Q3 2022 United Microelectronics Corp Earnings Call

Joined by Mr. Jason Wang the president of UMC.

Miss that you don't do the CFO of UMC in a moment.

Our CFO present, the third quarter financial results, followed by our President's key message to address Umc's focus at fourth quarter of 'twenty two guidance.

Once our president and CFO complete their remarks.

There will be a Q&A section umc's quality financial reports are available at our website.

But without UNC 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 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 policies 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 . Mr. That you don't have to discuss Umc's third quarter 'twenty to 'twenty two the financial results. Thank you Michael I would like to go through the two.

2022, Investor conference presentation material, which can be downloaded view.

In real time from our website.

On page for the third quarter of 2000 and timing to solve their revenue was $75 3 billion.

With gross margin at 47.3.

Net income attributed attributable to the stockholder of the parent was <unk> 97.

And the earnings per ordinary shares four two points, one night and Ddos.

Our utilization rate in the third quarter remained at 100% plus.

Uh huh.

Overall.

Question also ESP pretty much inline with our previous quarter's guidance.

Thanks, Chris.

So for the first.

Third quarter revenue growth.

4.6.

Sequentially to seven.

Five points.

Yeah.

Gross margin of 47% or.

Dollar NT dollar terms is $75 six 6 billion.

Operating income margin reached 40%.

Compared to 79, 1% in the previous quarter.

Net income attributable to shareholders to parent.

Was 29.6 dollars 99 billion ante or equivalent EPS 2.19.

This is a meaningful growth compared to a one seven for our EPS in the previous quarter.

While the first three quarter of the accumulated revenue.

Brought by 77%.

Thanks to the help from a shipment increase.

Elsewhere.

Hence men and also the NT dollar depreciation.

All these three factors play important roles.

And for the gross margin rate for the first three quarter for us around 45, 8% or 96.6 billion NT dollars.

Operating income.

Past 80, 90 for the first three quarters, which is a 38, 3% operating income margin rate compared to a 22, 1% in the same period of 2021.

For the net income.

Hum for the shareholders of the parent is 68.13.

Three one.

73%.

And that's a 71% year over year growth.

UBS for the first quarter reached 5.454.

NT dollar per shares.

So we pay out a suite.

$3 per share cash dividend back.

In the early part of third quarter.

After that the post dividend cash on hand is about 180.

N T.

Our total equity today is about 315 billion.

For the end of third quarter of this year.

And as I mentioned earlier.

We remain firm.

In line, we saw previous quarter's guidance.

Continue to stay at current level.

Third quarter of 2022.

In terms of.

Yeah.

Yeah.

In terms of revenue breakdown.

We see some decline.

What percentage of revenue for our Asian market.

55% in the previous quarter to 52%.

Quarter of 'twenty two.

But the other regions we see.

Chris.

IBM continue to outperform Fabulous Oh.

In recent quarters, especially in the third quarter and right now the M stands for about 17% of our total revenue.

In terms of segment breakdown.

How much change is that compared to an hour.

Percentage of revenue.

All other revenue, which is mainly composed of auto and industrial.

In terms of geometry breakdown.

Turning to attending Amit.

25% for the first time.

Due to the annuity increased capacity from <unk>.

<unk>.

Likely timeline.

Timeline.

Our 50.

55% with about 18% 19 nanometer is about 8%.

Capacity in Q4 were only slightly.

Coming from.

So Joe eight inch wafer fab.

The fact, where we again saw similar.

We have revised our full year cash space Capex some of them. The previously three fixed period now too.

Third in U S dollars for year 2022.

Can you elaborate more details for this downward revision for in your Capex budget.

Yeah.

A summary of Umc's result for the third quarter of 2022 more.

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 Qi Dong <unk> everyone.

I would like to share Umc's third quarter highlights.

In Q3.

Our results benefited from product mix optimization.

More favorable exchange rates, while fab capacity remains fully utilized.

Despite softening demand in consumer and market stress.

Strength in sort of a wireless communication area drove further expansion would be 22 to 28 nanometer business.

<unk> accounted for 25% of overall third quarter revenue.

Wafer average selling price.

We believe.

Our industry leading precision.

L E D. OLED display driver IC will continue to drive growth for our 22 28 nanometer technologies.

Growing adoption of OLED panels being smartphones.

M devices.

We also soccer Thunder momentum in our automotive business doing this quarter and.

And we intend to pursue more cooperation opportunities.

Existing and potential automotive customers.

Moving into the fourth quarter.

We expect to face headwinds.

Demand weakness.

Impacted by factors, including the inflationary environment and Ukraine floor.

Well you wouldn't see it will not be immune to the inventory correction affecting the industry, we will work closely with our customer.

