Q3 2026 United Microelectronics Corp Earnings Call

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

Speaker #2: Once our CEO and CFO complete their remarks, they will be a Q&A section. UMC's quarterly financial reports are available at our website. www.umc.com under the Investors, s, 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 the risks that may be beyond the company's control. For more detailed discussion of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the IOC Security Authorities.

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

Speaker #2: During this conference, you may view our financial presentation material, which is being broadcast live through the internet. Now, I would like to introduce UMC's CFO, Mr. Qidong Liu, to discuss UMC's third quarter 2026 financial results.

Chi-Tung Liu: Thank you, Michael. I would like to go through the third quarter 2026 investor conference presentation material, which can be downloaded for viewing real-time from our website. Starting on page 4. The third quarter of 2026 consolidated revenue was TWD 74.24 billion, with gross margin rate 34%. Net income attributable to the shareholder of the parent was TWD 16.43 billion, and the earnings per ordinary shares were TWD 1.32. Capacity utilization rate in the third quarter reached 92% compared to 85% in the previous quarter. Overall, EPS for the quarter was TWD 1.32. On page 5, revenue grew 8% sequentially to reach TWD 74.2 billion.

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

Speaker #3: Starting on page 4, the third quarter of 2026, consolidated revenue was $74.24 billion NT, with gross margin rate at 34%. Net income attributable to the shareholder of the parent was $16.43 billion NT, and the earnings per ordinary share were $1.32 NT.

Speaker #3: Capacity utilization rate in the third quarter reached 92% compared to 85% in the previous quarter, and overall EPS for the quarter was $1.32 NT, and on page 5, revenue grew 8% sequentially to reach $74.2 billion NT.

Chi-Tung Liu: As we stated earlier, gross margin rate also improved from 32.5% in the previous quarter to 34% in this quarter for TWD 25.2 billion. EPS per US ADS is $0.206. For the year-over-year comparison on page 6, revenue grew 16.1% to TWD 204 billion. Gross profit also grew 30.8% year-over-year to TWD 65.3 billion, or 32% of the gross margin rate. With the help of the non-operating income, overall net income attributable to the shareholder of the parent grew 136.5% year-over-year to reach TWD 74.86 billion for the first nine months of the year. EPS for the first three quarters reached TWD 6 in NT dollar terms, $4.945 per ADS in US dollar terms.

Speaker #3: As we stated earlier, gross margin rate also improved from 32.5% in the previous quarter to 34% in this quarter, or NT 25.2 billion, NT dollars.

Speaker #3: And EPS per US ADS is 0.206 US dollars. For the year-over-year comparison on page 6, revenue grew 16.1% to $204 billion NT, and gross profit also grew 30.8% year over year.

Speaker #3: To 35.3 billion, or 32% of the gross margin rate. With the help of the non-operating income, overall net income attributable to the shareholder of the parent grew 136.5% year over year, to reach 74.86 billion NT for the first 9 months of the year.

Speaker #3: EPS for the first three quarters reached $6 in NT dollar terms, 4.945 per ADS in US dollar terms. On page 7, our balance sheet at the end of third quarter total equity is $470 billion NT, with cash account for about $142 billion on the September 30th.

Chi-Tung Liu: On page 7, our balance sheet at the end of Q3, total equity is TWD 470 billion, with cash account for about TWD 142 billion on 30 September. For blended ASP in Q3, was relatively stable, remained firm compared to the previous quarter on page 8. For revenue breakdown on page 9, there is very little change for Q2 compared to Q3 2026 for revenue breakdown by geography. On page 10, our revenue breakdown by customer type also remained virtually unchanged, for IDM was about 14% of the total revenue, and fabless account for the others. For revenue breakdown by application, consumers stay unchanged at around 32%, when communication and computer also stay quarter-over-quarter unchanged.

Speaker #3: For EPS, sorry, for blended ASP in the third quarter was relatively stable, remained firm, compared to the previous quarter on page 8. For revenue breakdown on page 9, there's very little change.

Speaker #3: For quarter 2, compared to quarter 3 of 2026, for revenue breakdown by geography, on page 10, our revenue breakdown by customer type also remained virtually unchanged, for IBM was about 14% of the total revenue, and Fabless account for the others.

Speaker #3: For revenue breakdown by application, consumer stayed unchanged at around 32% when communication and computer also stayed quarter over quarter unchanged. On page 12, our 22 and 28 nanometer revenue still account for more than one-third, reached about 35% of the total pie chart.

Chi-Tung Liu: On page 12, our 22 and 28 nanometer revenue still account for more than one third, reach about 35% of the total pie chart, and 40 nanometer is around 16%, and 65 nanometer is about 19%. Our quarterly capacity continue to increase slightly, mainly coming from our Fab12i facility in Singapore. For Q4 2026, we expect the capacity for overall UMC reach about 1.33 million 12-inch equivalent capacity by Q4 2026. Capacity compared to the last quarter's estimate still remain unchanged around $2 billion. The above is the summary of UMC results for Q3 2026. More details are available in the report, which has been posted on our website. I will now turn the call over to CEO of UMC, Mr. Jason Wang.

Speaker #3: And 40 nanometer is around 16%, and 65 nanometer is about 19%. Our quarterly capacity continued to increase slightly, mainly coming from our 12.5 facility in Singapore.

Speaker #3: And for quarter 4 of 2026, we expect the capacity for overall UMC reached about 1.33, 12-inch equivalent, 1.33 million for 12-inch equivalent capacity. By Q4 2026.

Speaker #3: And capacity compared to the last quarter's estimate still remained unchanged, around 2 billion US dollars. So the above is the summary of UMC results for third quarter 2026.

Speaker #3: 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 Wong.

Jason Wang: Thank you, Qidong. Good evening, everyone. Here, I would like to share UMC's Q3 results. In Q3, we saw a healthy demand across all market segments, driving a 7.3% growth in wafer shipments to more than 1.2 million 12-inch equivalent wafers, a record high. Our overall fab utilization rate reached 92%, with several of our 12-inch fabs operating at full capacity, while 8-inch operations also saw a strong recovery. By technology node, our 22/28 nanometer business had another record-breaking quarter, with 22 nanometer revenue now accounting for 18.3% of wafer sales as the customer continued to tape-out new products, including DDI, automotive radar, and Wi-Fi ICs. In new business area, active customer engagements for advanced packaging and silicon photonics remained robust. We expect this engagement to translate into accretive growth over the coming quarters as we ramp existing projects and support new product tape-outs.

Speaker #4: Thank you, Qidong. Good evening, everyone. Here I would like to share UMC's third quarter results. In the third quarter, we saw a healthy demand across all market segments, driving a 7.3% growth in wafer shipments, to more than 1.2 million 12-inch equivalent wafers, a record high.

Speaker #4: Our overall fab utilization rate reached 92%, with several of our 12-inch fabs operating at full capacity, while 8-inch operations also saw a strong recovery.

Speaker #4: I acknowledge in note our 20 to 28 nanometer business had another record-breaking quarter, with 22 nanometer revenue now accounting for 18.3% of wafer sales.

Speaker #4: As a customer continued to tape out new products, including display drivers, automotive radar, and fly-by-ICs, a new business area active customer engagement for events packaging and silicon photonics remained robust.

Speaker #4: We expect this engagement to translate into a creative growth over the coming quarters as we rent existing projects and support new product takeouts. Looking ahead to the fourth quarter, we expect a positive demand momentum to sustain.

Jason Wang: Looking ahead to Q4, we expect the positive demand momentum to sustain, supporting stable shipments and utilization rates. Revenue from our specialty technology portfolio will continue to grow sequentially, driven in part by the ramp-up of our advanced packaging and silicon photonics businesses. We have seen a significant increase in demand for these new business areas, and we are in the process of converting some existing capacity to address near-term unfulfilled demand. In the longer run, our dual-track expansion plans in Singapore and Tainan will be crucial to ensure UMC's capacity growth can keep pace with our customers' needs. We are pleased to announce our board of directors today approved an additional CapEx budget of approximately US$3.2 billion, which will enable us to accelerate our expansion schedule as we continue to align with customers on their product roadmap and requirements.

