for a majority of the clients. So net-net, it's going to still be the -- ASP still be positive. But I'm just curious about, for those clients that you're offering some discount at the beginning of the year, when it down the road is, if the next few months or quarter situation has become tighter -- and would you be able to reprice with these customers?

Those discussions will be ongoing. We're always working with our customers to reflect the market dynamics as well as the cost increases. So I'm sure, and I believe this conversation will surely happen. It happened in the past, it will happen now and will happen in the future. So the pricing discussion will continue. And I think customers understand that. And we just have to continue monitoring the market dynamic and maintain our competitiveness on both the customer and ourselves.

Yes. Well, a thought on that because of some of the pricing that started to affect it on the January 1 this year, this was actually negotiated already in fourth quarter last year, right?

That's -- some alignment on that on both volume and the pricing. So if volume has changed, of course, that's a different topic. So, there are some volume dynamic in that as well.

Yes. My question is actually is that because a lot of the pricing that's effective on January 1, beginning of the year, it was actually communicated 1 or 2 months ago before that, toward the end of last year when the time that the supply demand dynamics haven't been really that tight as compared to some of the changes that happened in the just past couple of weeks. Am I getting that right?

Yes, you're right. Yes. But those also is on certain conditions. So given the condition has changed, the some of the pricing are dynamic.

Yes. Yes. Exactly, that is what I'm trying to discuss with you. Because we also saw a lot of the other different components, different subsectors within the tech or semi supply chain that such as memory, I think the pricing were still down in July, August, but all of a sudden, September prices going up. So I'm just curious about that because when you negotiate some of this discount months ago, the supply-demand dynamics was not the same as today. So things remain fluid, dynamic and it still continue to be flexible and it's going to be dynamic and open for changes down the road, if things are moving more favorably.

I think the core of the pricing strategy is that it has to be consistent, and it has to anchor with the value that we deliver and also the customers' competitiveness. That is the core. Then usually, that is how we're centering about the pricing discussion. So that core is not compromised.

Now if the condition has changed, yes, they always have some flexibility to it. So, one is called pricing strategy and position, another is core pricing negotiation. So there will be some flexibility, yes.

Yes. And the condition has started to change now.

Yes. So we do think the pricing discussion will be more favorable now, yes.

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

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact [email protected]. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for fourth quarter 2025. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you, again. Goodbye.

Welcome, everyone, to UMC's 2025 Third Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section.

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

Thank you, and welcome to UMC's conference call for the third quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC.

In a moment, we will hear our CFO present the third quarter financial results, followed by our President's key message to address UMC's focus and fourth quarter 2025 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors, Financial section.

During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities.

During this conference, you may view our financial presentations material, which is being broadcast live through the Internet.

Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's third quarter 2025 financial results.

Thank you, Michael. I'd like to go through the third quarter 2025 investor conference presentation material, which can be downloaded or viewed in real time from our website.

Starting on Page 4, in third quarter of 2025, consolidated revenue was TWD 59.13 billion, with gross margin at 29.8%. Net income attributable to the stockholder of the parent was TWD 14.98 billion and the earnings per ordinary share were TWD 1.2. Capacity utilization rate climbed to 78% in that quarter with wafer shipment just marked 1 million 12-inch equivalent wafers.

On Page 5, on the sequential comparison, third quarter revenue of TWD 59.12 billion increased slightly compared to the previous quarter, mainly due to higher wafer shipment, although the NT dollar exchange rate was an unfavorable factor of around 3%. Gross margin also climbed on back of the better capacity utilization rate to 29.8%. And net income reached nearly TWD 15 billion or an EPS of TWD 1.2 per share in NT dollar terms.

On year-over-year comparison, on Page 6, for the first 3 quarters, revenue grew 2.2% year-over-year to TWD 175.7 billion. Gross margin was around 28.4% or nearly TWD 50 billion for the first 3 quarters of 2025. Overall, net income for the first 3 quarters is down to TWD 2.54 per share compared to TWD 3.12 in the previous 3 quarters of 2024.

On Page 7, cash still above TWD 100 billion, and total equity of the company is now TWD 361 billion at the end of third quarter of 2025.

ASP on Page 8 shows we remain firm for the past 2 quarters.

On Page 9, for revenue breakdown, we see -- we can see that the North America represents about 25% of the total revenue in the third quarter, which is 5% higher compared to 20% in the previous quarter. On the contrary, Asia declined by nearly 4 percentage points to 63% in the third quarter of 2025.

