Q2 2026 United Microelectronics Corp Earnings Call

Speaker #2: In a moment, we will hear our CFO present the second-quarter financial results, followed by our CEO's key message regarding UMC's focus on third-quarter 2026 guidance.

Speaker #2: Once our CEO and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial reports are available on our website, www.umc.com, under the Investors, Financials section.

Speaker #2: 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.

Speaker #2: Including risks that may be beyond the company's control. For a more detailed discussion of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC.

Michael Lin: For more detailed description of these risks and uncertainties, please refer to our recent and subsequently filing with the SEC and our state 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 CFO, Mr. Chi-Tung Liu, to discuss UMC's Q2 2026 financial results.

Speaker #2: And our security authorities. During this conference, you may view our financial presentation materials, which are being broadcast live through the Internet. Now, I would like to introduce UMC CFO, Mr. Qidong Liu.

Speaker #2: To discuss UMC's second quarter 2026 financial results.

Speaker #3: Thank you, Michael. I'd like to go through the Q2 2026 investor conference presentation material, which can be downloaded or viewed in real time from our website.

Chi-Tung Liu: Thank you, Michael. I'd like to go through the Q2 2026 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, Q2 2026. Consolidated revenue was TWD 68.73 billion, with gross margin at 32.5%. Net income attributable to the shareholder of the parent was TWD 42.26 billion, and earnings per ordinary share was TWD 3.39. Utilization rate in Q2 climbed to 85% from 79% in the previous quarter. The total wafer shipment in Q2 reached 1.13 million 12-inch wafer equivalent. On page five, we will start the sequential comparison. Revenue grew 12.6% quarter-over-quarter to reach TWD 68.7 billion.

Speaker #3: Starting on page 4, second quarter of 2026, consolidated revenue was NT$68.73 billion, with gross margin at 32.5%. Net income attributable to the shareholders of the parent was NT$42.26 billion, and earnings per ordinary share were NT$3.39.

Speaker #3: Utilization rate in Q2 climbed to 85% from 79% in the previous quarter. The total wafer shipment in the second quarter reached 1.13 million 12-inch wafer equivalent.

Speaker #3: On page 5, we will start the sequential comparison: revenue grew 12.6% quarter over quarter to reach NT$68.7 billion. Gross margin rate increased by a little over 3 percentage points to 32.5%, or NT$22.3 billion.

Chi-Tung Liu: Gross margin rate increased by over 3 percentage points to 32.5% or TWD 22.3 billion. Because of the recent stock market performance, our investment and dividend income together reached TWD 30 billion in Q3 under the non-operating income and expenses, which help our TWD net income to reach TWD 42.2 billion. For the net income attributable to the shareholder of the parent is TWD 42.26 billion or EPS of 3.39 per share in Q2. On page six, for H1, our revenue grew 11.3% year-over-year to TWD 129.77 billion in H1 2026. Gross margin rate also grew by over 3 percentage points to 30.9% or TWD 40.1 billion in H1 2026.

Speaker #3: And because of the recent stock market performance, our investment and dividend income together reached $30 billion. In the third quarter, under the non-operating income and expenses, this helped our NT net income to reach $42.2 billion.

Speaker #3: For the net income attributable to the shareholders of the parent, it was $42.26 billion, or an EPS of $3.39 per share. In the second quarter, on page 6, for the first six months of the year—the annual comparison for the first half—our revenue grew 11.3% year over year, to $129.77 billion in the first six months of 2026.

Speaker #3: Gross margin rate also grew by over 3 percentage basis points to 30.9%, or 40.1 billion NT, in the first 6 months of 2026. For the non-operating income, similar for what happened in the second quarter, for the first half of the total non-operating income reached 35.6 billion, which leads our NT net income to reach 58.4 billion, in the first 6 months of the year.

Chi-Tung Liu: For the net non-operating income, similar for what happened in Q2. For H1 of the total non-operating income, reached TWD 35.6 billion, which leads our TWD net income to reach TWD 58.4 billion in H1. EPS was 4.68 in H1 2026. On page seven, cash on hand is around TWD 124.7 billion, with total equity reach TWD 443.9 billion at the end of Q2 2026. On page eight, our blended ASP increased by low single-digit percentage in Q2 2026. For revenue breakdown on page nine, Asia remain our largest revenue pool, around 66% of total revenue, and North America reached about 22%. On page ten, IDM did not really change much. This quarter is around 15% versus 14% in the previous quarter.

Speaker #3: EPS was $4.68 in the first half of 2026. On page 7, cash on hand is around NT$124.7 billion. Total equity reached NT$443.9 billion at the end of the second quarter of 2026.

Speaker #3: On page 8, our blended SP increased by a low single-digit percentage in the second quarter of 2026. For the revenue breakdown on page 9, Asia remained our largest revenue pool at around 66% of total revenue, and North America reached about 22%.

Speaker #3: 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, there's almost no change for the revenue among the three major assessments.

Chi-Tung Liu: For sales breakdown by application on page 11, there is almost no change for the revenue among three major segments. For revenue breakdown by technology on page 12, total revenue under 14 nanometer is still around 52%, with 22 and 28 nanometer is becoming our largest revenue pool, represent 37% of the total revenue. Our quarterly capacity has shown some increase in our Singapore site, 12I, for Q2. 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 more details later during the conference call. This about is the summary of UMC results for Q2 2026.

Speaker #3: For the revenue breakdown by technology on page 12, our total revenue under 14 nanometers is still around 52%, with 22 and 28 nanometers becoming our largest revenue pool, representing 37% of the total revenue.

Speaker #3: Our quarterly capacity has shown some increase at our Singapore site, 12I, for the second quarter. There will be a more meaningful increase in the coming quarter to reach 192,000 12-inch wafer capacity for our Singapore site.

Speaker #3: On page 14, our annual CAPEX budget has increased to $2 billion, up from the previous number of $1.5 billion. We'll elaborate on more details later during the conference call.

Speaker #3: So, this about is the summary of UMC results for the second quarter of 2026. More details are available in the report, which has been posted on our website.

Chi-Tung Liu: 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.

Speaker #3: I will now turn the call over to the CEO of UMC, Mr. Jason Wong.

Speaker #4: Thank you, Qidong. Good evening, everyone. Here I would like to share UMC's second quarter results. In the second quarter, our wafer shipment increased by 10.6% quarter-on-quarter, driven by strong demand in communications and consumer segments.

Jason Wang: Thank you, Qidong. Good evening, everyone. Here, I would like to share UMC's Q2 results. In Q2, our wafer shipment increased by 10.6% quarter-on-quarter, driven by strong demand in communication and consumer segments, further improving utilization rate to 85%. Revenue from our 22/28 nanometer business continues to set record highs, with 22 nanometer revenue representing 17.5% of the Q2 sale. 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 capability on 12-inch wafers. As we prepare to launch our silicon photonics platform available for general customer use in 2027.

Speaker #4: Further improving utilization rate to 85%, revenue from our 20- to 28-nanometer business continues to set record highs, with 22-nanometer revenue representing 17.5% of second quarter sales.

Speaker #4: Earlier this month, we announced the company's first mass production delivery of a 12-inch photonic IC to a customer—a major milestone for UMC that demonstrates the company's high-volume silicon photonics manufacturing capability on 12-inch wafers.