Speaker #4: Supporting stable shipments and utilization rate. Revenue from our specialty technology portfolio will continue to grow sequentially. Driven in part by the REMBUS of our advanced packaging and silicon photonics businesses.

Speaker #4: We have seen a significant increase in demand for this new business areas, and we are in the process of converting some existing capacity to address new terms unfulfilled demand.

Speaker #4: In the longer run, our due track expansion plan in Singapore and Thailand will be crucial to ensure UMC's capacity growth and keep pace with our customers' needs.

Speaker #4: We are pleased to announce our board of directors today approved an additional capital expenditure budget, of approximately US 3.2 billion dollars, which will enable us to accelerate our expansion schedule as we continue to align with customers on their product roadmap and requirements.

Jason Wang: Now, let's move on to 2026 guidance. Our wafer shipment will increase by low single digits. ASP in US dollar will remain firm. Gross margin will be comparable to the preceding quarter. Capacity utilization rate will be in the low 90% range. Our 2026 cash-based CapEx budget will be at US$2 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 fourth quarter 2026 guidance. Our wafer shipment will increase by low single digit. ASP in US dollar will remain firm.

Speaker #4: Gross margin will be comparable to the preceding quarter. Capacity utilization rate will be in the low 90% range. Our 2026 cash-based CAPEX budget will be at US 2 billion dollars.

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

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 1 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, please press star key and number 2 to cancel the question. Thank you. Now, first question will be coming from Sunny Lin, UBS. Go ahead, please.

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 star key and number 1 on your telephone keypad, and you will enter the queue.

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, please press star key and number 2 to cancel the question.

Speaker #1: Thank you. Now, first question will be coming from Sunny Lane, UBS. Go ahead, please.

Sunny Lin: Good afternoon. Thank you very much for taking my questions. Several questions from my side. So, number 1, now that UMC will finish 2026 on a high note, any early view for 2027 based on current visibility?

Speaker #2: Good afternoon. Thank you very much for taking my questions. Several questions from my side. So number 1, now that UMC will finish 2026 on a high note, any early view for 2027, based on our current visibility?

Jason Wang: Yes. For 2027 early view, we expect the growth momentum established in 2026 will continue into the next year, supported by the healthy demand across our core business and growing opportunity in differentiated technology and high-value applications. If we look at this, in 2026, our growth has been driven primarily by high wafer shipment, improving utilization and customer share gains. Looking ahead to 2027, we expect the further growth, although with utilization already above 90% and several technologies operating at or near full capacity, our shipment growth will increasingly be constrained by available manufacturing capacity. As a demand, AI remains a key growth driver, creating demand across power management, FPGA, and connectivity application. Meanwhile, silicon photonics and advanced packaging are emerging as a new growth engine for UMC, addressing the next generation optics, connectivity, power delivery, and memory bandwidth requirement for AI infrastructure.

Speaker #3: Yes. For 2027 early view, we

Speaker #4: expect the gross momentum established in 2026 will continue into the next year. Supported by the healthy demand across our core business and growing opportunity in differentiated technology and high-value applications, if we look at this, in 2026, our growth has been driven primarily by a high wafer shipment, improving utilization and customer share gain.

Speaker #4: Looking ahead to 2027, we expect the further growth, although with utilization already above 90% and several technologies operating at our near full capacity, our shipment growth will increasingly be constrained, by available manufacturing capacity.

Speaker #4: So at the demand a key growth AI remains to a key growth driver, creating demand across power management, FPGA, and connectivity application, meanwhile the silicon photonics and advanced packaging are emerging as a new growth engine for UMC.

Speaker #4: Addressing the next generation optics connectivity, power delivery, and memory bandwidth requirement for AI infrastructure. So beyond AI, we continue to see opportunity from customer market share gain and increasing foundry share across premier smartphone automotive industrial and other specialty applications.

Jason Wang: Beyond AI, we continue to see opportunity from customer market share gain and increasing foundry share across premium smartphone, automotive, industrial, and other specialty application, despite an uneven recovery in some end markets. With customer demand in selected technology already exceeding our available capacity, we see opportunity to capture greater value from our existing manufacturing footprint to improve pricing and richer product or technology mix in 2027, alongside continued shipment growth. While 2026 growth was driven primarily by volume and utilization, we expect 2027 to become increasing value-driven, with higher value per wafer and differentiated technology, and contribute more to UMC revenue growth and long-term earning potential.

Speaker #4: Despite an uneven recovery in some end markets, with customer demand in selected technology already exceeding our available capacity, we see opportunity to capture greater value from our existing manufacturing footprint to improve pricing and reach richer product or technology mix in 2027, alongside continuing the shipment growth.

Speaker #4: So while 2026 growth will driven primarily by volume and utilization, we expect the 2027 to become increasing value-driven. With higher value per wafer and differentiated technology and contributing more to UMC revenue growth and long-term earning potential.

Sunny Lin: Thank you very much. Very helpful and encouraging. On the pricing side, how should we think about the ASP environment for UMC, especially going to 2027? How are the negotiation with key clients progressing for the coming few quarters?

Speaker #2: Thank you very much. Very helpful and encouraging. And so on the pricing side, how should we think about the ASP environment for UMC, especially going to 2027?

Speaker #2: How are the negotiations with key clients progressing for the coming few quarters?

Jason Wang: We are engaging with customers right now for our 2027 pricing, and we are seeing a significant shift in pricing environment heading into 2027, supported by strengthening the customer demand and increasingly tight capacity in selected technologies. We see clear opportunity for pricing improvement across both our 8-inch and 12-inch business, while maintaining our discipline and value-based pricing approach. Importantly, we expect 2027 to mark a turning point in our blended ASP trajectory, moving from an environment of ASP erosion forward to a meaningful positive uplift beginning in the first quarter. While we anticipate a 10% of blended ASP increase year over year, this is more than an incremental pricing improvement. It reflects both a more constructive pricing environment and our increasing ability to capture value through a richer product and technology mix.

Speaker #4: Well, I mean, we are engaging with customers right now for our 2027 pricing, and we're seeing a significant shift in pricing environment, heading into 2027.

Speaker #4: Supported by strengthening the customer demand and increasing high capacity in selected technologies. We see clear opportunity for pricing improvement across both our A inch and 12 inch business, while maintaining our discipline and value-based pricing approach.

Speaker #4: Importantly, we expect 2027 to mark a turning point in our blended ASP trajectory. Moving from an environment of ASP erosion toward to a meaningful positive uplift, beginning in the first quarter.

Speaker #4: While we anticipate at the 10% of blended ASP increase year over year, this is more than an incremental pricing improvement. It reflects both a more constructive pricing environment and our increasing ability to capture value through a richer product and technology mix.

Jason Wang: Our record high 22 nanometer revenue contribution and continuous featured technology momentum also provide a strong foundation, while silicon photonics and advanced packaging create additional higher value growth opportunity as they scale.

Speaker #4: Our record high 22 nanometer revenue contribution and continued specialty technology momentum will also provide a strong foundation while silicon photonics and advanced packaging create additional higher-value growth opportunity at the same same scale.

Sunny Lin: Thank you very much. Maybe a quick follow-up. You mentioned 10% year-over-year improvement. Is that initial view for your blended ASP improvement going to Q1?

Speaker #2: Thank you very much. Also, maybe a quick follow-up. So you mentioned 10% year-over-year improvement. Is that initial view for your blended ASP improvement going to Q1?

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

Speaker #4: No, that will be on a year-over-year basis.

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

Speaker #2: So 10% will be your target through 2027, not just for Q1?

Jason Wang: Yeah. As a whole, year over year. As in 2026 compared to 2027 year over year. Yeah.