IDM versus fabless remain unchanged on Page 10 for the third quarter of 2025.

On Page 11, we noticed the communication and computers edge up in terms of sales mix when consumers declined by nearly 4 percentage points to 29% in the third quarter.

On Page 12, the segment sales breakdown by technology, 22 and 28 still remain our main technology node, when 22 continued to climb in terms of percentage. Total 22 and 28 revenue reached about 35%. For 40-nanometer and 65-nanometer revenue, somewhat unchanged, in about 17% and 18%, respectively. For our quarterly capacity for the third quarter, we see a minor increase coming out of our 12x Xiamen fab with now the monthly capacity is nearly 32,000 wafers per month, and total available capacity will remain flat for the coming quarters.

On the last page of my presentation, our annual CapEx is heading to our budget number of $1.8 billion with 90% in 12-inch and 10% in 8-inch.

The above is a summary of UMC results for third quarter of 2025. More details are available in the report, which has been posted on our website.

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

Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's third quarter results. In the third quarter, we observed demand growth across most market segments, which drove a 3.4% increase in wafer shipments and improved utilization rate to 78%. In particular, we benefited from a pickup in sales of smartphones and notebooks, driving replenishment order from customers.

Our 22-nanometer technology platform continues to provide us with the differentiation in the market, with 22-nanometer revenue now accounting for more than 10% of the total sales in 2025 alone, we are projecting over 50 product tape-outs, and we expect 22-nanometer contribution will continue to increase in 2026.

Aligned with our strategy of providing customers with highly differentiated specialty technologies, we recently announced the readiness of our 55-nanometer BCD platform. In addition to mobile and consumer applications, the new platform is also complemented with the most rigorous automotive standards for automotive and industrial use.

Looking ahead to the fourth quarter, we are anticipating wafer shipment to be comparable with third quarter's volumes, wrapping up 2025 with shipment growth in the low teens. UMC continues to deliver competitive process technologies that enable diverse applications, which position the company to benefit from a broad-based market recovery. With the 22-nanometer logic and specialty platform, in particular, we expect to drive growth.

Now, let's move on to fourth quarter 2025 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2025 cash-based CapEx budget will remain unchanged at USD 1.8 billion.

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

[Operator Instructions] First, we'll have [indiscernible], Bank of America for questions.

My first question is regarding the near-term outlook. Could you discuss more in detail on how you see the business by end market is trending into the current quarter in fourth quarter? It seems the guidance is above seasonal, so just wondering if there's anything driving that. And also just your initial view into first half next year, did you get any feedback from your customers on the potential restocking, or in general, they are still pretty conservative at this stage?

Sure. I mean, while we're going into Q4, we can -- as I said, we wrap up the 2025 shipments to a low teens. It's now that we project the 2025 shipment growth was supported by our differentiated 22-nanometer technology and other specialty offerings across both 12- and 8-inch amid a broad-based market demand recovery. On the 12-inch size, shipment growth was driven by a strong momentum from 22-nanometer logic for ISP, Wi-Fi connectivity as well as the high-end smartphone display driver IC.

In addition to 22 and 28, overall 12-inch wafer shipment will outpace our addressable market due to our comprehensive value-added specialty portfolio of nonvolatile memory, RFSOI and BCD. On the 8-inch size, we expect a high single-digit growth in 2025, mainly led by the PMIC and LDDI. So in summary, the strength of 22-nanometer and the specialty process across both 12-inch and 8-inch platform underpin our confidence in achieving a low teens percentage shipment growth in 2025. So for 2025 Q4, we remain -- the shipment outlook remain flat.

If we're looking into the early look of 2026, I think we're still going to experience some seasonality, but if I look at the entire year, despite the ongoing global economic geopolitical uncertainty, we believe our 2025 business growth momentum will continue into 2026, where we expect the wafer shipment will increase year-over-year. In addition to some TAM expansion, our 22 eHV -- 22-nanometer eHV platform, which is serving the high-end smartphone OLED display driver application, will be one of the key growth engines.

We expect the overall 22- and 28-nanometer revenue to achieve double-digit year-over-year growth in 2026. However, there's still going to be some seasonality that we may have to go through. So Q1 may be one of the challenging quarter for the year.

