Q2 2022 United Microelectronics Corp Earnings Call
Yes.
Okay.
Welcome everyone to Umc's 2022 second quarter earnings conference call all.
All lines have been placed on mute to prevent background noise.
After the presentation, there will be a question and answer session.
Please follow the instructions given at that time, if you would like to ask two questions.
For your information This conference call is now being brokers the life over the Internet webcast replay will be available within two hours. After the conference is finished.
Please visit our website www dot UMC to come onto the Investor relations investors events section.
Now I would like to introduce Mr. Michael Lin head of Investor Relations at UMC. Mr. Leanne. Please begin.
Thank you and welcome to Umc's conference call on our second quarter of 2022.
I'm joined by Mr. Jason Wong.
Of UMC and Mr.
You don't do the CFO of UMC.
In a moment.
Here, our CFO present, the second quarter financial results.
By all President's key message to address Umc's focus in third quarter of 2020 guidance.
Once our president and CFO accompany their remarks.
Q&A session.
Umc's quarterly financial reports are available.
With that triple therapy with that UMC dot 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.
All certainties 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 SEC and the policy security authorities.
During this conference you May view, our financial presentation materials, which is being broadcast live through the internet.
Now I would like to introduce Umc's CFO search you don't do to discuss Umc's second quarter 2022 financial results.
Thank you Michael I would like to grow through 2020.
<unk> Investor conference presentation material, which can be downloaded or viewed in real time from our website.
On page Street snapshot.
Our operating results.
Our utilization rate in quarter, two we were still over 100% plus.
Revenue rich.
72 billion.
Hi.
EPS is one 7% for the second quarter compared to 161 in the previous quarter and also appointed.
In the same quarter of last year.
Great.
So our quarter over quarter comparison revenue growth 13, 6% from 72.
<unk>.
Gross margin rate increased to 46, 5% from 43, 4% in the previous quarter.
And operating income.
28.
$1 billion or 79, one percentage points.
Net operating loss of $2 $5 8 billion, mainly due to the.
Weakness in the capital market and you're going to see investment portfolio.
Mark to market.
That's a majority of the two.
5 billion loss in the second quarter of 2022.
And net income reached <unk> 5 billion or equivalent EPS $1 74 in quarter, two of 2000 and timing.
Thanks.
For the.
Cumulative performance for the first six months after a year.
Revenue reached 175 full period.
The increase of 38, 2% year ago.
At year end.
This is Andy.
Dollar currency.
Gross profit 69 billion or 45% gross margin rate.
And operating income reach.
Over 50.4 period.
And operating margin of 37, 3%.
And for the EPS of the first half of the year is 335.
<unk> to 183.
Same period of 2021.
Cash before our dividend payout was.
$83 7 billion by the end of June this year and total equity for the company is around 283 through period.
For our 13, 8% revenue growth in the third quarter in the second quarter.
Three factors, both the ASP wafer shipment.
Yes.
NT dollar depreciation all contribute to our revenue growth in the second quarter.
Quarter and the factory is roughly one third.
Sure.
Growth rate so that reflects in our ASP growth in the second quarter.
Of 2022.
In terms of revenue breakdown.
The ratio remain similar.
Between quarter to quarter one.
<unk> increased slightly.
Second quarter to 14%.
And the segment breakdown.
Again remained similar to Q1 and we see some minor.
Decrease in computer.
Absolute dollar term.
All segments still grow in the second quarter of 2000 and plenty.
We have new capacity available in.
In the second quarter that helped our <unk> to revenue.
<unk> managed to grow to 22%.
In the second quarter compared to 20% in Q1 of this year.
The rest of the.
Geometry breakdown doesn't change too much.
As I mentioned in quarter, two our cafe at.
Meaningful.
Capacity growth, which is 10-K that new capacity came online in the beginning of quarter two.
But.
For quarter, three overall capacity compared to quarter two.
That's the only very minor increase.
In terms of capacity.
And for Capex.
On a cash basis it remains around three 6 billion.
The majority at close to capacity related expansion for <unk>.
So the above is.
Summary of Umc's result for quarter two 2022.