Speaker #4: Yeah, as a whole, a year-over-year as in 2026 year compared to 2027, year-over-year.

Chi-Tung Liu: We will provide Q1 ASP guidance for the next quarter's earnings call.

Speaker #3: And we will provide Q1 ASP guidance for the next quarter's earnings call.

Sunny Lin: Got it. Then, maybe on the CapEx. You just mentioned an additional USD 3 billion budget on top of the USD 5 billion budget announced a quarter ago. Now, could you share a bit more color on how that translates into a capacity expansion in the coming few years? On silicon photonics advanced packaging, how are you seeing the market demand overall in coming years?

Speaker #2: Got it. And then maybe on the Capex, you just mentioned an additional $3 billion budget on top of the $5 billion budget announced a quarter ago.

Speaker #2: And so now, could you share a bit more color on how that translates into a capacity expansion in the coming few years? And then on silicon photonics and advanced packaging, how are you seeing the market demand overall in coming years?

Jason Wang: We are accelerating selective investment because several of our new growth engines are moving from technology development into a commercial execution, which is faster than our original capacity roadmap anticipated. We are seeing three things happen at the same time. The market is expanding as the AI infrastructure drives higher requirements for bandwidth, power delivery, memory performance, and system integration. Our customer engagements are also progressing from qualification into production ramps and capacity planning. At the same time, our solution roadmap is moving forward. With the product already in mass production and additional product completing tape-outs, customer validation, and new generation of product already under development. Our focus now is shifting from whether this opportunity will materialize to how quickly can we expand capacity to meet the customer demand.

Speaker #4: Well, I mean, we are accelerating selected investment because of several of our new growth businesses are moving from technology development into a commercial execution.

Speaker #4: Which faster than our original capacity roadmap anticipated. We are seeing three things happen at the same time. The market is expanding as the AI infrastructure drives higher requirement for bandwidth, power delivery, memory performance, and system integration.

Speaker #4: Our customer engagement are also progressing from qualification into production ramps and capacity planning. And at the same time, our solution roadmap is moving forward.

Speaker #4: With the product already in mass production, and additional product completing takeouts, customer validation, and new generation of product, already under development. And our focus now is shifting from whether this opportunity will materialize to how quickly can we expand capacity to meet the customer demand.

Jason Wang: Under our current expansion roadmap, we are targeting monthly capacity approximately 18K wafers for silicon photonics, 22K for DTC and silicon capacitor, and 20K for TFLN modulators. This next phase of the capacity will start its ramp in late 2028 and reach its final scale by 2030. This is not a broad-based capacity expansion. We are directing our capital toward customer-backed growth opportunities that will fuel UMC's next phase of growth. That will give you a bit of why we are accelerating and a milestone that we plan for those CapEx. For your question on the silicon photonics and advanced packaging, we believe UMC is well-positioned to capture the next wave of AI infrastructure opportunities through our competitive silicon photonics performance and proven manufacturing execution and advanced packaging capability.

Speaker #4: Under our current expansion roadmap, we are targeting monthly capacity of approximately 18K wafers for silicon photonics, 22K for DTC, and silicon capacitor, and 20K for Tesla modulators.

Speaker #4: This next phase of the capacity will start its ramp in late 2028 and reach its final scale by 2030. This is not well, this is not a broad-based capacity expansion.

Speaker #4: We are directing our capital toward customer-backed growth opportunity that will fuel UMC's next phase of growth. So that will give you a bit of a why we accelerating and a milestone that we planned for those Capex.

Speaker #4: For your question on the silicon photonics and advanced packaging, we believe UMC is a well-positioned to capture the next wave of AI infrastructure opportunities through our competitive silicon photonics performance and proven manufacturing execution and advanced packaging capability, so in silicon photonics, our data indicate that our PIC technology outperformed peers in key parameters.

Jason Wang: In silicon photonics, our data indicate that our PIC technology outperform peers in key parameters such as propagation loss, supported by our manufacturing high production yield now. Our 12-inch PIC platform already support a 1.6T optical application, while our 8-inch TFLN platform has completed 1.6T system validation with an industry-leading yield. Building on this achievement, our roadmap extend toward to 300G per lane, and ultimately 400G per lane solution for next generation 3.2T applications, supported by hybrid bonding, TSV, and chip-to-wafer integrations. For the advanced packaging, we are making progress in two key solution areas. A DTC for power delivery and customized memory stacking are discrete DTC solution for mobile. Entered mass production this quarter. For AI and server application, our substrate-embedded DTC solution has completed tape-out and functional verification.

Speaker #4: Such as propagation loss, supported by our manufacturing high production yield now, our 12-inch PIC platform already supported 1.6T optical application, while our 8-inch Teflon platform has completed 1.6T system validation with an industry-leading yield.

Speaker #4: Building on this achievement, our roadmap extends toward to 300G per lens and ultimately 400G per lens solution for next-generation 3.2T applications supported by hybrid bonding PSV and chip-to-wafer integrations.

Speaker #4: For the advanced packaging, we are making progress in two key solution areas. A DTC for power delivery and customized memory stacking, our discrete DTC solution for mobile is already entered mass production this quarter.

Speaker #4: For AI and server application, our substrate embedded DTC solution has completed takeouts and functional verified. With our customized memory stacking solution has passed initial customer verification, to address the growing bandwidth requirement of AI inference, all this achievement is demonstrating UMC's ability to translate technology innovation into the commercial execution now.

Jason Wang: With our customized memory stacking solution has passed initial customer verification to address the growing bandwidth requirement of AI inference. All those achievements that demonstrate UMC's ability to translate technology innovation into the commercial execution now. By combining the device performance, manufacturing expertise, and close customer cooperation, we are expanding our role in next generation AI infrastructure, helping the customer to address the three critical requirements, including faster optical connectivity, more efficient power delivery, and high memory bandwidth. That's why we believe that we are in a great position to capture those opportunities.

Speaker #4: By combining the device performance, manufacturing expertise, and close customer collaboration, we are expanding our role in next-generation AI infrastructure. Helping the customer to address the three critical requirements include faster optical connectivity, more efficient power delivery, and high memory bandwidth.

Speaker #4: So that's why we believe that we are in a great position to capture those opportunities.

Sunny Lin: Thank you. It does sound like your capabilities are pretty competitive. But then, for both silicon photonics and also advanced packaging, say for EDTC or silicon capacitors, some of your peers are also building more supply. Should we be concerned about maybe potential overbuild, say, if AI demand slow down at one point? How should we think about the overbuild risk?

Speaker #2: Thank you. So it does sound like your capabilities are pretty competitive but then for both silicon photonics and also advanced packaging, say for EDTC or silicon capacitors, some of your peers are also building more supply.

Speaker #2: And so should we be concerned about maybe potential overview, say if AI demand slow down at one point? How should we think about the overview risk?

Jason Wang: Well, we look at this on two-fold, right? One is the demand side. Well, first, we are seeing a very strong demand driven by the AI-related application for silicon photonics and advanced packaging. In silicon photonics, we have been working with the leading customer. We recently achieved significant milestone with the multiple hyperscaler have qualified our 1.6T optical transceiver platform. Our 12-inch PIC platform supports the 1.6T application, and the 8-inch TFLN completed 1.6T validation and already demonstrated manufacturing yield. With the roadmap that is going to next generation. With all this, the end of advanced packaging, our discrete solution, like you said, and our first interposer was discrete DTC solution for the AI and server application, has completed tape-out with a key customer. The focus of the customer discussion already moved to that, from validation to customer demand planning.

Speaker #4: Well, I mean, we look at this on twofold, right? I mean, one is the demand side. Well, first, we are seeing a very strong demand driven by the AI-related application for silicon photonics and advanced packaging.

Speaker #4: In silicon photonics, we have been working with the leading customers. We recently achieved significant milestones with multiple hyperscalers that qualified us. Our 1.6T optical transceiver platform.

