United Microelectronics Corporation (NEW)

Welcome everyone to UMC's 2025 Third 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 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 two hours after the conference has finished. please visit our website, www.umc.com, under the Investor Relations Investors Event section. 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 third quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC, and Mr. Chi-Dong Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial result, followed by our president's key message to address UMC's focus on fourth quarter 2025 guidance. Once our president and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com. under the investor's financial section. During this conference, we 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. Chidong Du, to discuss UMC's third quarter 2025 financial results.

Thank you, Michael. I'd like to go through the third quarter 2025 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, in third quarter of 2025, consolidated revenue was $59.13 billion, with gross margin at 29.8%. Net income attributable to the stockholder of the parent was $14.98 billion. and the earnings per ordinary share were $1.2 NT. Capacity utilization rate climbed to 78% in that quarter, with wafer shipment just marked 1 million 12-inch equivalent wafers. On page five, on the sequential comparison, third quarter revenue of $59.12 billion increased slightly compared to the previous quarter, mainly due to higher wafer shipment, although the NT dollar exchange rate was an unfavorable factor of around 3%. Gross margin also climbed on back of the better capacity utilization rate to 29.8%. And net income reached nearly 15 billion NT dollars, or an EPS of 1.2 per share in NT dollar terms. On year-over-year comparison on page 6, for the first three quarters, revenue grew 2.2% year-over-year to $175.7 billion NT. Gross margin was around 28.4%, or nearly $50 billion NT for the first three quarters of 2025. Overall net income for the first three quarters is down to 2.54 NT dollars per share compared to 3.12 in the previous three quarters of 2024. Page 7 cash still above 100 billion NT and total equity of the company is now 361 billion NT. at the end of third quarter of 2025. ASP on page eight shows the remain firm for the past two quarters. On page nine for revenue breakdown, we can see that North America represent about 25% of the total revenue in the third quarter, which is 5% higher compared to 20% in the previous quarter. On the contrary, Asia declined by nearly 4 percentage points to 63% in the third quarter of 2025. Idea versus cyber remains unchanged on page 10 for the third quarter of 2025. On page 11, we noticed the communication and computers age up in terms of sales mix. when consumer declined by nearly 4%, 4 percentage point to 29% in the third quarter. On page 12, the segment sales breakdown by technology, 22 and 28 still remain our main technology node. When 22 continue to climb in terms of percentage, total 22 and 28 revenue reach about 35%. 40 nanometer and 65 nanometer revenue somewhat unchanged in about 17% and 18% respectively. For our quarterly capacity for the third quarter, we see minor increase coming out of our 12X, Shaman Fab, which now the monthly capacity is nearly 32,000 wafer per month. and total available capacity will remain flat for the coming quarter. On the last page of my presentation, our annual capacity is heading to our budget number of 1.8 billion, with 90% in 12 inch and 8 inch. The above is a summary of UMC results for third quarter of 2025. 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. Thank you, Qilong.

Good evening, everyone. Here, I would like to share UMC's third quarter results. In the third quarter, we observed demand growth across most market segments. Quidget drove a 3.4% increase in wafer shipments and improved utilization rate to 78%. In particular, we benefited from a pickup in sales of smartphones and notebooks, driving replenishment quoted from customers. Our 22nm technology platform continues to provide us with a differentiation in the market. With 22nm revenue now accounting for more than 10% of total sales, In 2025 alone, we are projecting over 50 product tables, and we expect 22 nanometer contribution will continue to increase in 2026. Aligned with our strategy of providing customers with highly differentiated specialty technologies, we recently announced the readiness of our 35 nanometer BCD platform. In addition to mobile and consumer applications, the new platform is also complemented with the most rigorous automotive standards for automotive and industrial use. Looking ahead to the fourth quarter, we are anticipating Weber Sherman to be comparable with third quarter's volume, wrapping up 2025 with the Sherman World's UMC continues to deliver competitive process technologies that enable diverse applications, which position the company to benefit from a broad-based market recovery. With a 22nm logic and specialty platform, in particular, we expect to drag growth. Now, let's move on to fourth quarter 2025 guidance. Our wave assurance will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2025 cash-based capex budget will remain unchanged at U.S. $1.8 billion. That concludes my comments. 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 the question and answer session. If you have a question for any of today's speakers, please press star key and number one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press star key and number two to cancel the question. Thank you. Now please dial Start key and number one on your keypad if you would like to ask the question. Thank you. First we'll have Haslu, Bank of America, for questions. Go ahead, please.

