Earnings call transcript: United Microelectronics Q2 2025 misses EPS forecast

United Microelectronics (UMC) reported its Q2 2025 earnings, revealing a mixed financial performance. The company’s earnings per share (EPS) fell short of expectations at $0.12, compared to the forecasted $0.14, marking a 14.29% negative surprise. However, revenue surpassed estimates, reaching $2.01 billion against the anticipated $1.92 billion, a positive surprise of 4.69%. The stock reacted negatively, with a pre-market decline of 3.93%, reflecting investor disappointment in the EPS miss.

Key Takeaways

• EPS of $0.12 missed the forecast by 14.29%.
• Revenue exceeded expectations by 4.69%, totaling $2.01 billion.
• Stock dropped 3.93% in pre-market trading.
• Utilization rate improved significantly from 59% in Q1 to 76% in Q2.
• The company maintains a strong cash position of over $1 billion.

Company Performance

United Microelectronics demonstrated strong operational improvements with significant growth in wafer shipments, which rose by 6.3% quarter-over-quarter. The utilization rate also increased to 76%, signaling enhanced efficiency. Despite these operational gains, the EPS miss highlighted challenges in maintaining profitability amid fluctuating market conditions. The company continues to focus on specialty technology solutions, which now account for over 50% of its revenue.

Financial Highlights

• Revenue: $2.01 billion, up from the forecasted $1.92 billion.
• Earnings per share: $0.12, below the expected $0.14.
• Gross Margin: 28.7%.
• Net Income: NT$8.9 billion.
• Wafer Shipments: 957,000 units, a 6.3% increase from Q1.

Earnings vs. Forecast

UMC’s actual EPS of $0.12 fell short of the $0.14 forecast, resulting in a 14.29% negative surprise. However, the revenue of $2.01 billion exceeded the $1.92 billion forecast, delivering a 4.69% positive surprise. This mixed result highlights the company’s ability to generate higher sales while struggling with cost controls impacting profitability.

Market Reaction

Following the earnings announcement, UMC’s stock fell 3.93% in pre-market trading, reflecting investor concerns over the EPS miss. The stock was trading at $6.84, down from the previous close of $7.12. Despite the revenue beat, the market’s focus on profitability metrics led to a negative sentiment. InvestingPro data shows the stock is trading near its 52-week low of $5.61, while maintaining relatively low price volatility with a beta of 1.03. The company’s strong financial health score of 2.87 (rated as GOOD) suggests underlying stability despite current market pressure.

Outlook & Guidance

UMC expects a mild increase in wafer shipments in Q3, with gross margins remaining stable. The company projects continued growth in its 22nm and 28nm segments and maintains its full-year 2025 outlook. The operational expansion, including the start of production at the Singapore Fab 12i Phase 3 in January 2026, aligns with its strategic focus on technology differentiation. Notably, UMC has maintained dividend payments for 16 consecutive years, demonstrating strong commitment to shareholder returns. The company operates with a moderate debt level, with a debt-to-equity ratio of 0.2, providing financial flexibility for future growth initiatives.

Executive Commentary

President Jason Wang emphasized the company’s commitment to providing specialized technology, stating, "We want to continue to provide special technology where the percentage of revenue contribution in this space will increase." He acknowledged the pressure on gross margins due to fluctuating loading rates, noting, "Given the current loading is fluctuating around 70%, definitely putting some pressure in terms of the gross margin."

Risks and Challenges

• Geopolitical uncertainties impacting market visibility.
• High inventory levels in automotive and industrial segments.
• Potential U.S. tariff impacts on inventory buildup.
• Fluctuating foreign exchange rates affecting financial performance.
• Competitive pressures from Chinese foundries.

Q&A

During the earnings call, analysts inquired about the potential impact of U.S. tariffs on inventory levels and strategies for maintaining average selling price (ASP) resilience. The company also addressed progress on its 12nm collaboration with Intel, highlighting ongoing developments in advanced technology solutions.

Full transcript - United Microelectronics Corp (UMC) Q2 2025:

Conference Moderator, UMC: Welcome everyone to UMC’s twenty twenty five Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask a question. And for your information, this conference call is now being broadcasted live over the Internet.

Webcast replay will be available within two hours after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr.

Lin, please begin.

