Thank you and welcome to UMC's conference call for the second quarter of 2026. I am joined by Mr.

Jason Wang, the CEO of UMC; and Mr. Chitung Liu, the CFO of UMC.

In a moment, we will hear our CFO present the second quarter financial results, followed by our CEO's key message to address UMC's focus and third quarter 2026 guidance. 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 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 more detailed description of these risks and uncertainties, please refer to our recent and subsequently filings with the SEC and ROC 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.

Chitung Liu, to discuss UMC's second quarter 2026 financial results.

Thank you, Michael. I'd like to go through the 2Q 2026 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 shareholders of the parent was 42.26 billion NT, and earnings per ordinary share was 3.39 NT dollars.

Utilization rate in quarter 2 climbed to 85% from 79% in the previous quarter. Total wafer shipment in the second quarter reached 1.13 million 12-inch wafer equivalents.

On page 5, we will start the sequential comparison. Revenue grew 12.6% quarter-over-quarter to reach 68.7 billion NT.

Gross margin rate increased by almost over 3 percentage basis points to 32.5% or 22.3 billion NT. 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 net income to reach 42.2 billion.

For the net income attributable to the shareholder of the parent is 42.26, or a EPS of 3.39 per share in the second quarter. On page 6, for the first 6 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 6 months of 2026.

Gross margin rate also grew by over 3 percentage basis points to 30.9% or 40.1 billion NT in the first 6 months of 2026. For the non-operating income, similar for what happened in the second quarter, for the first half of the total non-operating income reached 35.6 billion, which lead our net income to reach 58.4 billion in the first 6 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 remained our largest revenue pool, around 56% 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.

For sales breakdown by application on page 11, there's almost no change for the revenue among three major segments. For revenue breakdown by technology on page 12, our total revenue under 40 nanometer still around 52%, with 22 and 28 nanometer is becoming our largest revenue pool, represent 37% of the total revenue.

Our quarterly capacity has showed some increase in our Singapore site, 12i, for the second quarter, and there will be a more meaningful increase in the coming quarters to reach 192,000 12-inch wafer capacity for our Singapore site. On page 14, our annual CapEx budget has raised or increased to $2 billion US 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's 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 Wang.

Thank you, Chitung. Good evening, everyone.

Here I would like to share UMC's second quarter results. In the second quarter, our wafer shipment increased by 10.6% quarter-on-quarter, driven by strong demand in communication and consumer segments.

Further improving utilization rate to 85%. Revenue from our 22/28-nanometer business continues to set record high, with 22-nanometer revenue representing 17.5% of the second quarter sales.

Earlier this month, we announced the company's first mass production delivery of a 12-inch photonics IC to a customer. A major milestone for UMC that demonstrates the company's high-volume silicon photonics manufacturing capability on 12-inch wafers, as we prepare to launch our silicon photonics platform available for general customer use in 2027.

Looking ahead to the third quarter, we expect demand momentum to remain stable across the computer, communication, and consumer segments, with the shipment projected to increase by high single digits, driven by strong demand of power management IC, sensors, and microcontrollers. Our 8-inch portfolio is also seeing a strong rebound, and utilization is expected to improve significantly in the third quarter.

With our 12-inch capacity already at a healthy utilization rate supporting core business, we must also prepare in advance to ensure UMC is well-positioned to capture future opportunities driven by AI. To ensure we are ready to scale rapidly to support our customers, we announce today that our Board of Directors has approved a plan to expand cleanroom capacity at our Singapore P4 facility and to construct a new fab in Tainan, Taiwan.

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

Now let's move on to third quarter 2026 guidance. Our wafer shipment will increase by high single digit.

ASP in US dollars will remain firm. Gross margin will be in the mid-30% range.

Capacity utilization rate will be greater than 90%. To support the growing customer demand in silicon photonics, advanced packaging, the 2026 CapEx will be raised to US$2 billion from US$1.5 billion.