Yes, hi, Managing Team. Thanks for taking my questions. My first question is regarding the near-term outlook. Could you discuss more in detail on how you see the business buy-in market is trending into the current quarter, import quarter? Since the guidance is above seasonal, so just wondering if there's anything driving that. And also, just your initial view into first half next year. Did you get feedback from your customers on the potential restocking? Or in general, they are still pretty conservative at this stage? Thank you.

Sure. I mean, while we're going into Q4, we can, as I said, we wrap up the 2025 Sherman to a low thing. It's now that we project the 2025 Sherman growth, it will support it. by our differentiated 22 nanometer technology and other specialty offering across both 12 and 8-inch amid a broad-based market demand recovery. On the 12-inch side, shipment growth was driven by a strong momentum from 22 nanometer logic for ISP, Wi-Fi connectivity, as well as the high-end smartphone, the Spray Driver IC. In addition to 22 and 28, overall 12-inch wafer shipment it will outpace our addressable market due to our comprehensive value-added specialty portfolio of non-volatile memory, RHSOI, and the BCD. On the 8-inch side, we expect a high single-digit growth in 2025, mainly led by the PMIC and the LDDI. So in summary, the strength of 22 nanometers and the specialty process across both 12-inch and 8-inch platforms underpin our confidence in achieving a low-teen percentage of shipment growth in 2025. So for 2025 Q4, the shipment outlets remain flat. If we're looking into the early look of 2026, I think we're still going to experience some seasonality, but if I look at the entire year, despite the ongoing global economic geopolitical uncertainty, we believe our 2025 business growth momentum will continue into 2026, where we expect the wave of shimmy will increase year over year. In addition to some 10 expansion or 22-neumeter e-high-V platform, which is serving the high-end smartphone OLED display driver application, will be one of the key growth engines. We expect the overall 22 and 28-neumeter revenue to achieve double-digit year-over-year growth in 2026. However, there's still going to be some seasonality that we may have to go through, so Q1 may be one of the challenging quarter for the year. Supported by the strong customer adoption of our 22-nm technology, in addition, our technology readiness in RFSOI for smartphone RF front-end devices will also fuel our growth in 2026. Besides the growth of the communication segment, we also foresee our enhanced version of PIMIC solution will also continue to drive recovery in our 8-inch segment. In 2025, we foresee PIMIC business will grow in a high single-digit range, and this growth momentum will extend into 2026. Our effort on enhancing our technology competitiveness, particularly for the PIMIC application, have started to yield some tangible results. And that will actually help us with the, to strengthen our position in this market segment and for 2026 growth. If we look beyond 2026, we'll continue to develop new derivative technology to enhance our differentiated and our competitive, enhance our competitive position. Furthermore, we're expanding our addressable market into 12, now we think that, as you know, and as well as some of the advanced packaging space. The ULT portfolio, the technology portfolio is well positioned to serve a growing demand of the power efficiency optimization, the high bandwidth data transfer, as well as the improved connectivity. So I think in general we are relatively confident in 2026, but it's still kind of early to go into the quarterly guidance.

I hope that answers your question. Yeah, that's pretty comprehensive. And I think just a quick follow-up to my first question is just, when you mentioned the growth momentum could continue into 2065, are you saying that the wafer shipment could actually still be growing by low tins next year, at least? Because you mentioned a lot of growth drivers by applications just now, especially on 22 nanometer, 28 nanometer, and also 8 inch. So just wondering whether you are implying that the wafer shipment could grow by another low teams at least for 2026.

We're not giving the plan the wafer shipment at this time. We're probably ready to provide you more clarity into Q1. But, you know, 22 and 28 particularly, yes, I think that when we go into 2026, we're still expecting a double-digit year-over-year growth.

