United Microelectronics Corporation (NEW)

Welcome everyone to UMC's 2025 First Quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask the question. For your information, this conference call is now being broadcasted live over the internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website .umc.com under the Investor Relations Investors Events section. Now I would like to introduce Mr. David Wong, Investor Relations Manager of UMC. Mr. Wong, please begin.

Welcome to UMC's conference call for the first quarter of 2025. I'm joined by Mr. Chi Dong Liu, CFO of UMC, and Mr. Michael Lin, Senior Director of Finance, because President Wong is absent due to urgent personal matter. In a moment, our CFO will present first quarter financial results, followed by our key message to address UMC's focus and second quarter 2025 guidance. After our CFO's remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website .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 a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC securities authorities. During this conference, you may view our financial presentation material, which is being broadcasted live through the Internet. I would now like to introduce UMC CFO, Mr. Chi Dong Liu, to discuss UMC's first quarter 2025 financial results.

Thank you, David. I'd like to go through the first quarter 2025 Investor Conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, the first quarter of 2025, consolidated revenue was 57.86 billion NT, with gross margin at around 26.7%. Net income attributable to the stockholder of the parent was 7.78 billion NT, and earnings per ordinary share was 0.62 NT dollars. Wiffer shipment was flagged sequentially compared to the previous quarter. However, it was up 12% year over year for the same period of 2024. On page 5, on the sequential comparison, Wiffer revenue declined .2% sequentially to 57.85 billion NT, mainly due to this one-time price adjustment in the beginning of calendar year. Gross margin was impacted by the lower ASB as well as the earthquake during the Chinese New Year holidays. It went down to .7% or 15.4 billion NT dollars, and we expect to see margin recovery in the coming quarter. Operating expenses is under control, representing about .6% of the total revenue of 6.1 billion NT. That gives us the overall operating income of around 9.7 billion NT or .9% points. In terms of non-operating income, due to the weakness in the stock market, we have some losses coming from -to-market investment valuation, which is around 439 million NT loss. Total net income attributable to the shareholders of the parent in Q1 2025 was 7.777 million NT, or EPS of 0.62 NT dollars in Q1 2025. For the -over-year comparison, revenue increased by 5.9%. This is mainly due to the wafer shipment increase, as I mentioned earlier, around 12% -over-year wafer shipment increase. It's offset by the ASP decline. For the net income comparison, we see 25% -over-year decline. Therefore, DPS also was lower in the same magnitude. On the next page, cash position still remains over 100 billion NT. It's about 106 billion NT dollars at the end of March 31. Our total equity now reached 390 billion NT dollars at the end of Q1 2025. On page 6, this routine, beginning of the year, one-off price adjustment, which represents actually contributes to most of the revenue decline in Q1 2025. So roughly the ASP declined by about 4 to 5% in Q1. For revenue breakdown, we see a good growth coming out of our Asian-based customers. It's now reached around 66% of our total revenue. North American customers, on the other hand, represent about 22% of the pie. IDM showed a mild growth on page 10 to 18% of the total revenue breakdown in Q1 2025. Consumer investment is the strongest in Q1, mainly driven by Wi-Fi, DTV, set-up ops, and DDI. Communication and computers didn't really change that much. We're happy to see our 40-nanometer and below revenue now is over 50% of our total revenue. Now we reach 53% in Q1, when 22- and 28-nanometer revenue account for 37% of the total revenue breakdown. In Q1, there was some disruption from earthquakes, but mainly there's also annual maintenance schedule. So capacity in Q1 was lower. And for quarter two, we see the -to-normal capacity as well, some mild increase coming out of Singapore fast due to the ramp is starting. On page 14, our 2025 K-Pax remain unchanged at 1.8 billion US dollars. This above is the summary of UMC financial results for Q1 2025. Next, I would like to share our key messages. I apologize for still putting Jason's picture here, because it's rather show-noted. And it's also, more importantly, it's a very good picture. Our results in the first quarter were in line with our previous guidance, with flattish wafer shipment and one-time pricing adjustment at the beginning of the year to reflect market conditions. First quarter highlight includes -28-nanometer revenue hitting a record high, representing 37 of the total sales. That was driven by a 46% -over-quarter increase in 22-nanometer revenue from products such as OLED display driver IC, ISP, as well as digital TV, Wi-Fi, and audio codec chips. We expect customers to take out additional 22-nanometer products in the coming quarters, as customers increasingly migrate to our 22-nanometer logic and specialty platform for next-generation applications. Earlier this month, we also officially inaugurated our new Singapore Phase III effect, which provides additional 22-nanometer capacity to support future growth. Highlight rounds are underway and it's on schedule to ramp up to volume production in early 2026. The expansion in Singapore also further broadens our geographic diversification, enabling customers to strengthen their supply chain resilience. Meanwhile, in February, our board of directors proposed a cash dividend of 2.85 cent per share, which is subject to approval from shareholders in the upcoming AGM on May 28. Looking ahead to the second quarter, we are expecting a moderate rebound in demand across all segments, according to near-term alignment with our customers. Beyond that, of course, we have to be cautious about wafer demand projections as policies and markets are still adjusting to the recent tariff announcement. To navigate this challenging environment, we are working closely with customers to monitor trends in end-market demand. We also strengthen our competitive advantage by focusing on execution of key technology products, such as the 12-nanometer collaboration with U.S. partners. We are ensuring our customers have access to geographically diverse manufacturing options. In addition, we are implementing cost reduction plans and accelerating AI and intelligent manufacturing systems to enhance operational efficiency. Through these key focuses, we are confident that UMC can maintain our financial and business resilience. Now, let's move on to the second quarter of 2025 guidance. Wafer shipment will increase by 5 to 7 percent sequentially. ASP in U.S. dollar terms will remain flat. Post margin will be back to approximately 30 percent. And capacity utilization rate will also recover to the around mid-70 percent range. As I mentioned earlier, the cash-based K-PAC will remain unchanged at about 1.8 billion U.S. dollars. That concludes our remarks. Thank you all for your attention. And now we are ready for questions.

