United Microelectronics Corporation (NEW)

Welcome everyone to UMC's 2024 Fourth Quarter Earnings Conference Call. All lights 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 that time if you would like to ask the question. For your information, this conference call is now being broadcast live over the internet. Webcast replay will be available within an hour after the conference is finished. please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. And now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Thank you, and welcome to UMC's conference call for the fourth quarter of 2024. I'm joined by Mr. Jason Wong, President of UMC. and Mr. Chi-Dong Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results, followed by our President's key message to address UMC's focus and first quarter 2025 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quality financial reports are available at our website. www.unc.com, under the Investors Financial 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 ROC security authorities. During this conference, you may view our financial presentations material, which is being broadcast live through the internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Dong Liu, to discuss UMC's fourth quarter 2024 financial results.

Thank you, Michael. I'd like to go through the 4Q24 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, the fourth quarter of 2024, consolidated revenue was $60.4 billion, with gross margin at 30.4%. Net income attributable to the stockholder of the parent was $8.5 billion NTD. and earnings per ordinary share were 0.68 NT dollars. Utilization rate in the Q4 was 70 percent, slightly down from the previous quarter of 71 percent. On the quarterly income statement, operating revenue was basically flat, around 60.4 billion NT dollars. And gross margin rate at 30.4%, or $18.3 billion. Due to mark-to-market loss of the investment portfolio for both UMC and UMC Capital, we registered a $1.4 billion loss of non-operating income in Q4-24. The result is the net income attributable to the shareholder of the parent reached $8.49 billion NT or $.68 EPS per share. For the cumulative whole-year 2024 performance, on a year-over-year comparison, revenue increased 4.4% YOY to $232.3 billion. Gross margin rate was around 32.6 percent, or 75.6 billion NT dollars. Operating expenses is under control, around 10.9 percent, similar to the 10.7 percent in 2023. The net income for 2024 was 47.2 billion NT, or 3.8 $20 shares per shares. EPS per ADS is 0.58. On the balance sheet, our cash on hand is over 100 billion NT, and total equity for the company at the end of 2024 reached 378 billion NT dollars. ASP last quarter at Q4 was flat, around flat, quarter over quarter. And let's go down to page nine for revenue breakdown. For Q4 2024, the Asia sales represent about 61%, which declined four percentage points from the previous quarter. When Europe increased from 5%, to 11% in Q4 2024. For the whole year, the Asia part of the revenue increased from 57% in 2023 to 53% in 2024. Europe declined about 3% to 8 percentage points from 11% in the previous year. And U.S., North America didn't really change that much from 27% to 25%. For quarterly, IDM revenue remained flattish from 15 percent to 15 percent. For the full year, it declined from 22 percent in 2023 to 15 percent in 2024. In terms of application breakdown, we see consumer segment decline about 2 percent to 29 percent. and communication also declined about 3% to 39%. And others, including automotive and industrial, in this single quarter, due to customers' order modulation and with our difference, increased from 14% to 19%. On page 14, our full year application breakdown communication is around 42 percent, and consumer is about 28 percent. On page 15, our technology breakdown, our 22 and 28 nanometer shipment continue to increase, and right now represent about 34 percent of the total revenue. And 40 nanometer also see some increase from 13 percent in the previous quarter to 16 percent in this quarter. For the whole year, 28-22 represent about 34 percent of our total revenue, when 14 nanometer remain constant, around 14 percent. Capacity continue to increase, mainly from our 12A 10M P6 operation, and it will somehow decline a little bit because of the Chinese New Year's holiday schedule and also annual maintenance schedule in Q1 of 2025. PayPax budget for 2025 currently stands around 1.8 billion, and the actual PayPax number for 2024 was a bit over 2.8 billion U.S. dollars. The above is a summary of UMC results for Q4 2024. 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 Wong. Well, thank you, Qigong.