Thank you. And then my second question would be on your gross margins trend. I think for the fourth quarter, you guided last shipment and also pricing. The FX seems to be, foreign exchange seems to be more favorable at this stage. So why does the gross margins does not go higher than the third quarter? I'm just curious why that is the case, or should we think about high 70% utilization is going to translate into like high 20% gross margins going forward?

Our gross margin in third quarter is actually, in fact, slightly higher than that of the previous quarter. The gross margin also primarily depends on utilization rate, ASP, product mix, depreciation, and foreign exchange. As you know, even though the foreign exchange rate may be on a forecast basis better than forecast, I still appreciate against U.S. dollars our key priority. receivable currency. So still in an unfavorable situation, as I mentioned earlier, that almost beat up about 3% of our total revenue. And we do expect the Q4 25 gross margins still will remain in the bandwidth of high 20% percentage range, despite the variables such as our depreciation will still see quarterly increase. And this year, we are facing 20% plus increase in annual depreciation expenses. So I hope that answers your questions.

And then just a relevant follow-up is in your cost structure. you have been able to manage the other manufacturing cost item quite nicely down in third quarter, despite the fact that the labor cost is higher, electricity cost is higher, and also the material, or even the wafer shipment is slightly higher compared with second quarter. So could you just elaborate more detail on that? How should we think about the other manufacturing costs, which I believe should be mostly variable cost? How should we think about that going to trend? Thank you.

Part of our employee compensation is bonus, which is based upon profit sharing. So when we have a better quarter over quarter profit in the third quarter, we do have to factor in higher bonus, which increase the compensation expenses in the third quarter.

But it was still down compared with second quarter. So I was just wondering if there's any reason driving that decline, and would that trend continue?

No, the trend will not continue. It will fluctuate along with our rolling profit recognition.

Thank you. That's pretty clear. Thanks.

Thank you. Next one, Charlie Chan. Morgan Stanley, go ahead, please.

Congratulations for very strong results especially on the gross margin side. So maybe starting with the so-called geopolitical uncertainty. So Jason, can you elaborate a little bit what kind of micro uncertainty you see will continue in 2026? And I was asked by one of your customers about there seems to be some about semi-tariff may come next January. So any kind of potential impact to your business or operation? And also another to go down certainty, it was a couple of weeks ago, right? The rare earth kind of supply. Does your team run through some analysis about the potential impact Rare Earths will be restricted again. Thank you.

Sure. A couple of things, right? I mean, you mentioned about geopolitical dynamics from the terrorists. So maybe let's start from the terrorists first. We do understand there are uncertainties and risks from the potential impact of terrorists. And we will remain cautious of those potential business impact and will be mindful in our business planning going into 2026. At this current point, we haven't seen anything yet, but we are cautious. Amidst the uncertainties, we'll also continue to focus on the fundamental of our business. That is the technology differentiation, manufacturing excellence, and the customer trust to further strengthen our competitiveness. competitive position. So I think we still have to go back to the fundamentals. For UMC, to address the geopolitical concerns, I do believe that UMC has a geodiversified manufacturing site across the globe. And the global semiconductor landscape is evolving. Customers and governments are increasingly emphasizing geographic diversification and supply chain resilience. along with a tariff, but to address the structural changes and align with the customer needs, our strategic initiative, including the capacity buildup in Singapore and the U.S., and our design to complement our Taiwan facility will enable us to better support our customers across multiple regions. Over the long term, we are targeting a balance capacity split between Taiwan and overseas locations. So we welcome any opportunity from our customer, whether this is an impact or opportunity to us. We probably have precision ourselves and ready for that dynamic changes.

Thank you. So specific on semi-terra, I think we... also went through this discussion last quarter or two courses ago. So do you also hear that next January could be a final implementation of this semi-tariff? And secondly, would UNC can get a so-called exemption from this semi-tariff?

Well, I mean, your guess will be as good as my guess, so I'm not going to guess here.

I watch TV only.

Yeah. So we're going to be cautious about this, and we're closely monitoring the progress and developments. And at the same time, given that we are investing into the U.S., so we're definitely going to present our case. But there's nothing else to update here. If there's anything, we'll definitely pull back.