Thank you, Chidong. And ladies and gentlemen, we will now begin the question and answer session. If you have a question for any of today's speakers, please press star 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 key number 1 on your keypad if you would like to ask the question. Thank you. And our first question will be coming from Sonia Ling, UBS. Go ahead, please.

Thank you very much for taking my questions. So my first question, I want to start from the tariff impact. And so for the short term, how are tariffs affecting the customer order behaviors for Q2 and second half? And how is that impacting your business planning? And it does seem like you are having a good recovery for Q2 sales. How much of that is driven by the pulling orders due to tariffs?

Okay. So UMC collaborated closely with customers for technology and product qualification across multiple sets, reducing foragers to site-specific risks and ensuring supply chain resilience. We adopted a forward-looking approach to mitigate business risk, including a geographically diversified manufacturing footprint. And by 2027, we will have manufacturing base for most events available technology in the US. UMC also has a healthy financial structure to navigate through macro uncertainties. And although the escalating trade tensions and global tariff policies have increased uncertainties in the semi-industry, we have not seen market demand change in a very near term, i.e. quarter to 2025 yet. Of course, visibility in the second half is becoming very limited. In the longer term, customers may decouple their internal manufacturing options and explore external wafer sourcing options. And UMC's strategic positioning, focusing on technology differentiation, global manufacturing diversification, product mix optimization, and manufacturing excellence. So I think in short, there's very little change we observed for the second quarter. However, if you include our Q1 results plus our quarter to guidance, we think we are slightly ahead of our expectations at the beginning of the year. And that will give us some buffer for the increasing uncertainty in the second half.

Got it. Thank you very much, Jidong. So basically, you are saying the growth in Q2 is not so much driven by pooling just a little bit. And so in that case, should we be less concerned about meaningful drop off going to second half because there's not much being pooling?

There's not that much pooling, you are correct, for quarter two. Some customers will sideline it and they want to take some precautionary actions. But there are some customers doing the opposite. So net-net impact for quarter two is very limited. So, but again, we can now really see through second half. And what we are seeing right now doesn't really suggest there will be a shortfall in the coming quarters.

Got it. Thank you. My follow-up question on tariffs is in terms of the potential disruptions about the supply chain on the pricing side. And so if tariffs are put through either for finished goods or direct semi-trips or both, based on your current discussions with clients, would you expect some impact on UMC's pricing and margin as well? As maybe potentially everyone in the supply chain will need to share the cost to some extent.