Good evening, everyone. Here, I would like to share UMC's fourth quarter results. Our fourth quarter results met guidance, with wafer sharing and utilization by exceeding expectations. For four years, 2024, revenue grew 4.4% year on year. reflecting a steady improvement in demand across communication, consumer, and computer segments. Our 2228nm portfolio remains the largest contributor, with revenue increasing 15% in 2024. Notably, customers are showing strong interest in migrating to our 22nm specialty platform for next-generation networking and display driver applications. which offers significant power saving and performance advantage over the 28 nanometer solutions. Tables for 22 nanometer products are accelerating, and we expect to see higher revenue contributions from 2025 onwards. Looking into 2025, the semiconductor market is poised for another year of growth. Driven by strong demand for AI service, as well as increasing semiconductor content in smartphones, PCs, and other electronic devices, to capture opportunities in the fast-moving market, UMC continues to invest in technology innovation, developing industry-leading specialty solutions to ride the next wave of system upgrades and stay ahead of the competition. Building on our technology foundation, UMC is also actively expanding our advanced packaging offering to help unleash the potential of AI in the coming years. In conjunction with technology development, our key capacity expansion projects are progressing as planned. Our new Singapore Phase III FAB will enhance customers' supply chain resilience, while the 12nm collaboration with our U.S. partner will offer customers a migration path beyond 22 nanometers. Now, let's move on to first quarter 2025 guidance. Our wafer shipments will remain flat. ASP in U.S. dollars was decreased by any single digit percentage. Gross margin will be higher than 25% with January 21st earthquake impact. Capacity utilization rate will be approximately 70%. Our 2025 cash-based CapEx will be budgeted at U.S. $1.8 billion. That concludes my comments. Thank you. Thank you all for your attention. Now we are ready for questions.

Yes, thank you, President Wang. And ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press star 1 on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press star 2 to cancel the question. Now, please press star 1 on your keypad if you would like to ask the question. Thank you. And our first question will be coming from Sunny Lin, UBS. Go ahead, please.

Good afternoon, Jason and Qidong. Thank you for taking my questions. So my first question is on growth margin. And so on these above 25% growth margin guidance for Q1, could you help us understand what are some of the major factors? Because if we look at the Q1 2024, your broader ASP was also down by about a single digit, but you were able to keep up your growth margin. And so I wonder what's the meaningful decline for Q1 this year? And then... Maybe the second part for growth margin is how should we think about the full year? Will it be above 25%? Should we consider that as a fair assumption for full year? Or would you expect a recovery in the coming few quarters? Maybe let me stop here and have a few follow-ups.

Thank you. First of all, the earthquake earlier this morning does have impact on our Q1 margins. maybe about no single digit. And however, part of the or large part of the loss will be compensated through insurance in the later stage. And secondly, the QM margin is impacted by both ASP decline, which is one-off, and the Also, the increased depreciation expenses. So we don't expect anything structural in terms of profitability change. The one-off pricing adjustment and depreciation plus the earthquake this morning lead to this higher than 25 percent gross margin guidance. We will continue to deploy aggressive cost management to offset the headwind cost, focusing on multi-sourcing strategies, streamlining process flow, supply chain pricing management, and power reduction measures on facility and tools. Of course, we will continue to invest for the future, including the automation transformation. As for the rest of the year, we will give the guidance on a quarterly basis.

Got it. Thank you very much, Qilong. So if I could follow up on the depreciation increase. And so what's your current guidance for the growth for depreciation for 2025? And how much depreciation would increase going to Q1? Should we assume most of the depreciation increase to Q1? in first half because you have completed your 28 nanometer expansion in Taiwan. Therefore, the depreciation increase will start to moderate going to second half.

The depreciation increase in 2024, as we guided, was low 20%. As a matter of fact, it's very close to 20%. For 2025, the guidance will be high 20% for the whole year. And we don't really have a full quarterly breakdown yet for the depreciation expenses because it varies according to the tour installation, et cetera. But the peak of the depreciation, we will see, wait until maybe 2027 to see pick-off. So it's still another year or two to go in terms of depreciation increase.