Okay, got you. Thank you. And second question is about your gross margin sustainability. I know this quarter, next quarter, some put them in text, right? But just overall, right? Next year, it seems like some of your industry peers, yeah, maybe I just call it TSMC kind of hike their web appliance. And recently we are seeing that a backend foundry, though it's not like your industry peer, but it's kind of your downstream supply chain, right? Also attempt to hack the backend foundry Series 5s. So, what was the UNC's kind of set about potential with the price hike into next year?

Well, like Chidong mentioned earlier, margin reflects the result of the ASP loading certain variable factors. So, let's take the ASP specifically. For the ASP outlook, our 2025 ASP performance has remained firm amid a dynamic business environment. And it has remained stable at a healthy level throughout the year. And we expect ASP will remain firm in Q4 2025. And for the 2026 outlook on ASP, we will provide more detail in the upcoming January 2026 conference call as we are going through some discussion with our customer aligning that So we'll probably have more detail to report in the next conference call.

Okay. And on the cost side, it seems like there's some indicators that your team want to drive some costs down. But I feel like most of the components whatsoever, most of what I'm hearing this come out, cost may go up. On the cost side, do you have any preliminary outlook for 2026?

Without getting into a specific cost projection or outlook, I think we can probably update you about the view in cost, our view about cost. Cost competitiveness is is always a mutual goal for us and our supplier together, so in order to be competitive. So we're closely working with our suppliers. We'll continue to drive towards cost saving in 2026, and that has been going on for many years, but we are continuing to doing that into 2026. But that includes the combination of both internal and external efforts. It's not only working with the supplier. It's also internal efforts. For example, we have already started leveraging some smart manufacturing and AI technologies internally to enhance our fab efficiency, enabling our long-term operational competitiveness. So that's also a major piece of driving our cost goal. So I think there's a... many of the initiatives that we're deploying and working with the supplier, supply chain is just one of them.

Okay, okay. And the last one, I'll be back to the queue. So I know your company and your team have been going through a lot of strategic or marketing research, right? So recently we picked up one There are points that I would like to share with you and also consult your view. Because of the tea glass shortage, right, we started to see tightness of BD substrate supply. From your perspective, though, UMZ's perspective, would that kind of constrain some of your customers' demand, for example, the consumer or smartphone SOC demand into 2086?

Well, we really haven't seen that, but we are closely monitoring the entire supply chain's resilience. The current market is driven by this AI momentum, so there's an area demonstrating potential supply chain concern, but so far we have not seen any impact to us. But like you said, we all look out there and see if there's going to be any. But meanwhile, we are managing from our internal perspective, we are managing our supply resilience point of view. We want to ensure the supply assurance and as well as both from supply and demand as well as quality standards and cost. So I think that's always been our initiative internally. So I would just have to say we haven't seen any impact on the recent market dynamic, but it's something always on our radar screen, and we continue monitoring it.

Yeah, how about smartphone or PC demand recovery if you have a crystal ball? Do you think that two major segments of the end demand will significantly recover next year?

Well, I mean, at least for the Q4-25, in fact, the wafer shipment will remain flat. Right. And the markets reflect pretty healthy inventory level as well. Right. We see slightly computation segment decline in our segment, but the computing consumer automotive are slightly increased. Right. You know, I'm not sure that's affected by that particular supply issue. It reflects, you know, probably more of the end demand associated.

Okay, okay. Thanks, Jason. Very, very helpful. I will be back to the queue. Thank you. Thank you.

Next one, Laura Chain, Citi. Go ahead, please.

Yes, hi, thank you. Thank you for taking my question. My first question is also about the margin outlook. You mentioned that the depreciation cost for this year will up about 20%, but we know that actually in the first half, the depreciation cost increased almost like 30%. So does that mean that depreciation cost young year increase trend is slowing down into Q4? With overall euteration rate and also ASP seems to be resilient, and also higher exposure on 28 nanometer, should we be looking for some of the potential upside of the growth margin?

Well, other than depreciation, there are other factors. Like Jason mentioned, we will have a clear view on the ASP, which is an important component for the margin equations. Just on depreciation alone, yes. The increase magnitude were down to about low things in the year of 2026 versus 20-something in 2025. And in the previous quarter, we also mentioned either 26 or 27 should be the peak of the recent depreciation curve. So on that regard, it does provide a good floor for helping our dividend margin.