Supported by the strong customer adoption of our 22-nanometer technology, in addition, our technology readiness in RFSOI for smartphone RF front-end device will also fuel our growth in 2026. And besides the growth of the communications segment, we also foresee our enhanced version of PMIC solution, which will also continue to drive recovery in our 8-inch segment.

In 2025, we foresee PMIC business will grow in the high single-digit range, and this growth momentum will extend into 2026. Our effort on the enhancing our technology competitiveness, particularly for the PMIC application, have started to yield some tangible results, and that will actually help us with the -- to strengthen our position in this market segment and for 2026 growth.

If we look beyond 2026, we'll continue to develop new derivative technology to enhance our differentiated and our competitive -- enhance our competitive position. Furthermore, we are expanding our addressable market into 12-nanometer FinFET, as you know, and as well as some of the advanced packaging space.

The UMC portfolio -- technology portfolio is well positioned to serve a growing demand of the power efficiency optimization, high-bandwidth data transfer as well as the improved connectivity. So I think in general, we are relatively confident in 2026, but it's still kind of early to go into the quarterly guidance.

Yes. That's pretty intensive. And I think just a quick follow-up to my first question is just when you mentioned the growth momentum could continue into 2026 compared with 2025, are you saying that the wafer shipment could actually still be growing by low teens next year at least? Because you mentioned a lot of growth drivers by applications just now, especially on 22-nanometer, 28-nanometer and also 8-inch. So just wondering whether you are implying that the wafer shipment could grow by another low teens at least for 2026?

I mean, we're not giving the blended -- the wafer shipment at this time. We're probably ready to provide you more clarity into Q1, but 22 and 28 particularly, yes, I think that when we go into 2026, we're still expecting a double-digit year-over-year growth.

And then my second question would be on your gross margin trend. I think for the fourth quarter, you guided flat shipment and also pricing. The FX seems to be -- foreign exchange seems to be more favorable at this stage. So why does the gross margin does not go higher than the third quarter? I'm just curious why that is the case. Or should we think about high 70% utilization is going to translate into like high 20 percentage gross margins going forward?

Gross margin in third quarter is actually, in fact, slightly higher than that of the previous quarter. The gross margin also primarily depends on utilization rate, ASP, product mix, depreciation and foreign exchange. As you know, even though the foreign exchange rate may be on a forecast basis, better than forecast, but still appreciate against U.S. dollars, our key receivable currency, so still in an unfavorable situation, as I mentioned earlier, that almost eat up about 3% of our total revenue. And we do expect the Q4 '25 gross margin still will remain in the bandwidth of high 20 percentage range. Despite the variables such as our depreciation, we will still see quarterly increase. And this year, we are facing 20% plus increase in annual depreciation expenses. So I hope that answers your questions.

Yes. And then just a relevant follow-up is in your cost structure. You have been able to manage the other manufacturing cost item quite nicely down in third quarter despite the fact that the labor cost is higher, electricity cost is higher and also the material or even the wafer shipment is slightly higher compared with second quarter. So could you just elaborate in more detail on how should we think about the other manufacturing costs, which I believe should be mostly variable cost? How should we think about that going to trend?

So part of our employee compensation is bonus, which is based upon profit sharing. So when we have a better quarter-over-quarter profit in the third quarter, we do have to factor in higher bonus, which increased the compensation expenses in the third quarter.

But it was still down compared with second quarter. So I was just wondering if there's any reason driving that decline and would that trend continue.

No, the trend will not continue. It will fluctuate along with our rolling profit recognition.

Next one, Charlie Chan, Morgan Stanley.

Congratulations for very strong results, especially on the gross margin side. So maybe starting with the so-called geopolitical uncertainty. So, Jason, can you elaborate a little bit what kind of macro uncertainty you see will continue in 2026? And I was asked by one of your customers about -- there seems to be some speculation about semi-tariff may come next January. So any kind of impact -- potential impact to your business or operation?

And also another uncertainty, it was a couple of weeks ago, right, the rare earth kind of supply. Does your team run through some analysis about the potential impact if rare earth will be restricted again?

Sure. A couple of things, right? I mean, you mentioned about geopolitical dynamics on the tariffs. So maybe I'll start up on the tariff first. We do understand there are uncertainties and risks from the potential impact of tariffs, and we will remain cautious of those potential business impacts, and we'll be mindful in our business planning going into 2026. At this current point, we haven't seen anything yet, but we are cautious.