Elevated inventories to align with current market conditions.

At the same time, we will continue to deliver differentiated technology processes to enable customers product pipeline.

We have revised the company's 2022.

<unk> expenditures down to $3 billion power capacity expansion in Thailand, and Singapore are still progressing as planned in order to meet long term supply commitments.

Despite near term turbulence.

<unk> story of an increasing silicon content driven by the rise of E. Aif.

<unk> and <unk> remains intact.

With our comprehensive technology offerings focus on manufacturing excellence and resilient financial structure.

<unk> will further increase our exposure to strong growth market and consolidate our specialty technology leadership.

Now, let's move on to the fourth quarter of 2022 guidance.

Our wafer shipment will decrease by approximately 10%.

ASP in U S dollar will remain flat.

Gross profit margin will be in the low 40% range.

Capacity utilization rate will be at 90%.

Our 2022 cash based Capex will be revised to U S $3 billion.

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

Thank you prisoner one we will now begin now 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 two questions.

If you find that you're pushing that's been insured before he does so to speak please present zero to two <unk>. So the question. Thank you.

And our first question is coming from Randy Abrams Credit Suisse go ahead. Please.

Yes. Thank you.

Wanted to test the first question just about the outlook.

In a.

Somewhat mild or moderate correction in the fourth quarter.

Could you discuss if it still largely the consumer areas like PC Android.

And the.

The digital TV or is that extending now if youre seeing any broadening out to auto industrial and networking.

We're also the IDM switch, which looked like it had a good quarter in the third quarter.

Oh, Okay, well for the Q4.

The auto and industrial segment remains stable for now.

Well the inventory level is still healthy for the Alto and industrial segment Q4, we have observed that PC and smartphone are still undergoing a prolonged inventory correction compared to the previous quarter's estimate could you indicate there's a note tangible sign of a recovery.

In the near term.

We do foresee that down downward trend for the consumer segment will continue to linger into first half of 2023 due to a slow inventory digestion.

And it's our belief that this down cycle will mainly determined when the end system market start to resume its momentum and at this point the visibility is still low but in the Q4.

We were able to.

<unk>, our eight inch fab loading to remain 100% in Q3 after swapping some allocations on notebook PD smartphone to alto in Iot However, the lighter.

Eight eight inch utilization will happen in Q4, and mainly because impacted by the deteriorating market conditions in a smartphone and PC.

Because the inventory correction.

Randy.

Sorry, they removed from the queue, sorry, I'm back end, Okay. Yeah, No I wanted to ask my second question.

Actually taking that into consideration.

Is there a rough way to think.

Given that what you were saying on consumer.

And.

So a little bit of broadening where you see utilization trending toward.

First half I'm curious at this stage 2023 now I think originally you were thinking a growth industry and Youll see would grow if you have an initial view for 2003.

History, and then UMC outlook.

Well I mean, we you know after a quarter on quarter.

Given the rising Michael uncertainties and ongoing inventory correction like I say in the PC and the smartphone space.

And as well as the high inflationary cost pressure.

We do foresee the semi and foundry industry will decline in 2023 now.

But that's off a very high base of a 2022.

And the for UMC.

Yeah.

We.

While the visibility in.

In 2023 is slow we still expect our 12 AEP six will come on stream by 2023, and we saw our ASP outlook.

Specs to remain firm.

Management's goal is to grow in line or <unk>.

With Umc's addressable market.

I kind of want to emphasize stays within our addressable area yes.

Okay.

So do you expect.

Your addressable market, just trying to understand that versus the industry down do you think your addressable market is growing next year.

I think given the current condition.

It will be very Tony just see that is India.

We'll probably be kind of in 2023, Okay I understand.

To be able to give you much more clarity for another quarter.

January yeah.

Okay, No that's helpful and if I could ask on the.

Two parts on the Capex.

One is.

If that was a timing the three six coming to <unk> 3 billion as it was tracking a bit behind through the year.

But where are you pushing out certain projects and if there is a view and would that be additive or view on next year.

And the other part of the question just on that <unk> is that still it had lta's tied to it are those LTE is still covered or are you seeing customers.

Trying to reschedule.

For some change where some of that capacity.

In this environment may not be utilized.

Okay. So for the first the 2022 Capex cut.

They are two reasons.

That led to the cut.

For the cash based Capex.

He looks primarily due to the equipment vendor like alright, so and the second is given the current downturn. We are re pilot hide some of the projects to respond to the current cyclicality.

Meanwhile, we still keeping our commitment to our pizza LTA customers and the question for the <unk>.

Any changing in the LTE.

Four six.

Right now the customers are taking serious and commitment to this.

Relationships, so commitments and punish yourself.

We have not seen any significant changes in this space.

