United Microelectronics Corporation (NEW)

Welcome everyone to UMC's 2026 First Order 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 broadcasted live over the internet. Request replay will be available within two hours after this conference is finished. please visit our website, www.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.

Thank you, and welcome to UMC's conference call for the first quarter of 2026. I'm joined by Mr. Chi Dong-Biu, CFO of UMC, and Mr. Michael Lin, Senior Director of Finance. In a moment, we will hear our CFO present the first quarter financial results, followed by our key message to address UMC's focus in second quarter 2026 guidance. Once our CFO completes the remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors' Financials section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For 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. Qi Dong Liu, to discuss UMC's first quarter 2026 financial results.

Thank you, David. I'd like to go through the first quarter 2026 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, the first quarter of 2026, consolidated revenue was $61.04 billion NT, with gross margin at 29.2%. Net income attributable to the stockholders of the parents was $16.17 billion NT, and the earnings per ordinary share were $1.29 NT, which showed pretty good growth compared to both last quarter as well as the same quarter of last year. On page five, first starting from the sequential comparison, revenue was basically flat or down 1.2% sequentially to 61.4 billion NT. Growth margin at 29.2% slightly declined from the previous quarter of 30.7%. Net income attributable to shareholders of the parent loan has increased 60% sequentially to $15.17 billion, partially due to the strength of the stock market performance, and the non-operating income grew 60% to $5.3 billion in the first quarter of 2026. EPS as a result reached 1.29. EPS per 8 years is 0.204 in the first quarter of 26. On page 6, year-over-year comparison, revenue grew by 5.5% year-over-year, mainly due to shipment increase. And gross margin also showed 2.5 percentage point improvement to 29.2% to 17.8 billion NT in the first quarter of 26. And EPS also showed nearly more than 100% growth in the net income compared to 7.7 billion in the first quarter of last year. On page 7, Our balance sheet highlights total equity reach of $406 billion NT and cash on hand still over $100 billion NT at the end of the first quarter of 26. On page 8, our AST declined slightly in the first quarter of 26, mainly due to a better than expected change way for shipments. which bring down the blended ASD. On page nine, revenue breakdown by different geography. The changes are very minor. We see some decline in Europe region from 11% in the previous quarter to 9% in this quarter. And the other region stay relatively similar. compared to the Q4-25. On page 10, IDM showed a bigger decline from 20% in the previous quarter to now 14% of the total revenue. On page 11, communication also declined 3% quarter over quarter to 39% when consumer increased by 4% to 32%. in first two funding cells. For technology breakdown, our revenue below 40 nanometers will remain over 50% of the total shipment, and 28, 22 is around 34%, slightly declined from the previous quarter. On page 13, there's some annual maintenance schedule or maintenance. in the first quarter of 26 resulting slight decline in available capacity in the first quarter of 26. And we will see the total available capacity to go back to the previous level in the second quarter of 26. On page 14 is our overall budget annual K-tax. which for the time being still stay around 1.5 billion U.S. dollars. And the above is the summary of UMC's results for first quarter of 2026. Next, I would like to go to share our key messages. So in the first quarter, our welfare treatment increased 2.7% sequentially on a relatively strong growth in the consumer segment. lifting overall utilization rate to 79%, which is a continual improvement. Expect decline in blended ASP during the quarter, which I explained earlier. This is partially reflected higher A-inch wafer shipment. And gross margin held firm at 29.2%. And demand for our 22 nanometer logic and specialty process continue to gain momentum, with 22 nanometer revenue now reached another record high and accounting for about 14% of total first quarter revenue. At the end of this year, over 50 customers will have complete payouts on our 22 nanometer platform for a very diverse range of applications, including display driver ICs, network chips, and microcontrollers. We continue to invest in the next generation technology beyond 22 nanometer. Our 12 nanometer collaboration with our partner will provide customers with technology continuity as well as a U.S.-based manufacturing option. EMC also recently announced important development in the emerging business, including a strategic partnership to deploy lithium-ion-based TFLN photonics for AI infrastructures. Going to second quarter, we expect strong wafer shipment growth across both 8-inch and 12-inch portfolios, supported by a strong rebound in the communication segment, as well as healthy demand across computer consumer industrial markets. When the current memory supply shortage and ongoing conflict in the Middle East are creating certain headwinds and market volatilities, UMC continues to foresee resilient market demand. UMC will continue to monitor industry and macroeconomic development closely when prudently managing our business to cope with market dynamics amidst evolving semiconductor landscape change. Now, let's move on to second quarter 2026 guidance. Our wafer shipment will increase by high single digits, and HP in US dollar terms will increase by low single digits. First margin will be approximately 30%, and capacity dilution rate will be in the low 80% range. Our 2026 cash-based KPAS, as I mentioned earlier, so far will maintain around $1.5 billion budget. So that concludes my comments, and thank you all for your attention. Now we are ready for questions.