The -- amidst the uncertainties, we'll also continue to focus on the fundamental of our business. That is the technology differentiation, manufacturing excellence and then customer trust to further strengthen our competitiveness -- competitive position. So I think we still have to go back to the fundamentals.

For UMC, to address the geopolitical concerns, I do believe that UMC has a geo-diversified manufacturing site across the globe. And the global semiconductor landscape is evolving. Customer and governments are increasingly emphasizing the geographic diversification and supply chain resilience along with the tariff. But to address the structural changes and align with the customer needs, our strategic initiative, including the capacity buildup in Singapore and the U.S. and are designed to complement our Taiwan facility, will enable us to better support our customers across multiple regions.

Over the long term, we are targeting a balanced capacity split between Taiwan and overseas locations, but we welcome any opportunity from our customer. Whether this is an impact or opportunity to us, we will probably have to position ourselves and ready for that dynamic changes. Yes.

So specific on semi tariff, right, I think we also went through this discussion last quarter or 2 quarters ago. So do you also hear that next January could be a final implementation of this semi tariff?

And secondly, would UMC can get exemption from the semi tariff?

Well, I mean, your guess will be as good as my guess. So I'm not going to guess here.

I watch TV only.

Yes. So we're going to be cautious about this, and we're closely monitoring the progress and developments. And at the same time, given that we are investing into the U.S., so we're definitely going to present our case. But there's nothing else to update here. But if there's anything, we will definitely recall back.

Okay. Got you. And second question is about the -- your gross margin sustainability. I know this quarter, next quarter, some puts and takes, right? But just overall, right, next year, it seems like some of your industry peer, may just call it TSMC, kind of hike their wafer price. And recently, we are seeing that the back-end foundry, though it's not like your industry peer, but it's kind of your downstream supply chain, right, also attempt to hike the back-end foundry service price. So what was the UMC's kind of sort of potential wafer price hike into next year?

Well, like Chi-Tung mentioned earlier, margin reflects the result of ASP loading certain variable factors. So let's take the ASP specifically. For the ASP outlook, our 2025 ASP performance has remained firm amid a dynamic business environment, and it has remained stable at a healthy level throughout the year. And so -- and we expect the ASP will remain firm in Q4 2025.

And for the 2026 outlook on ASP, we will provide more detail in the upcoming January 2026 conference call, as we are going through some discussion with our customers aligning that. So we probably have more detail to report in the next conference call.

Okay. And on the cost side, expense side, Jason, you said at some interview that your team want to drive some costs down. But I feel like most of the components whatsoever. Most of what I'm hearing this commodity cost may go up, right? So on the cost side, do you have any preliminary outlook for 2026?

Without getting into specific cost projection or outlook, I think we can probably update you of the view in cost, our view of cost -- about cost. Cost competitiveness is always a mutual goal for us and our suppliers together, so in order to be competitive. So we're closely working with our suppliers. We'll continue to drive towards cost savings in 2026, and that has been going on for many years, but we are continuing to doing that into 2026. But that includes the combination of both internal and external efforts. It's not only working with the supplier, it's also internal efforts. For example, we have already started leveraging some smart manufacturing and AI technologies internally to enhance our fab efficiency and enabling our long-term operational competitiveness. So that's also a major piece of driving our cost goal. So I think there's many of the initiatives that we're deploying, and we working with the supplier -- supply chain is just one of them.

Okay. Okay. And last one, I will be back to the queue. So I know your company and your team have been running through a lot of strategic or marketing research, right? So recently, we picked up one data point I would like to share with you and also consult your view. Because of the T-glass shortage, right, we're starting to see tightness of BT substrate supply. From your perspective or UMC's perspective, would that kind of constrain your -- some of your customers' demand, for example, the consumer or smartphone SoC demand into 2026?

Well, we really haven't seen that, but we are closely monitoring the entire supply chain resilience. The current market is driven by this AI momentum. So there are various areas demonstrating potential supply concern. But so far, we have not seen any impact to us. But like you said, we all look out there and see if there's going to be any. But meanwhile, we are managing -- from our internal perspective, we are managing our supply resilience point of view. We want to ensure the supply assurance and as well as the -- both from supply and demand -- supply and demand as well as the quality standard and cost. So I think that's always been our initiative internally. So I would just have to say we haven't seen any impact on the recent market dynamic, but it's something always on our radar screen, and we continue monitoring it.