Speaker #4: 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 communications and consumer service sectors.

Jason Wang: Looking ahead to Q3, we expect demand momentum to remain stable across the computer, communication, and consumer segment, 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 Q3. With our 12-inch capacity already at a healthy utilization rate supporting core businesses, 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 announce today that our board of directors has approved a plan to expand clean room capacity at our Singapore P4 facility and to construct a new fab in Tainan, Taiwan.

Speaker #4: With shipment projected to increase by high single digits, driven by strong demand for power management ICs, sensors, and microcontrollers, our 8-inch portfolio is also seeing a strong rebound.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: The plans will be executed in phases, enabling UMC to remain focused on capital discipline, with flexibility in deploying capacity to fulfill customer demand. As a result, the 2026 capital expenditures budget will be revised upward to $2 billion.

Jason Wang: The plan will be executed in phases, enabling UMC to remain focused on capital discipline with a flexible ability deploying capacity to fulfill customer demand. As a result, 2026 CapEx budget will be revised upward to $2 billion. Now, let's move on to the Q3 2026 guidance. Our wafer shipment will increase by high single digits. ASP in US 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 $2 billion from $1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Speaker #4: Now, let's move on to third quarter 2026 guidance. Our wafer shipments will increase by high single digits. ASP in US dollars will remain firm.

Speaker #4: 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 US $2 billion from a US $1.5 billion.

Speaker #4: That concludes my comments. Thank you all for your attention. Now, we are ready for questions.

Speaker #1: Yes, thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question for any of today's speakers, please press the star key and number 1 on your telephone keypad, and you will enter the queue.

Operator: Yes, thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question for any of today's speakers, please press star key and number one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, you can please press star key and number two to cancel the question. Now we'll have our first question, Laura Chen from Citi. Go ahead, please.

Speaker #1: After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, you can press the star key and the number 2 to cancel the question.

Speaker #1: Now we'll have our first question. Laura Chen from Citi, go ahead please.

Speaker #2: Yes. Hi. Thank you for taking my questions and congratulations on the good results and outlook. It's great to see that UMC has made good progress on silicon photonics.

Laura Chen: Yes. Hi. Thank you for taking my questions, and congratulate for the good result and outlook. It is great to see that UMC have a good progress on the silicon photonics, and also see that the power management IC improvement. I assume that these are all prepared for the AI-related business. I am just wondering, for the longer term, does UMC have any indication or target of your AI-related revenue? Can you also give us a breakdown of products that you are aiming for? Thank you.

Speaker #2: And also, we see the improvement in our power management ICs. So I assume that all of these are preparations for the AI-related business. I'm just wondering, for the longer term, does UMC have any indication or target for your AI-related revenue?

Speaker #2: And can you also give us a breakdown of the products that you are aiming for? Thank you.

Jason Wang: Well, first of all, our AI-related business is driven by the specialty semiconductor solution, support 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 would have already began important contributor to our growth in 2026. The current revenue for 2026 is projected to close to approximately $300 million for this year. Looking ahead, in three years, we would expect this AI exposure to exceed US $1 billion.

Speaker #4: Well, first of all, our AI-related business is driven by the specialty semiconductor solution, supporting a broad range of applications, including power management, connectivity, FPGA, as well as our growing advanced packaging and silicon photonics business.

Speaker #4: Those are our focus. This business will have already begun to make important contributions to our growth in 2026. The current revenue for 2026 is projected to be close to approximately $300 million for this year.

Speaker #4: And looking ahead, in three years, we expect this AI exposure to exceed $1 billion.

Laura Chen: Yes. Thank you. Very helpful. My second question was about the overall demand outlook. We know that Q3 will see the inflationary improvement. I think consumer electronics demand in general is still quite weak. What's the management view about the sustainability into probably Q4? Do you have any visibilities into maybe early next year?

Speaker #2: Yes, thank you. That's very helpful. My second question is about the overall demand outlook. We know that in Q3, we will see improvement in the utilization rate.

Speaker #2: 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 visibility into maybe early next year?

Speaker #4: Well, right now, what we see from the market is that worldwide demand is improving, with a broader and more sustainable momentum. But it remains more of an AI-led trend—AI is leading that.

Jason Wang: Well, right now, what we see from the market is the worldwide demand improving with a broader and more sustainable momentum. It remains more AI-led. AI is leading that, and it's spilling over into memory, connectivity, and power segment. AI demand recovery is still mixed across different end device markets, and supply reduction plus inventory normalization are moving to the market toward to more of a balanced and predictable environment. We do see the future outlook is increased in terms of visibility. For the AI-related demand, while they 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 product, particularly in our 40 nanometer and 65 nanometer technologies.

Speaker #4: And it's building over into the memory, connectivity, and power segments. Now, AI demand recovery is still mixed across different end device markets. Supply reduction plus inventory normalization are moving the market toward a more balanced and predictable environment.

Speaker #4: So we do see the future outlook is an increase in terms of visibility. For the AI-related demand, while they remain very strong, one thing that may be changing is the XPU demand remains strong.

Speaker #4: Besides that, the bottleneck is not only on compute, but also on memory, connectivity, and 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 40-nanometer and 65-nanometer technologies.

Speaker #4: 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 the consumer segment, including handset, PC, and notebook, will experience a year-over-year decline.

Jason Wang: For the non-AI, it's uneven. We will not characterize the current environment as a full broad-based recovery yet. In the near term, we do acknowledge that consumer segment, including the handset, PC, and the notebook, will experience a year-over-year decline. However, for UMC, our wafer shipment will grow year on year on 22, 28, 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 the customer share gain in both AI and non-AI markets. 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.

Speaker #4: However, for UMC, our wafer shipment will grow year-on-year on 22, 28, 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 the customer's share gain in both AI and non-AI markets.

Speaker #4: The 8-inch loading will improve to meet 80% loading and will also increase quarter on quarter, driven by AI-related demand.

Speaker #2: Okay, thank you very much. In that case, can I also just quickly check what's your view on the ASP trend into the second half?

Laura Chen: Okay. Thank you very much. In that case, can I also just quickly check what's your view on the ASP trend into the H2?

Speaker #4: Well, I mean, our pricing strategy has always remained consistent. We are not trying to maximize short-term pricing based on the market cycle.

Jason Wang: 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 and industry condition continue to improve, we are working with customers to ensure pricing appropriately reflected that value while supporting continuous investment in technology and capacity.

Speaker #4: 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 demand and industry conditions continue to improve, we are working with customers to ensure pricing appropriately reflects that value while supporting continuous investment in technology and capacity.

Speaker #2: Thank you very much. That was very helpful.

Laura Chen: Thank you very much. Very helpful.

Speaker #1: Thank you. Next one, Goku Hariharan, JP Morgan. Go ahead, please.

Operator: Thank you. Next one, Gokul Hariharan, JPMorgan. Go ahead, please.

Speaker #3: Yeah. Hi. Thanks for taking my question. So, Jason, could you talk a little bit about the capacity expansion plan at Singapore V4, as well as your plan to construct a new fab in Tainan?

Gokul Hariharan: Yeah. Hi. Thanks for taking my question. Jason, could you talk a little bit about 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 four or five years back when you had this new phase in Tainan, and then you also build out the Singapore fab. Is it similar scale or it's going to be much more of scale?