Yes, thank you, Mr. Liu. 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. And after you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, then please press star 2 to cancel the question. Thank you. Now please press star 1 on your keypad if you would like to ask a question. Thank you. And our first question will be coming from Goku Ali Alan of JP Morgan. Go ahead, please.

Hi, Chitong. Thanks for taking my question. First of all, on the pricing environment, I think last time you guys have talked about pricing environment being more favorable. Any more improvement that you're seeing on the pricing front right now in terms of your discussions with customers? Is it mainly to reflect the higher operating costs or are you able to kind of recognize some price increases even beyond the operating cost improvement. And when I look at Q2, low-simple digit Q1Q price increase, is that mainly a blended price increase because 12-inch is growing faster, or is there a like-to-like price increase included here as well?

Oh, yes. We recently sent out a letter to our customers talking about the price increase to happen in the second half of 2026. So the blended AP in Q1Q Second quarter increase is, yes, mainly from the mixed improvement. And I would say 22 and 28 nanometer will be the main help for the blended ASD increase in second quarter. And when the first half of 26 were underway, we are seeing resilient demand. across a broad range of applications, including communication industry and consumer, and even the AI-related sector for us. This momentum is contributing to a sustained and increasing high-capacity environment across UMC's portfolio. And to support such demand, UMC continues to enhance manufacturing efficiency and invest in technology and capacity to ensure reliable, high-quality wafer supplies. So these ongoing investments, together with increasing key cost drivers, including low materials, energy, and logistics, are essential to sustain our long-term operational excellence and service commitment. In light of these factors, we will implement a wafer pipe adjustment in the second half of 2026, which will set up a more favorable position for the upcoming 2027. So the pricing reflects both the evolving supply and demand environment and the continuing investment required to support our customers' growth. So pricing adjustment was based on the factors including UMC's product mix, strategy, capacity agreement, and also the long-term partnership. So this pricing adjustment will be implemented Hopefully, we will do our best in a very disciplined and sustainable manner to ensure our operational health when continuing to support customer growth and long-term success.

Got it. Thanks, Ivan. So just to follow up on that, I think if I remember right, I think your letter was like 8% to 10% for 8-inch and 12-inch products. um are we seeing uh further potential for uh increasing price like uh and what is the reception you're hearing from the customers that have uh that you've been in consultation with i think uh is there um accepted broad acceptance of this pricing phase or you see some some degree of pushback given some of the customers the demand seems to be still pretty lavish

Now, one thing we don't want to do or we never really did is being an opportunist to take advantage of customers. That's something we will never do. So our pricing strategy has always been anchored in the value where we deliver our differential technology, diversify our manufacturing footprint, and hopefully, again, provoke our operational excellence. So these trends continue to enhance our customers' product competitiveness and strengthen their supply chain resilience. As the semi-supply chain evolves, we are seeing markedly recognition of UMC's value, and this is driving structurally higher and more sustainable demand. And we remain committed to investing in this core strength to reinforce a vigorous cycle of value creation. So in Perio, we continue to enhance AAP through structure optimization. This includes strong momentum in our 22 nanometer platform and reduction in commoditized segment exposures and thereby strengthening UMC's long-term AAP profile. And I'm pretty sure we didn't really mention anything numerical in our letter to customers. So It will be based upon different segments, different technologies, and our long-term partnership.