The LTE has done.

<unk> is more in the near term now with 56.

Okay.

Clarify that so some impact on the near term not fix what's the what's happened to the other <unk> and then I'll get back in the queue.

Sure.

B.

I mean, we do see well this oh going into this market turbulence.

And <unk>.

Obviously, not all our customer immuno science.

And.

While this inventory correction continued watson.

Yeah.

Our customer trading this LTA, while they are trading at a seriously but they are.

<unk> found that their product mix and reflect the end market as well as minimize the.

In order to minimize some of the Oh, the obligation to avoid saudia LTE penalties and so.

As a result.

They are some LTA penalties already happening.

<unk> is very insignificant.

And we don't want to get into specifics on the LTA, but the.

At this point all subject of business, our steel operating complain too the LTA turns.

Okay, great. Thanks, a lot appreciate the color Jason sure.

Thank you Randy.

Yeah Christian Goku, how do you how long Jpmorgan go ahead. Please.

Yeah, Hi, Thanks for taking my question first of all could you talk a little bit about what we are seeing I think you did call out <unk>. Just wondering if you have had there is some utilization slack.

Could we talk about 28 nanometer and the rest of the 12 inch footfall.

Portfolio. It looks like 28 nanometer still remains pretty solid in terms of utilization how do we seeing slack in other parts like 40, 65 et cetera in Q4, and as we look into Q1 and.

And how do we expect utilization to trend in first half obviously not very clear at this point, but I'd be looking at utilization going all the way back to like 80% or even below 80% as we have seen in the past cycles.

That's my first question.

Okay well.

A big question, let me see Viking I got hold of it.

First of all your <expletive>.

We touch the eight inch and your question is about 2008.

If I may I would like to kind of go back to about the segments first and before I get to that.

In Q3.

We actually see the automotive revenue grow into.

Into the double digits and the consumer groups.

Low single digits Communications group.

<unk> digital wealth the computing is declining about high single digit.

And while we swapping dose like I mentioned earlier swapping between via the alcohol industrial PC and smartphone I imagine we'd be able to manage that.

Loading now going into the Q4.

We see sentiment are declining except automotive.

So on a sequential point of view the automotive, we do see a continuous double digit growth and while the others stopped declining and I think that that happened to have impact to our eight inch loading because PC and smartphone is a major E <unk>.

Impacting the.

The eight inch.

We.

We are.

However, the lighter ate into your guidance in Q4.

B E.

<unk> continuous mobile and TV inventory correction and our 12 inch.

Product portfolio come with a more of a higher differentiation with a leading specialty technology as well as Saudi.

Diversified market segments, and sub segments, and therefore less vulnerable at this point compared to the eight inch in Q4, okay.

Okay.

While we see this correction lingering into the first half and we have to win.

We probably have to our reported Q1.

When the time comes.

<unk> it.

All we know.

<unk> is actually much healthier than the eight inch in Q4 for the 28 specifically.

As part of that and with.

With our resilient 28, mainly come from.

Our robust demand some are talking to separate such.

OLED driver and automotive space. So at this point Dear 28 will be met.

In healthy adults.

For Q4.

And if we look at the <unk> outlook for the long term, we do believe 2020 two will be a long lasting nodes driven by the application such as ISP.

Driver IC.

And then we will continue to grow.

We believe we will position to build a diversified our product portfolio to capture this market opportunity.

And we so that's why we remain confident with our 28 and 22 business, mainly because the continued continuously strengthening our so.

Solutions and customer profile.

And I guess I I enter the 28.

The color between the 828.

I'm not sure you might capture all your questions.

Yeah. Thanks, it isn't that very clear one part is on utilization I think you talk about 90% utilization in Q4.

Should we expect Utilizations to go all the way back down to 80% or below like previous downturns or do you have some offsets in first half, which would kind of protect some of the utilization.

At this point, we won't be able to answer a question like this I mean, as we mentioned earlier still not be ever could pinpoint their trust.

Cycle.

Weddings and inventory correction so.

We will only be able to give you guidance on quarter on quarter basis.

Got it thanks, if you don't.

My second question is on pricing I think if I go back and look at pricing blended pricing, especially in.

In every downturn, we see some degree of price compression.

Magnitude is different based on each downturn, but if you look at the last five six downturns, we've always seen price compression on a blended basis now.

Now this stemmed down you have been a lot more resilience in your communication demand pricing to the market as well as custom us.

Could you talk a little bit about what is your pricing strategy.

As we go into the downturn, especially as you mentioned, we still don't see the trough.

In terms of bad this cyclical trough out so if you're pricing side that you're going to be dependent on how utilization shapes up.

You would basically take our pricing strategies, such that even if utilization is much weaker because of the downturn is long pricing as something you would not be a very.

