United Microelectronics Corp (UMC) Q2 2026 Earnings Call Transcript

Welcome, everyone, to UMC's 2026 Second Quarter Earnings Conference Call. All lines have been placed on mute, tuned at that time. Conference Call is now being broadcasted live, or will be available within two hours after the conference is finished. To introduce Mr. Michael Lin, Head of Investor Relations at UMC.

Welcome to UMC's Conference Call. I am joined by Mr. Jason Wong, the CFO of UMC. In a moment, we will hear our CF followed by our CEO's key message to address UMC's focus. Once our CEO and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial reports are available at our website, www.umc.com. Under the Investors Financial section, in 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 ROC Securities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UNC CFO, Mr. Chidong Liu, to discuss UNC's second quarter, 2026 financial results.

Thank you, Michael. I'd like to go through the 2Q26 Investor Conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, second quarter of 2026, consolidated revenue was $68.73 billion NT, with gross margin at 32.5%. Net income attributable to the shareholder of the parent was $42.26 billion NT, and earnings per ordinary share was $3.39. NT$. Utilization rate in quarter two climbed to 85% from 79% in the previous quarter, and total wafer shipment in the second quarter reached 1.13 million, 12-inch wafer equivalent. On page five, we will start the sequential comparison. Revenue grew 12.6% quarter over quarter to reach $68.7 billion NT. Cost margin rate increased by almost over three percentage basis points to 32.5%, or $22.3 billion NT. And because of the recent stock market performance, our investment and dividend income together reached $30 billion in the third quarter under the non-operating income and expenses, which helped our NT net income to reach $42.2 billion. And for the net income attributable to the shareholder of the parent, it's $42.26, or an EPS of 3.39 per share in the second quarter. On page six, for the first six months of the year, the annual comparison for the first half, our revenue grew 11.3% year-over-year to $129.77 billion in the first six months of 2026. Gross margin rate also grew by over three percentage basis points to 30.9 percent or 40.1 billion NT in the first six months of 2026. For the non-operating income, similar for what happened in the second quarter, for the first half of the total non-operating income reached $35.6 billion, which leads our net income to reach $58.4 billion in the first six months of the year. EPS was $4.68 in the first half of 2026. On page 7, cash on hand is around $124.7 billion NT, with total equity reached $443.9 billion NT dollars at the end of second quarter of 2026. On page 8, our blended ASP increased by low single-digit percentage in the second quarter of 2026. For revenue breakdown on page 9, Asia remains our largest revenue pool, around 66% of total revenue, and North America reached about 22%. On page 10, IDM didn't really change much, this quarter is around 15% versus 14% in the previous quarter. Sales breakdown by application on page 11, and there's almost no change for the revenue among three major segments. Revenue breakdown by technology on page 12. Total revenue under 40 nanometer, still around 52%. With 22 and 28 nanometer, it's becoming our largest revenue pool, represents 37% of the total revenue. Quarterly capacity has shown some increase in our Singapore site, 12I, for the second quarter, and there will be a more meaningful increase in the coming quarter to reach 192,000 12-inch wafer capacity for our Singapore site. On page 14, our annual KPATS budget has raised or increased to $2 billion U.S. dollars from the previous number of $1.5 billion, which we will elaborate more details later during the conference call. This above is the summary of UMC results for second quarter of 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 Wong.

Thank you, Chi Dong. Good evening, everyone. Here I would like to share UMC's second quarter. Second quarter, our wave assurance increases 10.6% quarter-on-quarter, driven by strong demand in communication and consumer sector. utilization rate to a revenue from our 22 28 millimeter business continues with 22 millimeter revenue representing 17.5 percent of the second quarter sales we announced the company's first to a customer a major milestone for UNC that demonstrates the company's high volume silicon photonics means as we prepare to launch our silicon photonics platform available for general customers and momentum to remain stable across the computer communication and projected to increase by high single digits, driven by strong demand of power management IC, sensors, and microcontrollers. Our 8-inch portfolio is also seeing a strong rebound, and utilization is significantly in the third quarter, with our 12-inch capacity already at a healthy utilization rate, supporting core business, we must also prepare in advance to ensure UMC is well positioned to capture future opportunities. To ensure we are ready to scale rapidly to support our customers, we announced today that our board of directors has approved a plan to expand clean room capacity in Tainan, Taiwan, calling UMC to remain focused on capital discipline. Now, let's move on to third quarter the 2026 guidance. Our wafer shipment will increase by high singles. Growth margin will be in the mid-30% range. Capacity utilization rate will be. To support the growing customer demand in silicon photonics, advanced packaging, the 2026 capex will be $1.5 billion. That concludes my comment. Thank you all for your attention. Now we are ready for questions.