Got it. Thank you very much. My second question is on your cash dividend. So how should we think about your policy? Obviously, I think last year business was through the trust. But on the other hand, your cash flow should start to improve substantially given a lower CAPEX. I understand the cash dividend would still need to go through the approval from the board. but any color from your strategy will be very helpful.

Yeah, we understand UMC need to maintain a somewhat better than average dividend yield in order to attract our investors. We will attract a delicate balance between business growth and shareholder return. Most importantly, we want to ensure shareholders receive a stable return and consistent cash dividends.

So last three years, you paid $3 or above cash dividend. And so when you mentioned sustainable, should we consider that as an absolute amount point of view?

It's both. It's blended. So you should blend the absolute dollar concept along with the dividend yield. and also the payout ratio.

Got it. No problem. My last question is for Jason. And so I want to get your view on the overall semi-cycle, more specifically into 2025, and how do you think about UMC's address of foundry market growth for this year? Are you seeing any green shoots from consumer restocking or supply chain preview? Thank you.

Sure. Of course. For the semi-outlook, I mean, it's our view that semiconductor industry were expecting to see a 10 percent growth in 2025, mainly driven by the high demand of AI servers, as well as some of the moderate growth in consumer electronics, and increase of semiconductor content from the AI smartphone and AI PC notebook replacement. So the dominance of growth still remains to be an AI survey area. For the boundary, we expect the 2025 boundary market will grow in need-to-high-things percentage. Again, that includes the AI momentum. For the UMC addressable market, we have observed that inventory for consumer electronics has been digest to a healthy level. And the demand of this product expect to grow moderately while we see the increase in semiconductor content as well. This factor will be the main driver for the about low single-digit growth in the maternal market. So I think in UMC addressable will project at low single-digit growth for 2025. And for UMC, is our goal that we will outgrow our dreadful market while maintaining our structural profitability.

Thank you, Jason. Customers have started to see some upside from the supply chain preview ahead of the potential tariffs in the first half of this year. provide this guidance of low single digit growth for 2025. Have you considered some upside from that regard?

Can you repeat that again? I didn't. I kind of break out on the beginning. Sorry.

No problem. Sorry about that. So just one quick follow-up. So when you mentioned this low single digit growth for your addressable market for 2025, I wonder, have you considered some upside from the potential supply chain preview? ahead of tariffs? Because in recent few months, we have started to hear from fabulous indicating that some rush orders are coming through from China ahead of the tariff.

Yes, I got it. Okay. Well, for the Q1 guidance that we just provided, it is somewhat better than the traditional seasonality. We got a shipment will be somewhat inflated. And the short-term visibility remains limited, partly because the non-fundamental factors of the U.S. tariff. We certainly hope that Q2 will grow sequentially. And the current projection, you know, is not 100 percent including those, but because of the lack of visibility, you know, unless the Q2 can be sustainable, otherwise we still project it will be a low single digit. In other words, that low single digit is not including the tariffs, but we did see a better than the traditional seasonality Q1 projection, yeah.

Got it. Very helpful. Thank you very much.

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

Yeah, hi. Thanks for taking my question. First question on pricing, Jason. What are we assuming? Are we basically taking a one-time price reduction across the spectrum, about 5% or something like that? Also, I wanted to understand, do you feel that you can hold off on any further price declines through the course of the year, given... There seems to be both price pressure from your larger competitor in Taiwan as well as price pressure from a lot of the new capacity on 20 nanometer in China as well.