Speaker #4: Our 12-inch PIC platform supports the 1.6T application and the 8-inch Teflon complete the 1.6T validation and the already demonstrated manufacturing yield. I mean, with the roadmap, that's going to the next generation.

Speaker #4: And with all this and the advanced packaging, our discrete solution, like we said, and the our first interposer with discrete DTC solution for the AI and server application has completed takeout with a key customer.

Speaker #4: And those the focus of the customer discussion already moved to that validation to customers. Demand planning. So our current expansion plan applies to those customer commitments in terms of demand.

Jason Wang: Our current expansion plan are tied to those customer commitments, in terms of demand. How about the overbuild? Based on what we see today, we do not believe we are building ahead of the market. Demand for silicon photonics and related AI infrastructure are growing faster than qualified capacity is being added up. We continue to monitor our peers' expansion and timing of the new industry supply closely too. Overcapacity is an industry question, not just a UMC question. We look at how quickly end demand is growing relative to the capacity being added by overall industry. Based on the customer demand and industry capacity plan we see today, we believe the market can support the expansion we are planning. Meanwhile, UMC has been building the capacity in phases to mitigate risk. At the same time, we remain cautious and disciplined in how we add capacity.

Speaker #4: But how about the overview? Based on what we see today, we do not believe we are building ahead of the market. Demand for silicon photonics and related AI infrastructure are going faster than qualified capacity is being added up.

Speaker #4: And we continue to monitor the our peers' expansion and timing of the new industry supply closely too. Oversupply overcapacity is an industry question, not just in UMC question.

Speaker #4: We look at how quickly end demand is growing relative to the capacity being added by overall industry. Based on the customer demand and industry capacity plan we see today, we believe the market can support it expansion we are planning.

Speaker #4: And meanwhile, UMC is building the capacity in phases to mitigate risk. At the same time, we remain cautious and disciplined in how we add capacity.

Jason Wang: Most importantly, our capacity expansion is guided by customer commitment, like I said earlier, and tied with the customer product roadmap, production ramp, and capacity requirement. Even with all this expansion, we expect customer demand to exceed our final capacity, according to the customer, underscoring the strength of the commercial opportunity ahead, and our decision to accelerate the selected investment.

Speaker #4: Most importantly, our capacity expansion is started by customer commitment, like I said earlier, and tied with the customer product roadmap, production ramp, and capacity requirement.

Speaker #4: Even with all this expansion, we expect customer demand to exceed our climate capacity according to the customer, underscoring the strength of the commercial opportunity ahead.

Speaker #4: And our decision to accelerate the selected investment.

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

Speaker #2: Got it. Sounds good. Sorry, last question, if I may. Also, recall a quarter ago, you quantified the AI-related sales to be about 300 million US dollars for 2026.

Speaker #2: And you have a target to triple or more than triple to over a billion by 2029. And so now, with the accelerated expansion for both silicon photonics and advanced packaging, how should we think about your AI revenue by 2029?

Jason Wang: Oh, okay. First of all, you remember. Our AI-related business spans a broad range of specialty semiconductor solutions, supports power management, connectivity, FPGAs, with our growing advanced packaging and silicon photonics. All those applications are becoming increasingly important contributors to our growth going forward. We are expanding our capacity, like we reported, and investing in technology, manufacturing infrastructure to address all those growing demands. Our AI-related revenue, it is close to $300 million in 2026. Looking ahead, in three years, we expect our AI exposure will probably exceed quarter of our revenue.

Speaker #4: Well, oh, okay. First of all, you remember. Now, our AI-related business spans a broad range of specialty semiconductor solutions. Supports power management, connectivity, FPGAs, with our growing advanced packaging and silicon photonics.

Speaker #4: All these applications are becoming increasingly important contributors to our growth going forward. So we are expanding our capacity, like we reported, and investing in technology, manufacturing infrastructure, to address all those growing demands.

Speaker #4: Our AI-related revenue is close to 300 million dollars in 2026. But looking ahead, in three years, we expect our AI exposure will probably exceed quarter of our revenue now.

Sunny Lin: A quarter of UMC sales, maybe by 2029?

Speaker #2: A quarter of UMC sales maybe by 2029?

Jason Wang: Yes.

Speaker #4: Yes.

Sunny Lin: Got it. Thank you very much. Sorry, let me get back to the queue.

Speaker #2: Got it. Thank you very much. Sorry, let me get back to the queue.

Jason Wang: Thank you.

Speaker #4: Thank you.

Operator: Thank you. Next one, Laura Chen, Citi. Go ahead, please.

Speaker #1: Thank you. Next one, Laura Chen, Citi. Go ahead, please.

Laura Chen: Yes. Hi, thank you for taking my questions. Good afternoon, gentlemen. Just a quick follow-up on the 10% increase on pricing. It is more like a blended ASP increasing or like-to-like increase into next year?

Speaker #3: Yes, hi. Thank you for taking my questions. Good afternoon, gentlemen. Just a quick follow-up on the 10% increase on pricing. It's more like a blended ASV increasing or like-to-like increase into next year.

Jason Wang: It is a blended. Yeah.

Speaker #4: It is a blended, yeah. So yeah, it's more than incremental pricing improvement. It reflects both the pricing environment improves and our increase of captured the other products.

Laura Chen: Oh.

Jason Wang: Yeah. It is more an incremental pricing improvement. It reflects both the pricing environment improved and our increase of captured the other product, richer product, and a different product mix. Yeah.

Speaker #4: Reach a product and a different product mix, yeah.

Laura Chen: Okay, got it. Very clear. We think we have a various different plan for AI-related applications. Can you give us more color about that? How much the capacity we are planning for the silicon photonics, including in Taiwan and also in Singapore? On the TFLN, we are ahead of our peers. Just wondering, can you also give us update about the capacity buildup plan and, in maybe 2 years, how big the capacities are we are looking for? Thank you.

Speaker #3: Okay, got it. Very clear. And also, we think we have various different plans for AI-related applications. Can you give us more color about that?

Speaker #3: What the capacities, how much the capacity we are planning for the silicon photonics including in Taiwan and also many in Singapore? And also on the Teflon, we are ahead of our peers.

Speaker #3: So just wondering can you also give us update about the capacity build-up up plan and in maybe two years how big the capacities we are looking for?

Speaker #3: Thank you.

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

Speaker #4: Well, given the current milestone and the facility and tool schedules, we're doing all this expansion in phases. And we're going to continue updating you in terms of progress.

Speaker #4: Meanwhile, we're still working closely with our supplier hopefully we can accelerate and expedite those installations. Meanwhile, as I mentioned earlier, if I look at the overall CAPEX plan and which are approved by our board, the capacity build-up is approximately 18K for silicon photonics, 22K for DTC, which is silicon capacitor, and 20K for Teflon.

Speaker #4: It's modulator. And at this current stage, we're projecting the initial install will happen in late 2028 and going into 2029 and reach the scale by 2030.

Speaker #4: Now, for the location-wise, we are focused on the silicon photonics in Singapore facility, and the silicon capacitor in our Thailand facility, and the Teflon will be in our 8-inch operation.

Laura Chen: Sure. Thank you very much. Just also very quickly on the I know probably we will talk more next year, but I think given the high utilization rate is already like 90% plus, and pricing into next year is more favorable. Are we seeing that any structural gross margin upside based on current visibility?

Speaker #3: Sure. Thank you very much. And just also very quickly on the I know probably we will talk more next year, but I think given the high utilization rate is already like 90% plus, and also pricing into next year is more favorable.

Speaker #3: So are we seeing that any structural growth margin upside based on current visibility?

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

Speaker #4: So certainly, the price increase likely to happen in the first quarter. So we are also seeing some headwinds from the increase raw material cost, which we need.

Speaker #4: Worked hard to offset the impact. So it's our view that the structural probability remain intact. So EBITDA margin certainly we will see in good shape.