<unk>.

<unk>. Thank you.

Okay, well I mean, the foundry is a critical industry.

It's a couple of layers the answer to that one is the ASC physician.

Our strategy and positioning on <unk> is that is he will reflect both product mix and pricing adjustment.

Well I would continue to improve our product mix, our pricing strategy is to reflect our value proposition and technology leadership and differentiation, we do value longer term partnership over the near term cyclical factors.

We believe the pricing reflect our market value proposition and so we will like to continue to strengthen our relationship with the customer on long term basis.

Mutually growing with our customers. So that's our view intense as Pete however.

For the short term.

The cyclicality reasons.

Between the ASP visited loading or utilization.

Do examine that under the recent market conditions, we believe the trade off between the loading and price will end up with very limited benefits in demand creation because of the weakness in sell through and so.

So are we.

Unless we see a significant benefit that I don't see that will be a much of change on that at this point we.

Our pricing.

Pricing in 2023, we expect it to be fine, but we closely money to it yes.

There is a benefit to it.

Okay. That's very clear. Thank you I would go back into the queue. Thanks.

Sure.

Thank you.

Next question, Laura Chen of Citigroup go ahead. Please.

Yes, hi, good afternoon. Thank you for taking my question My question was Tom.

Recent intensify geopolitical risk.

Just wondering requesting implication to Unc.

Do you potentially see more opportunity to further gain shares at the expense of your Chinese peers or you're actually seeing more intense.

Intensified competition in your Chinese domestic market.

That's my first question.

Sure.

Well with the reason U S export control and regulation.

Let's say that you know this.

This month and the impact.

UMC will has been limited as the restriction mainly talking more of events no they're not part of the Umc's addressable market we.

We are in close communication occasion with the suppliers.

And customer upstate Navy gay the new rules announced earlier this month.

Our current focus is focused on compliance.

So we believe the complaint is one of our key business principle, and we will continue to monitor the development of the U S export control policies closely and risk.

Risk management measure as necessary or even evaluate if theres any opportunity, but at this time.

It is too premature.

We're closely monitoring the progress.

Okay. Thank you. So you have already you see any movement in terms of the client's order flow because of this event.

Well I mean.

Certainly our Cogs and but I don't think there is at a stage of a movement yet.

Okay, great. Thank you.

So my second question is about the IDM outsourcing trends with you also mentioned that auto and demand is still quite strong at the at least for this quarter.

But do we know that.

This instrument just reported this morning.

We also see some weakness happening aside from the auto applications since those idms are they also build up.

Positive. So I'm just wondering what's your view on the IDM outsourcing trend is that sustainable in particularly we see a lot of uncertainties ahead into next year.

Well first of all the keyword is it just you mentioned that.

The U S customer has just announced that their view in terms of the market and you.

You know obviously is just happening.

But in our view the outward and industrial segment.

Re man.

Table for now.

In fact in our Q3s.

Because they'd be able to.

Offset some weakness in other segments.

And while we're going into the the.

The end of the year as well as Q1.

We remain cautious and we would that been working closely with our customer.

In terms of the outlook.

Meanwhile, for the auto and industrial is it is a longer for a longer term perspective is there are pockets of settlement and the focus and we will continue expanding our auto business bundles, IGN customer and the fabless customer through both technology innovation and capacity expansion of alignment.

Because I.

<unk> customers tend to have their own capacity plant until it's important that we're putting the capacity expansion alignment as a part of our ongoing discussion with them.

Okay, great. Thank you that's very clear.

Thank you.

Next question is Tony Lean of UBS go ahead. Please.

Hi, Thank you for taking my questions. My first question is on 28 nanometer.

Just on your expansions are all based on.

Steady long term demand outlook.

Under all kinds of factors Cooper.

Could potentially trigger you to reconsider the extent and timing of skills.

And perhaps because of LTE.

Do you still have some flexibility in terms of you gentlemen, thank you.

Well I mean like I said.

For the longer term, we do believe just 20.

R 22, and 22 will be a long lasting node.

Yeah.

So we we actually feel comfortable with our perspective on this.

Or is it the reason.

Market dynamics.

<unk> not changed our long term view and us wealth.

Our long term relevance in this tougher.

With our customers.

And we will we will continue.

Pursue this and as we believe it is a sweet spot for many applications and wealth demand will continue to grow.

We are confident with our solution offering and our 2008 business can be maintained at a healthy level in 2023 and beyond.

So for.

For the quarter L T H.

I kind of touched at earlier already for the PC.

But maybe I can give us a bit of a oh.

Our view on the LTA in general.

The.

The LTA.

May not be able to mitigating or shortfall.

Because the the market volatility.

But with the LTA the.