Okay, great. Thank you. And also the second question, I recall that we mentioned about the interposer business before. We know that the AI demand is surging. So just want to understand UMC, do you have any update view on the interposer strategy? And also we know that UMC also have wafer-to-wafer technology. So just wondering what's the plan here and also do you want to further expand the capacities on interposer?

Well, the latest development on the events packaging phase, we're continuing preparing our events packaging solution for this growing market in association with the energy consumption of our AI and the age AI market. For UMC, we are developing the 2.5D interposer with the DTC, the deep trench capacitor, and discrete DTC to address the power efficiency requirement in AI, HPC, PC, notebook, and smartphone space. And second, UMC is leveraging the scalable 3D waiver to waiver packaging, stacking, and the TSV to enhance our specialty technology offerings. We are in the mass production of extremely small form factor for the 5G and 6G RFIC right now by leveraging the wafer-to-wafer stacking technology. Based on the success of the 5G and 6G RFIC through the wafer-to-wafer stacking, we are also developing memory-to-memory stacking and memory-to-logic stacking service for the high bandwidth computing requirements. So all technology really is associated with the with the DDC capability and the wafer-to-wafer stacking capability. Right now, it's still within our current capacity size. There's no expansion planned, but there are a lot of customer interest and engagement in development right now.

Okay, great. Can you also give us some idea how is that kind of business opportunity growing into the next few years?

I mean, as we anticipated, the cloud AI and the edge AI market will probably be taken out in the next two years or so. And, you know, so we think preparing those technology capabilities today will position us well to serve that market when the money comes. I think many customers are engaging in that discussion, exploring the product roadmap at this stage. But in terms of the actual volume and the RENBAR schedule, I would expect it's going to probably be in late 2026 or sometime in 2027.

Okay. Thank you. That's very clear.

Thank you. Next one, Sonia Ling, UBS. Go ahead, please.

Good afternoon. Thank you for taking my questions. Congrats on the very good outlook. I'm very glad to see this is stabilizing and improving. So my first question is on the pricing. I understand more specific guidance should be provided in January or in early 2026, but I want to get a bit more color on the latest progress on your engagement with the client's 2025, basically you provided roughly a single-digit type of price reset across the board. And so how should we expect, like, going to early 2026? Would it be fair to assume that now, given the improving supply demand, even if any price decline should be lower than the magnitude in early 2024 and early 2025?

Well, I mean, that's That's definitely, I mean, that's our goal, right? I mean, but while we are still in discussion and aligning with our customer, I can't really quote that. I have to really see the data before I can comment about it. You know, but, you know, throughout the Annual discussions and the past patterns in January will probably continue engaging similar discussion, but in terms of the magnitude of it, I think it's kind of too early to guide it at this point.

Got it. Maybe a follow-up on Blender ASP. There are still some concerns that people There may be some overhead from LTAs expiring in the coming few quarters that could weigh on your Blender ASP. And so, Jason, could you maybe provide a bit more color on if any impact or that impact is already gone, mostly?

I mean, LTA is one of the mechanisms that helps us and our customers working with other partners, not only based on the ASP. It's also, based on that, providing a mutual commitment for us to put in capacity to support the customer. At the same time, the customer demonstrates some commitment for the business engagement. So LTA will continue serving that purpose. Well, given the market dynamics, we're always working closely with our customer and to support them in getting market shares without losing the market share and gaining the market shares, and also with the market dynamics in terms of commercial needs. But at the same time, we have to balance in terms of capex returns. So it is a... Complicated process and the discussion, and we've been doing that for the past two years, and we'll continue supporting our customers to march into that direction of finding a win-win solution based off the LTA arrangement. But the mutual commitment of LTA remains intact.

Got it. So maybe one question on 2026, just to make sure that I got the right number. So for 2026, Jason, earlier did you mention the target would be to grow business by double-digit?

I mentioned about the 22 and 28 nanometer that we expect the momentum will go into 2026, and we expect a double-digit growth year-over-year. Yes.

Got it. Thank you. It may be a question on Singapore expansion. So, if any, like, latest update that you could share with us in terms of how quickly the capacities will be ramped in 2026?