That concludes my comments. Thank you all for your attention.

Now we are ready for questions.

Yes. Hi.

Thank you for taking my questions, and congratulate for the good results and outlook. It's great to see that UMC have a good progress on the silicon photonics and also see that power management IC improvement.

I assume that these are all prepare for the AI-related business. I'm just wondering for the longer terms, does UMC have any indication or target of your AI-related revenue?

Can you also give us a breakdown on products that you are aiming for? Thank you.

Our AI-related business is driven by the specialty semiconductor solutions, supported a broad range of applications, including the power management, connectivity, FPGA, as well as our growing advanced packaging and silicon photonics business. Those are the focus.

This business will have already become a contributor to our growth in 2026. The current revenue for 2026 is projected to close to approximately $300 million for this year.

Looking ahead, in 3 years, we'll expect this AI exposure to exceed US$1 billion.

Yes. Thank you.

Very helpful. My second question is about the overall demand outlook.

We know that 2Q 3Q we will see utilization rate improvement, but I think consumer electronics demand in general still quite weak. What's the management view about the sustainability into probably Q4, or do you have any visibilities into maybe early next year?

Right now, what we see from the market, the worldwide demand is improving with a broader and more sustainable momentum. It remains more AI-led.

AI is leading that, and is spilling over into memory, connectivity, and power segment. Non-AI demand recovery is still mixed across different end-device markets.

Supply reduction plus inventory normalization are moving to the market toward to more of a balanced and predictable environment. We do see the future outlook is increase in terms of visibility.

For the AI-related demand, while they remain very strong, what may be changing is the XPU demand remains strong, beside that, the bottleneck is not only on compute, but also on memory, connectivity, power management that I mentioned earlier. In the near term, we are seeing upside to our silicon photonics, power, and FPGA-related product, particularly in our 40-nanometer and 65-nanometer technologies.

For the non-AI, it's uneven. We will not categorize the current environment as a full broad-based recovery yet.

In the near term, we do acknowledge that consumer segment, including the handset, PC, and the notebook, will experience a year-over-year decline. However, for UMC, our wafer shipment will grow year-on-year on 22/28 as well as our 8-inch business.

In conclusion, our 2026 wafer shipment will increase, both driven by our own foundry share gain as well as customer share gain in both AI and non-AI market. The 8-inch loading will improve to mid-80% range, while mature 12-inch loading will also increase quarter-on-quarter on AI-related demand.

Okay. Thank you very much.

In that case, can I also just a quickly check what's your view on the ASP trend into the second half?

Our pricing strategy has always remained consistent. We're not trying to maximize the short-term pricing based on the market cycle.

Instead, we focus on maintaining a sustainable business model through value-based pricing that reflects our differentiated technology, manufacturing capability, and long-term partnership with customer. As the demand and industry condition continue to improve, we are working with customer to ensure pricing appropriately reflect that value, while supporting continuous investment in technology and capacity.

Thank you very much. Very helpful.

Yeah. Hi.

Thanks for taking my question. Jason, could you talk a little bit about the capacity expansion plan at Singapore P4, as well as your plan to construct a new fab in Tainan?

What are the kind of milestones we should look at and what are the kind of phases that you are looking to phase this capacity in? I think how should we compare it to your previous plan about 4, 5 years back when you had this new phase in Tainan, and then you also built out the Singapore fab?

Is it similar scale or it's going to be much smaller scale?

Okay. Yeah.

Let me maybe start off what drives that, right? What drives that decision that we made today.

When we mapped out the industry growth over the next 5 years, we see several important trends. Within the AI data center, while growth in compute and memory will remain high, we also see the connectivity and power also growing at a high CAGR, driven by the needs for more bandwidth and more efficient power.

The second is the automotive electrification trend continues, not just in EV, but for autonomy and infotainment applications. The third is when we look at these emerging applications such as the robotic, satellites, we know that again, very very high growth in compute, memory, sensing, connectivity, and powers.