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 Tito.
I would like to Sherry Umc's second quarter highlights.
In Q2, we delivered results in line with guidance.
Thanks to continued strong demand for <unk>.
<unk> processed across our end market.
Overall wafer shipments rose four 3% from the previous quarter.
Higher average selling price and a favorable.
Exchange rate during the second quarter gross margin to 46, 5%.
Revenue from our 22 28 nanometer portfolio increased 29% sequentially.
Them by the additional capacity at that 12, five that came online during the second quarter.
We are confident in our long term growth prospects of our 22 28 nanometer business.
<unk> now represent 22% of Umc's overall wafer revenue.
<unk> has demonstrated solid traction for OLED display driver image processor, Wi Fi and automotive applications.
That's the structural trends drive semiconductor content increase.
And devices from smartphones to automobile it.
It is our conviction at 28 nanometer.
And long lasting node that will be important for many existing and emerging applications used to come.
Going into the third quarter.
Our business to remain for a.
While cooling demand for smartphones Pcs and comes through late <unk> pulse.
Pulled some short term fluctuations we.
We are actively working with customers to adjust their product mix.
Coming off a super cycle over the past two years.
The conductor industry is now in a period of inventory correction.
We believe Umc's comprehensive portfolio.
A differentiated leading specialty technologies and strong partnerships with leading customers will help us navigate cyclical microbial following.
Now I'd like to move on to the third quarter of 2022 guidance.
Our wafer shipment will remain flat.
ASP in U S dollar will remain flat.
Gross profit margin will be in the mid 40% range.
Capacity utilization rate will be at 100%.
Our 2022 cash based Capex will be budgeted at a U S $3 6 billion.
That concludes my comments. Thank you all for your attention now we are ready for questions.
Thank you President <unk>.
Ladies and gentlemen, we will now begin the question and answer session.
If you have a question for any of todays speakers. Please press <unk> one on your telephone keypad and you went into the queue.
After you are announced please ask your question.
Find your question has been answered before so to speak please press zero to 2%. So the question. Thank you.
And our first question is coming from radio brands.
Go ahead please.
Thank you and a good result.
Ask a question just on your outlook.
You mentioned the inventory correction starting in some of the applications could you give me.
Q, how youre looking now on.
Steepness or type of correction youre seeing.
But do you expect a period of under utilization.
TSMC with giving a framework they expect it to first half.
But if there is a feel for inventory how long it may take so just wanted to get a perspective, how you are viewing the next few quarters.
Okay.
So Randy we have observed that customer all contract in general.
Where that inventory level is relatively high in certain segments.
However, it will be hard to predict how long you will take to digest inventory under the macroeconomic economy uncertainty.
So we will closely monitor the current situation and their response to the changes in customer forecast accordingly.
While we stop.
While we.
The softening demand in the smartphone notebook and consumer perception.
The other.
In the settlement.
Networking.
Industrial Alto actually that has a more stable demand.
So again, the other observation about inventory.
Concerns and but we have four seats on our Q3 loading.
Will be full.
In Q3.
We will continue monitoring the market outlook.
We report that in the next quarter.
Okay.
Third quarter.
Flat.
Keith had mentioned not much capacity coming online.
Youre constrained shipping more or.
Was the inventory correction.
Already limiting the ability to get.
Some seasonal or some increase.
And then I'm curious to your view on the.
Pricing environment.
There has been the market talk about startups on discounts.
How youre seeing outlook for pricing.
Well our Q.
The pricing will remain firm.
Yeah.
Well the.
And we believe we'd be able to.
Maintain the healthy loading for the years.
Mainly because of the steady demand from the auto industrial and server and network equipment.
For Q3, the stable demand in those areas that allow us to multi competency the softness of the computer.
Through this segment.
So we at this current point all pricing Lehman.
Okay and it sounds like you mentioned through the end of the year you expect healthy loading.
And I'm curious on your view on 28.
Two parts to it and you talked about.
Existing and new application, if you could give a flavor.
The new applications, our next wave and if you could also give an update on.
The next phase the phase six.