Michael Lin, Head of Investor Relations, UMC: Thank you, and welcome to UMC’s conference call for the 2025. I’m joined by Mr. Jason Wang, President of UMC and Mr. Qudong Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial results, followed by our President’s key message to address UMC’s focus and third quarter twenty twenty five guidance.

Once our President and CFO complete their remarks, there will be a Q and A session. UMC’s quarterly financial reports are available at our website, www.umc.com, the Investors Financials section. During this conference, we may make forward looking statements based on management’s current expectations and beliefs. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company’s control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the IRC security authorities.

During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now I would like to introduce UMC’s CFO, Mr. Chitong Liu, to discuss UMC’s second quarter twenty twenty five financial results.

Qi Dong Liu, CFO, UMC: Thank you, Michael. I’d like to go through the 2Q ’twenty five investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page four. 2025, consolidated revenue was billion dollars with a gross margin at around 28.7%. The net income attributable to the stockholder of the parent was NT8.9 billion dollars and earnings per ordinary shares were NT0.71 dollars Weapon shipment in quarter two increased to $957,000 up about 6.3% quarter over quarter.

However, the effective anti dollar exchange rate also appreciates similar magnitude from $30.81 in Q1 sorry, from 32.89 in Q1 to 30.81 in Q2. And utilization rate increased from 59% in Q1 to 76% in quarter two. Revenue as a result increased about 1.6% sequentially to billion. Gross margin, as we mentioned earlier, reached 28.7 or TWD16.8 billion. This is already be factoring around 3% of the ForEx impact, three percentage points in quarter two.

Net income reached billion dollars or 15.1% on our net income percentage rate. EPS is NT0.71 dollars in second quarter compared to NT0.62 dollars in the previous quarter. On Page six, for first half comparison, revenue increased by 4.7% to billion dollars Gross margin reached 27.7% compared to 33.1% in the same period of 2024. Net income attributable to the shareholder of the parent for 2025 was billion dollars or NT1.34 dollars in EPS terms. Cash remained over billion reached about 1 and 11,000,000,000 at the end of 2025.

And total equity for the company is now around $37,337,040,000,000.00 ASP edge up a little bit in the second quarter, mainly due to the better product mix. On Page nine, for revenue breakdown, there’s literally no change on a sequential comparison basis. Europe increased to 8% and Asia reached about 67%. ICM edged up slightly to 19% compared to 18% in the previous quarter. In terms of application breakdown, the change is also very minor.

Consumer went down to 33% by 1% and communication increased by 1% to 41. Event technology revenue continues to increase and with now revenue below 40 nanometer represent more than half of the total revenue reached 55% in quarter two when 22 nanometer and 28 nanometer represents 40% of the company’s total revenue. On Page 13, the capacity breakdown, we will continue to see some minor capacity increase. For the third quarter, capacity increase will come from mainly 12x in Xiamen. And after the first six months, our CapEx budget for year 2025 remain unchanged at an estimate of US1.8 billion dollars And the above is the summary of UMC results for second quarter twenty twenty five.

More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang.

Conference Moderator, UMC: Thank you, Qi Dong. Good evening, everyone. Here I would like to share UMC’s second quarter results. In the second quarter, the utilization rate increased to 76% as wafer shipment grew 6.2% quarter over quarter, primarily driven by communications in image signal processors, NAND controllers, WiFi and LCD controllers. While we experienced an increase in overall utilization and the growth of our twenty two and twenty eight nanometer portfolio, the unfavorable foreign exchange movement of the NT dollar kept our gross margin to 28.7% by nearly three percentage points.

Revenue from our twenty two and twenty eight millimeter portfolio continued to grow sequentially, now accounting for 40% of the total sales, a record high in both percentage and absolute dollar terms. Our industry leading twenty two and twenty eight nanometer solutions continue to win adoption by customers and we expect to see further market share gains in wireless communication over the coming quarters. We have always believed that with the right differentiation 20 two-twenty eight nanometer is a strong and long lasting node with a robust product pipeline. In addition, the new Phase III facility at our Singapore Fab12i set to start production in 2026, while enable UMC to better serve customers seeking diversified manufacturing for enhanced supply chain resilience. Looking ahead to the third quarter, we expect a mild increase in wafer shipments.