Speaker #3: What are the kind of milestones we should look at? And what are the kind of phases that you are looking to looking to kind of face this capacity in?

Speaker #3: I think, how should we compare it to your previous plan about four or five years back, when you had this new phase in Tainan, and then you also built out the Singapore fab?

Speaker #3: Is it a similar scale, or is it going to be a much smaller scale?

Speaker #4: Oh, okay. Yeah. Let me maybe start off. What drives that, right? What drives that decision that we make today? When we map out the industry growth over the next five years, we see several important trends.

Jason Wang: Oh, okay. Yeah. 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 five 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 rate, 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. The third is, when we look at these emerging applications such as the robotic satellites, we know that again, very high growth in compute, memory, sensing, connectivity, and power.

Speaker #4: Within the AI data center, while growth in compute and memory will remain high, we also see connectivity and power growing at a high rate.

Speaker #4: Driven by the needs for more bandwidth and more efficient power, the second is the automotive electrification trend continues, not just for EVs, but for autonomy and infotainment applications.

Speaker #4: The third is, when we look at these emerging applications such as robotic satellites, we know that again there is very, very high growth in compute, memory, sensing, connectivity, and power.

Speaker #4: This industry trends combined with our entry into the advanced packaging such as larger and memory stacking as well as the silicon photons photonics will accelerate the growth within the UMC addressable market.

Jason Wang: 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 the growth within the UMC addressable market. Within our existing portfolio, we also see that advanced packaging is enabling our customer 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 a share gain and many new opportunities. Therefore, we actually believe that 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'll pursue is based on the market validation, this alignment, and customer commitment, which will provide both long-term capacity assurance to our partners and learning protection to UMC.

Speaker #4: Within our existing portfolio, we also see that advanced packaging is enabling our customers to think differently about new architectures and designs for their products.

Speaker #4: Since we believe we are ahead of our peers in advanced packaging, this is leading to share gains and many new opportunities. Therefore, we actually believe the actual growth in Q2 is significantly higher compared to the past.

Speaker #4: Consistent with this long-term outlook, in terms of how to do this, we're going to we're going to execute each expansion phases 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.

Speaker #4: So that's truly the reason behind the decision, as well as how we want to execute this. You also have a follow-on question in terms of the scale, the details, and the schedule.

Jason Wang: That's truly this is behind the decision as well as the how we want to execute this. You also have a follow-on question in terms the scale.

Gokul Hariharan: The details, the schedule.

Jason Wang: The milestone and the schedule, right? For right now, for the Singapore, we will invest in the clean room, for our P4 facility, and the tool purchase to expanding our silicon photonics capacity. In Tainan, the construction of a 12A, P7, and P8 will set up a robust foundation for UMC to scale the advanced packaging alongside with the customers' long-term product roadmap. That's only going to be more of the foundation. We're building the shelf for the 12A, P7, and P8. The clean room installation at this time is focused on the Singapore P4. From the milestone-wise, now the board has approved it, and then we're going to start engaging with the follow-on activities. We will report back in terms the install schedules, once we get the confirmations from our staff.

Speaker #4: The milestone and the schedule, right? For right now, for Singapore, we will invest in the clean room for our P4 facility.

Speaker #4: And the two purchase to expanding our silicon photonics capacity. In Tainan, the construction of a 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 roadmap.

Speaker #4: But that's only going to be more of the foundation. We're building the shelf for the 12A, P7, and P8. The clean room installation at this time is focused on the Singapore P4.

Speaker #4: And from the milestone-wise, we know the board has approved it, and then we're going to start engaging with the follow-on activities. Then we will report back in terms of the install schedules once we get the confirmation from our staff.

Speaker #3: Got it. Understood. And just a follow-up on the Intel collaboration on the 12-nanometer, now that we are likely to start recognizing some revenues next year.

Gokul Hariharan: Got it. Understood. Just follow up on the Intel collaboration, on the 12 nanometer, now that we are likely to start recognizing some revenues next year. How should we think about how meaningful these 12 nanometer-based revenues are going to be? Is it going to be like gross margin accretive, given you have a, 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?

Speaker #3: How should we think about how meaningful these 12-nanometer-based revenues are going to be? And is it going to be gross margin accretive, given you have a revenue sharing and profit sharing kind of agreement with them?

Speaker #3: Could you talk a little bit more about how we should model this contribution going into next year?

Speaker #4: Well, first, let me update the 12nm current status. Overall, the 12nm collaboration project with Intel is advancing smoothly, and we anticipate the product takeout will commence in 2027.

Jason Wang: Well, first let me update the 12 nanometer current status. Overall, the 12-nanometer cooperation project with Intel is advancing smoothly. We anticipate the product tape-out will commence in 2027. All the PDK will be ready in late 2026, and the customer will design and design in and ready to tape-out in 2027. 2027, we're still at an early stage of ramping the product, I would say, probably at a pilot stage. The production will probably be more meaningful in 2028. That's the current status of the 12 nanometer. In terms of the business model, that will be equated to our current model, current financials.

Speaker #4: So all the PDK will be ready in late 2026, and the customer will design and design in, and be ready for takeout in 2027.

Speaker #4: So, 2027 will still be at an early stage of ramping the product. I would say, probably at a pilot stage. The production will probably be more meaningful in 2028.

Speaker #4: So that's the current status of the 12 nanometers. In terms of the business model, there will be a credit to our current model, the current financials.

Speaker #3: Okay, maybe one last question on gross margins. Jason and Chitong, so you are already guiding for about 90% gross utilization, and gross margin is kind of reaching the mid-30s.

Gokul Hariharan: Okay. Maybe one last question on gross margins, Jason and Chi-Tung. You are already guiding for about 90% gross utilization and gross margin is kind of reaching mid 30. Any thoughts about how you think gross margins could progress in this cycle? 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. Just wanted to understand how you think about 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 back in 2022, or that is a little bit of a challenge right now?

Speaker #3: Any thoughts about how you think gross margins could progress in this cycle? Because it feels like, in past cycles where utilization had reached above 90%, gross margins were probably at a higher level.

Speaker #3: Given you probably had a little bit more price leverage, I just want to understand how you think about where gross margins can reach, given demand seems to be pretty strong and utilization continues to improve?

Speaker #3: Can we go beyond 40% gross margins like we did back in 2022, or is that a bit of a challenge right now?

Chi-Tung Liu: From our utilization rate and operating income has increased, versus last year. We continue to improve our fundamental. We do expect the new project like silicon photonics and advanced packaging will enhance our EBITDA margin. The higher depreciation expenses will certainly have a swing impact on the gross margin. I think with the announcement of the new fab in Tainan and also the new clean room in Singapore, it's no doubt the depreciation expenses will increase as a result. We are confident to deliver higher profit numbers and also improve, enhance our EBITDA margin. The gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Speaker #2: Oh, from our utilization rate and operating income have increased versus last year, we continue to improve our fundamentals, and we do expect that new projects like silicon photonics and advanced packaging will enhance our EBITDA margin.

Speaker #2: But the higher depreciation expenses will certainly have a significant impact on the gross margin. So I think, with the announcement of the new fab in Tainan and also the new clean room in Singapore, there's no doubt the depreciation expenses will increase as a result.