Speaker #4: If we compare it to the previous cycle. But due to the stronger than expected CAPEX, led by stronger customer demand, so depreciation will be higher and gross margin as a result is unlikely to see near the previous high level.

Speaker #4: So we will maintain a disciplined spending and try to capture the mega trend of the AI growth opportunity.

Laura Chen: Okay. Thank you. Very helpful.

Speaker #3: Okay. Thank you very helpful.

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

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

Haas Liu: Yes. Thanks, Management Team, for taking my question. I think just starting from price hike by 10% year-on-year, you clarified it is going to be on blended basis. Would you be able to share, on a like for like basis, how much is it going to be hiking and how much of the cost, that of the price hike is related to the cost pass-through, and how much of that is because of the tighter supply demand landscape?

Speaker #5: Yes. Thanks, manager. I'm here for taking my question. I think just starting from price hike by 10% younger, you clarified it is going to be on blended basis.

Speaker #5: Would you be able to share on the like-for-like basis how much it's going to be hiking and how much of the depth of the price hike is related to the cost pass-through?

Speaker #5: And how much of that is because of the tighter supply-demand landscape?

Jason Wang: Well, first of all, if we look at on a very high level, like I said, we expect 2027 market turning point, the ASP trajectory will moving from historically erosion to uplift. We are talking to our customers and across the broad range of the applications. The conversation actually is more complicated. One is there are current contractual relationship, a portion of that, and secondly, a focus on different node and application and technology. So they are various. There is a mix of the pricing adjustment. Therefore, it is a lot easier to look at this from the blended basis. Instead going to every specific area because they are quite complex in terms of the mix. Yeah.

Speaker #4: Well, I mean, well, first of all, if we look at the I'm a very high level. Like I said, we expect 2027 will mark a turning point.

Speaker #4: The ASV trajectory will move in some historically erosion to an uplift. And so we are talking to our customers and across the broad ranges, the applications.

Speaker #4: Now, from a the conversation actually is more complicated. The one is there are current contractual relationship, unfortunately, that. And secondly, and focus on different known and application and technology.

Speaker #4: So they are various. The various mix of the pricing adjustment, the so therefore, it's a lot easier to look at this from the blended basis.

Speaker #4: And so instead going to every specific area because they are quite complex in terms of the mix. Yeah.

Haas Liu: Okay. Because the reason why I am asking this question is because your utilization has been improving by 16% from Q4 last year to Q4 this year based on your guidance, but your pricing has been relatively stable. Just wondering why your customers suddenly are deciding to accept this price hike by 10% into 2027. If in the past couple of quarters, you have been striving to improve your utilization by 16%, but the blended pricing has been relatively more stable, but now you are seeing an inflection of that. Is it because of the product mix or cost pass-through that your customers decided to share the burden with you?

Speaker #5: Okay. Because the reason why I'm asking this question is because your utilization has been improving by 16% from fourth quarter last year to fourth quarter this year based on your guidance.

Speaker #5: But your pricing has been relatively stable. So just wondering why your customers suddenly decided to accept this price hike by 10% into 2027 if in the past couple of quarters you have been striving to improve your utilization by 16%, but the blended has been blended pricing has been relatively more stable.

Speaker #5: But now you are seeing an inflection of that. Is it because of the product mix or cost pass-through that your customers decided to share the burden with you?

Jason Wang: Well, both. The product mix is part of it, and part of it is really reflecting the inflationary cost increase. Like Chih-Do mentioned earlier, we are seeing some of the rising cost headwinds and also additional depreciation associated with our investment. So while we are anticipating that, while the overall customer demand are increasing and increasingly tight capacity on selected technology. So combination of those resulting in the conversation with the customer. I think the customer understand the overall industry tightness in terms of capacity and also understand the rising cost. So in a variable space, that is why I think this is naturally a conversation that we will have at this current point with the customer. We usually do this on a yearly basis.

Speaker #4: Well, I mean, both, right? I mean, the product mix is a part of it. And part of it is really reflecting the inflationary cost increase.

Speaker #4: We are seeing like Jido mentioned earlier, we are seeing some of the rising cost headwinds. And also additional depreciation. Associated with our investment. So while we anticipating that, while the overall the customer demand are increasing and increasing high capacity on selected technology, so combination of those resulting in the conversation with the customer.

Speaker #4: And I think the customer understand the overall industry kindness in terms of capacity. And also understand the rising cost. So in a variable space.

Speaker #4: So that's why I think I think this is a it's a naturally a conversation that we will have at this current point with the customer.

Speaker #4: And we usually do this on a yearly basis. So again, we started this conversation in Q3. And with the alignment going into Q4, we are at a very late stage of those conversations.

Jason Wang: Again, we started this conversation in Q3, and with the alignment going into Q4, we are at a very late stage of those conversations. So we have a fairly confidence with the guidance that we just provided now.

Speaker #4: So we have a fairly confidence with the guidance that we just provided. Yeah.

Haas Liu: No, that is very helpful. Second question is probably just on your current expectation for the customer and market demand in 2027. Because the supply chain seems to be suggesting that the unit demand across smartphones, TVs, and PCs could be down from the unit demand perspective. So if that negatively affect your utilization, keeping at around low 90 percentage levels instead of further hiking to close to full levels. Would your customers be able to request for some price discounts or push back on the price hike through 2027? How would you deal with it?

Speaker #5: No, that is very helpful. And second question is probably just on your current expectation for the customer and market demand into 2027. Because the supply chain seems to be suggesting that the unit demand across smartphones, TVs, and PCs could be down from the unit demand perspective.

Speaker #5: And so if that negatively affects your utilization, keeping at around low 90 percentage levels instead of further hiking to close to 4 levels, would your customers be able to request for some price discounts or push back on the price hike through 2027?

Speaker #5: And how would you deal with it?

Speaker #4: Well, I mean, first of all, let me kind of explain about the utilization. Outlook. We are expecting the capacity utilization to remain at a very healthy level.

Jason Wang: First of all, let me explain about the utilization outlook. We are expecting the capacity utilization to remain at a very healthy level. This year, we improved from 85% in Q2 to above 90% in H2 2026 already, with several of our 8-inch and 12-inch fabs operating at a full loading at this current point. We are seeing the AI-driven upside demand, such as power management and FPGA, which we cannot fulfill the demand today. The backlog PO is piling up. We will continue to optimize the production efficiency by debottlenecking the key steps and transferring the technology across different fabs to maximize the output. Operationally, there are minor mismatch between our demand and capacity configuration. When you see less than 100%, that doesn't mean the fab is not fully loaded.

Speaker #4: In this year, we improved from 85% in Q2 to above 90% in the second half of 2026 already. With several of 8-inch and 12-inch operating at a full loading at this current point.

Speaker #4: And we are seeing the AI-driven upside demand such as power management and FPGA which we cannot fulfill the demand today. And the backlog PO is piling up.

Speaker #4: We will continue to optimize the production efficiency by debottling the key steps and transferring the technology across different fabs to maximize the output. But operationally, there are minor mismatch between our demand and capacity configuration.

Speaker #4: So when you see less than 100%, it does not mean the fab is not fully loaded. So it's really more of the mismatch between the demand and capacity configuration.

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

Speaker #4: And so we are working diligently to address this capacity configuration mismatch. We are upgrading our manufacturing capability to support our long-term product mix optimization as well.

Speaker #4: For instance, we are converting one of our 8-inch fabs to to expanding Teflon capacity. And while we converting that and the loading is will be lower, but doesn't mean that the facility is not being occupied and work on it.

Speaker #4: So strengthening while we're strengthening our silicon photonics roadmap and position UMC's future growth, all those are critical for our future growth. And so we are managing that through this activity.

Speaker #4: So that said, the 97% doesn't translate to a vacancy in terms of capacity. It's more of a mismatch situation. Yeah.