Yes, thank you. And ladies and gentlemen, we will now begin the question and answer session if you have a question for any of today's speakers one on your telephone keypad and you will enter the queue after you are announced please ask your question if you find that your question has been answered before it is your turn to we'll have our first question laura chen from city go ahead please uh yes hi uh thank you for taking my questions and congratulate for the good result and outlook.

It's great to see that UNC have good progress on the silicon photonics and also see that power management and IC improvement. So I assume that these all prepare for the AI-related business. So I'm just wondering for the longer terms, does UNC have any indication or target of your AI-related revenue? And can you also give us a breakdown of products you are aiming for. Thank you.

Well, they, as well as our Comfort Thomas, began important contribute, become a contributor to our growth in 2026. Revenue for 2026 is projected to close to approximately $300 million for this year. And looking ahead, in three years, we'll expect this AIA.

Yes, thank you. Very helpful. My second question is about the overall demand outlook. We know that Q3 will see the deterioration improvement, but I think consumer electronics demand in general is still quite weak. So what's the management view about the sustainability into probably Q4, or do you have any visibilities into maybe early next year?

Well, right now, what we see from the market is the worldwide demand is improving with a broader and more sustainable momentum. But it remains more AI-led to memory connectivity and power segment. Now, AI demand recovery is still mixed across different end-device markets and supply reduction plus inventory normalization. by moving to the market toward a more balanced and predictable environment. So we do see the future outlook is increasing. For the AI-related demand, while they remain very strong, what may be changing is the demand remains strong. Besides that, the bottleneck is not only on compute, but also on memory, connectivity, power management that I mentioned earlier. In the near term, come photonics, power, and FPGA-related products, particularly in our 40-nil-meter and 65-nil-meter technologies. For the non-AI, it's uneven, so we will not categorize. In the near term, we do acknowledge that consumer segments, including the handset, PC, and the notebook, will experience a year-over-year decline. However, for UMC, our wave assurance will grow year-on-year on 22-28 as well as our 8-inch business. In conclusion, our 2026 wave was driven by our own foundry share gain as well as customers' share gain in both AI and non-AI market. The 8-inch loading will improve while mature 12-inch.

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

To maximize focus on maintaining a sustainable business model through manufacturing capability and long-term partnership with customers. As the demand and industry conditions continue to improve, we are working with the customer to ensure pricing appropriately reflected that in continuous investment.

Thank you very much. Very helpful.

Thank you. Next one, Goku Harihalan, JP Morgan. Go ahead, please.

Thanks for taking my question. So, Jason, could you talk a little bit about the capacity expansion plan at Singapore P4 as well as your plan to construct a new fab in Tainan? Like, what are the kind of milestones we should look at? and what are the kind of phases that you are looking to kind of face this capacity in? I think how should we compare it to your previous plan about four, five years back when you had this new phase in Tannan and then you also built out the Singapore fab? Is it similar scale or is it going to be much smaller scale?

What drives that? This alignment and customer company, the milestone. And from the milestone-wise, now the board has approved it, and then we're going to start engaging with the follow-up activities. And then we will report back in terms of the install schedules once we get a confirmation from our staff.

Got it. Understood. and just follow up on the intel collaboration on the 12 nanometer now that we are likely to start recognizing some revenues next year how should we think about how meaningful these 12 nanometer based revenues are going to be and is it going to be like cross margin accretive given you have a revenue sharing and a profit sharing kind of agreement with them. Could you talk a little bit more about how we should model this contribution going into next year?

All the PDK will be ready for takeout in 2027.

One last question on gross margins, Jason and Chitong. You are already regarding for about 90% utilization, and gross margin is kind of reaching with 30. any any thoughts about how you think gross margins could progress in this cycle because feels like in the past cycles where utilization had reached about 90 percent gross margins were probably at a higher level given probably had a little bit more price leverage so just want to understand how you think about like gross margins can reach given the demand seems to be pretty strong and utilization is going to improve, can we go beyond 40% gross margin like we did back in 2022, or that is a little bit of a challenge right now?