However, adverse foreign exchange movement will lead to a decline in NT dollar revenue. We are closely monitoring the near term uncertainties and risks as the market anticipates U. S. Tariff policies. To navigate macro and geopolitical headwinds, including foreign exchange risks, UMC will continue to actively manage our foreign exchange exposure and maintain financial flexibility to enhance our financial structure and business resilience.

Qi Dong Liu, CFO, UMC: Now let’s move on to

Conference Moderator, UMC: the third quarter twenty twenty five guidance. Our wafer shipment will increase by low single digit percentage. However, NT dollar denominated revenue is fully exposed to fluctuation in the foreign exchange rate. For instance, a 5% appreciation in the NT dollar will result in a corresponding 5% reduction in reported NT dollar revenue. ASP in the U.

S. Dollar will remain firm. Q3 gross margin will be approximately Q2 gross margin subject to the foreign exchange effect. Therefore, our Q3 gross margin will be approximately equal to that of Q2 under the assumption the foreign exchange rate is at a current level. Capacity utilization rate will be in the mid-seventy percent range.

Our 2025 cash based CapEx budget will remain unchanged at US1.8 billion dollars That concludes my comments. Thank you all for your attention. Now we are ready for questions. Yes. Thank you, President you.

Now first, we’ll have Brett Lin, Bank of America for questions. Go ahead please.

Brett Lin, Analyst, Bank of America: Hi, thank you for taking my questions. So I have two questions. The first one will be on the ASP trend. So what’s the initial outlook and view on the ASP trend in 2026 given the higher expense and cost? Obviously, we are happy to learn the steady ASP in near term, but yes, any initial view for 2026?

Thank you.

Conference Moderator, UMC: Well, I mean, typically we don’t guide anything beyond that, beyond 2025. So as you said, we can talk about the near term of the ASP outlook, but you’ll be interested in looking into a longer term ASP projection. And so let’s share about the ASP strategy. We’ll continue our goal is to continue to differentiate our technology offering and product mix and to maintain and improve our ASP resilience. We want to further widen the gap in technology offerings while increase the revenue contribution by those respective nodes.

Following our rollout of the twenty two and twenty eight NELE technologies, we’ll continue to provide specialty technology in forty and fifty five nanometer nodes, where the percentage of our revenue contribution competing with the pricing boundaries will continue to decline. For the near term, our CFO actually mentioned our Q2 ASP saw a low single digit increase driven by higher 2228 product mix. In Q3, we expect the product mix remains unchanged. Therefore, the ASV will remain firm for this year.

Brett Lin, Analyst, Bank of America: Got it. Thank you very much. And my second question would be, well, we have seen well in the presentation 14 nanometer and below mix are listed in the well slides as zero for a while, but still listed in there. So should we expect the number to increase And will that be from 12 nanometer or potentially also six nanometer?

Conference Moderator, UMC: Well, okay. Well, 12 nanometer is still bit far for us. And the for that particular program and the cooperation with Intel is progressing well and remain on track according to the project milestone. At present, our both team are working on verifying the performance for the pilot line and we expect that the earlier PDK will be ready for this first wave customer in June 2026. So the we expect customers product table is better in to begin in 2027.

So we’ll probably see some revenue in that timeframe. So I think that’s as well. The and we continue marching that direction. If we’re going beyond that, we don’t have any concrete plan for anything beyond this well known as today. Our effort our development effort will continue to focus on that and that’s what’s broadened our specialty technology portfolio on both ends.

And so that is definitely on our roadmap. But once we have more concrete update, we will be sharing with you. Currently, the most important task is to deliver the highly competitive solutions for mass production and 12 nanometer through our cooperation with our partners. And for anything beyond that, we will explore the future opportunity through the partnership arrangement and which we believe that will be mutual beneficial.

Brett Lin, Analyst, Bank of America: Sure. That sounds great. Thank you very much.

Conference Moderator, UMC: Thank you. Next one, Charlie Chan, Morgan Stanley. Go ahead please.

Charlie Chan, Analyst, Morgan Stanley: Hi, Jason, Qi Dong. Good afternoon. And my first question is about the tariff impacts your customers’ behavior? Do you see kind of pulling in? And what does it impact to your second half seasonality or outlook?

Thank you.

Conference Moderator, UMC: Sure. Good afternoon, too. We do observe the sound of demand upside in the Q2 and as well Q3 is partly driven by the inventory buildup in anticipation of a potential U. S. Tariff.