I think we don't have a generalized answer. So let me start with our UMC pricing policy or strategy. We don't compete purely on pricing. Our strategy is built around technology differentiation and manufacturing excellence via regionally diversified manufacturing basis. All that attributes work to insulate UMC and our customers away from low entry barrier markets. And besides the pricing pressures, UMC remains committed to deliver differential technology and ensuring our customers to gain market share through the long-term strategic partnership. And so our very proposition is really to work with our customers in a transparent method. Any disruption or the cost increase through tariffs, we believe we will co-work with our customers to come up with a solution.

Got it. Then I have a question on 28 nanometer. And so roughly what's the utilization rates in Q1 and Q2? And how should we think about the mix of 22 nanometer within the whole 28 and 22 nanometer sales, let's say going to second half of 2025?

First of all, our guidance for second quarter is mid 70 for the company as a whole. Of course, 12 inch is higher than corporate average and 8 inch is below corporate average. So among 12, I would say 22, 28 is the better sector, is not the best sector. And right now, 22 and 28 represent 37% of our total revenue. And 22 alone, I would say is more than meeting and continue to increase. And that will be a key growth driver for UMC's 2025 growth. So I hope that answers your question.

That's very helpful. So meeting percentage, that's in terms of total sales, correct?

That's correct.

Thank you very much. And then maybe my last question. And so on this partnership with Intel on 12 nanometer, what's the latest update that you could provide us? And will it be possible that we see an earlier production in 2026? And I guess lately, given the maybe rising reshoring interest in the US, are you seeing much stronger demand for these collaborations?

Maybe Michael can answer the question. Sure.

The joint development work is on track. We are progressing well according to the project milestones. At this moment, we are verifying the silicon performance for the pilot line and we expect the early PDK will be ready for the first wave of customers by 2026 as printed. In fact, we have been aligning with key customers on the device spec to speed up the rainbow as quickly as possible. Right now, we are porting the process technology to Arizona FED and so far the progress is on track.

Got it. And so basically, sales contribution, you guys still from 2027?

Yes.

Got it. Thank you very much.

Thank

you.

Next one, Laura Chen, Citi. Go ahead,

please. Hi. Thank you very much for taking my questions. I also want to know more about your US cooperation. If only Intel, other than Intel, would you have any opportunity to work with other IDM's in the United States?

We have plenty of US-based IDM customers, consistently among our top customers. I think I don't need to mention their names, but you definitely know who they are. So, from time to time, we have JDPs, we have capacity support, and that will continue to be our strategic collaboration going forward. So, we do have other IDM customers in the US working closely with UNC. But of course, the current stage, the most important project is this 12-nm US footprint collaboration with these US partners.

Understood. Because previously I also have the news, I understand that management already kind of denied, but I'm just wondering, other than our current clients in the US IDM's, is there any chance we can also work with Global Foundry, some sort of joint venture or cooperation, any type of cooperation?

I don't want to comment on market rumours. I think for an issue like this, it's so sensitive and important, it has to come from the official announcement from any company involved. But I think, again, from UNC's perspective, we're consistently looking for strategic options to enhance shareholder value. Anything can help to increase our competitiveness, as well as the shareholder value. We are certainly looking to that. And currently, there's no ongoing so-called merger activity right now. So again, we have to say that there's no merger ongoing right now. But it doesn't have to be mergers. There are many other collaborations we can still pursue to enhance shareholder value and returns. That is our mandate, and we are continuing to explore all different kinds of options.

Yes, certainly. My second question is about the margin. Obviously, into Q2, even though there's a lot of background uncertainty, we see that the iteration rate improvement and also the gross margin back to 30%. So can we kind of assume that Q1 is a trial for the gross margin, since we have the one-time pricing adjustment back in Q1? The overall demand seems to back to no more. So I'm just wondering what's our view on the overall gross margin trends going forward?

Unfortunately, we mentioned the second half. The visibility becomes very limited with a lot of increasing uncertainties. So it makes it very difficult to predict the numbers for the second half. We can only give the guidance a quarter at a time. But our probability largely depends on how we make pricing, the iteration rate, and forex movement, and COGS. We have taken several initiatives to enhance our possibilities that include business engagement, technology differentiation, driving the efficiency in operations, and improving our K-PAC efficiency to manage the depreciation impact. So current gross margin levels reflect Q1 2025 one-time pricing adjustment, as well as the depreciation increase, mainly coming from P6 in Tainan, as well as the upcoming P3 in Singapore. And we are actively looking to improve our product mix, such as more specialty content and higher 22, 28 wafer shipment, and drive the efficiencies in operation when our EBITDA margin can still remain intact.