Got it. My second question on gross margin. So we had some improvement in utilization from the mid-70s to low-80s and due to a business guidance. Gross margin is still roughly hanging around 30% now. This price increase, like, how should we think about gross margins? Are we likely to get back to, like, high 30s or 40% kind of levels that we were in back in the 21-22 kind of timeframe? Or that might require a much bigger improvement in utilization?

So, unfortunately, we're still in the peak of our depreciation increase cycle. And I think in the previous quarter we mentioned our depreciation curve will only pick up starting from next year. So we're still seeing quarter after quarter depreciation expenses. So if you ask me about EBITDA margin, I think I will be more comfortable talking about a better upside. But if you talk about growth margin or operating margin, we found a lot of pressures. from depreciation expenses increase, not to mention the recent geopolitical tension lead to raw material cost and the energy cost and the logistics cost to increase. So our utilization rate will be in the low 80% range in Q2. However, the margin uplift from higher shipments will be largely offset by the higher depreciation and high utility costs, like I mentioned. For the remainder of the 2026, the 12 eyes in Singapore ramp-up will start in meaningful terms in the second half of 2026, which will continue to carry higher depreciation expenses over the next several quarters. And of course, on UMC's side, we will continue to proactively deploy cost reduction efforts, including multi-sourcing, streamlining our operations, managing supply chain pricing, and drive automation transformation. So all these measures will help UMC to partially offset the cost headwinds and maintain our, or hopefully enhance our EBITDA margins.

All right. Thanks, Qigong. Thank you very much.

Thank you.

Next one, Charlie Chen, Morgan Stanley. Go ahead, please.

Thanks for taking my question, since Qigong, and also congratulations for a very strong guidance and outlook. But I do have some questions about the details, especially you commented about the communication segment is very strong. So may I know, is that coming from AI-related networking? Or also the smartphone business, you're also seeing so-called rebound. Thank you.

So first of all, communication was weaker in the first quarter. So there will be a meaningful rebound. in second quarter. And this will be driven, so for UMC will be driven by DDI, networking, FPGA, and ISP. So those segments will show stronger growth in the communication segment for the second quarter.

Okay. And if I may, I think the company also wants offering lots of new technology, no matter the three-count botanic foundry service or your advanced packaging, right? So can Majoran talk about your future plan for those advanced packaging capacity expansion and also potential real contribution in the coming two years?

These are two questions. One is packaging. One is on safe comfort timing. So maybe David can help to answer the question.

Yes. As far as advanced packaging, as you're aware, we're seeing more engagements pick up on our advanced packaging solutions. And as you know, we're working with more than 10 customers on advanced packaging. And currently, we expect more than 35 new tape-outs in 2026. And we foresee that revenue for advanced packaging next year will be significantly higher. And as of now, we're in production for a bridge die solution and discrete DTC, deep trench capacitor, with more products that will ramp up shortly.

May I know, for the bridge die or DTC, Are those working with other foundry partners? And is that part of the KCNC supply chain or KCNC supply chain?

Yeah, we don't really comment on our partnership. But as you know, as we talked about last quarter, these things are picking up a little bit of stink.

Okay, okay. So on top of that, do you need to – whether you send your inter-pulsar capacity for that bridge die demand or the current capacity is sufficient for that bridge die. So I'm assuming that take on inter-pulsars, the more wafer capacity, whereas a bridge die, the more advanced, right, but it doesn't really have much wafer capacity.

Yeah, as far as... Capacity planning for all of our new businesses, that will be aligned with our customers as well as market demand. And our ramp-up schedule will be aligned with the market outlook.

Okay. Okay. Thanks, David. Thanks, Jidong.

We're moving on to silicon photonics as well.

Oh, sure. Yes, please.

So for silicon photonics, we're now working with industry-leading customers that will help us ramp on silicon photonics. Additionally, preliminary data shows that our silicon photonic performance is on par or better than our peers. This is a result of our manufacturing excellence and also the fact that we use 12-inch equipment versus peers. In addition, we're on track to deliver our PDK 1.0 in 2027, which is based on the iMac license. We are also enabling integration for our customer by evaluating hybrid bond, TSV, and triplet integration.

Okay. Ali, thanks. I'll be back to the queue. Thanks.