And so for UMC’s first half twenty twenty five results, which is in line with our guidance of the Q2 wafer shipment increased to 6.2% to three percent quarter over quarter, while the Q3 we may increase on a higher base, we expect the shipment will still grow mildly sequentially. And so there are some observation about that. Given the 2025 market dynamics such as adjustment to The U. S. Policies and ongoing geopolitical and macro uncertainty, the usual seasonal patterns may be different.

We along with our customer will closely monitoring those end markets.

Charlie Chan, Analyst, Morgan Stanley: I see. Thank you. And I think lots of discussion about the future advanced paging technology, right? Jason, can you share with us about your business development here? And also, I think you have some interposal capacity, right?

How are going to utilize those capacity going forward? And maybe some color about the potential applications?

Conference Moderator, UMC: Sure. Well, I mean, we’re not missing. We don’t want to miss out the advanced packaging opportunity. We are preparing our advanced packaging solution for what we see is for the growing energy consumption of the cloud AI as well as the potential growth in the edge AI market. So first, to address the power efficiency requirement for the high computing processor, UMC is developing the 2.5D interposer with the DDC and discrete DPC, which is that’s going to be the roadmap coming up.

And right now we are the current interposer is moving on to the next generation and we’re waiting for to waiting for to introduce this and expect to ramp after that. Second, the UMC is leveraging the scalable three d wafer to wafer stacking and TSV to enhance the competitiveness of our specialty technology. We are currently in mass production for the extremely small form factor for the five gs and six gs RFIC. And based on the success of the five gs and the six gs RFIC with the wafer to wafer stacking, we are also developing memory to memory stacking and memory to larger stacking service for the high bandwidth computation requirements.

Charlie Chan, Analyst, Morgan Stanley: Okay. And my last question, again, is always want to consult your pick up your points about semiconductor cycle. But believe this is a third kind of fixed year we don’t see sort of second half recoveries. What do you think is happening on this semiconductor industry? Why we don’t see seasonality or so called physicality, right?

Because I remember in the past, you have like upcycle and shortage overcapacity and then correction, but we still don’t see that anymore.

Conference Moderator, UMC: I mean, certainly the visibility is actually lower nowadays. You’re absolutely right. When we start the year in 2025, we actually expect the 2025 growth outlook will be slightly better than our addressable market. And we think our addressable market is going to grow slightly in at a low single digit. And we think we at this moment, we still expect our 2025 growth outlook will remain unchanged.

So that’s safe. And but beyond the 2025 or 2026, we have to closely working with our customer and sharing their visibility and as well the monitoring the DOI situation. As of today, I think the DOI is getting to the healthy level. We’ve seen that DOI is approaching to the healthy level about a quarter or two quarters ago. And right now, the computer, consumer and communication segment is still healthy, remain healthy and while the automotive and industrial still remain high.

So I think while monitoring the macroeconomics as well as the DOI and then we can only hope that the sooner we will see the upside. But right now the visibility is pretty low.

Charlie Chan, Analyst, Morgan Stanley: Okay. Yes. So yes, maybe try it again about Brett’s question about wafer pricing. So yes, because obviously, FX impact all the Taiwan, Tony, sounds to you a lot in terms of gross margin. Would that be a factor you can put on the table to negotiate with your customers for next year’s pricing?

Conference Moderator, UMC: I mean, we continue working with our customer in terms of pricing conversation, closely. And by those are more of a tactical conversation. I think fundamentally like I recall earlier, think our key focus is try to differentiate our technology offering and so that we can continue to enhance our product mix to improve the ASP resilience. I think that’s where we’re marching. And we have a fairly clear roadmap today that on many fronts of our technology development.

So our goal is on a further widen the gap in technology offering and increase the revenue contribution from those respective nodes and technology offering, which we think that we can make sure that our ASP can remain resilient.

Charlie Chan, Analyst, Morgan Stanley: Great. Thanks, Jason. Very helpful.

Conference Moderator, UMC: Thank you. Next one, Gokul Hariharan, JPMorgan. Go ahead please.