Yes. How about smartphone or PC demand recovery, if you have a crystal ball? Do you think that 2 major segments of the end demand will significantly recovery next year?

Well, I mean, at least for the Q4 '25, we expect the wafer shipment will remain flat, and the markets reflect pretty healthy inventory level as well. We see slightly communication segment decline in our segment, but the computing, consumer, automotive are slightly increased. So I'm not sure that's affected by that particular supply issue, but it reflects probably more end demand associated.

Next one, Laura Chen, Citi.

My first question is also about the margin outlook. Chi-Tung, you mentioned that the depreciation cost for this year were up about 20% plus year-on-year. But we know that actually in the first half, the depreciation cost increased almost like 30%. So does that mean that depreciation cost year-on-year increase trend to slowing down into Q4? With overall your utilization rate and also ASP seems to be resilient and also higher exposure on 28-nanometer, should we be looking for some of the potential upside of the gross margin?

Well, other than depreciation, there are other factors. Like Jason mentioned, we will have a clear view on the ASP, which is an important component for the margin equation. But just on depreciation alone, yes, the increased magnitude, we're down to about low teens in the year of 2026 versus 20-something in the 2025. And in the previous quarter, we also mentioned either '26 or '27 should be the peak of the recent depreciation curve. So on that regard, it does provide a good floor for helping our EBITDA margin.

Okay. Great. And also the second question is, I recall that we mentioned about the Interposer business before. We know that the AI demand is surging. So I just want to understand UMC, do you have any updated view on the Interposer strategy? And also, we know that UMC also have wafer-to-wafer technology. So just wondering what's the plan here. And also, do you want to further expand the capacities on Interposer?

Well, the latest development on the advanced packaging space, we will continue preparing our advanced packaging solution for this growing market associated with the energy consumption of cloud AI and the edge AI market. For UMC, we are developing the 2.5D Interposer with DTC, the deep trench capacitor, and discrete DTC to address the power efficiency requirement in all AI, HPC, PC, notebook and smartphone space.

And second, UMC is leveraging the scalable 3D wafer-to-wafer packaging stacking and the TSV to enhance the -- enhance our specialty technology offering. We are in the mass production of extremely small form factor for the 5G and 6G RFIC right now by leveraging the wafer-to-wafer stacking technology.

Based on the success of the 5G and 6G RFIC that works through the wafer-to-wafer stacking, we are also developing memory-to-memory stacking and memory-to-logic stacking service for the high-bandwidth computing requirements. So our technology really is associated with the center with the DTC capability and the wafer-to-wafer stacking capability. Right now, still within our current capacity size, there's no expansion planned, but there are a lot of customer interests and engagement being developed right now.

Okay. Great. Can you also give us some like idea how is that kind of business opportunity growing into the next few years?

I mean, as we anticipated, the cloud AI and the edge AI market will probably taking out in the next 2 years or so. And so we think preparing those technology capability today will position us well to serve that market when the market comes. I think many customers are engaging in that discussion and exploring the product roadmap at this stage. But in terms of the actual volume and the ramp-up schedule, I would expect it's going to probably be in late 2026 or sometime in 2027.

Next one, Sunny Lin, UBS.

Congrats on the very good outlook. Very glad to see business stabilizing and improving. So my first question is on the pricing. I understand more specific guidance should be provided in January or in early 2026, but I want to get a bit more color on the latest progress on your engagement with the clients. So in 2024 and 2025, basically, you provided roughly mid-single-digit type of price reset for across the board. And so how should we expect like going to early 2026? Would it be fair to assume that now given the improving supply/demand, even if any price decline should be lower than the magnitude in early 2024 and early 2025?

Well, I mean, this is definitely -- I mean, that's our goal, right? I mean -- but while we are still in discussion and aligning with our customers, I can't really quote that. I have to really see the data before I can comment about it. But throughout the annual discussions and the patterns in January, we'll probably continue engaging in similar discussion. But in terms of the magnitude of it, I think it's kind of too early to guide at this point.

Got it. Maybe a follow-up on blended ASP. There are still some concerns that there may be some overhang from LTAs expiring in the coming few quarters that could weigh on your blended ASP. And so Jason, could you maybe provide a bit more color on if any impact or that impact is already gone mostly?