Timing for bringing that up if that's up 28.
And given the environment you still see that.
Fully committed.
While we believe that 2022 will be a long lasting node and supported by <unk>.
<unk> provided based on the product portfolio in the next few years.
That the 2022 demand to remain robust driven by.
<unk> Wi Fi six.
And that will indeed.
In the area.
OLED driver application.
Okay.
Maybe an update on the next phase.
You would have the capacity available.
How youre seeing that.
Committed.
LTA that you still have that locked up with LTA.
Yes, I mean.
We do it we do expect the PC.
Ramp up.
Got it.
From June 'twenty three.
Meet next year.
And thanks to all that effort by the way the lead times that you're stretching out thanks to our effort to minimize the delivery impact.
We met at the June 23 next year.
Next year.
And the owners.
Rent is.
By the LTA arrangement and we still believe the LTE is a dual mechanism.
E.
We present, the mutual commitment for both customer and UMC to secure our future growth.
Okay.
One last if.
If you could give an early framework the spending for next year.
We're probably partly that and partly Singapore.
And if you I guess, just looking at the macro uncertainty and the downturn that help firm do you see schedule looks like would you consider push outs or delays.
Yes.
If the macro looks sharper in the slowdown.
Well, I mean, well capex, we maintain confidence indices mega trends for long term growth.
And our Capex decision was based on market and customers' endorsement.
Together with a disciplined alright.
And then Capex strategy, we have adopt a few years ago and with the billing affordability.
And the capacity expansion in 2006 and.
The current 12 IP three conversation.
And our competitive.
Depreciate specialty technology solution will actually help to deliver the growth for both UMC and our partners in the long run so given the capacity expansion plan is more of a longer term strategy. Therefore near term cyclical headwinds now will not impair our long term plan.
Yes.
Okay, Great no that's helpful. Thanks, a lot.
Sure.
Thank you.
Yeah.
And next we'll have Brett Simpson Arete research for questions go ahead. Please.
Yes, thanks very much.
Jason I wanted to just talk a bit about capex.
Looking at the first half.
This year you spent a.
A little less than $700 million U S.
And you've maintained your spending program this year of $3 six so it implies quite a big uplift in spending in the second half is that is that still.
Just given the environment we're in with.
WSI tools, having some challenges to deliver on time and also with some of the macro concerns that you laid out how do you feel about it.
Capex budget actually.
And the one the second half.
And then I wanted to just ask a follow up on consumer.
Sales in the second quarter were up 14% sequentially and consumer and I'd love to understand what's behind that increase and how you'd see the consumer outlook specifically for the second half of the year. Thank you.
Yes for Capex spending according to their current schedule you won't be you got the second half.
So we still.
Our $3 6 billion numbers of course this is a rolling basis.
I believe.
<unk> reads out won't be too different from the $3 6 billion dollar budget numbers.
So going going into your question about the.
Yeah.
At current segment outlooks.
We maintain a healthy loading.
For both Q2 and we.
Let's see definitely will maintain healthy loading fleet this year and because with a steady demand phone alto industrial server and networking segment.
Earlier.
However, we do see some deal.
That's more of a.
Weaker steadman indeed.
Can we occasion consumer and computer area.
Wow.
While they can be offset by the stronger sentiment that maintain affordability.
At the same time, we actually see the constant Lachey SKU growth.
Sequentially, 12% quarter over quarter, mainly.
Mainly from the.
Power powered.
Howard.
Rice's Wi Fi digital TV set top box and LCD controller as well as the <unk>.
MCU. So there are many applications to remain strong in the sub segment of the consumer So Louisiana, each 70 are stronger and weaker sub segments. So at this point in Q2.
The consumer remains.
Be healthy we.
We do see business change.
Going into the second half.
So.
For the for the Q3, we probably see more of a decline percentage in the consumer computing and.
Compensated by the Alto <unk> communication touch it already.
Okay.
And maybe one last one last question.
And a lot of talking.
Industry about about costs going up we see inflation and wages, we see inflation in materials, even Wi Fi tools are getting more expensive and I'm just looking to understand about how do you how do you see this impacting.