Gokul Hariharan, Analyst, JPMorgan: Hi, Jason and Chitong. Thanks for taking my questions. First of all, for the Singapore fab 20 nanometer and 22 nanometer expansion, could you talk a little bit about what is the current pace of the ramp up and the kind of customers that you’re ramping up there? Obviously, some of the pricing negotiation that you had back in ’twenty two and ’twenty three, obviously, had some price escalators. Could you talk a little bit about whether those prices still exist given the environment has definitely changed somewhat?

So that’s on the 28 nanometer part, yes.

Conference Moderator, UMC: Sure. Well, for the 12i, the Singapore facility, given the current market dynamics and customers alignment, we project the 12x Phase three production ramp will start in January 2026. And it will ramp up with higher volume starting in the 2026. And that’s the current rent plan. Many of this rent schedule and alignment is based on the customers’ close communications.

And right now given the application ramp up is going to be mainly in the communication with our 22 nanometer high voltage devices and we still believe our twenty two and twenty eight nanometer high V solution are differentiated on the market. And so the ASP still remains fairly healthy at this point.

Gokul Hariharan, Analyst, JPMorgan: Got it. Secondly on gross margins, So we are roughly in the mid-70s utilization and we’re kind of in the mid to high 20s gross margin. I think depreciation definitely started to grow again and looks like it’s going to grow into the next couple of years as you bring in 12i. So could you talk a little bit about what is the kind of the realistic pathway for us to get back to that mid-30s gross margins or low to mid-30s gross margins that we have talked about? Currency is not something that we control, but maybe talk about some of the other factors like is that kind of like a realistic goal that you’re pursuing?

And we can I think come back to some of the previous questions, can pricing be a realistic tool to kind of get there or is more challenging to use price as a tool to get there?

Conference Moderator, UMC: Well, absolutely. I mean, that’s our mission to continue to improve the gross margin back to the reasonable level. Given the current loading is fluctuating around the 70%, definitely putting some pressure in terms of the gross margin while the depreciation increase. And so the focus is very clear. I kind of answered Charlie earlier that we are focused on technology development, technology offering, even the newer technology offering and the partnership engagement and with the product mix improved.

And we think that we have a path going back to the reasonable level. Have for the past, we have been maintaining our function shares in our addressable market segment. Based on our current design pipeline, we anticipate more share gains in 2026 as well as going into 2027, particularly in the ’22 and ’28 nanometer market today. Now while we rolled out the other technology offerings, we think this will continue to improve and then we’ll definitely marching to the direction to go back to the right level, of the gross margin level.

Qi Dong Liu, CFO, UMC: And if I may add on to that, our annual depreciation growth is going to peak out. So if you recall in year 2023, our depreciation expense increased by more than 20% year over year and similar magnitude for 2024. And sorry, similar magnitude for this year for 2025. But therefore, ’26 and 2027, the increased magnitude will be a lot less, could drop down to single digits. So hopefully, we will have better cost structure moving into year 2026 and 2027.

Gokul Hariharan, Analyst, JPMorgan: Thanks, Igor. Maybe one more question on the high voltage side for ’28 and 2022. Jason, do we have a path way below 22 nanometer for high voltage, given there’s been some discussion about some of the driver IC related products moving below that, be it to some kind of a FinFET node, but enabling high voltage?

Conference Moderator, UMC: It’s definitely on our roadmap today. They are. While we still believe that 22 Hi V will be the most compelling and competitive solution today as well as next couple of years. And but yes, the thing that the solution of the high voltage is on our roadmap, yes.

Gokul Hariharan, Analyst, JPMorgan: And any timeline in terms of when you think customers will start demanding this?

Conference Moderator, UMC: That we’re still aligning with our customer. And again, it’s contemplating between the value proposition of the 2022 versus the next node. And we are closely working on that. And I think the I don’t have a specific time frame, but I kind of don’t want to give a guess right now because giving all the data on hand, we’re still seeing the 22 nanometer high voltage will have a link. There will probably be another year

Charlie Chan, Analyst, Morgan Stanley: to close to two years.

Gokul Hariharan, Analyst, JPMorgan: Understood. Maybe one last question. Several of the consumer fabless companies are guiding down Q3 quite meaningfully. Your own wafer orders are slightly moving up in Q3. Should we expect that there could be a hiccup in Q4, like every year seems to be a different seasonality, but just wanted to understand how you think about that inventory cycle for many of the Asian consumer cardless companies, which

Conference Moderator, UMC: are your key customers as well? Sure. I mean, inventory situation actually is quite healthy with fewer major segment already. And auto and industrial, I think they still kind of high, but the rest of it is actually quite healthy. We at this point, given the visibility, we do not guide Q4 at this time.