This industry trends, combined with our entry into the advanced packaging such as logic and memory stacking as well as the silicon photonics, will accelerate the growth within the UMC addressable market. Within our existing portfolio, we also see that advanced packaging is enabling our customers to think differently about new architectures and designs of their products.

Since we believe we are ahead of our peers in advanced packaging, this is leading to a share gain and many new opportunities. Therefore, we actually believe the TAM actually will grow significantly compared to the past.

Consistent with this long-term outlook, in terms of how to do this, we're going to execute each expansion phases. What we pursue is based on the market validation, this alignment, and customer commitment, which will provide both long-term capacity assurance to our partners and loading protection to UMC.

That's truly the thesis behind the decision, as well as how we want to execute this. You also have a follow-on question in terms of the scale.

Details, the schedule.

The milestone and the schedule, right? For right now, for the Singapore, we will invest in the cleanroom for our P4 facility and the tool purchase to expanding our silicon photonics capacity.

In Tainan, the construction of a 12A P7 and P8 will set up a robust foundation for the UMC to scale the advanced packaging alongside with the customers' long-term product roadmap. That's only going to be more of the foundation.

We're building the shell for the 12A P7 and P8. The cleanroom installation at this time is focused on the Singapore P4.

From the milestone-wise, now the Board has approved it, and then we're going to start engaging with the follow-on activities. Then we will report back in terms of the install schedules, once we get the confirmation from our subs.

Got it. Understood.

I'd just follow up on the Intel collaboration on the 12-nanometer now that we are likely to start recognizing some revenues next year. How should we think about how meaningful these 12-nanometer-based revenues are going to be?

Is it going to be gross 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?

First let me update the 12 current status. The overall 12-nanometer cooperation project with Intel is advancing smoothly, and we anticipate the product tape-out will commence in 2027.

All the PDK will be ready in late 2026, and the customer will design in and ready for tape-out in 2027. So 2027 will still at the early stage of ramping the product, I would say, probably at a pilot stage.

The production will probably be more meaningful in 2028. That's the current status of the 12-nanometers.

In terms of the business model, that will be accretive to our current financials.

Okay. Maybe one last question on gross margins, Jason and Chitung.

You are already guiding for about 90% utilization and gross margin is kind of reaching mid-30s. Any thoughts about how you think gross margins could progress in this cycle, because seems like in the past cycles where utilization had reached above 90%, gross margins were probably at a higher level, given probably had a little bit more price leverage.

Just wanted to understand how you think about where gross margins can reach, given the demand seems to be pretty strong and utilization continues to improve. Can we go beyond 40% gross margins like we did back in 2022, or that is a little bit of a challenge right now?

Our utilization rate and operating income have increased versus last year. We will continue to improve our fundamental.

We do expect the new project like silicon photonics and advanced packaging will enhance our EBITDA margin. The higher depreciation expenses will certainly has swing impact on the gross margin.

I think with the announcement of the new fab in Tainan and also the new cleanroom in Singapore, no doubt the depreciation expenses will increase as a result. We are confident to deliver higher profit numbers and also enhance our EBITDA margin.

The gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Okay. Chitung, 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 cleanroom and some new phases?

The new cleanroom and the new shell in Tainan certainly changed the curve. Now we are expecting the depreciation to increase by low teens over the next 2 years at least.

Low teens each year over the next 2 years or low teens cumulatively?

Low teens each year at least, yeah.

Okay. Understood.

Yeah. Thank you very much.

I'll go back to the queue.

Hi, Jason, Chitung, Mike. Thanks for taking my question.

Just some quick follow-up about the previous topic. I know you kind of gain in share, but how about your customers' chip inventory, right?

Because the end market seems to be pretty challenging. According to our analysis, it seems like some of your fabless IC design company their revenue is kind of undergrowing your wafer shipment.

I'm wondering whether you are concerned about the chip inventory accumulated at your customer side.