I think the milestone has not changed. We project that the 12IP3 protection ramp will start in January 2026, and you will ramp up with a higher volume starting in second half of 2026. And that milestone schedule remains.

Got it. Thank you very much. Maybe last question. So in terms of dividend policy, given the improving cash flow outlook in the coming few years, Would the company consider maybe revisiting the dividend policy to change to absolute cash dividend? Would that be possible?

It's not impossible, but we always try to strike a good balance between the high percentage payout ratio and absolute dividends. So I think that strategy or that position will continue.

Got it. Thank you very much.

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

Yeah, hi. Thanks for taking my question, Jason and Chitong. So just wanted to understand a little bit more on the pricing. I know that you're in pricing negotiations with customers. Could we talk a little bit about 22 and 28? How is the pricing trend there? Do you expect that there is any concession that you may need to make on 22 and 28 pricing, or that is going to be reasonably firm? And maybe also the same question on the 8-inch portion of the capacity as well, given some of your competitors are also kind of down or exiting some of the 8-inch capacity?

Our pricing strategy has been very consistent. We will work closely with our customers for protecting and gaining market shares. That remains. That will not change. In the particular number, the The AST guidance, I think it's better that we have all the pictures together and to share with you. But in terms of pricing strategy and positioning, that has not changed. We do believe that the pricing is a combination of our value proposition from technology differentiation, manufacturing capability, reliable capacity. and diversify the manufacturing locations and so on. So we think there's a lot to offer, and along with the mutual commitment with many of the customers, we believe that we will strive to a right balance for the pricing discussion. However, again, from the specific guidance on ASP outlook, I would probably prefer to wait until we finish up. I don't want to mislead you at this point. And that goes with whether it's 22 or 28 nanometers and as long as the 8-inch, because each technology has a different market dynamics, and we will work within that dynamic. Meanwhile, you're talking about if we see anything on an 8-inch opportunity or due to any other our peers. We don't typically comment about our competitors. We believe our market share increased in 2025 in an 8-inch, but not just 8-inch, overall 8-inch and 12-inch legacy nodes. And we believe those Those nodes remain a sweet spot for a wide range of analog-rich products. So we'll continue to strengthen our product portfolio, focus on those pieces, and hopefully we can increase our market shares. We continue to optimize our existing platform and developing new solutions to better address that market need. This is the area that UNC has built some long-standing relationships and trusted relationships. with our customers. So we believe this structured trend will reinforce our position as a preferred foundry partners for customers in this niche. And that will actually help us to sustain our, you know, maybe growth in both 8- and 12-inch legacy nodes over the long run.

Got it. Yeah, clear on the pricing that we can wait for January. But I think I just wanted to also ask on the semiconductor Section 232 tariffs, how are the discussions with your customers going? And let's say there is a 15 or 20% tariffs on exports, which needs to be offset with any kind of U.S. investment or U.S. capacity that you have. How does UMC manage that situation and which of the investments, if any, that can qualify for that kind of an offset? I mean, for some of your peers, I think that is pretty clear. But I just wanted to understand how UMC seems to bring the situation.

Well, I kind of touched that earlier. We have been a very diversified manufacturing location in the past. And so we have very, you know, I think we're pretty much very complement to the current market dynamic. You know, the current geographically discussion on diversification, supply chain resilience, I think our past initiative serves that. And so we'll just continue. We may alter that, making some adjustment about that strategy, but not significantly. For instance, we're including building capacity in Singapore and US, and it's very much aligned to that direction. Of course, the terrorist situation, whether it is X percentage, we don't know yet for Taiwan, but we know some areas already came out as a 15%, and that's where we have our manufacturing sites. So customers are in discussion. in interest of, you know, make sure that they have access to those facilities and to those locations. So we are definitely entertaining that conversation in a manner of growing our business engagement. So we hope that becomes more of an opportunity to us, not just a negative impact. Now, for some areas that is not clear yet, and we have to navigate through that, you know, it's our belief that, you know, we have very smart people in this industry and, you know, despite, you know, which direction it goes, we will navigate through this process and finding a win-win solution of mutual benefits.