But our view for the full year 2025 will remain unchanged. And again, I kind of touched that earlier that we expect our addressable market will grow by that low single digit and we will still outgrow the addressable market in 2025. And the biggest challenge nowadays is really the visibility. Given the macro uncertainties and the geopolitical concerns, I think the customer is being cautious. It doesn’t mean that they don’t have a demand.

The question is they kind of want to play this thing in a different manner. So we’re working closely with them. And meanwhile, the Q2 is growing, Q3 is slightly sequentially and Q4 we just have to play and see. We will definitely report that next quarter. But meanwhile, we’ve seen an overall 2025 projection is still unchanged.

Qi Dong Liu, CFO, UMC: Okay. Yes. Thanks, Jason. Thank you.

Conference Moderator, UMC: Thank you. Next question from Yulin, UBS. Go ahead please.

Yulin, Analyst, UBS: Thank you very much for taking my questions. So my first question is on 28 nanometer. So if we look at Q2, Jason, what’s driving the revenue upside? Is it driven by the 22 nanometer migration or is it through a product mix upgrade? And then looking ahead, could you share a bit more on your share gain in wireless communications and maybe some of the other products going to 2026?

Qi Dong Liu, CFO, UMC: Okay. Well,

Conference Moderator, UMC: for the near term, the ’22 and ’28 revenue contribution increase is mainly coming out from the communication in Q2, computing and communication segment, but mainly on communication in Q2. Going forward, we are very we are highly, highly confident in the continuous growth of ’22 and ’28 nanometer business in 2025 and beyond going into 2026. The strong demand outlook is supported by the continued tape out momentum, many different applications, thanks to our the customers of course. And but again, it’s really supported by UMC’s differentiated technology and the regional manufacturing footprint as well. This includes our 12i fab in Singapore, the P3 fab expansion is on track and we want to on track to ramp in 2026.

We will begin to contributing the revenue in the 2026 and this will further strengthen our 2022 and 2028 capacity and support the growth for the growing demand. The combination of the technology proposition, manufacturing, quality and the well positioned capacity set up will ensure our 2022 and 2028 will remain the core growth engine for 2020 for the next year 2026, yes.

Yulin, Analyst, UBS: Thank you very much. So on 12.5, would you be able to price the wafers a bit higher, given a higher cost structure? And when you talk about high volume production starting from 2026, any type of capacity that we should expect?

Conference Moderator, UMC: Well, I mean, we tend to want go exactly capacity size, but we are quickly ramping our P3. And we look at this ’22 and 28 capacity on a total basis between our own facilities. And I think the OLED utilization rate across the different facility on ’22 and ’28 were above our corporate average. Even today they are above our corporate average. And question about the I kind of missed your earlier question, the first question.

Yulin, Analyst, UBS: Pricing for Singapore, would you be able to price a bit higher given cost is higher as well?

Conference Moderator, UMC: No matter I missed It’s a sensitive subject. Well, right now, again, our pricing position is based on our technology offering, our value proposition. And I think that’s the baseline of the ASP. The in terms of the diversified location, we have to work with our customers to understand the needs, right. So we want them to stay competitive and we want them to acknowledge the differentiated offering of our technology and as well as the geolocation benefit.

So it’s a subject that we will talk about with our customers, but mainly on the technology differentiation as well as competitiveness.

Yulin, Analyst, UBS: Got it. Thank you. That’s helpful. I have a question on the Intel partnership. It seems like Intel is becoming less proactive in pursuing the foundry ambitions with the new management.

So I wonder how does that affect the business development with UMC? And let’s say, if Intel want to scale down and they look to maybe sell their capacities, in that case, will UMC be interested in acquiring the capacity assuming the price is reasonable?

Conference Moderator, UMC: Well, first, I think it’s hard to comment any speculation, but the and I don’t kind of want to comment about the partner’s priority within the company, but I can only comment about our program. And our current program we’ve done, like I said earlier, the cooperation with Intel is progressing very well and the milestones remain on track. And the most importantly, the both parties are very committed to this 12 nanometer collaboration. And so I see no change at this point and we still have very high expectation

Yulin, Analyst, UBS: Got it. Thank you very much.