Transition rate and operating income have increased versus last year. We will continue to improve our fundamentals, and we do expect the new project like Silicon Photonic and Advanced Packaging will enhance our EBITDA margin, but the higher depreciation expenses will certainly have a swing impact on the growth margin. So I think with the announcement of the new fab in Tainan and also the new clean room in Singapore, it's no doubt the depreciation expenses will increase as a result. We are confident to deliver higher profit numbers and also improve, enhance our EBITDA margins. but the growth margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Jitong, I think previously we were expecting maybe after this year, depreciation curve could kind of taper down. Is that still the case, or we should expect that there is still some increase in depreciation next year as you bring on some of the new clean room and some new phases?

Yeah, the new clean room and the new shell in China certainly changed the curve. And now we are expecting the depreciation to increase by low teams for over the next two years.

So low teams each year over the next two years or low teams? Low teams each year at least, yeah. Understood. Yeah, thank you very much. I'll go back to the queue.

Thank you, Stanley. Go ahead.

Hi, Jason. Chidong. Mike, thanks for taking my question. I know you're kind of getting share, but how about your customers? The market seems to be pretty challenging. Yeah, so with that kind of, do you think?

Well, I mean, first of all, the market outlook for us, you know, we remain optimistic because it's driven by both AI-related and non-AI-related demands. While those demands and industry continues to improve, the pricing environment becomes more constructive. So the discussion, engaging discussion with customers is actually a constructive discussion. Giving that visibility, annual pricing trend more meaningful.

Can I follow up a little bit about business plan? Because I think it's in your understanding is that 5D, the interposer production, And you do have some 3DIC, but it's more for like 3DIC are going to do not just the RF, but also some. Lastly, we noticed that links to Unimicron in substrate will be even closer. And go over or partnership between you and Unimicron going forward, besides the kind of financial investment. The last one, if I may, just a million. And how will the power management be considered as the connectivity? Yeah, I think that's all from me. Thanks for the update.

Next one, Sonny Ling, UBS. Go ahead, please.

Thank you very much for taking my questions. Congrats on the very strong outlook. So I want to follow up on the new expansions. So may I double confirm that these two new expansions would be mainly for silicon photonics and advanced packaging, not for a typical foundry business? And Jason, you just mentioned that you do think advanced packaging overall, the addressable market for UMC should more than double by 2030. Would you be able to share with us the addressable market that you are forecasting for UMC in the coming few years? and we prepare to assume that maybe we think that the capacitor, embedded capacitor may be the major one or how should we think about the contributions from the various projects that you are working on?

Yeah, I mean, we announced the clean room preparation in our Singapore P4 facility is prepared for this and the Thailand facility of the P7. In terms of the DDC, like you said, interposal with DDC, discrete DDC, the wafer-to-wafer stacking, and the memory-to-memory stacking, a very broad offering of the packaging. Now, the DDC does play a major part of that, since we have more than 35 different products.

Got it. Thank you. Thank you very helpful. So would you be able to share with us any color about the size of the adjustment market that you are looking at? And also it would be helpful to think about the trajectory for your revenue coming from advanced packaging. And so would it be fair to assume that your advanced packaging should see inflation point when your new supply starts to be on board? and given the lead time for expansion, would that be maybe in late 28, 29 timeframe?

Yes.

Got it. Thank you. And maybe a question on your Singapore expansion for the P3. And so now given the stronger demand outlook, how should you think about the capacities that you are going to ramp by end of this year and also by end of 2027? Sorry, just to add one question on Singapore P3. So if there are a target for your capacities, maybe let's say by end of the year and end of the year?

Just giving the tooling time and install.

Got it. Okay, thank you. Maybe last one on silicon photonics. So now given you have two solutions, one on 12-inch value license from IMEC, and the other one on 8-inch by TFLN. And so would you be able to share some color regarding the respective strengths of two solutions and how should the client choose? And based on your current development, which one do you think may drive more meaningful revenue contribution in coming years?

Maybe start off one. We are releasing a 12-inch solution, which we believe is the 12-inch will offer better process colors

Thank you very much. Very helpful.

America, go ahead.

Thank you for taking my questions, and congrats on the great results. My first question is regarding your CAPEX outlook in the next couple of years. You mentioned that AI revenue in three years could be a contribution. So how should we think about your CAPEX growth trajectory in the next few years to achieve that goal? And relatedly, I think, how should we also think about that your equipment investment as percentage of your CAPEX in the next two years? Because it seems that you meaningfully revised off your depreciation outlook for the next two years.

CAPEX is about $5 billion. I don't really have a full number, but in terms of depreciation, as I mentioned, it will be a low increase year over year. And for 2028, it will depend on the CAPEX numbers.

That's very clear. So in the next two years, in 2027 and also 2028, your CAPEX will be at least $5 billion U.S. dollars for the new investments.