Speaker #2: So, we are confident to deliver higher profit numbers and also improve and enhance our EBITDA margins. But gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Speaker #3: Okay. So Chitong, I think previously we were expecting maybe after this year the 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 clean rooms and some new phases?

Gokul Hariharan: 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 clean room and some new phases?

Speaker #2: Yeah. The new clean room and the new shell in Tainan certainly changed the curve. And now we are expecting depreciation to increase by low teens for over the next two years at least.

Chi-Tung Liu: Yeah, the new clean 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 two years, at least.

Speaker #3: So, low things each year over the next two years, or low things.

Gokul Hariharan: Low teens each year over the next two years, or low teens

Speaker #2: Low things each year at least. Yeah.

Chi-Tung Liu: Low teens each year at least. Yeah.

Speaker #3: Okay, understood. Yeah, thank you very much. I'll go back to the queue.

Gokul Hariharan: Okay, understood. Yeah, thank you very much. I'll go back to the queue.

Speaker #1: Thank you. Next, Charlie Chan from Morgan Stanley. Please go ahead.

Operator: Thank you. Next one, Charlie Chan, Morgan Stanley. Go ahead, please.

Speaker #5: Hi, Jason, Chitong, Mike, thanks for taking my question. Yeah, so just a quick follow-up about the previous topic. First of all, I know you kind of gave a general answer, but how about your customers' shipping inventory, right?

Charlie Chan: Hi, Jason, Chi-Tung. Thanks for taking my question. Just some quick follow-up about the previous topics. First of all, I know you kind of getting share, but how about your customers chip inventory, right? Because the end market seems to be pretty challenging. According to our analysis, it seems like some of your fabless design company, their revenue is kind of under growing your wafer shipment. I'm wondering whether you are concerned about the chip inventory accumulated at your customer side.

Speaker #5: Because the end market seems to be pretty challenging. So according to our analysis, it seems like some of your fab ICs and company revenue is kind of undergrowing your wafer shipment.

Speaker #5: So, I'm wondering whether you are concerned about the chip inventory accumulated at your customer side.

Speaker #4: Well, I mean, Charlie, first, I mean, we are always cautious about the inventory situation, right? I mean, but not to the level that we need to be worried at this point.

Jason Wang: Well, Charlie, first, we're always cautious about the inventory situation, right? But not to the level that we need to be worried at this point. For the Q1 2026, the DOI level is actually rose slightly. They come up a little bit. What we see is really coming from one PC, was strongest driver of the 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 shipment 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 remain weak. There are some area are weaker, and although the demand in automotive and industrial set is stable, their DOI remain higher than the historical average.

Speaker #4: For the first quarter '26, the DOI level actually rolled slightly. They've gone up a little bit. What we see is really coming from one PC, which was a stronger driver of the inventory build-up.

Speaker #4: But the AI infrastructure build cycle is still ongoing. In the PC, I mean, the HPC was the strongest driver. In the PC7, early stocking and shipment occurred in response to rising memory prices. We have seen that.

Speaker #4: The inventory and the DOI for the smartphone and consumer segment are rising, segmented instantly, indicating the end market remains weak. So there are some areas that are weaker.

Speaker #4: And also, the demand in the automotive and industrial segment is stable. Their DOI remains higher than the historical average. For Q2 2026, while we are tracking that, overall consumer spending remains weak, and we expect semiconductor sales to stay strong in 2026.

Jason Wang: For the Q2 2026, while we're tracking that, the overall consumer spending remain weak, and we expect semiconductor sales to stay strong in 2026. Which will drive the DOI by several basis again. Currently, we're not to the level that we need to be worried, but we are cautious of continuing tracking the progress of that as well.

Speaker #4: So, which will drive the DOI by several days again. But currently, we're not to the level that we need to be worried, but we are cautious and will continue tracking the progress of that.

Speaker #5: I see. Thank you. Yeah. So with that kind of impact, you're kind of negotiating with customers to pass on the cost, because you're increasing your investments, right?

Charlie Chan: I see. Thank you. Would that kind of impact your negotiation with customers to pass into the cost because you are increasing your investments, right? Do you think there is some dynamic change for you to reflect your value next year?

Speaker #5: Do you think there's some dynamic change for you to reflect your value next year?

Speaker #4: 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.

Jason Wang: Well, first of all, the market outlook for us, we remain optimistic because it is driven by both AI-related and non-AI-related demand. While those demand and industry continues to improve the pricing environment become more constructive. The engaging discussion with customer is actually a constructive discussion. Given that visibility, we expect the annual pricing trend to be better than we anticipated, and we are even expecting more meaningful pricing uplift in 2027.

Speaker #4: While those demand and industry continue to improve, the pricing environment becomes more constructive. So the discussion, engaging discussion with customers, is actually a constructive discussion.

Speaker #4: Given that visibility, we expect the annual pricing trend to be better than we anticipated. And we are even expecting a more meaningful pricing uplift in 2027.

Speaker #5: Okay, okay. Great to hear. Yeah. And can I follow up a little bit about the advanced packaging business plan? Because I think it's pretty new to me that you want to extend your advanced packaging clean room in two phases.

Charlie Chan: Okay. Great to hear. Can I follow up a little bit about advanced packaging business plan? Because I think it is pretty new to me that you want to extend your advanced packaging clean room for 2 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 it is more for RF. First of all, are you going to do the full stack of the 2.5D, for example, CoWoS? For the 3D IC, are you going to do not just the RF, but also some AI accelerator kind of products? Lastly, we noticed that your vice-chairman now moved to Unimicron. I am not sure whether we can link the two development together. UMC very aggressive in advanced packaging, and your partnership with Unimicron in substrate will be even closer than before.

Speaker #5: My understanding is that, for 2.5D, your previous focus was more about the interposer production, and you do have some 3D IC, but it's more for RS.

Speaker #5: First of all, are you going to do 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?

Speaker #5: And lastly, we noticed that your Vice Chairman has now kind of moved to Unimicron, right? So I’m not sure whether we can link this to development together.

Speaker #5: UMC is very aggressive in advanced packaging, and your partnership with Unimicron in substrates will be even closer than before. Should we think of it that way?

Charlie Chan: Should we think that way?

Speaker #4: I mean, from our advanced packaging offering as a start-up with that, you're absolutely right. We started with the interposer solution and followed with the RF SOI 3D IC, the chiplet solution.

Jason Wang: From our advanced packaging offerings, let's start out with that. You're absolutely right. We started with the interposer solution and follow with the RF SOI 3D IC, the chiplet solution. Our offering is actually more than that now. The overall addressable market is projected to more than double by 2030 in our addressable market, because the extended bond, the 2.5D interposer with DTC, discrete DTC, 3D wafer-to-wafer stacking, and which that's what you're referring to, the RF SOI, and the memory-to-memory stacking as well. Our customer engagement is building up with more than 10 active customer now and over 35 new product in discussion, and expect to tape out in 2026 and early 2027. We actually feel pretty optimistic about this advanced packaging space. That's why we start deploy the facility preparation.

Speaker #4: But it's actually an offering is actually more than that now. The overall addressable market is projected to more than double by 2020, 30 in our addressable market because the extended fund, the 2.5D interposer with CDC, 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.