Charlie Chan, Analyst, Morgan Stanley: Thank

Conference Moderator, UMC: you. Next, we’ll have Laura Chen from Citi. Go ahead, please. I’m sorry, Laura just dropped her line, and we’ll take the next one, Jason Zhang, CLSA. Go ahead please.

Jason Zhang, Analyst, CLSA: Thank you for taking my questions. I just want to follow-up the impact on from the FX ratio. Can you provide your FX ratios for Q3? Thank you.

Qi Dong Liu, CFO, UMC: So first of all, every 1% move appreciation of NT dollars against U. S. Dollars, it will erode our gross margin about 0.4 to 0.5 percentage points. That’s where the three percentage point erosion come from back on back of the 6% plus NT dollar appreciation against U. S.

Dollars. And for Q3, we don’t do forecast, but we are using current ForEx rate, which is nearly 29.8% when we give out our guidance. And a reminder for quarter two, the weighted average was 30.81%.

Jason Zhang, Analyst, CLSA: Thank you. My second question is in terms of the competition. It seems like your Chinese competitors now have a better or higher utilization rate currently. So do we see a better market or lower competitions in the mature nodes? And how can UMC benefit from this lower competition?

Thank you.

Conference Moderator, UMC: Well, at this point, more than half of our revenue has come from specialty technology solutions, which is our customer demand in differentiated technologies. For instance, our 2220A, kind of touched on earlier, is probably the most competitive solution in high end smartphone or OLED display market. In addition, our 22 ultra low leakage and low power technology will deliver another 30% to 50% better power saving compared to standard 28. So we are positioned ourselves as a specialty foundry partner focused on low leakage, low power logic and better high voltage, BCD and better non Huawei, memory, RF SOI solutions. We want to continue to provide special technology where the percentage of revenue contribution in this space will increase and the percentage of the revenue contribution competing with the Chinese foundries will continue to decline.

I think that’s our focus. And I think that we have making quite a bit of progress already and we think there’s more room for us to improve on that.

Jason Zhang, Analyst, CLSA: Got it. Got it. Thank you. I have no more questions. Thank you very much.

Conference Moderator, UMC: Thank you. Next one, Laura Chen, Citi. Go ahead please.

Laura Chen, Analyst, Citi: Yes. Thank you very much for having me back. Just a quick follow-up, want to understand your view on the long term gross margin outlook. We understand that there’s a lot of moving parts, rising depreciation and also currencies, etcetera. But we do see that recently, utilization rate is kind of improving back to high 70%.

And as we’re moving into Q3 with the wafer shipment also going up. So what’s our view on our so called long term gross margin target? If you can give us more colors on that? Thank you, Jason.

Conference Moderator, UMC: Well, I mean the right now mid 70% is not great. And so obviously loading will be one of the important focus. And to improve the loading fundamentally you have to provide competitive solutions to customer. So our like I said, we focus on technology differentiation, focus on new technology development and then following with the customer key customer partners engagement. So by doing that, we think the loading will increase and so as well as the gross margin will get healthier.

And the other one is of course the cost and for depreciation increase Qigong also touched that earlier, this couple of years we have a significant depreciation increase. And after this 2025, I think the increased percentage will start getting more mild. And so while we improve the loading and maintaining the depreciated cost structure and the next thing is of course the ASP management. From ASP management and with more compelling solution and you have a more diversified manufacturing site and the manufacturing quality and we think the ASP will as it is a branded ASP will remain resilient. Not to mention, we will continue marching forward with our 12 millimeter development and hopefully that we can continue to improve the product mix as well.

So giving all those is putting a roadmap for us to improve our market relevance and position as well as our financial performance. And for the past, we have already improved our structure profitability in terms of our breakeven point and continue. On that front, we already see effect and benefit. But going forward, there’s still work to do and combining all those, we think we have a roadmap to marching to a better result.

Laura Chen, Analyst, Citi: Sure. Thank you very much. Chitung, can you also remind us what will be the depreciation cost increase for this year or maybe next year?

Qi Dong Liu, CFO, UMC: This year is low 20% year over year. Next year is still a very rough estimate. But as I mentioned, the magnitude of increase will decline significantly, maybe to below 10%.