Your business and more specifically can you pass on rising costs to your.
Do you expect to increase wafer prices further from here.
And how do you think about the pressures on costs relative to.
Yes.
Typically the industry cuts pricing when utilization.
<unk> comes down.
How do you see that balance between cost inflation and the need to pass on that cost customers versus falling utilization as we go through this inventory correction that you laid out.
Okay. So so first of all the comp up right.
In light of rising cost.
Contribute to raw material utility labor rate.
We do observe that in.
The company's actual work to offset headwinds.
Continuous cost reduction efforts.
Through mix optimization productivity improvement. So we are doing our best to continue offsetting that but on the on the ASC standpoint, there's a couple of layers consideration one is on the.
On the agency positioning.
We usually in our view will reflect our relevance in the supply chain.
While we continue to enhance our value proposition to our customer not only based on the demand supply dynamics.
And we usually precision.
We view the ANP position in light of the higher inflationary costs throughout the supply chain.
Like I said, we are not immune so therefore, we will cooperate with our customers to navigate the headwinds.
In conjunction with our internal cost reduction effort. So yes, we will be very transparent with our customer about the coffee and the same time, we will work closely to address that issue.
Thank you.
Sure.
Thank you.
Next question Laura <unk> Citigroup go ahead. Please.
Hi, Thank you for taking my question.
Just following that.
Any update on when you'll have finfet.
Office development I would call management mentioned earlier that you get the plan just holiday.
Pension in 2022.
Maybe if you can have migration aqua.
14, I guess.
Given.
The expansion will continue in 2020, two but do we have any plan for any.
Future potential migration to Finfet.
Our finfet.
Our 14 Finfet enter production a few years ago.
Yes.
Only limited customer and however, our future capacity plan will still depends on the market and customer demand.
All of them.
The plan remains unchanged at this point.
Well as you focus on addressing the.
<unk> demand to other notes.
No.
So we will continue.
Making progress on it being fat, but on the capacity deployment point of view it does have a lower priority comparable.
No at this moment.
Again it has to.
We align that to our mega trends.
And also our ROI disciplined capex strategy and they are <unk> and selection company durations. So we.
Do putting the <unk> on the roadmap and but.
Significant.
<unk> deployment plan.
Not in the near term yet.
Okay got it.
And another question I have been kept out of the specialty plastics.
Can you just talk a little more color.
Exactly also in the specialty pathway.
How big of an impact accounted for your revenue.
And also be kind of asset quality for the SP X.
Well I mean.
R.
Our specialty technology is representing about two.
255% of revenue today.
It isn't that ratio and that will continue.
Launching and we are making filings.
Significant progress.
While we continue to DDD delivering.
Vented specialty technology.
India.
<unk>.
Happy to either the FERC.
High voltage solution.
We also continued delivering.
The BCD.
Technology 55.
<unk>.
By millimeters will build through the whole company to a very advanced and.
Specialty technology.
Mature technology node, however, the occupancy.
<unk> technology offering so we are making good progress there.
And this is the current 50% to 55%.
<unk>.
Revenue contribution to the pharma specialty is right on track, while we planned it.
Okay got it thank you.
Thank you.
Next question the home of China Renaissance go ahead. Please.
Hi, gentlemen, I have two questions. The first one regarding the long term agreement given the fact that you have some soft patches into consumer electronics smartphone market. No question about the possibility of the LTA on the existing capacity right now.
So your question well, how bad is the LTA right now Brian .
Would you be considering to relax some of the time.
Okay.
First of all <unk> is a mutual commitment.
And for both customer and UMC, so we have obligations as well.
And the objective is to try to secure future growth for both.
And both parties right.
Right now it has treated.
LTA.
Agreement very seriously and despite the recent market downturn, we have observed that customer upbringing in pulling orders with us to honor their contractual commitment. So yes, we have started to recognize.
Some of the customers.
Due to some.
The.
That fail to meet the original terms, however that still look very minimum.
Compared to the current size of the LTA.