Of course. I mean, we are experiencing that for the past years. And again, our pricing strategy remains unchanged. However, we do respect to follow the market price like we said in the past. At the beginning of the year, we always plan there will be a one-off pricing adjustment. And the pricing outlook will resemble a similar pattern like 2024, which will be about a year after the one-off adjustment. And to mitigate the market pressure, the pricing pressure, we'll continue to strengthen our product portfolio. And we do expect 22, 28 nanometer revenue contribution will continue to increase and will represent high 30% range for us. And the growing table momentum in 22 can mitigate the potential 28 competitions. You know, it's our view that in 2025, we'll continue working on differentiate from the industry peers in the mature foundry market. We know the competition is there. Geopolitically, the outlook taking place in the semiconductor industry is, again, unprecedented than we have experienced in the last year, in 2024 as well. Some of the initiative is already happening, and that's against the supply chain resilience because of the oversupply situation in the industry. Now, for UMC, we are one of the few boundary suppliers who can support global FAB operations. We have envisioned a need for diversified manufacturing strategy many years ago, while at the same time, we believe the fundamental competitiveness is to strengthen our technology differentiation. So in conclusion, our pricing strategy is unchanged compared to the previous year, and we are gaining shares in our addressable market. And UMC's diversified manufacturing footprint and competitive technology offering will still set us apart from our peers. That's our view.

Got it. Thanks, Jason. So just one more question, pricing. I remember that a lot of LTA contracts were negotiated back in 21, came into force in 2022. Many of them were three-year, three- to four-year kind of contracts. So I presume a lot of them are coming up for renewal this year and probably next year. How does that influence pricing? I'm sure clients are going to be asking for lower price given the current situation compared to back in 2021, 2022. So I just want to understand, not just for this year, but going forward a couple of years, do we think that the price curve is generally going to be downward sloping given this pressure?

I think pricing is one of them. The LTA, I mean, the concept of LTA is really more of the mutual commitment from both customer and UMC, that we have to commit and honor our agreement in inputting capacity, and while our partners and customers remain committed, engaging with UMC on an ongoing basis, and for the future growth. So fundamentally, that system never changed. Now, the market dynamic doesn't put some pressure on those LTAs. So like I said, we all respect the market price dynamics, and we're closely working with our customers to navigate through this process in order for them to protect and continue to be competitive in their marketplace. So there is ongoing discussion with our LTA owners and with the goal that we will continue working together going forward and help them to be competitive in the marketplace.

Goku? Goku?

Goku, do you mute yourself? Yeah, hi, sorry. Sorry about that. Maybe one last question. Could you talk a little bit about the capacity ramp for the Singapore FAB? Are you taking a little bit of a slower course of action? How much capacity do you expect to come online for the Singapore FAB this year and potentially next year? And this CapEx kind of moderation down to $1.8 billion from $3 billion, is that where we should expect it over the next couple of years, or is it just a one-year thing?

Sure. I mean, for the capacity expansion in 2025, our Singapore, the E3 production rent is still on track. And for the January 26th and start from January 26th. So that milestone remains unchanged. However, the volume has somewhat adjusted. And so, you know, we found, given the current market dynamics, we are, and the customers, alignment, we are adjusting that rent profile. But the timing did not change. The 2024 CAPEX mainly spending in the P3 building facility, and that is the major portion which already completed and deployed. So for the CAPEX projection going forward, we do not expect there will be any upticks on the current level.

Okay, understood. And lastly, gross margin, given Chitong's guidance on depreciation, kind of high 20s kind of growth, revenue growth you're expecting, looks like mid-single digit. Is it fair to expect that gross margin stays in this mid-20s level through this year? Is that a fair kind of characterization of margins?

It's difficult to guide the full year, especially on quarterly patterns for the gross margin right now. I think all we can say is we try very hard, at least from a EBITDA margin point of view, to have an intact structure EBITDA margin. Of course, the depreciation numbers will go up continuously over the next two years. But our goal is really to have an intact structure probability, and hopefully, and we will see more 22 nanometer shipment along with recovering capacity utilization rate to offset the increased cost side of the equation.

Okay, thank you. Thank you. Next one, Brett Ling, Bank of America. Go ahead, please.