Laura Chen, Analyst, Citi: Okay. Thank you very much. My next question is also about our operation in China. As we know, we still have two fabs in China. Even though there’s always very fierce competition, do we see any possibility that our IDM customers, if they want to like entering the Chinese market, they can also leverage our capacity there, thus to be kind of differentiation as well.

So can you give us more update on your current strategy in China?

Conference Moderator, UMC: Well, I mean, first of all, we with our diversified manufacturing sites, we definitely be able to serve different customer needs. And if there is a customer need for their product to be produced in our China facility, that’s something that will very much welcome us. The sensing that we have a customer moving from China to other locations and we very much work on that. And we believe with the diversified manufacturing offering will give us a benefit of supporting customer with their supply chain resilience needs. Right now for the IDN customer moving into the China facility, there’s certainly something else, but I think the signal goes by level multiple different ways.

And so we are working closely with different customer and hopefully we can fulfill their desired needs.

Laura Chen, Analyst, Citi: Okay. Thank you very much.

Conference Moderator, UMC: Thank you. Next one, Tim Schultz, Mollander. Redburn, go ahead please.

Tim Schultz, Analyst, Mollander Redburn: Yes. Hi, there. Thank you very much for taking my questions. I had two, please. The first one is on pricing behavior and particularly just how rivals are behaving in terms of pricing in the communications segment.

Is that disciplined pricing, particularly given the steady improvements in days of inventory or is pricing more challenging? And then I had a follow-up.

Conference Moderator, UMC: When there’s ample capacity available, pricing become a CapEx topic. So not until the capacity become tightened, I think the pricing will always be a topic. And so I think from a behavior standpoint, it’s really subject to the capacity situation. So given that the current capacity situation on different region are different and I think that conversation is still quite often. Yes.

Tim Schultz, Analyst, Mollander Redburn: Okay. That’s very helpful. The second one was in terms of the collaboration with Intel. Good to know that the PDK twenty twenty six, production twenty twenty seven still on track. I had a two parter there.

It’s just in terms of the work you’re doing with your partner, do you see any impact from the headcount reductions? Does that influence that cooperation in any way? And then the second part, talking about gross margins and the outlook in 2027, 2028, this journey to get back into the 30s. Obviously, loadings are the most critical factor. But does this cooperation with Intel play a material part in your sort of medium term gross margin outlook?

Many thanks.

Conference Moderator, UMC: From an absolute dollar turn, yes, it will. And because the business model that we have, if we coming back to the question about the headcount and the commitments of our partners is actually quite positive. And the program itself is being expanding from the R and D development now get into the high volume production preparation. So there is a more involvement of different organization. So I would say from the involvement standpoint from the different organization is actually increased.

But I can’t really comment about their second situation, but I can tell you we see a lot more activity from various different departments and organization because we’re moving from the R and D, the activity gradually start moving into the so called high volume production preparations. So you can see while we’re expanding the activity scope, there’s actually more involved with the program today.

Tim Schultz, Analyst, Mollander Redburn: That’s super helpful. Many thanks.

Conference Moderator, UMC: Thank you. And now we are taking the last question, Alex Chen, BNP. Go ahead please.

Michael Lin, Head of Investor Relations, UMC: Thank you for taking my question. I only have one follow-up question regarding to your China business. So can you comment like in terms of utilization, how is your China SaaS utilization versus the overall utilization? And in terms of the price pressure, have you seen the it’s eased in recent months? What is the outlook for the price pressure in China?

Thank you.

Conference Moderator, UMC: Our China the 12x facility today is actually running at full capacity. So it’s above our corporate average. And the since that we are our different sites are mainly serving as the manufacturing facility, The business management is all centralized. So there at this point there’s no pricing differentiation between different locations for us.

Qi Dong Liu, CFO, UMC: Thank you.

Conference Moderator, UMC: Thank you. Ladies and gentlemen, we thank you for all your questions. That concludes today’s Q and A session. I’ll turn it over to UMC Head of IR for closing comments.

Michael Lin, Head of Investor Relations, UMC: 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 irumc dot com. Have a good day.

Conference Moderator, UMC: Thank you. And ladies and gentlemen, that concludes our conference for second quarter twenty twenty five. Thank you for your participation in UMC’s conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors, Events section.

You may now disconnect. Thank you again. Goodbye.

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