Haas Liu: Okay. Yeah. Just a quick question before jumping back to the queue is, it is very encouraging to see that you approved additional CapEx to support your new businesses, including silicon photonics, TFLN, and silicon capacitor. Would you be able to provide the timeframe on your spending through the next few years? Last time you guided 2027 CapEx could be up to $3 billion. Now, with the incremental CapEx, would you be able to just provide an update on that? Relatedly is, how should we think about the economies of scale of your new businesses, including TFLN, silicon capacitor, as well as silicon photonics, that by 2029, when these capacities start to ramp to a certain scale, the gross margins for those businesses, will they be comparable to the corporate average or still going to be below because of the higher depreciation burden? Thanks.

Speaker #5: Okay. Yeah. And just a quick question before jumping back to the QEs. Is there encouraging to see that you approved King Tech's additional King Tech to support your new businesses, including silicon photonics, Teflon, and silicon capacitor?

Speaker #5: But would you be able to provide the time frame on your spending through the next few years? Because last time you guided 2027 KTEX could be up to like 3 billion US dollars, but now with the incremental KTEX, would you be able to just provide an update on that?

Speaker #5: And relatedly, is how should we think about the economies of scale of your new businesses, including Teflon, silicon capacitor, as well as silicon photonics that by 2029, when these capacities start to run to a certain scale, would those businesses be the gross margins for those businesses will they be comparable to the corporate average or still going to be below because of the higher depreciation burden things?

Speaker #4: Well, I mean, first of all, we can provide you the update when the update is more clear to us. Like you know, we have both approval and now we are closely working with the supplier to make sure that we can accelerate and expedite the schedule.

Jason Wang: First of all, we can provide you the update when the update is more clear to us. You know, we have board's approval, and now we are closely working with the supplier to make sure that we can accelerate and expedite the schedule. Once those information are concluded, we'll be able to give you more concrete outlook in terms of milestones. Meanwhile, we are phasing in these different capacities in a different timeframe. Since we're still in motion of that negotiation, it's probably not the right time to provide you that. On a high level, we feel very comfortable with all those demands, and the only things we worry about now is we can really get them fast enough to our facility.

Speaker #4: So once those information are concluded and we be able to give you more a concrete outlook in terms of the milestone. Meanwhile, we are facing in the different capacity in the different time frame.

Speaker #4: And but since we still in motion that negotiation and we probably not the right time to provide you that. But on a high level, we feel very comfortable with all those demand and we will only things we worry about now is we can really get them back enough to our facility.

Jason Wang: So, let us work on that, and when going into Q1 next year, we should give you a more clear picture with the next phase. Now, in terms of each of the economics scale and the benefit to our business. The silicon photonics will ramp in 2027, while the advanced packaging in 2028, because of facility reason. I think all those will be accretive to our current model because right now they above our current corporate average. They are higher than our corporate average even already compared to existing solutions.

Speaker #4: So let us work on that and when going into the Q1 next year, we should give you a more clear picture with the next phase.

Speaker #4: Now, in terms of the each of the economics benefits, I mean, scale and the benefit to the our business, the silicon photonics will run in 2027 follow the advanced packaging in 2028 because of mobility reason.

Speaker #4: The and I've seen the all those will be acquitted to our current model because the right now they above our current corporate average. Yeah.

Speaker #4: The higher than our corporate average in our compared to existing solution.

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

Speaker #5: Okay. So by the time these new businesses start to run in 2028, 2029, those businesses should be carrying higher than corporate average margins even with higher depreciation.

Jason Wang: That is what we have modeled right now at this point.

Speaker #4: That's what we have modeled right now at this point. Yeah.

Chi-Tung Liu: Under the same circumstance or for the same ramp, if you compare it to, say previously 22 and 28 nanometer, of course, the curve looks better.

Speaker #2: Under the same circumstance for the same range. If you compare to, say, previously 22, 28, of course, the curve looks better.

Haas Liu: Got it. That's very helpful. Thank you so much.

Speaker #5: Got it. That's very helpful. Thank you so much.

Operator: Thank you. As a reminder, please press star key and number 1 on your keypad if you would like to ask the question. Thank you. Next we'll have Charlie Chan, Morgan Stanley, for questions. Go ahead, please.

Speaker #1: Thank you. As a reminder, please press star key and number one on your keypad if you would like to ask the question. Thank you.

Speaker #1: Next we'll have Charlie Chen, Morgan Stanley for questions. Go ahead, please.

Charlie Chan: Thank you. Hi, Jason, Chih-Tung. Again, congratulations for a very strong execution result. My first question is probably to Jason. I know previously I asked you about some concern about the non-AI part of demand offsetting the AI side, right? But realistically, do you see any kind of cuts recently from non-AI segments? Do you have the preliminary assumption for next year's PC smartphone segment demand and your observation on just end market inventory? Thank you.

Speaker #3: Thank you. Hi, Jason. Again, congratulations for a very strong execution result. So my first question is probably to Jason that I know previously has asked about some concern about the non-AI part of demand offsetting the AI side, right?

Speaker #3: But realistically, do you see any kind of cuts recently from non-AI segments? And do you have the preliminary assumption for next year's PC, smartphone, second demand than your observation on those end markets inventory?

Speaker #3: Thank you.

Jason Wang: Well, right now, we expect a positive demand momentum to sustain from 2026 into 2027, Q4 in 2027. On a high level, we're seeing the momentum will continue to sustain. Obviously, the AI remains the key growth driver. So there's no worry on the AI side. Beyond AI, we continue to see opportunity from customer market share again as well, and increase the foundry share. That's for UMC, because we primarily serving the premium smartphone and automotive and industrial space, and we see healthy automotive industry recovery at this point. So I think we have less concern for automotive industry. However, on the smartphone, since we have less exposure in the mid and low-end smartphone, we think we have less exposure in that space. While we do project the market outlook in that space is weaker than the others.

Speaker #4: Well, I mean, right now, we expect a positive demand momentum to sustain from 2026 into 2027 in our Q4 and 2027. So on a high level, is we're seeing the momentum will continue to sustain.

Speaker #4: And obviously, the AI remains the key growth driver. But so there's no worry on the AI side. Beyond AI, we continue to see opportunity from customer market share again as well.

Speaker #4: And increase the foundry share. That's for UMC because we primarily serving the premier smartphone and automotive and industrial space. And we see healthy automotive industry recovery at this point.

Speaker #4: And so I think we have less concern about automotive industry. And however, on the smartphone, since we have less exposure in the near and low-end smartphone, we think we have less exposure in that space.

Speaker #4: While we do project the market outlook in that space is weaker than the others. Meanwhile, in near term, we also see some decline in computer because we see a soft demand in the computer AI, LCD controller, EDI, and Wi-Fi space.

Jason Wang: Meanwhile, in the near term, we also see some decline in computers because we see a soft demand in the computer AI, LCD controller, DDI, and Wi-Fi space. While the communication and automotive industrial and AI remains, non-AI, the communication, the automotive industrial remains robust, we do see some weakness show up in the PC space. Yeah.

Speaker #4: So, while the communication and automotive industry—and AI—remains non-AI, the communication and automotive industrial remains robust. We do see some weakness show up in the PC space.

Speaker #4: Yeah.

Charlie Chan: Got it. So those are kind of weaknesses are all being considered. Yeah. So thank you. I am sorry, but I hope to clarify a little bit about blended ASP of 10%, because I show you the 12-inch blended ASP, and 12-inch mix increase will bring up a lot of blended ASP, right? But I want to make sure, are you, that you have a different product line that typical-

Speaker #3: Got it. So those are kind of weakenings are all being considered. Yeah. So thank you. And sorry, but I hope to clarify a little bit about blended ASP up 10% because I sure use the 8-inch, 12-inch blended ASP.

Speaker #3: And 12-inch mixed increase will bring up a lot of blended ASP, right? But I wanted to make sure, are you 8-inch, right? You have a different product lines that are typical.

Jason Wang: I am sorry.

Charlie Chan: Versus-

Speaker #4: I'm sorry.