Charlie, first, we always cautious about the inventory situation, right? Not to the level that we need to be worried at this point.

For the first quarter '26, the DOI level actually rose slightly. They've gone up a little bit.

What we see is really coming from one PC was strongest driver of the inventory build-up, as the AI infrastructure build cycle is still ongoing. In the HPC was the strongest driver.

In the PC segment, early stocking and shipment occurred in response to rising memory prices. We are seeing that.

The inventory and the DOI for the smartphone and consumer segments are rising simultaneously, indicating the end market remain weak. There are some area are weaker.

Although the demand in the automotive and industrial segment is stable, their DOI remained higher than the historical average. For the Q2 '26, while we tracking that, the overall consumer spending remain weak, and we expect the semiconductor sales to stay strong in 2026, which will drive the DOI by several days again.

Currently we're not to the level that we need to be worried, but we are cautious and continue tracking the progress of DOI.

I see. Thank you.

Yeah. Would that kind of impact your kind of negotiation with customers to whether passing through the cost because you're increase in your investments, right?

Do you think there's a dynamic change for you to reflect your fab value next year?

The market outlook for us, we remain of optimistic because it's driven by both AI-related and non-AI-related demand. While those demand and industry continue to improve, the pricing environment become more constructive.

Engaging discussion with customer is actually a constructive discussion. Giving that visibility, and we expecting the annual pricing trend to be better than we anticipated, and we even expecting more meaningful pricing uplift in 2027.

Great to hear. Can I follow up a little bit about advanced packaging business plan?

Because I think it's pretty new to me that you want to expand your advanced packaging cleanroom for two phases. My understanding is that for 2.5D, your previous focus was more about the interposer production, and you do have some 3D IC, but it's more for RF.

Are you going to do the full stack of 2.5D, for example, CoWoS? For the 3D IC, are you going to do not just the RF, but also some AI-accelerator kind of products?

Lastly, we noticed that your vice chairman now kind of moved to Unimicron, right? I'm not sure whether we can link these two developments together.

UMC very aggressive in advanced packaging, and your kind of partnership with Unimicron in substrate will be even closer than before. Should we think that way?

On our advanced packaging offering, start off with that, you're absolutely right. We started with the interposer solution and followed with the RF SOI 3D IC, the chiplet solution.

Offering is actually more than that now. The overall addressable market is projected to more than double by 2030 in our addressable market because it extended from the 2.5D interposer with DTC, discrete DTC, 3D wafer-to-wafer stacking, and that's what you're referring to the RF SOI, and the memory-to-memory stacking as well.

Our customer engagement is building up, with more than 10 active customers now and over 35 new product in discussion and expect to tape out in 2026 and early 2027. We actually feel pretty optimistic about this advanced packaging space.

That's why we start deploy the facility preparation. Now, like you said, we have already entered production for the 3D wafer-to-wafer hybrid bonding, bridge die, and discrete DTC, but they will follow by the wafer-to-wafer stacking as well.

We'll continue broaden our advanced packaging offering, but not to the CoWoS solution, because it's not a platform solution. It is advanced packaging capability serving various different combinations of a solution, both from our existing offering to even the new offering, new integration options.

We see many different new exciting opportunity there, but not a CoWoS, okay? Now in terms of ecosystem, we're working with the entire ecosystem in terms of our solution to serve our customer.

It's not going to be limited to anyone particular.

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

At this point, it is mainly driven by the financial. It's one of our investor portfolio companies, and we remain as an investor.

Not at this current point, but once there's a opportunity rise in the ecosystem, we'll definitely explore that with them. Yeah.

Okay. Thank you.

Last one, if I may, just the AI-related revenue. Jason, did you say that your overall revenue from AI already exceed the $1 billion US dollars?

Was that your comments?

Yes, close to $300 million this year. In 3 years, we will exceed $1 billion.

Okay. Then and how would you define the AI-related revenue?