Alright, So you said it sounds great and then ask for their quantity guidance, you're guiding for a call back you'd be kind of flat I'm not sure. If we can come in a little bit on the monthly.
Pat maybe aric.
Yes, we cannot comment on the monthly trends.
Okay.
The increase but we are confident about.
The capacity factor I mentioned only grow.
Margin almost no change if you will.
We met 100% loading so shipment wise should be flat.
Hey, Steve I would say look outlook filings. So we are also confident about.
The only controllable.
Correct.
We are building some buffer for that so far.
About the.
Momentum.
Q4 outlook.
Yes.
Maybe at the lab.
Question from my side regarding that.
Breakage income lie.
And I think that's referring to.
Technology allows you to aggregate from shaman Ray.
Yes.
How long it would last year.
Actually I ask this question if you can quantify back one.
To prevent that.
So thats, mainly the subsidiary subsidiary from the <unk>.
Subsidies from.
Local government and.
Let me already in the pocket.
The accounting book recommendation.
Oh I E.
Through the.
Tech along with equipment depreciation schedule, which normally six years so.
It wrong.
Go away.
Our depreciation expenses start to fall off.
It's really the whole point for getting there.
Subsidy for the depreciation period.
Alright.
Okay.
Alright, alright.
And I mean.
Hi, there two years.
And under two years from now.
Okay, alright, okay. Thank you Tito.
Thank you.
Next question Sidney Lean UBS go ahead. Please.
Hi, Thank you for taking my questions. So my first question is.
Wanted to get your current view on the supply demand outlook for telling your foundries obviously.
Look it's very different from the start of the year.
Zahn, which part of the cutting edge.
See more oversupply risk Inc.
In 2023 and 2024 based on your current analysis.
I mean the.
For 'twenty.
That started with the 2022.
Despite the rising uncertainty at the macro outlook, our view of 2022 foundry industry growth of 20% plus remains unchanged.
Our target is to grow in line or higher than the foundry industry that no change either.
For Q2 for Q4 2022, we will remain a healthy loading.
We reported our guidance in Q4.
<unk> fully loaded.
100% building and buy in Q4.
I believe that we can maintain a healthy loading well the pricing will remain alright.
The data we will provide an update in our next quarterly conference.
Going into 2023.
Even the rising micro uncertainty continues and the higher inflationary cost pressure, we foresee the foundry industry growth in 2023 will be more moderate.
And for you in the <unk> in 2023 without commenting on the Qs.
We are excited about our <unk> capacity.
Factored by LTE and will become available in mid 2023 and will be projected to increase our overall capacity by 5% year over year.
Our ASP is also expected to remain firm.
Just on the full mentioned the fundamentals.
Our goal is to position ourselves to hopefully deliver and not a good use.
I see.
The overall.
<unk> increased I assume we'll probably affected by some of the <unk> and also the macro environment.
No.
Those capacity expansion in 2023 will probably likely slowed down but I've seen crush.
One is about beyond 2000 times, it will be probably to fall at this point.
Got it and so about 5% increase in 2023.
How does that imply for your capacity increase from PC.
And the next year.
So the 5% mainly driven by PC.
So most of the 5% come from PC.
Got it.
And then I have a second question.
For your 20 nanometer.
Dan you may have quite a bit of backlog.
A few quarters.
At this point.
Do you start to see.
The backlog coming down given the consumer electronics weakness.
And if the end market continues to slow down.
Would you consider maybe slowing down the expansion to some extent.
Well first of all we have obviously some inventory correction, while we maintain a healthy utilization rate for.
For <unk>, we have are experiencing a decrease.
Our fulfilled demand as well.
The adjustment, but not to the level of that.
We need to reconsider that.
Capex.
So the cap.
Capex adjustments, we do remain confident in this.
Sort of a mega trend.
And market data.
Given the capacity expansion thinking more long term strategy. Therefore.
Cyclical headwinds will not impair our long term plan.
At this moment.
Got it. Thank you that's pretty helpful. Thank you.
Thank you.
Next question Charlie Chan of Morgan Stanley Go ahead. Please.
Thanks, gentlemen, and congratulations for great results.
Cabo.