I mean, LTA is one of the mechanisms that help us and our customers working other partners, not only based on the ASP, it's also we based on that, providing a mutual commitment for us to put in capacity to support the customer. At the same time, the customer demonstrate some commitment for the business engagement. So LTA will continue serving that purpose.

Well, given the market dynamics, we're always working closely with our customers and to support them and gaining market shares without losing the market share and gaining the market shares and also with the market dynamics in terms of commercial needs, so -- but at the same time, we have to balance in terms of CapEx returns. So it is a complicated process and discussion, and we've been doing that for the past 2 years, and we'll continue supporting our customers to march into that direction, finding a win-win solution based on the LTA arrangement. But the future commitment of LTA remains intact, yes.

Got it. So maybe one question on 2026, just to make sure that I got the right number. So for 2026, Jason earlier, did you mention the target would be to grow business by double digit?

I mentioned about the 22- and 28-nanometer that we expect the momentum will go into 2026, and we expect a double-digit growth year-over-year, yes. For the...

Got it. And maybe a question on Singapore expansion. So if any like latest update that you could share with us in terms of how quickly the capacities will be ramped in 2026?

We -- I think the milestone has not changed. We project that the 12 IP3 production ramp will start in January 2026, and it will ramp up with a higher volume starting in second half of 2026. And that milestone schedule remains.

Got it. Maybe last question. So in terms of dividend policy, given the improving cash flow outlook in the coming few years, would the company consider maybe revisiting the dividend policy to change to like absolute cash dividend? Would that be possible?

It's not impossible, but we always try to strike a good balance between the high percentage payout ratio and absolute dividends. So I think that strategy or that position will continue.

Next one, Gokul Hariharan, JPMorgan.

So just wanted to understand a little bit more on the pricing. I know that you're in pricing negotiations with customers. Could we talk a little bit about 22 and 28? How is the pricing trend there? Do you expect that there is any concession that you may need to make on 22 and 28 pricing or that is going to be reasonably firm? And maybe also the same question on the 8-inch portion of the capacity as well, given some of your competitors are also kind of putting down or kind of exiting some of the 8-inch capacity?

Well, our pricing strategy has been very consistent, and we will work closely with our customers and -- for protecting and gaining market shares. So that remains. That will not change. So in the particular number, the ASP guidance, I think it's better that we have all the picture together and to share with you. But in terms of pricing strategy and positioning, that has not changed. We do believe that the pricing is a combination of our value proposition from technology differentiation, our manufacturing capability, reliable capacity and the diversified manufacturing locations, so on. So we think there's a lot to offer. And along with the mutual commitment with many of the customers, we believe that we will strive to a right balance for the pricing discussion. However, again, from the specific guidance on ASP outlook, I will probably prefer to wait until we finish up. I don't want to mislead you at this point. So -- but -- and that goal is whether it's 22- or 28-nanometer and as well as the 8-inch because each technology node has a different market dynamics, and we will work within that dynamics.

Meanwhile, you're talking about if we see anything on the 8-inch opportunity or due to any other, our peers. We don't typically comment about our competitors. We believe our market share increase in 2025 in 8-inch, but not just 8-inch, overall 8-inch and 12-inch legacy nodes. And we believe those nodes remain a sweet spot for a wide range of analog reach products. So we'll continue to strengthen our product portfolio, focus on those spaces. And hopefully, we can increase our market shares.

We continue to optimize our existing platform and developing a new solution to better address that market need. This is the area that UMC has built some long-standing relationship and trusted relationship with our customers. So we believe this structural trend will reinforce our position as the preferred foundry partner for customers in this needs. And that will actually help us to sustain our maybe growth in both 8- and 12-inch legacy nodes over the long run.

Got it. Yes, clear on the pricing that we can wait for January. But I think I just wanted to also ask on the semiconductor Section 232 tariffs. How are the discussions with your customers going? And let's say, there is a 15% to 20% tariffs on exports, which needs to be offset with any kind of U.S. investment or U.S. capacity that you have. How does UMC manage that situation? And which are the investments, or if any, that can qualify for that kind of an offset? I mean, for some of your peers, I think that is pretty clear. But I just wanted to understand how UMC is considering the situation.

Well, I kind of touched that earlier. Our -- we have been a very diversified manufacturing -- look, we have a very diversified manufacturing location in the past. And so we have very -- I think we're pretty much very complement to the current market dynamic. The current geographically discussion on diversification, supply chain resilience, I think our past initiatives serve that, and so we'll just continue. We may alter that, making some adjustment about that strategy, but not significantly. For instance, we're including building capacity in Singapore and U.S., and it's very much aligned to that direction.