Thanks. Next question, Sonny Lane, UPS. Go ahead, please.

Good afternoon. Thank you for taking my questions and congrats on the improving outlook. So my first question is to follow up on what you guided earlier this year. And so three months ago, you did guide better growth from second half of this year driven by new products and market share expansion. And now QQ is indeed pretty solid, but I wonder how should you think about going to second half? Do you still hold the view that for this year, you should see even stronger growth going to second half of the year?

So we remain optimistic about our overall 2026 business outlook. In the first half, we are seeing resilient demand for the broad range of applications. such as communication industrial consumer and AI-related section. So this momentum, we think, is continuing to sustain an increasingly tight capacity environment across UMC's portfolio. So we expect this momentum to continue into second half, especially our 22 nanometer logic and embedded IV platform, where we expect to grow in the high team percentage range for those segments, second half compared to first half. There's also another driver coming from our age recovery, which is progressing to deliver good growth year over year because of somewhat low base last year. So the stronger second half outlook support our expectation of a full year performance improvement. I think we still think UMC is going to outperform the growth of our transform market in 2026. And so we're definitely, from UMC's side, we're committed to deliver a better performance than it did last year's result. And hopefully this will be a turning point for UMC to broaden our adjustable market, and this ASP uplift we talked about in the second half, together with our strategic investment for the upcoming 12 nanometer silicon platonic and ring packaging are all going to support UMC's sustainable long-term growth.

Thank you very much, Yidong. So may I follow up on four-year outlook? And so I think several foundries have reported better outlook for 2026. And so one is for just the market, do you see some upside for low single-digit growth?

So I think the UMC is stressful market. show some incremental improvement, but not really significantly different. And overall market, I think, is definitely better if you include all the AI boom. So overall, the semiconductor industry is projected now grow by a million in 2026. And UMC's adjustment market may be slightly better, but still by the low single-digit percentage, which is, again, only slightly better than last quarter's forecast.

No problem. Thank you. And my second question is, if we look at high level, there are lots of concerns around disconnect between consumer and market and material foundry improvements. And so maybe if we could help us understand why for this year all those powerful IPC and market are showing some weakness, border material funding space, including UMC, get to see improving demand throughout the year, it seems. And then for UMC, how should we think about your server exposure? what would be the key products that you get to serve from server? And then from here, would you be able to benefit from server opportunity as well?

Raw technology predominantly supports customers addressing high-end market segments. Those end-to-end tend to be more resilient. Even with recent memory tightness, supply is typically prioritized for those high-end, high-value devices. As a matter of fact, our value-added technology, including 28, 22, high-voltage, and RFSOI, will help customers gain more shares in the high-end smartphone segment in 2025. This will also help QMC navigate the headwind from the communications slash mobile segment. So when we remain attentive to the potential impact from either memory tightness or our current our current assessment is that any potential headwinds are manageable. We will continue to monitor the situation closely with our customers. And the other factor is really UMC has been on key focus on the commoditized, uh, segment. So, uh, any, uh, so-called generic commodity type of, uh, market segment, UMC will, uh, certainly try to, um, scale down our exposures. Uh, that will also help our overall position, uh, as a, as a, as a foundry. But for silver, we don't really have, uh, a breakdown, uh, by the, uh, which we can maybe try to do that, but this is maybe two layers, three layers away from our market segment.

No problem. Thank you very much.

Thank you. Next question calls for you, Bank of America. Go ahead, please.

Yes, thanks Qidong and David. And congrats on the very good result and the guidance. I guess two questions from me. Started from utilization. You reported in first quarter 79% and will be up to 80% plus or minus range in second quarter. Would you be able to provide some of the breakdown between 8-inch versus 12-inch nodes? And also your expectation for second half this year. Judging from your guidance just now that you think second half will be better than first half. Also separate between respectively for A-inch and also 12-inch into second half.

Thank you. It's not around 80%. It's above 80%. So it was definitely 80-something for the second quarter. And For Q2, we will see stronger growth coming from 22 and 28, relatively speaking. And change will continue with some rebound. But it's really, but our Japanese operation is below corporate average, which is more in the 65 nanometer, 80 nanometer technologies. So for quarter two, even though age will show some improvement, it's still slightly below corporate average. And 12-inch as a whole is still slightly above corporate average, but the gap is certainly narrowing.