Customer what typically re prioritize their product mix, even reallocating their multiple sourcing product to you on that too.

To fulfill their obligations.

And we.

We actually.

I do believe this LTA health.

And at this current downturn cycle.

<unk> not just looking at the <unk> six or 'twenty Ace LTA, we actually are taking this opportunity to read them out.

Our LTA selection criteria to make sure that we align with the mega trend and other growing market.

We believe the LTA contract could help to mitigate downturn cycle and demonstrate the mutual commitment.

<unk> from both customer and UFC and so that's kind of a I'd like to share that with you is that going to so called <unk> L. T a situation.

Got it. Thank you that's very helpful. So a quick follow up on your PC expansion I think in July .

Do you expect that 2023 capacity increase for the total company could be about 5% now with lower pay pack with a shared one.

What's your latest guidance for next year's capacity increase.

Well at this point.

Numbers slightly below five still is there still very close to five.

And the initial rent what's kind of still started me 2023, but you will reach to 12 a month.

By the end of 2023.

The rent profile got change a little bit.

Got it so 12 K per month by end of 2020.

Maybe approaching <unk>.

Full scale by late 2024.

Yeah.

Well I mean for 'twenty 'twenty four we still have to that's still in process right progress right now.

We had we'd react to the current market downturn and start adjusting our 2022 spending and put your reflects till 2023 and the same time, we were looking into 2023, capex as well, but at this point, it's kind of too early to report that 2000, Twenty's capex as well.

And profile yet.

Got it. Thank you Jason My second question is to follow up on Otas.

And so one part is that.

Our customers have LTE.

Both existing capacities and also you have new capacities.

Would there be a case that the production is hitting capacity. So we met <unk>.

The new supply there in.

In that case.

<unk> would you mitigate.

The impact on your existing capacity.

Well I mean, our commitment to the LTA LTA customers intact.

Despite the ramp of our change on the new capacity, but our commitment to it.

There so we have to manage the base capacity to support them.

Just make sure that we fulfill our obligations and spend time will continue to align with the old customer with their outlook to make sure that we don't cause any surprises for both LTA customer.

L P a customer.

Yeah.

The pricing differences between the two.

Leasing capacity annuity for your capacity, even though theyre both LTA.

Pricing.

It's different.

Okay.

That's right.

And so the other part of myopia question.

Thank you Lisa weeks Safavi, sorry to talk about.

Allowing customers to extend the duration of the LTE.

Would that be a practice that you also consider thank you very much.

Well I mean, we always entertain customer requests and but in principle is we we have to treat those LTA.

In contrast seriously.

And so are.

We will provide certain flexibility, but not to the extent you mentioned about it.

So at this point as I mentioned the customers do is supporting US we tried to re prioritize their product mix.

Allocating some of their multiple source product to Unc.

Unable to fulfill the 100% of the obligation.

We will comply to the LTA times.

Got it thank you so much.

Thank you.

Next question Bruce Lu of Goldman Sachs Go ahead. Please.

Hi, Jason.

Thank you for taking my question I think you just mentioned that your pricing agreements.

Do the exercise.

And then showing them asp's erosion.

Which means that given the current 90% cash and really you have no plans to change the pricing.

Or.

For the first quarter next year, most likely it's going further south and you have no plan to change.

I think our assumption that as well. So can you tell us what is special or help us to go through the exam you did and make sure we have the right understanding.

More negative or more possibly for the outlook for 2023.

Well I mean right now it will finally end market standpoint or.

Our view on 'twenty three is the market will decline so it will be a challenging year.

But on the ESP standpoint.

I think theres a limit the tradeoff between the loading and pricing, so and mainly because of the weakness in the sell through the end market.

If theres no electricity.

And with the volume and so the benefit will be.

It's hard to catch catcher so that's why we say India.

First first criteria is we have to understand the end market momentum.

And then you talked about the market share.

Consideration, so on and so forth. So they are different conditioning and criteria too.

And but at this point what kind of.

The finding difficulty even we passed the first layers.

Because we haven't see any benefit out of that.

And we do believe our pricing reflects our relevance with the entire supply chain and so we just have to continue.

Look at the longer term perspective, and and make sure that we position ourselves to capture the opportunity.

Not just look at the short term tactics and.

But if the if the Shelton does it help.

It is an option we can take but not at this current point.

So can we assume that even the capacity it sounds really going down to 80% or even everything right. Because then.

The pricing.

Our strategy remain unchanged.

Well I mean, I think it's not gauged by the utilization is gauged by if the pricing will trigger the higher utilization result.

I see okay.

Okay.

Good thing is that I think that therefore, you're at 28 nanometers.

It is much more immediate than your other note, while keeping your product and customer choice or new strategy or better execution.