Yeah, just following up on that, Jason, I think geographical diversification is one aspect, but also the second aspect is U.S. capacity, right? So I think If you're understanding that your 12 nanometer collaboration with Intel kind of counts as U.S. investment and U.S. capacity, given I think the total investment is actually quite small, even though you are actually shouldering a lot of the technology-related tasks.

Well, I mean, I can't comment upon the sake of small, but the investment is investment, and we are putting capacity in the U.S., And the starting point of the 12 nanometers only lets a solid foundation for us to explore maybe even other cooperation opportunity as well. So that also, if there's anything to update, we will update you, but that could also representing even more investment, right? We're not ready to update you anything yet, but even I look at the 12 nanometer today, that is quite significant in terms of investment.

Got it. Maybe one last question on the advanced packaging bit. I think you last time updated, I think, around 6K or so of vapor capacity for 2.5 DIC packaging. Is that still where we are in terms of the capacity? And for your 2.5D packaging with deep fringe capacitor, what is the application? Is it a slightly different application that you are targeting compared to the mainstream market? And that's why you're kind of waiting on the capacity expansion while the industry is still like really asking for a lot of capacity.

The 2.5D intervals of 6K today is this stays there. There is no extension plan beyond that. Given the technology roadmap migrating to the DTC, and we're developing the DTC capability, and for that we're serving the AI, HPC, PC, notebook, and smartphone space. So our advanced packaging roadmap was centered from the DTC going into the 2026, yeah.

And would you say that the 6K is now fully utilized, or you still have a lot of slack in that 6K capacity right now?

I mean, it's the product migrating to DTC. That's why we're not expanding the capacity to a half D right now.

OK, OK. And this DTC capacity, how significant do you think it is going to become uh in terms of revenues let's say i think you were expecting end of 26 ramp up so let's say in 2027 is that is that is a fairly significant part of your uh total portfolio or is it is it still going to be quite small similar to the interposter related revenues that has been more like a legit loss of legit kind of percentage of revenue

I think it's kind of too early to predict that. Part of the market is associated with the edge AI market, which we have to wait until that has more clarity. And so I think at this point it's too early to project that. But in terms of technology-wise, I think that's definitely the core of the next generation. So we need to make sure that we have prepared for it.

Got it. Yeah, thank you very much. Thank you. Next one, Jenko Venter, Aerotake. Go ahead, please.

Hi, thank you for taking my questions. I just wanted to follow up on the investment into the U.S. and just get an update on the state of the PDK. And then also, we just want to understand the business model around this engagement on 12 nanometer. Is it revenue share? Is it profit share? And then, you know, just secondly on that, you know, will it be cannibalistic to the 22, 28 nanometer customers as you start migrating to 12 nanometer? Any color that you can add to that to help us just understand this opportunity would be quite helpful.

Sure. From a project standpoint, currently the 12 nanometer cooperation with Intel is progressing well and remain on track according to the project milestone. And we expect the early PDK will be ready for the first wave of customers in January 2026. And both UMC and Intel are aligning with the customer device specs to facilitate the ramp up. Overall, the collaboration proceeding of the schedule and customer Product table is expected at the beginning of 2027. So that is the update on the 12 nanometers. The business model itself, we are working collaboratively together and engaging with the customer. And the actual business model that we've probably not elaborated shares right now, But once the, you know, I think that will be a, the business revenue recognition, once it's ready, we'll update that. And the cooperation model is actually very structured, but just, you know, we probably have to report it after we enter production. The, I think that's, the two questions you have, right? Did I miss it? Yeah.

That makes sense. Yeah, that's right. Maybe just one follow-up, and I think you touched on this earlier where you talked about potentially looking at further investments. Now, you know, if we look at, you know, actually we're trying to understand if there's scope perhaps to extend this agreement to single-digit nodes. Because if you look at Intel's business, they fully depreciated 7 nanometer. And it seems like an obvious area to extend the agreement. Is this something that you would potentially be looking at? And does that make strategic sense for UMC?

Well, I mean, the... Yes, the simple answer is yes, right? And we have to start it from the 12 nanometer, so we have to make sure that execute well so we can lay a solid foundation on that. For technology beyond 12 nanometer, we are open to explore the future opportunity through the partnership arrangement that are mutually beneficial. You know, I would say the cooperation with Intel is a strengthening UMC strategic position in U.S., significantly and for the U.S. market and also broaden our addressable market while hearing our discipline, the CapEx approach. So we are very committed to this partnership and so far the project is the province that you're progressing well.