Okay, got it. And second question is just regarding the pricing, right? You discussed about the life-for-life pricing, blended pricing outlook seems to be tracking better because of improving mix as well as improving utilization across the board. But I think two things. One is just on the pricing outlook for full year. I remember last time you mentioned it is going to be firm throughout this year. Would you be able to provide some update on that? And second thing is for the pricing outlook on a life-for-life basis, would you be able to just share with us that your strategy on pricing? I understand there's a lot of macro factors moving on, a lot of moving factors in the macro environment that you might need to pass on the cost to your customers. But would you be able to share if there's any time in the history that your customers have been willing to or were willing to accept the price hike when your utilization is at around those 80 percentage levels? So two questions here. First one is on the pricing outlook portfolio. Any update on the versus the last time frame outlook? Second thing is just on your long-term view that's regarding the pricing environment right now. versus your long-term trajectory of the business, that 80%, is this sufficient enough for your customers to accept a price hike across the board? Thank you.

Again, we really don't want to be perceived as opportunists to take advantage of our customers. So the pricing adjustment, coming back to our pricing strategy, so The AP improvements are fundamentally anchored in our value proposition and also the technology and manufacturing service, which is supported by a structured demand rather than short-term pricing tactics. So we are seeing customer market share gains along with ongoing structure shift in the boundary landscape, generating durable demand for UMC. And we want to emphasize our differential technology and global footprint enable customers to strengthen their competitiveness across all segments, including AI, communication, consumer, and industrial automotive segments. So like stated in our letter to customers, starting from the second half of 2026, we will implement discipline pricing adjustment to mitigate some cost headwinds by maintaining customers' competitiveness. Meanwhile, hopefully more product mix optimization, driven by a strong 22 nanometer demand, will continue to drive ASP extension. Even though the steady recovery in inch loading may partially upset the blended ASP list, Our overall age recovery plan is progressing well, with stable FAB running nearly 100%.

That's great. That's very clear. And I think just a quick follow-up on that is probably the firm pricing of the portfolio you guided last time, is it still holding the same statement, or is it actually incrementally better? And on the EBITDA margins, you stated, you mentioned just now that you have a better target on debt. Would you be able to quantify it? Thanks.

So if we take out the increased depreciation largely coming from the Singapore Fed rent with better loading and potentially some pricing adjustment in the second half, we are confident if you take out the depreciation, the improved outlook should be able to offset some of the cost increase, especially energy and logistics, et cetera. And our pricing outlook, certainly with the price increase letter to customers, is slightly better than the previous quarter.

Thank you so much, Shidong and David. I'll be back in a few.

Thank you. Next one, Scott at BNP. Go ahead, please.

Hello, management. Congrats on the very good result and the guidance. My question is a follow-up to a previous one. So the consumer segment revenue seems very strong with a 4 percentage point increase in the product mix. So I wonder, is it because of the demand recovery or the pricing dynamic changes? And going forward into the second quarter and the third year, so how would you see the trend will be like? Thank you.

So consumers' growth in Q1 was mainly driven by Wi-Fi and DTV data box technology. For the second quarter, the growth will continue and will be driven by MCU, LCD controller, and power-related products.

Got it. Thank you very much.

Thank you. Next one, Laura Chang, Citi. Go ahead, please.

Yes, hi. Can you hear me clearly? Yes, hi. Thank you for taking my question. I congratulate you for the good result. I'm just wondering that the progress with Intel's engagement, so we already have good progress per measurement that previous mentioned. I'm just wondering that for next year, if we start to see some, like, progress and breakthrough, how should we think about that potentially, again, increasing maybe R&D force or any impact on our revenue and also expense?

So we cannot give revenue presence now. I think timing-wise, we are planning by later 2027, we will start to see initial commercial production. And in terms of investment, it's already happening. And that's also partially reflect in our increased R&D expenses. Maybe Michael can help me to comment more in some details.