Follow up questions. So first of all the Psycho deep base I understand that companies.
Great specialty.
Technology, and maybe 70% is covered by LTA et cetera that still right. There is still 20% 30% of pieces are exposed to the commodity markets. So thats a youth LCD driver Ics a case study.
So Jason do you see any of your customers <unk> tried to push outs.
Are you seeing your competitors.
Given the bait.
<unk> been cutting the price for some color on commodity products like LCD driver IC and.
And then I will have some follow up questions. Thank you sure.
Touch the LTA earlier.
Like I said we.
Wholesale customer to us.
Treat this LTA very seriously. So we're working very closely to navigate through the contractual obligations. So at this moment.
Can we.
To be honest.
Commitment.
We'll now and despite the Austin market noise and turbulent.
But LTE is still intact.
If he.
Does come to the time that we need to revisit and we definitely we will closely with our customer.
Background.
Our ta discussion.
<unk> actually continue.
There is.
Compensation and discussion in our PDP three compensation so it's in our projection our LTA.
Actually it's going upward.
Even with some beer.
The recent.
Seven.
You mentioned.
Going back to the.
ASP pressures.
The first of all we usually don't comment about.
Pricing.
Strategy.
Our our ANP reflect our value proposition and our relevance in the supply chain like I said.
While our pricing remains firm in Q3, and we are able to Navy gave the market volatility via product mix adjustments and customer portfolio diversification without resorting to other measures.
Our guidance.
Q3 with ANP projections.
Affordability result.
Rejection.
No.
We.
We have to come to what the market is.
Not at this current point.
Our ASD will remain.
Okay.
It seems that the eastern Asia, but I.
I guess my problem is that I understand you tried to sell the value right.
If you look at again.
Driver IC customers margin keep going down.
And next year, probably the margin will fall to.
To like a pre COVID-19 level, maybe 20%, 30% so obviously.
It is not a value I mean from.
The cost of some margin the margin is shrinking.
So you said the case, then that customers may need to choose.
Lower cost.
Foundry capacity.
It's not just in EMEA to be LCD driver IC Cardoso.
Pmi's auto commodity.
So what would be your reaction I know this year it could be five by next year.
<unk>.
Does that commodity capacity.
<unk> is the prices on average, 10%, 20% below yours.
It would be your strategy.
I mean, maybe it was you take a look at this issue from a different perspective.
Over the past few years.
We have been continuously taking steps to significantly enhance customer stickiness through highly differentiated and customized process solution, referring to your specialty technology.
And along with our manufacturing capabilities and.
Enlarge our preferreds.
With a global leading customer along with the LTA for our long term mutual commitment across a very diversified market segments.
During this downturn.
The cyclical downturn.
We will be able to minimize the business impact through one adjustment to our various market segments.
If there are some weaker seven and we will hopefully we'd be able to compensate it.
Through our strongest segment.
Some of the single source or.
Product.
You work with customers to approve <unk> modulation.
And in some of the multiple sourcing we actually do we do get inbounds ratios well, so while we executing those we can help.
Our loading Navy case.
Cyclical set.
Curious.
Hopefully, we can continue maintaining a very healthy loading so.
We have to address is fundamentally.
The.
With the.
The diversified customer portfolio aligning to our makeup trend usually can help us to mitigate that.
To some extent.
I understand they're.
They are going to be challenges for some segments of whole 40 debt.
Even within our own capability will support a two hour Max but at the same time, we our original plan is to align to the Mega trend.
<unk> diversified our customer portfolio and to mitigate that approach so.
It's definitely is not our goal to continue on that path. So.
We are executing our plan.
A few years ago and while it does.
While the downturn com and we will be extended.
And maybe there is more development will update you next quarter.
Thanks.
Just some quick.
So no question I appreciate your previous answers.
First of all Capex next year do you think you would be flat to kind of coming down.
No we don't have.
Yes.
Recall that there was a question about even this year the capex numbers.
It's very difficult to give you a clear.
Pinpoint answer yet but.
We do have.
Six.
Project coming along.
Coffee is about <unk>.