Okay, that's very fair. Thank you very much. Thank

you.

Next one, Brett Ling, Bank of America Securities. Go ahead, please.

Thank you for taking my question. Congrats on the well-solid 1Q result and also the bright second quarter guidance. I have two questions. The first question would be in terms of the customer type. Has UMC seen potential upside from maybe North America or IBM due to the current tariff issue? Thank you.

I think we do see customer, increasing customer appreciation to UMC's regionally diverse manufacturing base. So for various reasons, customers may need to have certain types of product manufacturing in some specific manufacturing sites. And UMC with operations in Singapore, Taiwan, Japan, and China, and upcoming US capacities, I think our customers appreciate even more recently with the option we can offer. So I think that's the feeling and also the sense we get from the recent conversation with many of our major customers.

Thank you very much. That's very clear. But a follow-up question on that is that what time do we expect to see so-called meaningful contribution from this kind of impact?

So far it's very difficult to quantify. But for our Singapore FAP, probably the best example is that the P3 is going to volume production in early 2026. And I think it's becoming a very pursuit after location for its less impacted geopolitical tension. So certainly if there is any demand exceed the capacity we can offer, we will certainly see a better performance out of our Singapore FAP. And same argument can apply to any other site we have. So I cannot give you a quantified answer for now. Just the customer appreciation certainly will endorse our customer relationship and the so-called thickness for the longer term.

Thank you very much. Hopefully we can also gain more so-called LTA with that as well. If any, please do let us know. So my second question would be market demand. So could you also provide insights into the demand trends across the key markets, especially for automotive and also industrial as well as the consumer electronics? Have there been any notable shift in the customer behavior or other patterns recently compared to our last earnings call? Thank you.

Yeah, for Q1, you know, consumer segment grew as our CFO alluded to, driven by Wi-Fi, DTV, set-up box and driver IC. But all the other segments, such as communication, remained relatively flat and we saw computing kind of decline due to a softer demand and IO. Automotive for Q1 also declined due to softness in microcontrollers, DDI as well as power management. But as you know, for Q2, all major segments for computing, communications, consumer will grow. For computing segments, we expect that growth will be driven by a flash controller IC. For communication, it will be increased from ISP networking, flash controller as well as Wi-Fi. For consumer, it will grow due to continuous growth from DTV and set-up box. And last, but for automotive, we expect that segment to be flatish looking for Q2.

Should we expect any meaningful recovery from this auto industry, which seems to be relatively softer for a while?

So the automotive right now, the inventory seems relatively high, obviously, compared to other key segments of our business. So for now, we remain a more conservative tone for the auto market.

Got it. Thank you very much.

Thank you. Next one, Charlie Chan, Morgan Stanley.

Go ahead, please. Thanks for taking my question. So, Jidong, my first question will be also on growth margin. So it seems like one Q, you're doing a little bit better than the guidance of the Mi 20 and took you kind of hit 30% and meet some pricing pressure. Can you share with us some more color about which parts are doing better, no matter pricing or cost, or just a kind of impact so you can deliver a better growth margin? Thank you.

Well, thank you for saying that better. Personally, I don't think it's better. We never feel enough to pursue a better growth margin. I think it's a very important index internally for all the management team. So we continue to proactively deploy cost reduction efforts, including multi-source, streamline our operations, manage supply chain pricing, and drive automation transformation. So these measures kind of help us to offset or at least partially about those cost headwinds, including green energy, including yearly, annually salary adjustment. So there are a couple of headwinds we need to offset through our cost reduction efforts. And in the beginning of the call, we mentioned that Q1, Q2 is slightly ahead of our expectations compared to the guidance we gave for the beginning of the year. But that kind of only gave us a buffer. Hopefully it's enough for the increasing uncertainty for the second half. So pursuing a better growth margin is the endless mandate for the management team. We hope we can do better.