Yes. This 12 nanometer project work with Intel continue to go well. We remain on schedule to deliver the PDK and social IP to customers. in 2026. And we anticipate that the product takeoff will commence in 2027, which will make a significant step toward the commercial deployment and future revenue growth. And Intel and Intel are working closely to ensure this successful takeoff and efficient ramp-up to mass production for the 12 nanometer customer product. So the application that we for this 12 nanometer project will be including the DTV, Wi-Fi connectivity, and high speed interface product.

Sure, thank you. I'm also wondering that since the expansion in the U.S. is probably one of the directions UMC is looking for, so I'm just wondering that following the 12-inch technology, any plan to further engage with the more advanced node with Intel?

We have to sit to whatever we have. and to make it execute well and solid. So we cannot speculate the future. So our focus now is to deliver the health nanometer platform to customers. So in the future, if anything makes sense for both partners, as well as our customers, certainly we will consider to expand our collaboration to other derivatives or technologies, but for the time being, the only focus is on 12-kilometer platform.

Okay, very clear. Thank you.

And next one, Felix Pan, KGI. Go ahead, please.

Hi. Thank you for taking my question. I got two questions. So recently, there's a lot of rumor talking about the UMC in talk with the client about the potential memory foundry business. I know it's a little bit unlikely, and she don't also mention that you have to scale down the commodity business. I still want to sound clarification how the companies see the opportunity for the strong memory demand, both in them or not. Is that possible? Will we do anything related to the memory? That's my first question.

Again, we will not be able to comment on, of course, not the speculation like this. But our strength is really in the differential specialty technology, which elevates our competitiveness. collaborate with customers so we will pursue long term and sustainable business opportunities which demonstrate by our current comprehensive technology portfolio such as embedded high V embedded non-volatile memory etc etc and again we will not do short term opportunity chairs this is just not our way of managing business.

Okay, okay, thank you. That's very clear. My second question regarding to the 8-inch tightness at the moment. So, based on my understanding, this is primarily driven by the global leading foundries. They optimize their capacity, so they're exceeding some business for their 8-inch foundry, so Primarily, I think this is supply-driven, but also we see some incremental demand improvement. So is that possible to break down how I see the 8-inch tightness is more demand-driven or supply-tightness-driven? And if I may have a follow-up, to follow up the previous question, what's the 8-inch utilization rate in first quarter? Thanks.

We like to see this is really because of our competitiveness. So we always prepare ourselves to cope with industry dynamics. We work on any opportunity to support our customers. So we view this landscape shift as an opportunity rather than a given. So we want to work hard. to further optimize our product mix and gradually improve our performance. So it's very difficult to differentiate the two factors you mentioned. And again, we like to think the only thing we can control is our own competitiveness and our technology portfolio. So we will continue to work hard to invest to broaden our technology portfolio and our service to our customers.

Okay. So, and first quarter's decision for 8-inch, if I may?

First quarter, company-wide, was 79%. And as I mentioned previously, it was 8 inches below corporate average. But the situation, the delta, the improvement in the second quarter is higher for Ainge, although for second quarter, the Ainge average loading still will be low corporate average.

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

Hi, thank you for taking my question. My question is regarding to the legacy node for 12-inch. You know, your competitor is talking about exiting the market. You know, what's the real situation for UMC is facing right now? You know, how much more business we can expect for the legacy node overflow or in different ways that do we see the possibility to, you know, kick off another round of CapEx in especially Singapore for the LTA with the customer for the potential new business?

Well, this is a very hypothetical question for us to answer. I mean, it's very difficult. I mean, it's somewhat similar to the fundamental of our age views. The only thing we can control is our own competitiveness and technology portfolio, and we think there's still plenty of upside there, no matter if it's an inch or 12-inch legacy market segment. And of course, the market dynamic should help us have presented the opportunity, but it's really up to us to have the competitive edge to gain those opportunities. So Those are the areas we are focusing right now. And if you talk about this advanced packaging, it's actually going to take some of the legacy part of the 12-inch capacity in our Singapore fast. And if the market dynamic continues with customer demand, certainly there's an upside in terms of capacity for those 12-inch capacity in Singapore.

I should ask in different ways. Earlier, the previous investment is that you only take LTA for the new capacity expansion for your 12 inches. Is that still the case for the future capacity expansion?