I believe RF IC, silicon photonics, silicon interposers, but what's your sort of strict definition about your AI revenue?

The solution that associate with AI as the end product, including the connectivity, power management, those are all category as the AI exposure.

Okay. Silicon photonics can be considered as the connectivity?

Yes, as a part of the connectivity solution, yes.

Okay. I think that's all from me.

Thanks for the update. Thank you.

Sure.

Thank you.

Thank you very much for taking my questions. Congrats on the very strong outlook.

I want to follow up on the new expansions. May I double confirm that these two new expansion will be mainly for silicon photonics and advanced packaging, not for typical foundry business?

Jason, you just mentioned that you do see advanced packaging overall the addressable market for UMC should more than double by 2030. Would you be able to share with us the addressable market that you are forecasting for UMC in the coming few years?

Would it be fair to assume that maybe within that the capacitor, embedded capacitor, maybe the major one, or how should we think about the contributions from the various projects that you are working on?

Yeah. The announced cleanroom preparation in our P4, Singapore P4 facility, is prepared for the silicon photonics capacity.

The Tainan facility of the P7 is prepared for the advanced packaging. In terms of the advanced packaging addressable market growth, that includes the DTC, like you said, and from the interposer with DTC, discrete DTC, the wafer-to-wafer stacking, and the memory-to-memory stacking, a very broad offering of advanced packaging.

Now the DTC does play a major part of that, and that's a very significant part of that. Since that we have more than 35 different product taping out, a high percentage of those are considered as the DTC, yeah.

Got it. Thank you.

Very helpful. Would you be able to share with us any color about the size of the addressable market that you are looking at?

Also will be helpful to think about the trajectory for your revenue coming from advanced packaging. Would it be fair to assume that your advanced packaging should see inflection point when your new supply start to be on board, and given a lead time for expansion, would that be mainly maybe in late '28, '29 time frame?

Yes, I think the given the current construction timeframe, it's been stretched out. There's a lot of activities going on in terms of construction site.

From the timing standpoint, we do looking at somewhere greater than 20 months in terms of lead time. That will pull us into '28 and '29 cycle.

However, like the earlier question, in terms of milestone, I will probably like to share that when I have more specific data, because right now we're getting roughly a 20 months of lead time on the construction. Since Board just approved it today, and we're engaging that discussion, and we'll probably report back when we have more specific.

Got it. Thank you.

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

Yes. Part of the approved budget, CapEx today, that includes some of the capacity expansion in our P3 facility.

In the existing facility, we will be adding the BCD, which is a power management solution, as well as the silicon photonics. For the 12A in Taiwan, we'll start putting some CMS, which we call customized memory stacking, and the DTC solution in our 12A in Tainan.

Meanwhile, we also putting some PassLong capacity set up in our 8-inch facility. That will be on the way now.

That's all going to happen within our existing facilities.

Got it. Sorry, just to add one question on Singapore P3.

Is there a target for your capacities, maybe let's say by end of this year and end of next year? Yeah.

Once we release this, given the tool lead time and install, we expect we'll see some some production ramp on this in I would say late 2027, 2028 early 2028. Yeah.

Got it. Okay.

Thank you. Maybe last one on silicon photonics.

Now given you have two solutions, one on 12-inch that you licensed from IMEC, and the other one on 8-inch by TFLN. Would you be able to share some color regarding the respective strengths of the two solutions and how should the client choose?

Based on your current development, which one do you think may drive more meaningful revenue contribution in coming years?

Okay. Let me maybe start off on silicon photonics, we are releasing the 12-inch solution.

That's what we believe that will be the best solution for our customer, and how to differentiate while our other competitors still on 8-inch. The 12-inch will offer better process control, which will give us better performance.

For example, the propagation loss, better yield, and we have demonstrated that on silicon wafers already to our customer. For the TFLN, we have the world's first TFLN modulator in production already, and we are working on the 40G per lane, and for the 3.2T that is based on the TFLN for the customer today.