Sure. Yeah. Thanks for the comment and hope you can keep it up. And second question is about your partnership with Intel in the U.S. Just out of curiosity, do you receive some requests that some of your customers want you to accelerate that U.S. operation with Intel? Because it seems like you're a foundry peer, right? It seems to receive a similar request. And even some customers are willing to pay higher with a price to be produced for their chips to be produced in the U.S. I know you have you have planned a schedule for the 12 nanometer in the U.S. But I'm just curious whether you are receiving similar requests that hope you can speed up.

The answer is yes. I think most of the customers like to see the 12 nanometer solution as early as possible. And they also have a very aggressive product launch time. And they hope our 12 nanometer solution can catch up with their product roadmap. So yes, the pressure is there. We understand that. And we received the inquiry from our, or call the early adapt customers. That's why we are under the pressure. Try to expedite the whole process. But it's already a very aggressive process. I mean, timeline. So it's also the first time we cooperate, collaborate with our partners. And there's also many tasks that need to be solved before we can even try to catch up with our aggressive timeline. So again, this is a pressure and wish to do so. But in reality, so far we are on track with our planned schedule.

Gotcha. So, yeah, thanks for that answer. So besides the hope for you to accelerate the plan, do you also see some desire for you to even kind of reach out to more advanced nodes? Because I know you need to plan ahead, right? Maybe 34 years if you want to further migrate to below 12 nanometer. I ask these questions because your industry already officially denied their future partnership with USFAT, which is Intel. So I'm not sure if that gives you more room or your customers wish you to migrate to the more advanced nodes that would adopt EUV.

So if you are using the market story as a background for this question, I have to be extremely careful, right? So in that case, the answer is no. So we are only focusing on the current nodes, which is 12 nanometers. And both companies decided, and there's a contract between two companies to execute this 12 nanometer collaboration. And for UMC alone, of course I can speak for UMC. We appreciate this collaboration with our US partner. And we offer our country know-how and the bulk of the technology structure. And US partner offer the on-site capacity with very limited depreciation. So we think it's a very innovative mutual benefit collaboration. And certainly, we don't want to be limited to the current node only. However, this time I only cover 12 nanometers for now.

OK, that's a great answer as well. The last one, I think a very kind of technical, short-term question. So I'm sorry, but did you maintain your full year guidance? And is there a case of what the implied half and half functionality? How much conservative are you begging for a second half?

Our view for the whole 2025 hasn't really changed. Our view on 2025 boundary market is expected to grow in the mid to high-ting percentage, like we mentioned earlier the previous quarter. UMC's address boundary market should grow around low single digits for our address boundary market, which we intend and we have declared we're going to outgrow that. Of course, I just mentioned that the first quarter plus the guidance for quarter two put a little bit ahead of our expectation. But the uncertainties in second half may upset that, which we don't know clearly yet. So that's the current view for the whole 2025.

So we probably use like single digits, maybe missing digits as a full year guide and try to calculate the implied second half. Is that the right way to think about your narrative on second half?

Let's stick to the qualitative statement that we're trying very hard to outperform our address boundary market.

Okay, okay. Thank you. Yeah, I'll be back to the queue. Thank you.

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

Yeah, hi. Hi, Chetong, David and Michael. My first question is on margin. I think you kind of got back to 30% in Q2. How should we think about the cadence for margins? Because it looks like your implied expectation in the second half is going to be largely flourish, looks like. So if that's the case, how should we think about margins? And could you also refresh what is your expected depreciation growth? I think last time you said high 20% for this year. Is that still the case given Q1? I think the increase was not that big sequentially.

I think that's the pressure. And for margin guidance, I think I have to highlight that about 2% in Q1 was impact from the earthquake. That's 1 out. So if you add back that 2%, the increase is more mild for the second half. And again, we are very sensitive to loading for the second half in terms of where we are for the margin. We know the factor such as pricing, the depreciation, but we don't know the factor for forex and loading. So of course, we continue to try to enrich our product mix by having more 22 nanometers. So all these factors blended together create the formula for our course margin, especially in the second half.

Understood. So is 2228 combined now higher margin compared to the corporate average already, or is it still not there yet?

If you exclude the new depreciation out of Tainan P6 and Singapore P3, of course it is. But if you include that, I'm not so sure. It may not be the case. But the depreciation is there anyway, without the extra 2228 contribution. So of course, the more the merrier.