Speaker #4: Our customer engagement is building up with more than 10 active customers now and over 35 new products in discussion, expected to tape out in 2026 and early 2027.

Speaker #4: And we actually feel pretty optimistic about this advanced packaging space. We and that's why we start employed the facility preparation. Now, we have like you said, we have already entered production for the 3D wafer to wafer hyper bonding.

Jason Wang: Now, like you said, we have already entered production for the 3D wafer-to-wafer hybrid bonding, bridge die, and discrete DTC, but they will follow by the wafer-to-wafer stacking as well. We'll continue broaden our advanced packaging offering, but not to the CoWoS solution, because it's not a platform solution. It is advanced packaging capability serving various different combination of a solution, both from our existing offering to even the new offering, new integration options. We see many different new exciting opportunity there. Not a CoWoS. Okay. Now, in terms of ecosystem, we working with entire ecosystem in term the our solution to serve our customer. It's not going to be limited to any one particular.

Speaker #4: Bridge die and discrete DTC, but that will be followed by wafer-to-wafer stacking as well. So we'll continue to broaden our advanced packaging offering, but not to the CoWoS solution, because it's not a platform solution.

Speaker #4: It's advanced packaging capability, serving various different combinations of a solution, both from our existing offering to even the new offering and new integration options.

Speaker #4: So we see many different new exciting opportunities there, but not a CoWoS, okay? Now, in terms of the ecosystem, I mean, we are working with the entire ecosystem in terms of our solution to serve our customers.

Speaker #4: So, it's not going to be limited to any one particular area.

Speaker #5: Okay. Is there any kind of strategic angle or synergy or partnership between you and Unimicron going forward, besides the financial investment?

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

Speaker #4: At this point, it is mainly driven by the financials. It's one of our investor portfolio companies, and we remain the investor. And so, not at this current point, but once there's an opportunity arising in the ecosystem, we definitely will explore that with them.

Jason Wang: At this point, it is mainly driven by the financial. It's one of our investor portfolio company, and we remain as an investor. Not at this current point, but once there's a opportunity rise in the ecosystem, we definitely will explore that with them. Yeah.

Speaker #5: Okay, thank you. And last one, if I may—just on the AI-related revenue. So, Jason, did you say that your overall revenue from AI has already exceeded $1 billion?

Charlie Chan: Okay. Thank you. Last one, if I may, just the AI-related revenue. Jason, did you say that your overall revenue from AI already exceed TWD 1 billion? Was that your comment?

Speaker #5: Was that your comments?

Speaker #4: Yes. Close to 3 close to 300 billion 300 million this year. And in three years, we will exceed 1 billion.

Jason Wang: Yes. Close to TWD 300 million this year.

Jason Wang: In three years, we will exceed TWD 1 billion.

Speaker #5: Okay, then how would you define AI-related revenue? I believe RIC, silicon photonics, silicon interposers, but what's your definition of AI revenue?

Charlie Chan: Okay. How would you define the AI-related revenue? I believe RIC silicon photonic, silicon interposers. What's your strict definition about your AI revenue?

Speaker #4: Well, the solutions that are associated with AI as an end product, including the connectivity and power management, those are all categories of the AI exports.

Jason Wang: Well, the solution that associate with AI as an end product, including the connectivity, power management, those are all category of the AI exposure.

Speaker #5: Okay. So silicon photonics can be considered as the connectivity.

Charlie Chan: Okay. Silicon photonics can be considered as the connectivity.

Speaker #4: Yes, as a policy connectivity solution. Yes.

Jason Wang: Yes, as a part of the connectivity solution. Yes.

Speaker #5: Okay. Okay. Yeah, I think that's it from me. Thanks for the update. Thank you.

Charlie Chan: Okay. Yeah, I think that's all from me. Thanks for the update. Thank you.

Speaker #4: Thank you.

Jason Wang: Thank you.

Speaker #5: Next one, Sony Link. Please go ahead.

Operator: Next one, Sunny Lin, UBS. Go ahead, please.

Speaker #2: Thank you very much for taking my questions, and congratulations on the very strong outlook. I want to follow up on the new expansions. May I double-confirm that these two new expansions would be mainly for silicon photonics and advanced packaging, and not for the typical foundry business?

Sunny Lin: Thank you very much for taking my questions. Congrats on the very strong outlook. I want to follow up on the new expansions. May I double confirm that these two new expansion would be mainly for silicon photonics and advanced packaging, not for typical foundry business? 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? Would it be fair to assume that maybe we think that the embedded capacitor may be the major one? Or how should we think about the contributions from the various projects that you are working on?

Speaker #2: And Jason, you just mentioned that you think the advanced packaging overall TAM for UMC should more than double by 2030. Would you be able to share with us the adjusted market that you are forecasting for UMC in the coming few years?

Speaker #2: And would it be fair to assume that maybe we think that the capacity embedded capacitor may be the major one, or how should we think about the contributions from the various projects that you are working on?

Speaker #4: Yeah. I mean, first of all, for the announced clean room preparation in our P4, Singapore P4 facility, it is prepared for the silicon photonics capacity.

Jason Wang: First of all, we announced the clean room preparation in our Singapore P4 facility is prepared for the silicon photonics capacity. The Tainan facility of the P7 is prepared for the advanced packaging. In terms of the advanced packaging addressable market growth, that includes the DTC, like you said, and from the intervals over DTC, discrete DTC, the wafer stacking and the memory to memory stacking, a very broad offering of advanced packaging. The DTC does play a major part of that, and that's a very significant part of that since I think we have more than 35 different products taping out. That's a high percentage of those are considered as the DTC.

Speaker #4: And the Thailand facility of the P7 is prepared for advanced packaging. And in terms of the advanced packaging addressable market growth, that includes the DDC, like you said, and the interposer with CDC, discrete DDC, the wafer-to-wafer stacking, and the memory-to-memory stacking. It's a very broad offering of advanced packaging.

Speaker #4: Now, the DDC does play a major part in that, and that's a very significant part of it. Since then, we have more than 35 different products, and a high percentage of those are considered as the DTC.

Speaker #2: Got it. Thank you. That's very helpful. So, would you be able to share with us any color about the size of the adjusted market that you are looking at?

Sunny Lin: Got it. Thank you. Very helpful. Would you be able to share with us any color about the size of the addressable market that you are looking at? Also be helpful for to think about the trajectory for your revenue coming from advanced packaging. Would it be fair to assume that your advanced packaging should see inflection point when your new supply start to be on board? Given a lead time for expansion, would that be maybe in late 2028, 2029 timeframe?

Speaker #2: And also, it would be helpful to think about the trajectory for your revenue coming from advanced packaging. So, would it be fair to assume that your advanced packaging should see an inflection point when your new supply starts to come on board? And, given the lead time for expansion, would that mainly be in the late '28 or '29 timeframe?

Jason Wang: Yes. I think given the current construction timeframe, it's been stretched out. There's a lot of activity going on in the construction site. From a timing standpoint, we're still looking at somewhat greater than 20 months, in terms of lead time. That will push us into 2028 and 2029 cycle. However, like the earliest question, in terms of milestone, I will probably like to share them when I have more specific data. Right now, we're getting roughly a 20-month lead time on the construction. Since we'll just approve it today and we'll engage in that discussion, we'll probably report back when we have more specifics.