Thank you very much for that.

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

Go ahead, please.

Hello. Hello. Can you hear me?

Yes.

Yes, I just want to follow up for the U.S. collaboration beyond 12 nanometers. What are the showstoppers for us to, you know, move beyond 12 nanometers at the current stage? Or do we consider to, you know, go backwards to do, like, relatively mature node capacity in the U.S.?

That's an interesting question. I think when we talk about this cooperation with Intel strengthen our positioning in the U.S. market, you know, hopefully we're not only limited at 12 milliliters, and that, you know, if we can have a full potential of this position, and we, so that's why we're actually very open to explore the future opportunities through this. So there's, I don't think there's a, I won't call it any showstopper, but I think as long as it's mutually beneficial, I mean, we're definitely open to explore that. Now, is the exploration limited to the more advanced or backward? I think we are also open to that. We're not limiting ourselves with that.

No, Jason, the question is that it's clearly mutually beneficial, right? So, you know, who has the ball? I mean, you know, who doesn't want to move on?

I think there's, you know, in in any of the engagement, not just the, you know, you require the market validation, you need to make sure you're doing your due diligence. So I think the, I will probably comment that all conversations are open, and the due diligence needs to be in place before we move forward. So it's not truly a showstopper. It's not voting which sport. We have to make sure we conduct the appropriate process.

So, in other ways, the prerequisite condition would be that you probably need to deliver 12 anonymous, you know, with a decent size of revenue, decent size of customer profile, customer. Then, you know, both sides might consider to move it on. Is that a right consideration?

No. I mean, I won't say that is a prerequisite, but that is one of the important considerations. But more importantly is if this cooperation is economically beneficial to both sides. And so I think that once we are more mature and ready, and we definitely will update you. But again, our position on this topic is we are open to that exploration.

Okay. So when can we expect to see the meaningful revenue contribution from 12,000?

Well, I mean, right now for the early product table is going to be in 2027. And so we're probably going to start seeing some contribution in 2027, but then renting after that.

I understand. Thank you.

Thank you. And in the interest of time, we're taking the last question. Last one, Charlie Chen, Morgan Stanley. Go ahead, please.

Thanks for taking my follow-up question. So it's actually wafer-on-wafer related. So just an initial with those who could be kind of memory partners. I mean, it seems like it requires a lot of so-called customized design interfaces, et cetera. Are those more Taiwanese partners, or do you have some global top memory partners for Wavefront Wafer? And secondly, if you can, can you share some potential applications and the timing for Wavefront Wafer? Thank you.

On the wafer-to-wafer stacking capabilities, we are in mass production for some of the extremely small form factor devices in the RFID IC space. We're talking about that because we believe if you look at the markets going and we believe this technology will serve more than just a small form factor. It provides the option for the the memory-to-memory, the larger-to-larger, larger-to-memory stacking options. So by providing the option to the customer, they say they can explore many different product applications. So at this point, the advanced packaging technology is developing into two cornerstones. One is the DTC capability. Another is the wafer-to-wafer stacking capability. And then once the technology is ready, then we can export to many different applications.

On this, the way we produce the kind of advantage or differentiation to industries, for example, TSMC or China's, I'm not sure, maybe XMC, you know, Yeah, any sort of technology differentiation you may have?

Well, I mean, the developing differentiation technologies is definitely our mandate. So we continue driving that technology differentiation. But at the same time, you have to make sure that you are part of the ecosystem, you know, where the market is going. So we see this from a market standpoint, from a technology product. migration standpoint, we believe this is a very important capability and technology. So we're preparing ourselves to get that ready, and then we can start exploring different business opportunities.

Thank you. Looking forward to your next updates.

Yeah, sure. Absolutely. Thank you. And ladies and gentlemen, thank you all for your questions. That concludes today's Q&A session. I'll turn it over to UMC Head of IR for closing remarks.

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 ir at unc.com. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for third quarter 2025. We thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.unc.com under the investors event section. You may now disconnect. Thank you again. Goodbye.