That's fair. Thanks, Yusuf. So just on the Singapore P3, are you having any thought about accelerating the capacity plan, given you mentioned you're getting a lot more demand coming through or interest coming through for Singapore Fab? Because I think previously you kind of slowed it down a little bit compared to the previous plan, given the demand outlook. Is that something that we could anticipate some change?

I think that's definitely dynamic. So the future capacity ramp for 12i Singapore will depend on the alignment with our customer needs. And of course, we have begun to see a pick-up in PayPal. So that may or may not translate into a pick-up in customer demand. But PayPal definitely already sees a pick-up. So it could happen. But the current plan, still the production ramp, the net production will be in early 2026.

Understood. And lastly, on the Intel collaboration, I think once you start the 12 nanometer revenue contribution, could you talk a little bit about what kind of customers you're seeing adopting this? And secondly, once you start the revenue contribution, what does the impact to your margins or EBITDA given the unique kind of arrangement that you have with Intel?

Michael, to answer the first question, I can answer the second question.

Okay. As for now, our key focus are Wi-Fi connectivity and high-speed interface SOC products. So in addition to this 12 nanometer large process, we also exploring potential thin-fac specialty technology solutions to further complement our portfolio with diverse products. As

for the margins, certainly we hope it's an enhancement to our corporate average. But it largely depends on the capacity utilization rate. And by structure, there's limited depreciation cost items in the COGS. But the overall US manufacturing probably will have both higher manufacturing cost than the manufacturing in Taiwan. So these two factors will need to see how to offset each other. So there's still many variables. We have to wait until closer to 2027.

Got it. And the capacity allocated into this arrangement, is that largely a static capacity that Intel has already allocated? Because obviously, they have a lot of capacity on 14 nanometer, given that was a full node for Intel, right? So they probably have quite a bit of capacity even after some of the conversions. So is that a static allocation or is it something that is dynamic depending upon how demand goes?

I will say it's more dynamic. However, it definitely needs a certain economy of scale to start with. And it depends on how customer adoption for this technology and this collaboration certainly will be lead. It could be upside if the market adoption is more than expectation.

Got it. Thank you very much.

Thank you. Next one, Felix Pan, KGI. Go ahead,

please. Hi, good afternoon. There are two questions from me. First of all, still on the semiconductor tariffs potentially. I just want to double confirm. I think a couple of months ago, I think TSMC made a statement that customers should care of the tariff things. I just wonder if UMC is also holding this kind of view, if the tariffs are on semiconductor place? That's my first question.

So I cannot comment on our competitors. And I also mentioned earlier, UMC will adopt a very transparent cooperation alignment with our customers to cope with these potential tariff issues. So that's our thing. So how to deal with this possible potential tariff together with our customers is our key approach.

Okay, so can I? So that means you don't rule out the possibility that foundry also have to bear the cost at some degree. Is that in place? Is that right?

It's not what I said. No. What I said was, we will cooperate with our customers in a very transparent environment and collaborate to deal with this tariff issue.

Okay, understood. Okay, the second question. I understood that the visibility for second half is still unclear. And I think besides the demand profile, can you just share a little bit if the cycle, if potentially the down cycle is coming, assuming that, how you see the inventory level across the different applications from your perspective?

Okay, so as far as the inventory goes, the current days of inventory remain similar to first quarter 2025. In terms of applications, the DOI, as well as the inventory for consumer electronics remain at a healthy level. However, days of inventory for automotive and industrial segments remains relatively high, and we expect that it will take more time to digest. So obviously, we will continue to carefully monitor the ongoing impact of the tariff policies. And it has obviously created a very challenging environment in the semiconductor supply chain.

Okay, can I just have a quick follow on that? I understood from other cycles, currently, besides the auto, all the applications have a healthy label. But because of the 90-day posts for the tariff things, so you see the inventory, how likely to elevate in second quarters? Do you think the play like that and how serious for the inventory pop up?

We mentioned that there's not much so-called net-net impact from the tariff rush order yet in the second quarter. So it should translate to a normal inventory for the coming quarter. However, again, the second half visibility is very, very limited. So anything using the current data to assume may change overnight. So it's very difficult for us to give a comment on that.

Okay, thank you. Thank you. Next one, Jason Zhang, CLSA. Go ahead, please.