Speaker #4: Yes, I think given the current construction timeframe, it's been stretched out. There's a lot of activity going on in terms of the construction side. So, from a timing standpoint, we are looking at somewhat greater than 20 months in terms of lead time.

Speaker #4: And so that will push us into the ’28 and ’29 cycle. However, like the earlier question, in terms of milestones, I would probably like to share them when I have more specific data.

Speaker #4: Because right now, we're getting roughly a 20-month lead time on the construction. But since we're just approved today and we're engaging in that discussion, we'll probably report back when we have more specifics.

Speaker #2: Got it, thank you. And maybe a question on your Singapore expansion for the P3. Given the stronger demand outlook, how should we think about the capacities that you are going to ramp by the end of this year and also by the end of 2027?

Sunny Lin: Got it. Thank you. Maybe a question on your Singapore expansion for the P3. Now given the stronger demand outlook, how should we think about the capacities that you are going to ramp by end of this year and also by end of 2027?

Speaker #4: Yes. Part of the approved budget CAPEX today includes some of the capacity expansion in our P3 facility. In the existing facility, we will be adding the BCD, which is a power management solution, as well as Silicon Photonics.

Jason Wang: Yes. Part of the approval budget CapEx today, that includes some of the capacity expansion in our P3 facility. In the existing facility, we will be adding the BCD, which is power management silicon, as well as the silicon photonics. For the 12A in Taiwan, we'll start putting some the CMS, which we call customized memory stacking, and the DTC solution in our 12A in Tainan. Meanwhile, we're also putting some TFLN, the capacity set up in our eight-inch facility. That will be on the way now. That's all going to happen within our existing facility.

Speaker #4: 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.

Speaker #4: Meanwhile, we are also putting some Teflon capacity setup in our 8-inch facility, so that will be underway now. That's all going to happen within our existing facility.

Speaker #2: Got it. So sorry, just to add one question on Singapore P3. Is there a target for your capacities, maybe let's say by end of this year and end of next year?

Sunny Lin: Got it. Sorry, just to add one question on Singapore P3. Is there a target for your capacities, maybe let's say by end of this year and end of next year?

Speaker #4: Yeah. I mean, once we release this, given the two-lead time and install, we expect we'll see some production ramp on this in, I would say, late 2027 or early 2028.

Jason Wang: Yeah. Once we release this, given the tooling time and install, we expect to see some production ramp on this in, I would say, late 2027, 2028. Early 2028. Yeah.

Speaker #4: Yeah.

Speaker #2: Got it. Okay, thank you. Maybe last one on silicon photonics. So, now given you have two solutions—one on 12-inch that you license from IMEC, and the other one on 8-inch by TFLN.

Sunny Lin: Got it. Okay. Thank you. Maybe last one on silicon photonics. Now given you have two solutions, one on 12-inch, that you licensed from IMEC, and the other one on 8-inch, by TFLN. Would you be able to share some color regarding the respective strengths of the two solutions, and how should the client choose? Based on your current development, which one do you think may drive more meaningful revenue contribution in coming years?

Speaker #2: And so would you be able to share some color regarding the respective strengths of the two solutions and how the client should choose? Based on your current development, which one do you think may drive more meaningful revenue contribution in the coming years?

Speaker #4: Okay. Let me maybe start off on the for Silicon Photonics, the we are releasing the 12-inch solution. And that's what we believe is the that will be the best solution for our customer and how to differentiate.

Jason Wang: Okay. Let me maybe start off. For silicon photonics, we are releasing a 12-inch solution, and that's which we believe that will be the best solution for our customer and how to differentiate, well, our other competitors to 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 customer. For the TFLN, we have the world's first TFLN modulator in production already, and we are working on the 400G for LAN and for the 3.2T that is based on the TFLN for the customer today. We think that's actually the best solution for beyond the 400G.

Speaker #4: Well, our other competitors do on 8-inch. The 12-inch will offer better process control, which will give us better performance. For example, the bucketization loss, better yield, and we have demonstrated that on silicon wafers already.

Speaker #4: To our customer, for the TFLN, we have the world's first TFLN modulator in production already. And we are working on the 40G per LAN.

Speaker #4: 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.

Speaker #4: And combining the two, that will be an integration option for those two. And we can implement the TFLN with our silicon photonics PIC. Then, through our advanced packaging solution, along with that, we can offer the optical IO—the OIO—which is the interposer with the PIC, through our advanced packaging.

Jason Wang: Combining the two, there will be an integration option for those two, and we can implement the TFLN with our silicon photonics, the PIC, and through our advanced packaging solution. Along with that, we can offer the optical IO, the OIO, which is an interposer with the PIC through our advanced packaging, and we also can provide the TFLN as a component for the CPO solution. We think there's a lot of various combination of this and between the two, and so we think that we have a unique position on that. Yeah.

Speaker #4: And we also can provide this TFLN for other components for the CPU solution. And so we think there's a lot of various combinations of this, and between the two.

Speaker #4: And so we think that we have a unique position on that. Yeah.

Speaker #2: Thank you very much. That was very helpful.

Sunny Lin: Thank you very much. Very helpful.

Speaker #1: Thank you. Next one, House Blue, Bank of America. Go ahead, please.

Jason Wang: Thank you.

Operator: Next one, Haas Liu, Bank of America. Go ahead, please.

Speaker #3: Yes. Thanks for taking my questions, and congrats on the great results. My first question is regarding your capex outlook for the next couple of years.

Haas Liu: Yes, thanks for taking my questions and congrats on the great results. My first question is regarding your CapEx outlook in the next couple of years. You mentioned that AI revenue in 3 years could be at around $1 billion contribution. How should we think about that, your CapEx growth trajectory in the next few years to achieve that goal? Relatedly, I think, how should we also think about your equipment investment as % of your CapEx in the next 2 years? Because it seems that you meaningfully revised up your depreciation outlook for the next 2 years. Thank you.

Speaker #3: You mentioned that AI revenue could be, in three years, at around a $1 billion contribution. So, how should we think about your CAPEX growth trajectory in the next few years to achieve that goal?

Speaker #3: And relatedly, I think, how should we also think about your equipment investment as a percentage of your CAPEX in the next two years? Because it seems that you have meaningfully revised up your depreciation outlook for the next two years.

Speaker #3: Thank you.

Chi-Tung Liu: For CapEx, today's full meeting approved nearly $5 billion US already. That's the number we will work with over the next 2 years or maybe 3 years. As our CEO pointed out, this is going to be a phase construction or phase expansion strategy. We will adjust accordingly based upon customer commitment and our customer wins. We don't really have a full number, but, to start with, $5 billion US for the next 2 to 3 years is probably the beginning. In terms of depreciation, as I mentioned, it will be low teens increase year over year for at least this year, as well as 2027. For 2028, it will depend on the CapEx number based upon the factor I just highlighted.

Speaker #4: So for CAPEX, today's full meeting approved nearly $5 billion already. So that's the number we will work with over the next two years, maybe three years.

Speaker #4: And our CEO pointed out this is going to be a phased construction or phased expansion strategy. So we will adjust accordingly based upon customer commitments and our customer wins.