Of course, the tariff situation, whether it is X percentage, we don't know yet for Taiwan, but we know some areas already came out at 15% and which -- that's where we have our manufacturing sites. So customers are in discussion in interest of making sure that they have access to those facilities and to those locations. So we are definitely entertaining that conversation in a manner of growing our business engagement. So we hope that becomes more of an opportunity to us, not just a negative impact.

Now, for some area that is not clear yet, and we have to navigate through that, it's our belief that we have very smart people in this industry. And despite how -- which direction it goes, we will navigate through this process and finding a win-win solution of mutual benefits.

Yes, just following up on that, Jason, I think geographical diversification is one aspect, but also the second aspect is U.S. capacity, right? So is your understanding that your 12-nanometer collaboration with Intel kind of counts as U.S. investment and U.S. capacity, given I think the total investment is actually quite small, even though you are actually shouldering a lot of the technology-related task.

Well, I mean, I can't comment about the big or small, but the investment is investment, and we are putting capacity in the U.S. And the starting point of the 12-nanometer only lays a solid foundation for us to explore maybe even other collaboration opportunity as well. So that also -- if there's anything to update, we will update you, but that could also represent even more investment, right? So -- but it's just -- we're not ready to update you anything yet. But even I look at the 12-nanometer today, that is quite significant in terms of investment.

Got it. Maybe one last question on the advanced packaging bit. I think you last time updated, I think, around 6K or so of wafer capacity for 2.5D IC packaging. Is that still where we are in terms of the capacity? And for your 2.5D packaging with deep trench capacitor, what is the application? Is it slightly different application that you're targeting compared to the mainstream market and that's why you're kind of waiting on the capacity expansion while the industry is still like really asking for a lot of capacity?

No, the 2.5D Interposer 6K today stays there. There is no expansion plan beyond that given the technology road map migrating to the DTC and we're developing the DTC capability. And for that, we're serving the AI, HPC, PC, notebook and smartphone space. And so our advanced packaging roadmap will center on the DTC going into, yes, 2026.

And would you say that the 6K is now fully utilized or you still have a lot of slack in that 6K capacity right now?

I mean, as the product is migrating to DTC, that's why we're not expanding the capacity on the 2.5D right now.

Okay. Okay. Fair enough. And this DTC capacity, how significant do you think it is going to become in terms of revenues? Let's say, I think you were expecting end of '26 ramp-up, so let's say, in 2027, is that a fairly significant part of your total portfolio? Or is it still going to be quite small, similar to the Interposer-related revenues that has been more like a single digit -- low single-digit kind of percentage of revenue?

I think it's kind of too early to predict that. A part of the market is associated with the edge AI market and which we have to wait until that has more clarity. And so I think at this point, it's too early to project that. But in terms of technology-wise, I think that's definitely the core of the next generation. So we need to make sure that we have prepared for it.

Next one, Janco Venter, Arete.

I just wanted to follow up on the investment into the U.S. and just get an update on the state of the PDK. And then also, we just want to understand the business model around this engagement on 12-nanometer. Is it revenue share? Is it profit share?

And then just secondly, on that, will it be cannibalistic to the 22, 28-nanometer customers as you start migrating to 12-nanometer? Any color that you can add to that to help us just understand this opportunity would be quite helpful.

Sure. From a project standpoint, the -- currently, the 12-nanometer cooperation with Intel is progressing well and remain on track according to the project milestone. And we expect the early PDK will be ready for the first wave of customers in January 2026. And both UMC and Intel are aligning with the customer device spec to facilitate the ramp-up. Overall, the collaboration is proceeding as scheduled, and customer product tape-out is expected at beginning of 2027. So that is the update on the 12-nanometers.

The business model itself, we are working collaboratively together and engaging with the customer and the actual business model that we're probably not elaborate to share right now. But once -- I think that will be a -- the business revenue recognition, once it's ready, we'll update that. And the cooperation model is actually very structured and -- but just we'll probably have to report that after we're into production. I think that's the 2 questions you have, right? Did I miss any?