Jason Wang: Can you slow down a little bit?

Speaker #3: Versus yeah?

Charlie Chan: Yeah.

Jason Wang: Can you repeat that? Yeah.

Speaker #4: Can you repeat that? Yeah.

Charlie Chan: Oh, okay. Blended ASP increased by 10%. Is that the 12-inch plus 8-inch blended ASP or a different product mix? You are referring to the 8-inch to be up 10%?

Speaker #3: Oh, okay. Blended ASP increased by 10%. Is that 12-inch plus 8-inch blended ASP or a different product mix? So you are referring to the 8-inch to be up 10%?

Chi-Tung Liu: It is a company-wide blended ASP as we reported. Although we did not disclose the number, we do have an annual number for 2026. The 10% we are referring is for the whole company on the whole year. 2027 is going to be about 10% year-over-year increase, including like for like price increase as well as the richer product mix.

Speaker #2: Yeah. It's a company-wide. Blended ASP, as we reported, although we didn't disclose the number, but we do have an annual number for 2026. And the 10% we are referring is for the whole company on the whole year 2027.

Speaker #2: It's going to be about a 10% year-over-year increase, including like-for-like price increases as well as a richer product mix.

Charlie Chan: Okay. Got you.

Speaker #3: Okay. Gotcha.

Chi-Tung Liu: Together, yeah.

Speaker #2: Yeah.

Charlie Chan: Okay. But you do not want to further break it down to, for example, if you remove the 12-inch mix change, what would be like ASP increase? Would you be able to comment on that front?

Speaker #3: Okay. Okay. But you don't want to further break it down to like for example, if you remove the 12-inch mix change, what would be kind of likely to like ASP increase?

Speaker #3: Would you able to comment on that part?

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

Speaker #2: It's a very complicated process, and some of the technologies are totally different for different products, so it's very difficult to give you a generalized idea.

Speaker #2: But 10% is probably the best indication for now.

Charlie Chan: Got it. Thanks. Last one is probably a very open question. Yeah, because we think AI demand strength is no-brainer, right? I think when Jason Wang talked about, we are not worried about AI demand, but the recent CapEx guidance about gives AI infrastructure demand, no matter neocloud financing, there is AI issue, right? So I am not sure how visible is kind of UMC on this real AI demand, especially for your product, you have exposed to. How can you be sure it is so under supply? Yeah, just a kind of open question because capital markets reaction seems to do not believe that the AI demand will be so sustainable into next year.

Speaker #3: Got it, thanks. And last one, probably kind of a very open question. Yeah, because we kind of think AI demand strength is a no-brainer, right?

Speaker #3: I think when Jason talked about how we are not worried about AI demand, but the recent AI infrastructure demand—no matter if you consider cloud financing—there's an AR issue, right?

Speaker #3: So I'm not sure how visible is kind of UMC on this real kind of AI demand. Especially for your product, you have exposed to.

Speaker #3: How can you be sure that it's so undersupplied? Yeah, just kind of an open question, because capital markets' reaction suggests they don't believe that AI demand will be so sustainable into next year.

Jason Wang: Well, the AI demand is not in general AI demand. So, when we talk about what we are serving, really in a selected technology and focus, for instance, on the optical space, I think the ramp up just starting. So it could be a replacement mode. To us, I think the silicon photonics is really a new space that we entering and as well as the industry is entering into. The PIC platform that we are offering, the TFLN, is all associated with that. While the industry is moving into 1.6T and for the future 3.2T, we actually think this demand will be continuing robust. The advanced packaging is really a solution that we talk about, the DTC, deep trench capacitor solution. A capacity solution. They are more of a device that can be implemented in multiple different areas.

Speaker #4: Well, I mean, the AI demand is not in general AI demand. So when we talk about what we are serving, really in a selected technology and focus — for instance, on the optical space — I think the ramp-up has just started.

Speaker #4: And so it's more of a it could be a replacement mode. And so to us, I think the silicon photonics is really a new space that we're entering and as well as the industry is entering into.

Speaker #4: The PIC platform that we're offering, the Teflon is all associated with that. While the industry is moving from the 1.6T moving into 1.6T and for the future 3.2T, we actually think this demands will be continue robust.

Speaker #4: The advanced packaging is really a solution that we talk about the DTC, deep change capacity solution. The capacity solution, right? And they are more of a device that can be implemented in multiple different areas.

Jason Wang: The power integration, all this power will continue driving the industry going forward. So I think with all those solutions, I think the market will be continuous. The demand will continue to be robust.

Speaker #4: The power integration, all those power will continue driving the industry going forward. So I think with all those solutions, I think the market will be continued.

Speaker #4: The demand will continue to be robust.

Charlie Chan: Got you. So even like AI processor slow down, there is a kind of a package migration, like 1.6T to 3.2T, et cetera. Those will continue. You are not that worried about the overall AI demand expansion pace.

Speaker #3: Gotcha. So even with an AI infrastructure slowdown, there's a kind of technology migration, like from 1.6T to 3.2T, etc. Those will continue. So you're not that worried about the overall AI demand expansion pace?

Jason Wang: Yeah. Because if you just look at it, truly, what drives that demand is the compute and also power and-

Speaker #4: Yeah. Because if you just look at the truly the what drives that demand is the compute and also powers. And the speeds, right? So really, I mean, the optical speed requirement and the power integration requirement is more forward-looking type of applications.

Charlie Chan: Right

Jason Wang: and the speed, right? I mean, the optical speed requirement and the power integration requirement is more for looking hybrid applications. We are not talking about the AI demand in general. We are talking about technology migration to support the future growth

Speaker #4: We're not talking about the AI demand in general. We talk about technology migration to support the future growth and meeting the system requirements.

Charlie Chan: Yeah

Jason Wang: and meeting the system requirement.

Charlie Chan: Understood. Very clear. Thank you. I also agree that DTC, the deep trench capacitor, is a very important emerging trend. Thank you, Jason Wang. Thank you, Zhidong. That is super helpful. Thanks.

Speaker #3: Understood. Very clear. Thank you. Yeah. I also agree that ETC, the big change capacity is a very important movement trend. Thank you, Jason. Thank you, Qigong.

Speaker #3: Super helpful. Thanks.

Jason Wang: Thank you.

Speaker #4: Thank you.

Operator: Next one, Gokul Hariharan, J.P. Morgan. Go ahead, please.

Speaker #3: Next one, Goku Hani Harlan, JP Morgan. Go ahead, please.

Gokul Hariharan: Yeah. Hi. Thanks, Jason and Zhidong, for taking my questions. First of all, just want to clarify, Jason, you mentioned long-term AI revenues can be 25%. Was it 25% of current revenue, roughly $9 billion? Or you think it will grow to 25% of revenues, in 2030, which probably a much bigger number. Just wanted to clarify that.

Speaker #5: Hi, thanks Jason and Qigong for taking my questions. First of all, I just want to clarify: Jason, you mentioned long-term AI revenues can be 25%.

Speaker #5: Was it 25% of current revenue? Roughly $9 billion or you think it will grow to 25% of revenues in 2030? Probably a much bigger number.

Speaker #5: Just wanted to clarify that.

Jason Wang: I am referring to the revenue for the next three years. The three years from today. Yeah.

Speaker #4: I'm referring to the revenue in the next three years. The three years from today.

Gokul Hariharan: Okay. So in three years, it can be 25% of total revenue.

Speaker #5: Okay, so in three years, it can be 25% of total revenue?

Jason Wang: Yes, right.

Speaker #4: Yes. Right.

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

Speaker #5: Okay, understood. Thank you very much. And could you talk a little bit about any indication on revenue contribution from silicon photonics and the embedded deep range capacitor for next year, given those seem to be ramping earlier?

Speaker #5: And also on silicon photonics, do you have any aspirations in terms of where you want your market positioning to be, given you are starting off later than the competition—but you also have some unique advantages here?