Hi, good afternoon. Thanks, Benjamin, for taking my questions. I have two questions. One is on the silicon interposer business outlook. Would you please share the latest updates and expansion plans for UMC's silicon interposer business? And also, beyond AI application, do you also foresee non-AI application adopting this kind of the, well, so-called CoWAS technologies as well? Thank you.

Sure. For the silicon interposer existing capacity, there's no plan to expand. Some of the product already migrating to the next generation, and we do have a product pipeline that coming into this, but there is a casium between that. So for the application being associated with the interposer as well as advanced packaging, we continue to see quite a bit of momentum on that. And so I can probably give you a bit of a detail on that front is our customers are seeing increased requirements for the communication bandwidth and energy efficiency point of view, particularly in the AI application. So we foresee there will be increased needs of integrated memory, logic, and even sensor chiplets for the better AI performance. we are broadening our packaging technology offering beyond this interposer, the 2.5D interposer, which will allow us to develop a new system archetype with the multiple partners enlarging our addressable markets. So, I mean, that's where we stand on the current interposer, which is part, you know, and no expansion on that. But meanwhile, we're expanding or broadening our advanced packaging offering for the future engagements.

Thank you very much. That's pretty clear. It sounds like despite limited expansion, we should see more value addition and high utilization rate for this business line. Am I correct?

Yeah, we do expect there will be a pipeline coming in with numerous different products and applications.

Got it. Thank you very much. So my second question would be on the well geopolitical impacts on the customer orders. So have you observed any significant share gains from the overseas clients due to the well rising geopolitical dynamics. When does the management expect this to drive the revenue growth meaningfully? And also, conversely, do you anticipate any downside risk from so-called China for China trend here? Thank you.

I mean, we don't see any downside. And in fact, we see multiple different directions. You know, there is product moving into certain region and some product is moving out certain regions. So there are multiple dynamic end directions on those adjustments on our customer sorting strategy. And with UMC's diversified manufacturing site that provides supply resilience to fulfill various customer's function sorting strategies or requirements, we actually do see we position ourselves well and we welcome any opportunity from our customers. And currently, there are many ongoing projects which will materialize after 2025.

Thank you very much, Jason.

Thank you. Next question, Charlie Chan, Morgan Stanley. Go ahead, please.

Hello, Jason. First of all, Happy New Year. And the earthquake is a little bit unfortunate and hope your financial damage will be fully recovered later this year. So first of all, I wasn't very clear about your comment about second quarter Cincinnati. Jason, if I may, can I double confirm that you said 2Q, you're expecting fab utilization to go a little bit higher and above the seasonal. Can you clarify your comments about second quarter growth? Thank you.

Well, first, you know, thank you and a happy new year to you, too. You know, India, we definitely will navigate through this earthquake situation hopefully quickly and we can recover and help our customer with their delivery, urgent delivery and with assurance. And now coming back to the Q2, it's too early to provide a Q2 guidance, and we typically, you know, will provide quarterly guidance, outlook projection. What I said earlier, it was our Q1 2025 is better than seasonality. It's better than we originally expected. The short-term visibility remains unlimited, partly because the non-fundamental factors like this, you know, for the U.S. tariffs, you know, in relation to the U.S. tariffs. We certainly hope, what I said, we certainly hope that Q2 will grow sequentially. But at this point, the facility remains low. So we just have to wait and see. Once we have clarity, we will provide more guidance. Meanwhile, we are confident with our current 22 nanometer product pipeline, which will enter production this year. and to feel our 2025 second half growth so we expect to grow our revenue in 2025 mainly with expectation that we will have you know the product launch on 22 starting in second half of 2025. okay got it thanks yeah so by the way you were very correct about last year's industry growth

So I think you said low single, sorry, single digit growth, right? And it turned out to be like a 6% growth for overall foundry stack. So yeah, I also quite agree with you that inventory levels are quite healthy and semi-content increase in PC smartphone probably will make this year a little bit better than last year. Yeah, so switching here to those advanced packaging business, right? So I think last call talk about interposer, but recently there is a news talking about you probably will do wafer-on-wafer, right? Which is a kind of a 3D packaging for a US customer too. Want to talk more about this development and how do you compare your wafer-on-wafer or hybrid bonds technology to your industry peers like TSMC? or SPL? I think SPL is more on the chip level 3D packaging, right? But just a kind of comparison between your 3D IC technology versus either TSN 0s. That would be great. Thank you.