However, your driver IC revenue exposure is still high your consumer.

Products exposure is still high which could get a lot of fluctuation for your business. So what's your plan and strategy to have to change that and you know.

How can we how and when we can see some improvement like you either know can be added.

<unk> 28.

Well I mean the.

It's our goal to continue with the customer and product portfolio enhancement activities.

And we still in the middle of the process that.

Yes.

One is we have to continue to lever our technology innovation and in order to with a pocket of the market and so we can improve the portfolios and then we will diversify our customer and market segment.

So.

This effort is continues.

We've been doing that for past few years couple of years, and we see some of that and but we're not there yet I would say that we still are in the processes continue with the product.

Fort Hills.

Right.

And we will continue continue to do that.

And by doing that we believe we will we will continue to help with that but.

At the end of the day, it's hard to immune from the entire market downturn, but with a better product mix and with a more compelling solution to our customers. We do think we can be.

Resilient or even better than the industry's performance.

Well can you elaborate a bit more because for.

Well <unk> is somehow.

More differentiated staff for La <unk>.

For other stuff will lag but.

But it's not as easy for investors to visualize it.

Hey, what can you do for the differentiator.

Business. So what can you do for you.

$590, but can you elaborate a bit more.

For <unk> for instance on the eight inch.

They are structural demands coming from.

Power management.

You know for the migration of the DDR five power management.

Joint development program with IBM to support their growth.

Growth in their respectful.

Respective market segments.

They are still some structural demand in some of the areas and we're going to continue to pursue those talking about market space.

44.

The mature or legacy 12 inch.

When he says 50 540.

Pete.

The MCU the nonvolatile memory just come into a 40 now.

The automotive market.

And by expanding our capacity.

Into the non volatile memory, we said that would actually help the resilient as well.

And so so they arent so the market segments that we.

We believe that has the structural demand going forward and so we would be find a pocket of market and so the goal is you'd have to deliver that solution.

Compounding solution.

And meeting the customer demand as well as the capacity as a whole and hopefully you can be.

Less vulnerable.

I don't know, but we are resilient enough, but I think we are going to try to be less vulnerable yes.

Okay. Thank you.

Yeah.

Thank you.

Yes Christian Zone, China Renaissance go ahead. Please.

Hello, gentlemen, two questions from my side first one free talking to revenue breakdown I believe for the hottest category at 40% in Q3, and I think majority is related to automotive or is it a fair assumption.

That's correct assumption, yes, okay, alright, and maybe Don.

Would I say three five years from now.

I asked you I assume that percentage doubtful.

So I'm sure.

Well I mean the.

Okay.

Bruce.

Is it's our target to reach and greater than 40% by 2025.

That revenue can come from the Mega trend that in Cusco.

Hi, So alright, Okay second one maybe for you Tom regarding the risks and approval for us to buy back the remaining 30% off and you have to Shannon.

So when was that transaction be krauss and with that Andy.

How should we ambition regarding that.

P&L implications.

The company.

USC or you're just as xiaomi already making profits or anything else you can tell us a financial report.

There's a minority interest positive profit.

Country, that's for the 30% ish.

Outsized shareholder off your food.

Since we completed 100%.

We will be able to Uh huh.

It's all of these minority interests.

I'll close with a mandate to allow UMC to complete the transaction, we see a window of three years.

We certainly intend to do so faster.

Alright.

Okay. So let me start with Phoenix, III, so I'd be happy to try to expect timing right.

Yes, he is a window after timing but.

We won't wait for three years.

Oh, I see I see okay.

But that happen next year.

Great.

And there's still some technical issues and.

We won't be able to tell you.

Okay, Yeah, so our intention is.

Work hard boost our education office.

So you got you and once the transaction is completed.

Kathy one off parent P&L impact.

No there won't be any one off impact.

We don't need to.

Post this summer.

But he also shareholders high sea of antibody small number right now to minority interest to grow Okay. Alright, okay. Thank you gentlemen.

Okay.

Thank you.

Next question Charlie Chan of Morgan Stanley Go ahead. Please.

Alright, gentlemen.

Taking my question.

Very good.

Good results.

I mean the market challenging.

So my first question is about the.

You have 40 nanometer.

Jayson maybe.

Kind of a long term question.

How much of the 28 nanometer.

Demand today.

Let's start to cut.

Transfer to 40 nanometer at the menu coming.

225 years and.

I think I asked it.

Before.

UMC has any advantage for the 14 nanometer finfet.

First question. Thank you.

So the question is about 14 right now.

Yes, yes.

Yeah, well we.

Currently we are.

We are investing.

In growing our 28 22 technologies like you said.

Along with the capacity expansion.

Because we believe we expect the increase the market potential.