Speaker #4: Well, I mean, we are currently running at full capacity. So we said this year will be somewhere in the $300 million range. And for the new act, the vast majority of the capacity will start coming online in late 2028.

Jason Wang: We are currently running at full capacity, so we said this year will be somewhere at the $300 million range. For the new add, the mass majority of the capacity will start coming in line in late 2028. So 2027 is still going to be under the constraint. While we try to optimize, like I said, we try to reconfigure some of our facility. Hopefully, we can optimize some to shorten, but we are under the constraint for 2027. We will probably be able to share some light in the next quarter. But again, it is not going to be significant, because the capacity is not available yet. So that is the revenue for 2027. What was your second question? I am sorry.

Speaker #4: So 2027, we're still going to be under the constraint. So while we try to optimize, like I said, we try to reconfigure some of our facility.

Speaker #4: Hopefully, we can optimize some of the short terms. But we are under the constraint for 2027, so we will probably be able to shed some light in the next quarter.

Speaker #4: But again, it's not going to be significant because the capacity is not available yet. So that's the revenue for 2027. And what was your second question?

Speaker #4: I'm sorry.

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

Speaker #5: Yeah. Secondly, I think, what is your aspiration from a silicon photonics market share perspective? Given you are starting a little bit later than your competitors and you are also kind of migrating straight to 12-inch.

Speaker #5: You're already starting to see some like at least test results which are comparable or better than your competition. Just wanted to think about like where we could end up in silicon photonics market share.

Jason Wang: Of course. The aspirations are very high, and we have very high confidence in terms of decision and moving into a 12-inch directly, without going through the 8-inch. Right now, I think the decision actually did pay off. We have demonstrated with our 12-inch PIC technology. We already demonstrated better performance in many of the key parameters. Our customer and their end customer. Right now, the product is being validated and qualified by the end customer as well. With the production yields get to the manufacturer level, we think our 12-inch PIC platform is ready to support for their current 1.6T optical application and going into the next generation as well. The TFLN is a little bit different situation. I think we much ahead about anyone else in the TFLN development.

Speaker #4: Of course. Yes. I mean, the aspiration is very high, and we have very high confidence in our decision to move directly into a 12-inch.

Speaker #4: We're not going to the 8-inch. Right now, I think the decision actually did pay off. We have demonstrated with our 12-inch PIC technology; we already demonstrated better performance in many of the key parameters.

Speaker #4: And our customer and their end customer. And right now, the product is being validated and qualified by the end customer as well. And with the production yields get to the manufacturer level, we've seen the our 12-inch PIC platform is ready to support the customer.

Speaker #4: For their current 1.6T optical application, and going into the next generation as well. Now, the Teflon is a little bit different situation. I think we are much, much ahead of anyone else in the Teflon development.

Gokul Hariharan: Yes.

Jason Wang: I think the customer also see a benefit between the integration of the putting TFLN modulator with our 12-inch PIC solution. Because our advanced packaging preparation is also bear fruit now, because with hybrid bonding, the chip-to-wafer capability. I think those actually help us to even become even more competitive, because combination of the silicon photonic solution along with the packaging capability, that is putting us in a unique position. We feel very competitive in those spaces. Yeah.

Speaker #4: And I think the customer also sees a benefit from the integration of putting the Teflon modulator with our 12-inch PIC solution. And so because of that, I mean, our advanced packaging preparation is also very important now because we have hybrid bonding with chip-to-wafer capability.

Speaker #4: I think those actually will help us to even become even more competitive because combination of the silicon photonic solution along with the packaging capability and that just putting us in a unique position.

Speaker #4: So we feel very competitive in that space. Yeah.

Gokul Hariharan: Okay. Just to follow up on the TFLN engagement, Jason Wang, is this mainly going to be HyperLight, whom you are going to be supporting? Or are there a broader set of customers that you have already got beyond HyperLight, which I think you already invested in them and kind of publicly announced as well?

Speaker #5: Okay, so just to follow up on the Teflon engagement, Jason, is this mainly going to be Hyperlight whom you're going to be supporting, or are there a broader set of customers that you've already got beyond Hyperlight? I think you've already invested in them and kind of publicly announced as well.

Jason Wang: Yeah, we announced the HyperLight partnership and, because HyperLight was very early adopter of the TFLN. I think we are very pleased with that program. Because we already demonstrated, with HyperLight and we have seen a very strong interest in the TFLN solution now, not just from HyperLight, from many different customers in the space. Yeah.

Speaker #4: Yeah, I mean, we announced the Hyperlight partnership because Hyperlight was a very early adopter of Teflon. And so, I think we're very pleased with that program.

Speaker #4: And because we already demonstrated with Hyperlight, and we've seen a very strong interest in the Teflon solution now—not just from Hyperlight, but from many different customers in the space.

Speaker #4: Yeah.

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

Speaker #5: Okay. Okay. And maybe on the 2027, given your capacity constraint, any read on how much capacity can you still squeeze out on an overall basis, let's say for 12-inch?

Speaker #5: Can we do mid-single-digit capacity growth next year or it's still like low single-digit potentially next year?

Jason Wang: Well, I guess my reaction is just not enough. I think we want to improve that number any way we can. Right now, the best way to explain it is going not enough.

Speaker #4: Well, I guess my reaction is just not enough. So I think we want to improve that number in any way we can. Right now, the best way to explain that is: it's just not enough.

Gokul Hariharan: Okay. You are right. Very minimum. Yeah.

Speaker #3: Sorry, you're right. Very minimal, yeah.

Jason Wang: Yeah.

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

Speaker #5: Okay, so Jitong, I just wanted to also lastly examine the gross margin puts and takes. Obviously, price increase—that ASP of 10%, or thereabouts, is quite positive.

Speaker #5: If you carry the utilization gains from Q4 into all of next year, it also is positive. Could you give us some indication on how depreciation is going to shape up?

Speaker #5: I think last quarter you mentioned depreciation will be moving higher, but it looks like the pace might be a little bit more. So, are we saying that we are largely going to be in a similar gross margin range, or can we still squeeze out some gross margin expansion into next year, even with heavier investment coming through?

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

Speaker #3: So depreciation is going to be certainly higher, and maybe for a couple of years in a row. And we are talking about low single-digit depreciation growth, at least for 2027.

Speaker #3: If not more for 2028. So, for gross margin, this is going to be a big number to offset. And on top of that, we also have rising raw material costs, etc.

Speaker #3: And so, like I mentioned earlier, we feel more confident to have a healthy EBITDA margin structure. But for gross margins, for the next two years at least, depreciation along with rising raw material costs is going to put pressure on our overall financial gross margin.

Jason Wang: I also like to echo what Chih-Tung just said. We are expecting ASP improvement, and we are expecting higher utilization, and all those will provide support to our profitability for 2027. At the same time, we are anticipating a rising cost having an additional depreciation, which associated with our investment decision. Our priority now is to maintain a healthy profitability profile while continuing to invest in different differentiated technology and support our long-term growth. That will give you some color on how we view about this gross margin question. Yeah.

Speaker #4: I would also like to echo what Jitong just said. We are expecting ASP improvement, and we are expecting higher utilization. All of those will provide support to our profitability for 2027.

Speaker #4: At the same time, we are anticipating rising costs, including additional depreciation associated with our investment decisions. Our priority now is to maintain a healthy profitability profile.

Speaker #4: While we continue investing in different differentiated technologies to support our long-term growth, that should give you some color on how we feel about this gross margin question.

Gokul Hariharan: Got it. Thank you very much. Yeah.

Speaker #5: Got it. Thank you. Thank you very much. Yeah.

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

Speaker #2: Thank you.

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: 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.

Speaker #4: Have a good day.

Operator: Thank you. Ladies and gentlemen, that concludes our conference for 3Q26. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.

Speaker #2: Thank you. And, ladies and gentlemen, that concludes our conference for Q3 2026. Thank you for your participation in UMC's conference. There will be a webcast replay available within two hours.

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