Sure. Well, first of all, you talk about projection. I do want to have some clarification on the inventory projection. on our side. The DOI decrease as expected in the third quarter of 2024, what we have reported in the past, that indicating a stable demand in the end market. In terms of application, the DOI inventory for consumer electronics are approaching the healthy level. However, the DOI remains relatively high in the automotive and industrial sectors. We believe it will still take more time to digest. So coming back to the advanced packaging, first of all, we typically do not comment on any market speculation and specific customers. Like I said, We are broadening our packaging technology offering beyond the two-and-a-half-D interposer, which we have shipped in the past. The wafer-on-wafer bonding, hybrid bonding, is one of the capability and technology that we provide. And in addition to that, there's also the interposer with DTC technology. discrete DDC and so on. And so they are multiple technology offering and more like in a toolbox for us. And so we do see the, well, the market direction is they are product going to require a higher bandwidth and more efficient in many of the different applications. And then we can engage with our customer with those technology capability and tailored to their solution needs. So, I think our current stage is try to equip ourselves to be capable of doing so. Then we will be able to broaden our solution and serve our customer to enlarge our addressable market.

I see. How about the obstacle-related application? I mean, PIC, right? Photonic IC. I remember to you also need hybrid bound, right? So I'm not sure if UNC is also considering the kind of the CPO supply chain. I don't think there's a kind of only NVIDIA grouping, right? I think other customers like Broadcom, Marvell, they are also pushing these CPO. So does UMC have any kind of plan to get into this market?

Oh, certainly. I mean, we're not going to miss out any potential growth opportunity. When we talk about the increase of communication bandwidth and efficiency, energy efficiency, it applies to many different applications, not limited to the current the GPU and the processors, and there are many others. And so the many others will probably require integrating memory logic, you know, like the GPU, but in a different, you know, bandwidth, and also the different capability. So, yes, we do see there will be a various application that requires such technologies, and so, again, we believe by broadening our technology offering would help us to enlarge our addressable market without missing out.

Thank you. Yeah, and last one from me is really your key partner, Intel. So there was an organization change. So I'm not sure if you are comfortable to comment or share What does that mean to your partnership with Intel? Any positive or negative given the recent senior management CEO change of Intel?

Well, I mean, what I can share with you is this strategic cooperation is definitely a rising for both companies. And our partner and us are both very committed to bring the bring this most competitive 12-neumeter solution to the Western footprint. And we are seeing a very strong customer interest. I, you know, we have been working closely and diligently to accelerate the delivery schedule since day one. And at the moment, we are verifying the silicon performance already for the pilot line. And we expect the early PDK will be ready for the first wave of customer by 2026, as planned at Therefore, we believe this cooperation will be beneficial for the industry, our customer, and for both companies. So I do not foresee any changes in this, you know, in this cooperation. And as of now, our key focus are on Wi-Fi connectivity, high-speed interface, SOC products. In addition to cooperating on the 12 nanometer larger process, we are also exploring potential specialty technology solution to further complement our portfolio with diverse product applications. So first of all, we are still very excited about the engagement, and we are very committed, and we see a very good progress at this point.

Thank you. Thanks, Jason. This is super helpful. Thank you.

Thank you. Next one, Bruce Liu, Goldman Sachs. Go ahead, please.

Hi, Jason. The first question is a quick one. The Europe business went up quite a lot in fourth quarter. But application-wise, you know, we see that others' application went up a lot in fourth quarter. Can you tell us a little bit more detail, you know, do you have any market share against there or any project wind or, you know, what is the application which drives the Europe growth in fourth quarter?