Increasing customer adoption.

14th things that.

Some technology standpoint, we have an answer for a few years ago.

On the capacity expansion plan. Our current approach is aligned to the existing 28 nanometer customer we do a product transition and so we'll probably will gradually address that but at this time, we do focus on the 28 and 22 extension.

Yeah.

Got it yeah Yep.

Because it is also linked to that.

Please go risk.

Issue right because now.

China fabrication for 14 nanometer Finfet is Jackie right. So.

You know as a company as CEO do you think.

You should.

It would be at your 40 nanometer.

In preparation for potential demand from China customers.

They need a 14 nanometer finfet foundries there is three to five years later.

Believe me the 14th is I'm very comfortable.

We do have it.

We do pay attention to the 14th.

And it's important topic for us.

We not we're not going to abandon the <unk>.

So.

But we are examining a few things one is found the powder.

[noise] standpoint, and the timing of that.

Okay.

Right now.

The.

We founded by Central boundaries for instance, zombies, alright GM policies.

Want to make sure the when we extend the opportunity for us to invest and where where it will be in that first so at this point, we're putting the 28 out of the 14, but doesn't mean that I mean that doesn't change so it.

It does come up too because the market dynamic changes 14 become.

Much more attractive than 2008, yes policy will shift.

Okay that makes sense.

A couple of very quick question.

Do you see similar trends that the kids Hussein debt.

Customers' inventory declined this quarter or you think that your inventory continue to go up as your customers.

Well.

On the PC and the.

Smartphone space.

Like we report earlier, we see the.

The digestion actually is slower than we expected from us.

<unk> estimated so.

We don't see that pie up, but we see a very slow digestion.

Because.

Yeah, because the inventory build out can be controlled by new wafer starts and but.

For the ease of the inventory to be deep.

Fleet that requires the sell through so I think the challenge that we have seen is we.

Is the end market sell through situations and we just have to closely watch that gives us also.

I think thats out there.

The timing of that will probably accelerate but that remains to be seen at this point because the overall macroeconomic environments.

Okay. Thanks, Susan message geared to.

Financial question to <unk>.

So first question is is that your capex cuts.

No.

No.

Cutting cutting that demand.

Any any fees related to your Singapore, new fab projects.

No amenity screen, Jason just mentioned there are two reasons first of all these therapies agreement deliveries.

Towards the lead time prolonged so.

For our PS six tightened I ramp up profile, probably though we are trying our commitment.

Through our own T J P six customers and for the.

The current cycle of course, we are giving more nimble and cautious.

We prioritize several project and.

That's part of the contribution to do so.

Uh huh.

2 billion Capex revision.

Yes.

Matt.

No any specific nodes that that you kind of change the capex spending.

[laughter], primarily thinking I don't mean to so the ramp profile.

Not for long so the impact will be mainly I'm counting on me two.

Okay. Okay, that's fine.

It says you don't mean I hope so.

Ask Sam.

Key assumption for gross margin.

So far this year.

You already provide the first quarter guidance right. So.

I think Anthony if you can comment on the full year.

Base.

On a full year base in terms of the gross margin.

Impact how much of that comes from the.

So the cost inflation.

And how much benefit coming from the NT dollar depreciation.

And so you're kind of.

Hi.

Depreciation trend thank you.

For every 1%.

NT dollar depreciation contributed about 4% of.

So the gross margin point.

And.

For Q4, we are guiding for low 40% gross margins.

Yeah.

Coming from a lower 10% lower.

Gross margin.

In terms of depreciation for 2023.

About five 6%.

The increase.

For overall depreciation.

You mean 2022 or two the intermediary.

So you have about 5% increase for sort of depreciation.

Okay, well 2000 and I'm.

I'm talking about minus a bit.

Hi, all 5% to 6%.

Sure sure and expenses.

I see okay, yes, so actually.

It's kind of a.

Basically.

Nick to your assumption.

For next year.

Do you see any kind of flattish cost.

Besides the U.

Depreciation because you were in those appears seems to suggest that.

There are kind of in fact is in play.

It cost the main etame coach.

It is I'm wondering how that is going to impact your next year gross margin. Thank you.

If we set aside the utilities, which we pay to hire somebody to parity price.

If we strip out to a large over in October .

The general inflation.

The inflation level.

Cost increase we are probably talking about low single digit, maybe one or 2%, but it.

It varies depends on which.

And you are talking about.

We are walking we saw customer closely trying to cope with.

This issue.

Okay.

To summarize next year.

So cost of goods so.

Yes.

Sam.

Lastly in terms of variable cost in Europe .

Sure.

Equipment depreciation will go up by 5% to 6%.

On the currency side on a year on year basis.

Yes, probably.