5% to six period for Singapore.
<unk> III Paypal also another.
530 also so.
These two projects alone.
It's around $10 billion.
Going to try it out.
And this year in the following three years something like that.
Thanks to them and.
Chip.
What kind of chips.
We're making that I know of some.
Prototype.
Okay.
Again, I didnt quite get that question.
Yeah, because Jason.
Jason you mentioned that the server.
We're working kind of.
What I was thinking that they can offset the consumer weakness it so I'm just curious about.
Because I think.
So DRAM CPU some high end networking.
Got it.
I realized you have exposure to server segment as well.
It was.
Yes.
Companion chip.
In the service sector.
So it's more of that.
Yes.
Okay and Thats.
So Laura asked yet.
The.
Fortinet.
The theme of that dataset is that one of the key feedback I'm getting from the U S investors.
And about.
Long term developments.
With you already <unk>.
On the Capex discipline.
Talking about our future.
Do you think about your.
Putting nanometers finfet structure is competitive.
Okay got you pushed back to you.
Tony nanometer you have these very famous what are you seeing out very very competitive.
Finfet.
Do you think that there is going to be competitive as well we are not talking about the maybe just a purely from <unk> perspective. Thank you.
It is our belief that our solution will be very robust and competitive and in.
In 'twenty as that Youre, not just polystyrene is actually both.
Hi, Kate.
The 22 nanometers.
For the 2014 Finfet. We also believe that we can leave it that.
<unk>.
We just have to align with.
Suitable market and the customer and for the Capex deployment.
Again, I stated earlier.
We think our focus is.
As you can.
<unk> of our payroll.
Okay. Thanks, again very good execution.
Patients and answers thank you.
Sure.
Thank you.
Next question <unk>, how do you <unk> Jpmorgan go ahead. Please.
Yes, hi, thanks for taking my question.
I think you were kind enough to talk a little bit about next year's outlook.
<unk>.
What are you looking at with the assumption right now that foundry industry will be growing next year or you think that.
Rebuild but actually have a decline like we have had in the past down cycles.
The industry go through a down cycle <unk> declines.
B.
And on the industry, though there will be growing next year.
Are you a bit more color on that.
Well I mean, we do and.
After a.
Very strong years in the <unk>.
EMEA market.
We call it Super cycle.
Yes.
And given the recent turbulence.
And disruption from the market.
Yes.
After this rising macro uncertainties.
Higher inflationary cost issue, we still foresee the foundry industry growth in 'twenty phase III will be more moderate but it is from the VA and other growth is going to be.
Very minimum it's going to be a more of a moderate.
Got it thank you very much.
Think about it.
People have optimum pricing.
Instead of something.
The growth it's always been.
Pricing growth now in the downturn.
It seems that 7% Brian .
Okay.
What you didn't move it.
Yes.
You could conclude anything youre asking specifically for you.
Any change in the industry.
And then the growth it feels like you're suggesting that pricing likely philosophy.
Non dawn and potentially upward biased.
Nope.
Kind of scenario, so just wanted to understand.
Process on pricing.
Okay.
Sounds good.
Well I mean, I can't comment about the industry.
While UMC.
Our A&P precision we value long term partnership over the near term cyclical. So usually is not about the demand supply situation.
We've seen the baseline of the ANP reflect while.
While we can provide in terms of the bodies value proposition.
We.
How can we and how can we demonstrate that value proposition is through differentiated technology offering and your manufacturing capability in Europe .
You're confident in your building the confidence and trust with your content.
Got you a reliable source and so the average U.
The oyu they use you will engage you.
Thought.
So we have done our lesson in the past.
When you're on multiple sourcing.
Nice to have a position.
<unk>.
Locule A&P position, so we want to be relevant and we have continued to improve and increase our relevance in the industry, along with our customer and along with our capacity value to provide long term growth to them and we hope they do see that badly.
For our market.
Precision so so.
Bit of a contractual but however that is the direction that we market.
Got it so maybe one more quick one.
I think you're right.
Let me see.
Telling us that you're going to be a lot more disciplined as background.
Okay.