Chidong actually commented about this earlier. The pickup India, the Q4 automotive business, really reflecting is the customer's modulation for their inventory management. So we see this one-off uptrend, and then we'll align back to the end market demands. which I also touched on, the inventory situation, the automotive and industrial sectors, inventory remains high, and it will still take more time to digest. So, it's more of an inventory.

Okay. Okay. Next one is for your ASP, which download musical digital in first quarter. Is there a product mix issue or mostly for the one-off? I mean, or is it pretty much missing out across different nodes or, you know, any specific node has higher price erosion than other nodes? For example, like 28 or 8 versus 12-inch.

Right. I mean, you're absolutely right. It's a blended base. The one-off, you know, missing out digit is at a blended base. There are some The note that as you associate with commodities like a solution, they have deeper erosion, and while we have a differentiated technology, have a lower erosion, and then combining with the product mix for the quarter, and then we try to manage that at a one-off, at a mean level, mean single-digit adjustment.

Can I assume your 28 is a differentiated node with lower than mid-single-digit erosion?

Yeah, I can't really comment on every single node, but I can tell you not only at 28, 22 and some other specialty technology as well has a better, lower than the average blended basis, and some are higher, yeah.

Lower than, which means that ASP version is lower than the corporate average of missing voltage for 28 and 22.

Yeah, so that means is the, if the blender is a 5%, that means some are smaller than 5%, some are higher than.

I see. Right. Okay, one last one is that do you consider, you know, as you mentioned, you are the only one who can manufacture the wafer in different geographical location. And TSMC make it clear that they charge premium in non-Taiwan capacity. Do you consider to charge premium for your Singapore or Japan bags with higher pricing?

I mean, the pricing is an important topic, right? I mean, we continue aligning with our customers with the end goal that we need to help them to compete in their market place. So we will respect and follow that market pricing. And from a strategy point of view, that we unchanged. But from competitiveness point of view, we will continue aligning with our customers to maintaining that. Now, it's important to know that we look at this market in a way that we believe our market is growing in a low single digits. And we want to position ourselves still gaining shares in our addressable market while striking a balance between the growth and profitability, which we have shown consistently in our financial performance and with a resilient track record in the past. And it's our belief that with a healthy financial structure, we have the flexibility to continue to invest in the technology development, in broadening our offering, and for our future growth. We want to stay competitive, but meanwhile, we want to manage that balance.

Okay, thank you.

Thank you. Next one, Jason Zhang, CLSA. Go ahead, please. Thank you for taking my question.

My first question is in terms of your target user-generated rates. As your competitor in China, Now, I think their utilization rate already reached to a very high level. So I just want to know which kind of levels of the utilization rate is more reasonable for UNC for this year or in the coming year. Thank you.

Well, we always strive to increase the utilization rate, but not on an unreasonable expense to get that. Right now, the current projection is about 70% level of utilization, corporate average. Some of the nodes actually have a higher utilization. Some have lower. For instance, our 8-inch loading is still under the recovery mode, which will continue strengthening our offering, and hopefully we can recover that in the longer term. But right now, they are below the corporate average. And 22 is, you know, is actually above the corporate average. And we continue to see a strong momentum in the tables. And so I think in general, like I answered Bruce, you know, I try to strike a balance between that. And 70 percent right now is not I will not say high, but I think it will be a right number for us to maintain that balance at this point. But, of course, we'll continue striking for better utilization rates.

Got it. So my second question is in terms of your competition. So I think your Chinese competitor now already has a very high utilization rate. So have you seen lower competitions from those Chinese players in this year's?