Lisa.

And.

Hi, Andy dollar depreciate it depreciation.

Year on year.

And so that's going to offset those cost increases is it.

How you how you budget for next year cost of goods sold.

Now if we don't do it that way, we're thrilled for putting up with so far.

Sure.

Your model.

Uh huh.

Most of the parameter I already shared with you.

Okay. Okay. Thank you gentlemen.

Yeah.

Next question go through how do you how long the Jpmorgan go ahead. Please.

Hi, I don't know.

Quick follow up so.

So.

Given that we still have our Singapore fab coming up.

How should we think about Capex direction next year I know, it's too early to give absolute guidance, but how do we still thinking in the same range of 3 billion kind of spending or do we feed them spending could come down next year, given a number of different downturn.

Oh.

Yeah first of all Youre right. It is too early to disclose the 2020 Three's Capex number.

Full year 2023 Capex.

Cash based Capex budget will be we will update you in January .

The January month of the game.

But it is very subject to the market outlooks, we closely monitoring it and then we'll report that next thing.

Okay, but any directional comments is it going to be flat down.

Well, it's really difficult right now, but we are keeping our commitments to our customers.

A piece of it.

So Peter in Singapore, So the.

Ballpark schedule won't change, but incremental delay something about phone control and we are walking closely.

With our customer in order to keep our commitment.

Got it and one more follow up on 14 nanometer finfet.

Do any of your NPA commitments for the future Fabs include.

14 nanometer capacity as well that you need to ramp up our and there is nothing that covers 40 nanometer and your future LTE.

The current LTA combos.

No technology node migration options and but with.

The visibility.

With the current.

Current visibility that migration is down 28% to 22.

But the option is embedded with the LTA program is.

Okay. Thank you very much thanks.

Thank you.

Ladies and gentlemen, we're taking the last question and the last question is from Randy Abrams Credit Suisse. Go ahead. Please okay. Yeah. Thank you just a couple of clarification one for the fourth quarter.

Following up on Charlie's question, the low forties, if you net the.

This decline with the currency benefit.

It seems to get totally a couple points like about a two point sequential so are there other other swing factors.

Like the utilization following further into first quarter or.

Or is it just a bit of conservatism baked in I'm, just trying to understand the moving parts.

I think no photos.

Sure.

Range.

And we are at 47%.

In the third quarter.

Sure.

The magnitude.

Dollar depreciation. So you also it depends on how you assume the currency movement in Q4 versus U S. Dollars. You're you mentioned you had mentioned our Q1 loadings certainly another factor as well.

It's a factor okay with chocolate C are you assuming right now for the one for.

We don't assume where we're taking the numbers of the Thunder, Okay I understand okay.

A follow up on this soft pay out with the higher earnings this year, but heading into slowdown.

What's the way to think about you had $3 last year, but earnings went up a lot or three hour paid this year.

How should we think about the payout level or a payout ratio into off of this year's earnings.

Yeah, we certainly commit to pay for.

50% of.

And cash to our shareholders.

And we also want to have a study.

Hopefully a high level of dividend.

I think that's where the.

Basic assumptions for.

Dividend cash dividend payout.

Okay.

And the final question I have just two parts I just wanted to clarify that.

The pushed out was tool related where you only have about 12000 end of year is that pushed out.

And EBIT demand related or it's completely a tool pushed out.

And then the second part for Singapore, where youre keeping that on track factoring the geopolitical or you're seeing rising customer interest for the non Taiwan site or to actually move ahead with Singapore a bit more aggressively.

For the first question is the.

Module portion of that push out is because the equipment into the light.

And there are some <unk> that the main reason, but.

A portion of it is because the duty lag.

The Singapore interests.

Yes, they are.

<unk>, Singapore, it's a phone there is our customers.

You know the sort of benefit to it.

Addition to the geographic.

The regional risk.

Because they are other factors in there in place so.

I won't say, that's 100% because the geographical region.

Political reason, but.

We definitely see sounding inches or right.

And that capacity is 2025 is when we'd see that capacity.

Yeah late 2024, mostly because of the delay.

It's about 92095.

Okay, great. Okay. Thanks, a lot that's my questions. Thank.

Thank you.

Thank you.

Ladies and gentlemen, we thank you for all your questions that concludes today's Q&A session.

So over to UMC head of IR for closing remarks.

Thank you.

Everyone attending this conference today, we appreciate your questions as always if you have any additional follow up questions. Please feel free to contact UMC.

At USA Dot com have a good day.

Thank you and ladies and gentlemen that concludes our conference for third quarter 2022.

And for your participation in Umc's conference there will be a webcast replay within two hours. Please visit www UMC com onto the investors events section you may now disconnect Goodbye.

Yeah.