Mechanics, and bathroom every company.
<unk> been a little bit more intense than what we expect today and.
Pricing starts to come under pressure off of the loan.
The pricing reaction that you are willing to take from utilization.
How you think about grinding for Mr. <unk>.
Got it.
Debate.
Well I mean, the market is dynamic and our operational we'll have a principal but we will we're not going to be naive.
Management will stay paranoid about the market uncertainty. So we will we will.
React to the market changes.
We will continue monitoring the market situation and respond to them and given the market dynamics.
We will definitely do that accordingly.
We kind of touch up other resilient.
How can we help to continue maintaining a healthy loading but at the same time.
We do look at those.
Capex adjustment issue.
<unk>.
Peter.
At this point, we maintain I'll cover doesn't.
<unk> long term growth.
This is.
Our long term strategy at this moment.
Adjustment.
Has not impact our long term plans are there is no adjustment at this moment, if you're referring to other cost control efforts.
I can assure you we have been relentlessly pursuing our cost reduction activity and elevating our in line productivity assumptions.
Production efficiency and again.
This potential will be in place.
We will continue monitoring the current market situation and our response to that.
Diligently out accordingly.
Okay.
Thank you very much David.
Sure.
Thank you.
Our next question Frank Lee of HSBC go ahead. Please.
Our frame we can hear you.
Okay.
Sorry, yes. Thank you, okay, sorry, yes.
Wanted to clarify that my first question.
Overall utilization because you just got it thank for Utilizations remain for two <unk> and 100%.
When you look at some of your competitors, who has very high exposure to eight inch foundry their utilization rates have started to come off mainly because of driver IC being weaker Brian .
Brian as you can see still has about 40% of your capacity is tied to <unk>.
So.
Are we still seeing 100% realization even on eight inch as well.
So can you give us a bit of color like what applications or products that <unk> been able to fill that with.
Sure.
Our eight inch loading remains 100% in Q3.
We swapping some of the allocation phones notebook TV smartphone.
<unk> Alto and Iot space.
All of our eight inch fab utilization in Q4 may be impacted by the change in customer product mix.
Giving the available capacity.
Capability that we have.
Nonetheless, we do expect eight inch loading will be maintained at a healthy level.
Okay, Great I guess my second question is.
Autos industrial, especially auto has been talked about it as a major demand driver for foundry going forward, which wasn't so obvious in past cycles.
So as we look into the auto space as you look at capacity expansion in the industry.
Is the main driver that we should be looking at for especially on the mature side.
If we see any slowdown or potential weakness in autos is that a trigger that could lead to maybe a more cautious view on capex spend going forward.
Well any divert any dynamics on the marketplace, we'll we'll be alert and aware and.
Accordingly, so I mean, not limited with Alto, but like you said is Aldo is the segment that actually help compensating the.
We could sell in to date, obviously, we pay more attention to it but although it is not only the.
Strong sentiment that we're seeing right now for us.
Also things on the industrial and Iot space.
Help us multi compensated for our Q3 loading.
And we're working with customers closely monitoring their inventory level as well.
Michael macro environment.
For the outlook.
<unk>.
At this moment, the QC will remain healthy.
<unk> fully loaded.
Q4.
We put yet we will have we will have a healthy loading.
While we like I mentioned will be the pricing will remain firm for Q4, but.
We'll provide an update for the for.
For the Q4 in the next quarter conference because at this point.
So some of the turbulence and disruption is continue right. So we just have to be.
Cautious about it.
Okay, great. Thank you so much.
Thank you.
And ladies and gentlemen, we thank you very much for all your questions that concludes today's Q&A session.
Two things over to UMC head of IR for closing remarks.
Thank you for attending this conference today.
I appreciate your questions and as always if you have any additional follow up questions. Please feel free to contact UMC.
UMC Dot com have a good day. Thank you.
Thank you Mr. Li Hello, Ladies and gentlemen that concludes our conference for second quarter 2022.
Thank you for your participation in Umc's conference.
There will be a webcast replay within two hours. Please visit www dot UMC dot com under the investors events section you may now disconnect Goodbye.