I can't really comment about the competitors' behavior, but the bottom line is we need to stay competitive, and competitive in many aspects. Your ASP needs to be competitive, your solution needs to be competitive, your manufacturing performance needs to be competitive. I think, again, we look at all aspects and striking a balance with that. And we think this is not a one-time or short-term situation. We need to stay competitive in the long run. If we look at this, in 2025, we project we will outgrow our addressable market. And whether they are less pricing pressure or continue pricing pressure, we believe we will outgrow our addressable market. We are working on several new initiatives to try even driving a future growth. Enhance our current portfolio, expanding our addressable market. You know, like I said, from our current portfolio, we're advancing our specialty technology roadmap. For example, high voltage. We launched the industry's first 22 nanometer high V in May 2024 to sustain our leading position to the next generation handset. Beside that, beside handsets, the customer already adopted our high-D platform for OLED display in the next generation tablets, laptops. And so we'll continue to drive our roadmap into the 14 high-D solution to further extend our leadership. So in that front, I think we can capture the growth and not continue fighting in the same, you know, same space. In terms of a larger addressable market, I, you know, we talked about our 12-millimeter cooperation that provides technology, you know, advancement and addressing high-growth market. Early-engaged customers already showing strong interest, and they will put in the production. We will put in our production schedule. And the feedback's great, you know, and our solution will be very competitive. And again, that's a differentiation from that. And I talked about that we want to provide an advanced packaging solution to serve AI application with a high growth potential. And we continue to broaden that offering and develop that. I talked about that we need to have financial strength to continue investing in the area that we can fuel the future growth. So I think the growth opportunity still lies in this industry because the industry is growing. And in combination with our current portfolio enhancement the enlarged addressable market with the right financial model that fuel our future investment to capture those growth, I think we will differentiate from that. And I certainly not try to just competing with the current utilization number, but in a way, we try to strive to a very balanced, very healthy corporation that can continue to invest in the future and to be relevant in this industry. I maybe give you a little bit more, but I think that's sort of how we feel about this.

Okay, okay, got it. My last question is in terms of demand side. So in terms of your application portfolio, I mean, which segments did you see as a better demand? I mean, such as computers, consumer, or smartphones? And have you seen the demand recovery after Chinese government's subsidy in Q1 or in Q4?

So first, for Q1 outlook, we expect the revenue contribution in consumer segment will increase due to a strength in Wi-Fi, digital TV setup box, and display drivers. And the rest of the segment is either flat or slightly declined. We talked about the Q1 outlook. Despite that, the consumers are stronger, but we think it could trigger by either the tariffs or the subsidy, and because we do see that Q1 has better than traditional seasonality behavior. However, we're just hoping that Q2 can sustain that. At this point, due to the limited visibility, we couldn't give you the Q2 guidance, but Q1 is better than the seasonality. Okay, thank you.

I have no more questions.

Thank you very much. Thank you. And ladies and gentlemen, we are taking the last question. The last one, Redling Bank of America. Go ahead, please.

Thank you for taking my question. So, one follow-up. So, as Jason highlights, that advanced packaging is a key business growth driver for UMC to outpace the industry and also for the future growth. While eyeing on the discipline, the CAPEX number itself, should we also expect a higher portion of the CapEx spent by UMC in the future to increase for this advanced packaging kind of the service like our industry leader?

Well, I mean, in our business, there's actually two major investments. One is investing in the technology development. The second is investing into the CapEx. Once the technology is, you know, developed and the customer aligns in place, we certainly deploy the capacity investment. So the CapEx will have that. Now, given our past few years of CapEx investment, given the current market dynamics, I think those advanced packaging CapEx will not affect the major trend of our capex projection. I think it will be still within our current trend.

Thank you. Got it. That's very clear. And then that's my only question to follow up. Thank you. Thank you. Happy New Year, by the way.

Yes, thank you. Thank you. And we thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. 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 UMC at irumc.com.

Have a good day. And we will also take this moment to wish everyone a Happy Chinese New Year. Happy New Year to everyone. Thank you.

Yes, thank you. Ladies and gentlemen, that concludes our conference for 4Q24. 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 Event section. You may now disconnect. Thank you and goodbye.