Speaker #4: So we don't really have a full number, but to start with $5 billion for the next two to three years is probably the beginning.

Speaker #4: And in terms of depreciation, as I mentioned, it will be low teens increase year-over-year. So at least this year, as well as 2027.

Speaker #4: And for 2028, it will depend on the CAPEX number based upon the factor I just highlighted.

Speaker #3: Got it. That's very clear. So, in the next two years, in 2027 and also 2028, your CAPEX will be at least $5 billion for the new investments.

Haas Liu: Got it. That's very clear. In the next 2 years, in 2027 and also 2028, your CapEx will be at least $5 billion US for the new investments.

Speaker #4: Total will be today's full approved $5 billion, which will be.

Chi-Tung Liu: Total will be, today's board approved $5 billion, which will be-

Haas Liu: Okay

Speaker #3: Okay.

Speaker #4: Cross 2026 and 2027, and 2028 numbers will depend on the phase expansion.

Chi-Tung Liu: spread across 2026 and 2027. 2028 numbers will depend on the phase expansion.

Speaker #3: 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 three years, based on our model, that your AI revenue could reach 10% of your total sales versus low single digits this year.

Haas Liu: Got it. Very clear. 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 have any view on which part of the application could actually be the main drivers? You mentioned a couple of drivers, for example, like connectivity, silicon photonics, and also power management IC. 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?

Speaker #3: Would you be able to try, or do you have any view on which part of the applications could actually be the main drivers?

Speaker #3: You mentioned a couple of drivers, for example, connectivity, silicon photonics, and also power management IC. But would you be able to rank them in terms of growth rate or from a revenue contribution perspective?

Speaker #3: Which part of the application is going to be the key driver?

Speaker #4: Well, obviously, from the growth standpoint, because silicon photonics and advanced packaging are still at an early stage. So from the compound annual growth rate standpoint, they are the fastest growing and have the highest growth rate.

Jason Wang: Obviously, from the growth standpoint, because the silicon photonics and the advanced packaging is still at early stage. From the compound annual growth rate standpoint, they are the fastest-growing and highest growth rate. We also believe our current existing solution will also grow, and particularly it is driven by also the AI and non-AI space. Those will also grow, but in a lower pace. Yeah. Growth rate.

Speaker #4: But we also believe on the existing our current existing solution will also grow. And so it's driven by the also the AI and non-AI space.

Speaker #4: So those will also grow, but at a lower pace. Yeah, growth rate.

Speaker #3: Okay, yeah. And that's my follow-up question. It's just regarding your strategic positioning. We start ranking your capacity for silicon photonics and advanced packaging in 2028.

Haas Liu: Okay. Yeah, this my follow-up question is just regarding your strategic positioning. Will you start ramping your capacity for silicon photonics and advanced packaging in 2028? I was just wondering, compared to your peers' 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 roadmap perspective or your customer relationship, or is it still coming from the email spill over, which you could also capture some of the fast expanding addressable markets within that big pie? Thank you.

Speaker #3: I was just wondering, compared to your peer solutions, which have probably already been in the market for a few years, what do you think your strength is compared to them?

Speaker #3: Is it from the technology roadmap perspective or your customer relationships? Or is it still coming from the demand spillover, which could actually allow you to capture some of the fast-expanding addressable markets within that big pie?

Speaker #3: Thank you.

Speaker #4: Well, I mean, I think from 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-inch on the market today.

Jason Wang: Well, I think from 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. It offers much better performance and the process control. We think there's a huge differentiation there. I think that's the technology process advantage. For the TFLN, we also believe, that's a best option for anything beyond the 400G in the market today. We're going to be putting to mass production of that as well. I think there's a big technology differentiation, not a spill over. From an existing solution, I think there will be multiple factors, but in a much lower growth rate, because some of the spillover reason. Besides, the existing technology also has its own driver that drives the growth.

Speaker #4: So it offers much better performance and process control, so there's a huge differentiation there. I think that's the technology process advantage.

Speaker #4: So for the TFLN, Teflon, we also believe that that's the best option for anything beyond the 400G in the market today. And we're going to be massively putting that into mass production as well.

Speaker #4: So I think there's a big technology differentiation, not a spillover. I mean, there's the existing solutions. I think there will be multiple factors.

Speaker #4: And, but at a much lower growth rate. It's because of the spillover reason. But despite this, existing technology also has its own driver that drives the growth.

Speaker #4: But coming back to silicon photonics, which is the biggest and highest driver—as well as advanced packaging—I think we have a very good differentiation there.

Jason Wang: 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. Yeah.

Speaker #4: Yeah.

Speaker #3: Okay, yeah. And I think just a quick follow-up before jumping back to the Q&A is that your gross margins had a pretty nice uplift in the second quarter.

Haas Liu: Okay. Yeah. I think just a quick follow-up before jumping back to QE stats. Your gross margins had a pretty nice uplift in Q2, and I think the guidance for Q3 near term is also pretty solid as well. Would you be able to qualify 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? Thanks.

Speaker #3: 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?

Speaker #3: For example, utilization, pricing, and FX—are any of these positives or negatives? Could you try to share with us in a more quantitative way?

Speaker #3: Thanks.

Speaker #4: So, the higher Q3 gross margin guidance is mainly attributed to the higher utilization rate. Loading was 85% in the second quarter; guidance for the third quarter is 90% plus.

Chi-Tung Liu: The higher Q3 gross margin guidance is mainly attributed to the higher utilization. Loading was 85% in Q2. Our guidance for Q3 is 30%+.

Speaker #4: And.

Speaker #3: Okay.

Haas Liu: Okay. Thank you.

Speaker #4: Yeah, there will be multiple factors including ASP, product mix, utilization rate, foreign exchange rate, and depreciation, etc., etc. So, our focus is certainly to enhance our profitability. But, as I mentioned earlier, for the next two to three years, we will continue to improve and deliver better results for EBITDA margin, and gross margin will come along with the depreciation curve.

Chi-Tung Liu: Yeah, there will be multiple factors, including ASP product mix and utilization rate, foreign exchange and depreciation, et cetera. Our focus is certainly to enhance our profitability. 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 curves.

Speaker #3: Yeah, that sounds great. And I think just one more question is probably about your power IC exposure. Could you share with us how much of your revenue is coming from these products, regardless of the end market?

Haas Liu: Yeah, that sounds great. I think just one more is probably just on your power IC exposure. Could you share with us how much of the revenue is coming from these products, no matter is for which end markets? 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. What's your view right now for Q2 and also Q3? Thank you.

Speaker #3: And I think the second thing is probably just on the utilization by 8-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 the same quarter and also the third quarter?

Speaker #3: Thank you.

Speaker #4: I mean, the 12-inch is still above the corporate average. We believe, as we look at it, we expect that in Q3, the loading will be greater than 90%.

Jason Wang: The 12-inch is still above corporate average. We expect Q3, the loading will be greater than 90%, and the 12-inch is greater than corporate average, and the 8-inch is below. I think I actually mentioned that earlier, I think the 8-inch will reach 85%. Yeah.

Speaker #4: And the 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%.

Speaker #4: Yeah.

Speaker #3: Okay. So your power IC exposure is what percentage of your sales now?

Haas Liu: Okay. Your power IC exposure is how much percentage of your sales now?