We think that's actually the best solution for beyond the 400G. Combining the two, that will be an integration option for this two.

We can implement the TFLN with our silicon photonics PIC, through our advanced packaging solution. Along with that, we can offer the optical I/O, the OIO, which is the interposer with the PIC through our advanced packaging.

We also can provide this TFLN as a component for the CPO solution. We see there's a lot of various combination of this, and between the two.

We think that we have a unique position on that. Yeah.

Thank you very much. Very helpful.

Yes. Thanks for taking my questions and congrats on the great results.

My first question is regarding your CapEx outlook in the next couple of years. You mentioned that AI revenue could being 3 years in 3 years could be at around $1 billion contribution.

How should we think about that your CapEx growth trajectory in the next few years to achieve that goal? Relatedly, I think how should we also think about that your equipment investment as percentage of your CapEx in the next 2 years?

Because it seems that you meaningfully revise up your depreciation outlook for the next 2 years. Thank you.

For CapEx, today's board meeting approved nearly $5 billion US dollars already. That's the number we will work with over the next 2 years or maybe 3 years.

As our CEO point out, this is going to be a phased construction, a phased expansion strategy. We will adjust accordingly based upon customer commitment and our customer wins.

We don't really have a full number, but to start with $5 billion US dollars for the next 2 to 3 years is probably the beginning. In terms of depreciation, as I mentioned, it will be low teens increase in year-over-year for at least this year as well as 2027.

For 2028, it will depend on the CapEx number based upon the factor I just highlighted.

Got it. That's very clear.

In the next 2 years, in 2027 and also 2028, your CapEx will be at least $5 billion

US dollars

for the new investments?

Total will be today's board approved $5 billion, which will be spread across 2026 and 2027. And 2028 numbers will depend on the phased expansion.

Got it. Very clear.

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 3 years based on our model that your AI revenue could reach 10% of your total sales versus low single digits this year. Would you be able to try to, or do you have any view on 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. 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?

Obviously, from the growth standpoint, because the silicon photonics and the advanced packaging is still at the early stage, from the compound annual growth rate standpoint, they are the fastest growing and the highest growth rate. We also believe our current existing solution will also grow.

Because it's driven by also the AI and non-AI space. Those will also grow, but in a lower pace,

yeah, growth rate. Okay.

Then my follow-up question is 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 peers' solutions, which probably have already been in the market for a few years, what do you think your strength is compared to them?

Is it from the technology roadmap perspective or your customer relationship, or it is still coming from the demand spillover, which could actually capture some of the fast-expanding addressable market within that big pie? Thank you.

I think on the silicon photonics, like I mentioned earlier, we are the first of offering the 12-inch solution, and we believe that's actually a better process compared to the 8-inch on the market today. It offers much better performance and the process control.

We think there's a huge differentiation there. I think that's the technology process advantage.

For the TFLN PassLong, we also believe that's a best option for anything beyond 400G in the market today, and we're going to be a point of mass production of that as well. I think there's a big technology differentiation, not a spillover.

On the existing solutions, I think there will be multiple factors, and but in a much lower growth rate is because of the spillover reason. Beside the existing technology also has own driver that drives the growth.

Coming back to the silicon photonics, which is the big highest driver, as well as advanced packaging, I think we have a very good differentiation there, yeah.

Okay. I think just a quick follow-up before jumping back to the queue is that your gross margins had a pretty nice uplift in second quarter, and I think the guidance for the third quarter near term is also pretty solid as well.

Would you be able to qualify the factors supporting your gross margins? For example, like utilization, pricing, and FX, any of these are positives or negatives?

Could you just try to share with us in a more quantitative way? Thanks.

The higher quarter 3 gross margin guidance is mainly attributed to the higher utilization rate. Loading was 85% in second quarter, but guidance for the third quarter is 90%

plus.

There will be multiple factors, including ASP, product mix, and utilization rate, foreign exchange rate, and depreciation, etc., etc. Our focus is certainly to enhance our profitability.