Yes. That makes sense. Yes, that's right. Maybe just one follow-up. And I think you touched on this earlier where you talked about potentially looking at further investments. Now, if we look at -- actually, we were trying to understand if there's scope perhaps to extend this agreement to single-digit nodes because if you look at Intel's business, they fully depreciated 7-nanometer. And it seems like an obvious area to extend the agreement. Is this something that you would potentially be looking at? And does that make strategic sense for UMC?

Well, I mean, the -- yes, the simple answer is yes, right? And -- but we have to starting from -- we have to start it from the 12-nanometer. So we had to make sure that executed well, so we can lay a solid foundation on that. For technology beyond 12-nanometer, we are open to explore the future opportunity through the partnership arrangement that are mutually beneficial. I would say the cooperation with Intel is strengthening UMC's strategic position in U.S. significantly and for the U.S. market and also broaden our addressable market while adhering our disciplined CapEx approach. So we are very committed to this partnership. And so far, the project is actually progressing well.

Next one, Bruce Lu, Goldman Sachs.

Can you hear me?

Yes.

Yes. I just wanted to follow up the -- for the U.S. collaboration beyond 12-nanometer. What are the showstopper for us to move beyond 12-nanometer at the current stage? Or do we consider to go backwards to do like relative mature node capacity in U.S.?

I mean, that's an interesting question, right? I mean, the -- I think when we talk about this cooperation with Intel strengthened our positioning in the U.S. market, hopefully, we're not only limited at 12 nanometers and that if we can have a full potential of this position. And we -- so that's why we're actually very open to explore the future opportunities through this. So I don't think there's a -- I won't call any showstopper, but I think as long as it's mutually beneficial, I mean, we will definitely open to explore that. Now, is the exploration limited to the more advanced node or backward? I think we are also open to that. We're not limiting ourselves with that collaboration.

No, Jason, the question is that it's clearly mutually beneficial, right? So who has the ball? I mean, who doesn't want to move on?

I think, in any of the engagement, not just this, you require the market validation, you need to make sure you're doing your due diligence. So I think I will probably comment that all conversations are open and the due diligence need to be in place before we move forward. So it's not truly a showstopper. It's not going which sport, it is we have to make sure we conduct the appropriate process.

So in other ways, the prerequisite condition would be that you probably need to deliver 12 nanometers with like decent size of revenue, decent size of customer, then both sides might consider to move it on. Is that the right consideration?

Not -- I mean, I won't say that it is a prerequisite, but that is one of the important considerations. But more importantly is if this collaboration is economically beneficial to both sides. And so I think that the -- once we are more mature and ready, and we definitely will update you, but again, our position on this topic is we are open to that exploration.

Okay. So when can we expect to see the meaningful revenue contribution from 12-nanometer?

Well, I mean, right now, for the early product tape-out, it is going to be in 2027. And so we're probably going to start seeing some contribution in 2027, but then ramping after that though.

And in the interest of time, we're taking the last question. Last one, Charlie Chan, Morgan Stanley.

So it's actually wafer-on-wafer related. So, Jason, can you share with us who could be kind of memory partners? I mean, it seems like it requires a lot of so-called customized design interface, et cetera. So are those more Taiwanese partners or you have some global top memory partners for wafer-on-wafer?

And secondly, if you can, can you share some potential kind of end applications and the timing for wafer-on-wafer?

On the wafer-to-wafer stacking capabilities, we are in mass production for some of the extremely small form factor devices in the RFIC space. We're talking about that because we believe if you look at the market is going, and we believe this technology will serve more than just a small form factor. It provides the option for the memory to memory, the logic to logic, logic to memory stacking options. So by providing the option to the customer, they say they can explore many different product applications. So at this point, the advanced packaging technology is developing into 2 cornerstones. One is the DTC capability. Another is on the wafer-to-wafer stacking capability. And then we -- once the technology is ready, then we can explore to many different applications.

On this wafer-on-wafer, do you see kind of advantage or differentiation to industry, for example, TSMC or China's -- I'm not sure, maybe XMC, yes, any sort of differentiation you may have?

Well, I mean, the developing differentiated technology is definitely on mandate. So we continue driving that technology differentiation. But at the same time, you have to make sure that you're part of the ecosystem, where the market is going. So we see this from a market standpoint. From a technology/product migration standpoint, we believe these are 2 very important capability and technology. So we're preparing ourselves to get that ready, and then, we can start exploring different business opportunities.

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

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact [email protected]. Have a good day.

And ladies and gentlemen, that concludes our conference for third quarter 2025. We thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you again. Goodbye.