Thank you for taking my questions. My first question is in terms of the advanced packaging. I think, preferably, you mentioned that UMC probably is moving, will move into the advanced packaging market. So can you provide us more details or long-term plan in terms of this new area? And I also saw the news or rumors suggest that UMC is cooperating with U.S. clients such as Qualcomm. So I wonder if you can provide more details in terms of this new applications. Thank you.

All right. Thanks, Jason. Obviously, we can't really comment on specific customers. But as far as packaging-wise goes, we're very, very excited about our customer engagements in 3D -to-wafer segments that encompasses RF front-end modules. Also for sensor, memory, as well as logic, we've gotten the requirements and they're actually picking up in terms of engagements. As far as 2.5D interposer, we have seen that the projects for HPC-related projects for interposers as well as deep trench capacitors, these requirements have also continued to grow. So we expect that obviously will be a trend to come and we will definitely prepare ourselves to accommodate these emerging trends.

Got it. Thank you. So how's the contribution do you expect in the future if those kind of projects can start meaningful shipments or volumes in this year or in the future? Thank you.

This is still in a very early stage. So we don't expect to see significant revenue contribution in 2035.

Got it. Got it. So my second question is in terms of the demand side. I think your competitor in China also just said there is a very solid growth momentum on the demand side and their user-adjustment rate has meaningful improvements since second half last year. So and you also gave a very solid growth in Q2. So can we assume that there's structural improvements or recovery or growth in mature node and or do we see lower competitions from Chinese players because of this kind of recovery or improvement? Yes. And looking into the future, if this kind of demand can further increase, I mean can our selling price or gross margin can be driven by this kind of meaningful growth? Yeah, so one of you can give us more color on it. Thank you.

Yeah, I wish I could jump into a conclusion. I mean, that would be great. But unfortunately, that's not what we see right now. What we are seeing is really for the first quarter and the second quarter guidance, we are a little bit ahead of year beginning of the year guidance. So it's doing slightly better, but not too much. And the increasing geopolitical tensions and the potential tariffs certainly shadow the second half and visibility has become very unclear for the second half. So we cannot jump into the conclusion you mentioned. Although, UMC continue to focus on the differential technology in order to cope with the upcoming new competitors. And our 2228 platform is crucial for UMC strategy to move away from the commodity type of market. And we have probably the most competitive solution in 2228 E-HIV, which has enabled UMC to become the leader in our latest play market tech. In addition, our 22 ultra low power and 22 ultra low leakage technology. These offerings deliver 30 to 50% power saving compared to standard 28 nanometer notes. And it's ideal for IoT device wearables and HAI applications. So all this plus our diversified manufacturing location, we believe we are in a unique position to find out those potential commodity capacity no matter where you're located. So we are confident about our strategic position. So hopefully that answers your question.

Understood. Thank you. I have no more questions.

Back

to you. Thank you.

Thank you. And ladies and gentlemen, we're going to take the last question. And the last one, Tat Linh, HSBC. Go ahead, please.

Hi, thank you for taking my question. So my question is, with the ongoing tension between the US and China, do you foresee any potential impact to your China FAC? Like, for example, like, foreign, like, are you expecting like foreign foreign customer to reallocate their orders from your China facility to maybe outside of China, such as Singapore, Japan or even Taiwan? And do you foresee your customer? Localized customer to maybe reallocate also allocate their orders to a domestic China boundary?

First of all, in order to mitigate the geopolitical tension, what we can do is first, to 100% following the law. So no matter if it's export control or any of the local compliance requirements, UMC devotes all the resources to meet the compliance and the export control requirements. So we're following every rules out there. There is no gray area for that. And secondly, we are happy with our geographically diversified production base, because you never know at what point of the time there will be requirement for customers to move around their productions. In fact, our China FAC today is actually enjoyed higher than corporate average loading. And we certainly also seeing customers need to see more capacity available in our Singapore, Taiwan or Japan FAC. So all we can do is really try to be as diversified as possible and make sure all these FACs can support each other in many of our major technology offerings. That's what we can do.

Okay, thank you. That's all I have.

Thank you. And ladies and gentlemen, we thank you for your questions. That concludes today's Q&A session. And I'll turn things over to UMC IR manager for closing remarks. David, please.

Thank you, everyone, for joining us today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at IR at UMC.com. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for first quarter 25. We thank you for your participation in UMC's conference. There will be a webcast replay within one hour. Please visit .umc.com under the investors events section. You may now disconnect. Thank you and goodbye.