As I mentioned earlier, for the next 2, 3 years, we will continue to deliver better result for EBITDA margin, and gross margin will come along with the depreciation curve.

That sounds great. I think just one more is probably just on your power IC exposure.

Could you share with us how much of your revenue is coming from these products, no matter is for which end markets? I think second thing is probably just on the utilization by 8-inch and also 12-inch.

Last time you mentioned that 12-inch was still slightly higher than 8-inch. What's your view right now for second quarter and also third quarter?

Thank you.

The 12-inch is still above corporate average. We expect the Q3, the loading will be greater than 90%, and 12-inch is greater than corporate average, and the 8-inch is below.

I think I actually mentioned that earlier. I said the 8-inch will reach 85%, yeah.

Okay.

Your power IC exposure is how much percentage of your sales now?

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

Okay. Got it.

Thank you so much.

Thank you for taking my questions. My first is on, I would like to know what's our strategy on more advanced nodes going forward, because right now working with Intel on 12 nanometer, and where does that go from here?

Or is it fair to think that we could enter more advanced nodes, say, 7 nanometer and below? If so, what would be this model look like?

Maybe I'll put it this way, is that what are the key factors that we need to see before we're committed to expanding beyond 12 nanometer?

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

The overall 12 cooperation project is going smoothly. I think the 12 need to be the solid foundation for us to explore the next generation.

Meanwhile, the 12 nanometers representing more than just the pure logic. Today, we actually are already expanding that to the high voltage from the 12, which is 14 HV, and they are more in terms of derivative, the specialty technologies in discussion right now.

There's a lot of activity and a lot of work that we have to get done for the 12 nanometer today. Yes, the simple way to look at it is we have to execute the 12, and then we will explore beyond.

Right. Is it fair to say that beyond maybe enter into 7 nanometer and beyond maybe after 2028?

If there is a discussion, we probably have more clear milestone in terms of...

This is really need to be a mutually

beneficial collaboration, and current focus is on 12 nanometer only. Again, UMC is always open to find the best solution to have a low-asset type of migration.

Again, without a successful 12 nanometer, it's going to be difficult.

Got it. Thank you.

My second question is on how would you characterize the current cycle now versus the chip shortage cycle in 2021? I think the last time was a more broad-based, supply-driven supercycle with utilization over 100%, with pretty aggressive ASP increases almost every quarter.

This time, the recovery looks more narrow to and more concentrated on AI. Do you agree that the nature of the demand has actually fundamentally changed?

The key question I want to ask is that how should we think about your margin trajectory going forward and the pricing power this time versus the last upcycle? 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?

Maybe start off with the outlook. Like you said, we are seeing the AI-related segment remain as the primary gross driver for the entire industry.

With the continuous commercial deployment of agent AI applications, demand for chips or just in general purpose server is also expecting to rise. That's also related to AI.

In contrast, the non-AI demand is still mixed across different end-market and device market. While the overall semiconductor industry projected to grow higher to maybe low-20% range this year compared to earlier year, increase the low 20%, we see mainly is driving by the AI.

Yes, it's a different than the previous. It's not a broad-based recovery.

I will probably have Chitung talk about the gross margin, but before that, and I have the same answer on the previous about the ASP is we do see the demand and the industry conditions is improving. The pricing environment is become more constructive.

We think the pricing trend will be better, yes.

As for gross margin, we really don't compare ourselves to the historical data. We certainly try very hard to deliver higher profit in absolute dollar terms back to our shareholder.

As I mentioned, because of the new fab ramp, both in Singapore and in Tainan, the depreciation expenses and how we amortize them will have a big impact on the near-term gross margin. I think we are a lot more confident to say our EBITDA margin will show steady growth over the next few cycle or next few expansion phases.

The gross margin will be largely depends upon how we book the depreciation.

Okay. Thank you.

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 [email protected]. Have a good day.