Speaker #4: I mean, we categorize that as part of our specialty offering. And the specialty offering today represents 50% of our revenue.

Jason Wang: We categorize that is the part of our specialty offering. The specialty offering today is representing 50% of our revenue today.

Speaker #3: Okay, got it. Thank you so much.

Haas Liu: Okay, got it. Thank you so much.

Speaker #2: Thank you. Next one, Catherine Yu, Goldman Sachs. Go ahead, please.

Operator: Thank you. Next one, Catherine Yu, Goldman Sachs. Go ahead, please.

Speaker #1: Yeah, thank you for taking my questions. So my first is, I would like to know what's our strategy on more advanced nodes going forward, because right now we're working with Intel on 12-nanometer. Where does that go from here?

Catherine Yu: Yeah, thank you for taking my question. My first is, I would like to know what's our strategy on more advanced nodes going forward, because right now working with Intel on 12 nanometer, where does that go from here? Is it fair to think that we could enter more advanced nodes, say, 7 nanometer and below? If so, what would the business model look like? Maybe I'll put it this way, what are the key factors that we need to see before we commit to expanding beyond 12 nanometer?

Speaker #1: Or is it fair to think that we could enter more advanced nodes, say, nanometer and below? And if so, what would this model look like?

Speaker #1: And maybe I'll put it this way: What are the key factors that we need to see before we commit to expanding beyond 12 nanometer?

Speaker #4: I think the simple answer to that is, we have to first deliver the 12. We have to prove the business model as well as deliver the 12.

Jason Wang: I think the simple answer to that is we have to first deliver the 12. We have to prove the business model as well, deliver the 12. The overall, the 12 cooperation project, is going smoothly. I think the 12 need to be the solid foundation for us to explore the next generation. Meanwhile, the 12 nanometer is representing more than just the pure logic today. We actually are already expanding that to the high voltage, Power12, which is 14 HV. They are more, in terms of derivative in the specialty technologies in discussion right now. There's a lot of activity and lots of work that we have to get done for the 12 nanometer today. Yes, the simple way to look at it is we have to execute the 12 and then we will explore beyond.

Speaker #4: And so the overall the 12 corroboration project is going smoothly. And so I think the 12 need to be the solid foundation for us to explore the next generation.

Speaker #4: But meanwhile, the 12 nanometers represent more than just pure logic. We are actually already expanding that to the high-voltage Pharma 12, which is 14 high V.

Speaker #4: And they are more in terms of derivative specialty technologies in discussion right now. So there's a lot of activity and a lot of work that we have to get done for the 12-nanometer today.

Speaker #4: But yes, I mean, the simple way to look at it is we have to execute the 12, and then we will explore beyond.

Speaker #1: All right. So is it fair to say that entering 7-nanometer and beyond might be after 2028?

Catherine Yu: Right. Is it fair to say that beyond maybe enter into 7 nanometer and beyond might be after 2028?

Speaker #4: Oh, I mean, if there is a discussion, we'll probably have a more clear milestone in terms of.

Jason Wang: Well, if there is a discussion, we'll probably have more creative milestones in terms of-

Chi-Tung Liu: Yeah, this really needs to be a mutually-

Speaker #3: Yeah. This really needs to be a mutually beneficial collaboration, and the current focus is on 12-nanometer only. Again, UMC is always open.

Jason Wang: Right

Chi-Tung Liu: beneficial collaboration, the current focus is on 12 nanometer only. Again, UMC is always open to find the best solution, to have a low asset type of migration. Without a successful 12 nanometer, it's going to be difficult.

Speaker #3: To find the best solution, to have low asset-type migration. But again, without successful 12-nanometer, it's going to be difficult.

Speaker #1: Got it. Thank you. So, my second question is: how would you characterize the current cycle now versus the chip shortage cycle in 2021? I think last time was a more broad-based, supply-driven supercycle with utilization over 100% and pretty aggressive ASP increases almost every quarter.

Catherine Yu: Got it. Thank you. My second question 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. This time, the recovery looks more narrow to, more concentrated on AI. Do you agree that the nature of the demand has actually fundamentally changed? 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 growth margin to surpass the level, the peak level that we saw in 2022, in the coming years?

Speaker #1: And this time, the recovery looks more narrow, more concentrated on AI. So do you agree that the nature of the demand has actually fundamentally changed?

Speaker #1: And the key question I want to ask is: how should we think about your margin trajectory going forward, and the pricing power this time?

Speaker #1: Versus the last upcycle, do you think it’s possible for your gross margin to surpass the peak level that we saw in 2022 in the coming years?

Speaker #4: Well, maybe it's not always the outlook. I mean, like you said, we are seeing the AI-related segment remain as the primary growth driver for the entire industry.

Jason Wang: Well, maybe start off with the outlook. Like you said, we are seeing the AI-related segment remain as the primary growth driver for the entire industry. With the continuous commercial deployment of agent AI application, demand for chip or in general purpose server is also expecting to rise, but that also related to AI. In contrast, the non-AI demand is still mixed across different end device markets. While the overall semiconductor industry projected to grow higher to maybe low 20% range this year compared to earlier year, increase of low 20%, we think mainly it's driven by the AI. Yes, it's different than the previous. It's not a broad-based recovery. I will probably have Chi-Tung talk about the growth margin. Before that, I have the same answer on the previous about the ASP, is we still see the demand and the industry conditions is improving.

Speaker #4: And with the continuous commercial deployment of edge AI applications, demand for chips or general-purpose servers is also expected to rise. But that is also related to AI.

Speaker #4: In contrast, the non-AI demand is still mixed across different end markets. The end device industry is projected to grow higher, to maybe the low 20% range this year compared to last year. The increase to the low 20%, we think, is mainly driven by AI.

Speaker #4: So yes, it's different than the previous. It's not a broad-based recovery. And I will probably have to—don't talk about the gross margin, but before that, I have the same answer as the previous about the ASP.

Speaker #4: We do see the demand and the industry condition is improving. So the pricing environment has become more constructive. We've seen that the pricing trend will be better.

Jason Wang: The pricing environment is become more constructive. We've seen the pricing trend will be better. Yes.

Speaker #4: Yes.

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

Speaker #3: 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.

Speaker #3: Back to our shareholder. And as I mentioned, because of the new fab ramp, both in Singapore and in Taiwan, the depreciation expenses and how we amortize them will have a big impact on the near-term gross margin.

Speaker #3: So I think we are a lot more confident to say our EBITDA margin will show steady growth over the next few cycles, or next few expansion phases.

Speaker #3: But the gross margin will largely depend on how we book the depreciation.

Speaker #1: Okay. Thank you.

Catherine Yu: Okay. Thank you.

Speaker #2: Thank you. 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.

Operator: Thank you. 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.

Speaker #2: Thank you.

Speaker #4: 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 IR at umc.com.

Michael Lin: 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 ir@umc.com. Have a good day.

Speaker #4: Have a good day.

Speaker #2: Thank you. And ladies and gentlemen, that concludes our conference for Q2 2026. Thank you for your participation in UMC's conference. There will be a webcast replay available within two hours.

Operator: Thank you. Ladies and gentlemen, that concludes our conference for Q2 2026. Thank you for all your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors Event section. You may now disconnect. Thank you again. Goodbye.