Total will be, today's board approved, $5 billion, which will be spent across 2026 and 2027. And the 28 numbers will depend on the phase expansion.

Got it. Very clear. And then I think just regarding that capacity expansion plan you are targeting and the AI revenue mix you are targeting, that it seems like in three years, based on our model, that your AI revenue could reach 10% of your total sales versus low single digits this year. Would you be able to try to, or do you have any view which part of the applications could actually be the main drivers. You mentioned a couple of drivers, for example, like connectivity, silicon photonics, and also power management IC. But would you be able to rank it in terms of the growth rate or from the revenue contribution perspective, which part of the application is going to be the key driver? Yeah, and that's my follow-up question. Just regarding your strategic positioning, when you start ramping your capacity for silicon photonics and advanced packaging in 2028. I was just wondering, compared to your peer solutions, which probably have already been in the market for a few years, what do you think your strength is compared to them? Is it from the technology roadmap perspective or your customer relationship? Or is it still coming from the demand spillover, which could actually, you could also capture some of the fast-expanding addressable markets?

Okay, yeah.

And I think just a quick follow-up before jumping back to the queries. That's your gross margin in the second quarter. And I think the guidance was also pretty solid as well. Would you be able to quantify the factors supporting your gross margins? For example, like utilization, pricing, and FX, any of these are positives or negatives? Could you just try to share with us in a more quantitative way?

Quarter 3 gross margin guidance is mainly attributed to the higher utilization rate. So loading was 85% in the second quarter. guidance for the third quarter is the typical factor including ASPE, product mix, and utilization rate, foreign exchange rate and depreciation, etc., etc., probability that as I mentioned earlier, for the next two, three years, we will continue to improve, deliver better results for EBITDA margin, and gross margin will...

Yeah, that sounds great. And I think just one more is probably just on your part of ASPE exposure. could you share with us how much of your revenue is coming from these products no matter it is for which end markets and I think second thing is probably just on the utilization by inch and also 12 inch last time you mentioned that 12 inch was still slightly higher than 8 inch but what's your view right now for same quarter so your power IC exposure is how much percentage of your sales now okay got it, thank you so much Thank you.

Next one, Catherine Yu, Goldman Sachs.

Thank you for taking my question. So my first is on, I would like to know what's our strategy on more advanced notes going forward? Because we're now working with Intel on 12-millimeter, and where does that go from here? Or is it fair to think that we could enter more advanced notes, say, 7-millimeter and below? And if so, what would this model look like? and maybe I'll put it this way, what are the key factors that we need to see before we're committed to expanding beyond 12 millimeter?

The simple answer to that is we have the first solid foundation.

All right, so is it fair to say that the young may be entering to 7 millimeter and beyond maybe after 2028?

Well, I mean, if there is a discussion, we'll probably have more clear milestone.

Yeah, this really needs to be a mutual beneficiary collaboration, and the current focus is on 12 nanometer only. Again, UMC is always open to find the best solution. It's going to be difficult.

Got it. Thank you. So my second question is on how would you characterize the current cycle now versus the trip-shorters cycle in 2021? I think the last time was a more broad-based, supply-driven supercycle with utilization over 100%, with pretty aggressive ASP increases almost every quarter. And this time, the recovery looks more narrow to a more concentrated on AI. So do you agree that the nature of the demand has actually fundamentally changed? And the key question I want to ask is that, how should we think about your margin trajectory going forward and the pricing power this time? versus the last up cycle um do you think it's possible for your gross margin to surpass the level the peak level that we saw for in 2022 in the coming years the outlook actually don't talk

about the the growth margin but before that and you know i i have the same answer on the cross margin we really don't compare ourselves to the historical data i mean we certainly try very hard to deliver a higher profit as i mentioned because of the new in tainan so the depreciation expenses and how we amortize a big impact on the near-term gross margin so i think we are a lot more confident to say our EBITDA margin will show steady growth over the next few cycle or next few expansion phases. But the gross margin will be largely depends upon how we book the depreciation.

Okay, thank you.

And ladies and gentlemen, we thank you for all your questions, and that concludes today's Q&A session. I'll turn things over to UMC head of IR for closing remarks. Thank you.

Thank you for attending this conference at UMC.com.

Thank you. And ladies and gentlemen, that concludes our conference. Thank you for all your participation in UMC's conference. There will be a webcast replay within two hours. And please visit www.umc.com under the Investor's Event section. You may now disconnect. Thank you again. Goodbye.