We don't want to limit ourselves to the market opportunities. Back in three, four years ago, when the market presents uh... that means and uh... we need to be customers uh... who shared uh... so in that way uh... that where that where do you have to come from and going forward with all the new technology opportunities such as that they don't have time again uh... packaging uh... who will continue to work closely with our customers including uh... share the risk of uh... for the investment but Will that be in the form of LTA or any other forms? We cannot comment because we are still in the early stage of the technology development. And the outlook is promising, but it's still a little bit too early to comment.

I understand. Thank you. So my second question is, can you comment a bit about, you know, 14 nanometers high voltage programs? Because I think we asked a question a couple of quarters ago when Jason answered that the driver IC might not need to go for 14 nanometer and beyond. But right now, TSMC is talking about like 14 nanometers high voltage process, right? Is that the telling trend is getting clear that the driver IC will continue to migrate to the smaller geometry?

I think it's safe at first. We don't come ahead of it.

No, I'm asking about the driver IC technology.

So we have a proven track record for driver IC. And for the current industry leading 22, 28 or late display solution, UMC is always recognized as a global leader. So when customers migrate into FinFET, that's where our FinFET IV solution will continue to provide better performance, lower leakage, and more die-side savings. So, again, it's all boiled down to our own competitiveness, and we do have the upcoming FinFab heavy solution as well.

Thank you.

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

Yeah, hi. So on the silicon photonics piece, could you talk a little bit more about the kind of engagements that UMC is making? Are these mostly for pure pluggable silicon photonics, or are you also engaging in some of the CPO-related projects? And given that you also have this PDK for the IMEC version of the technology coming out soon, how should we think about the ramp of this TPO, or sorry, the photonics-related revenues over the next couple of years? Should we expect some meaningful progress next year, or do we have to wait for this IMEC-related IP to really be out there before we start to see some photonics-related revenues really kind of hitting the P&L?

Yeah, as far as the current silicon photonics, the key milestone is for us to release the PDK in 2027. It will be version 1.0. And obviously, it's based on the IMAC license. And as far as the current designs for PICs, they're basically pluggable solutions. But at the same token, we're also – looking to enabling integration for customers by considering other, you know, hyperbonds, TSV solutions, or chiplet integrations that will help us be in a better position when CPO kind of takes place further down the road. But for now, it's pretty much all the – a lot of the PIC discussions and designs that were under customer engagement.

Okay. Let's do it. Secondly, on the mature 12-inch nodes, I think 2822 still seems to be pretty strong in terms of utilization. Could you comment a little bit on 40 and 65, 55 status, like how is the utilization there? Especially given you commented there is some slack in the Japan, which I think, if I remember right, was 55 and 40 nanometers. Any forward-looking comments on how that utilization is likely to get filled, given that you're also engaging some of the bridge IEP projects?

Yeah, as far as for the 40 nanometer, 55 and 65 nanometer, short-term, I think revenue contribution for Q2 will be healthy. From a longer-term perspective, we're confident on the business outlook for UMC's 40 nanometer and 55 and 65 nanometer technologies. So we are seeing longer term, there's going to be more designs, and that will hopefully lift some of that long-term utilization rates.

Any products that you can call out here that are critical here to lift the utilization rate?

I think right now they're under discussion on customer engagement, but once we've seen some real material uplift in UTR, we'll be more than happy to share them with you.

Okay, cool. Thank you. Thank you. And ladies and gentlemen, in the interest of time, we're taking the last question. And the last one, Charlie Chan, Morgan Stanley. Go ahead, please, Charlie.

Thanks for taking my follow-up questions. So first question is really a follow-up on the pricing strategy. So as a previous caller just mentioned that you did send some letters to customers. So I'm wondering what's the customer's reaction, meaning are they kind of very happy to accept the price hike because they can also pass through to customers? given some in-market difficulty, so some customers have some pushback. So it would be much easier if you can give us some preliminary second-half price hike assumption. Thank you.

Can I speak for our customers? We appreciate their long-term support, and just like our vendors, those are raw material supplier and the energy supplier to UMC is going to be a win-win for the longer term. We need those to continue to provide efficient manufacturing and continuous investment. So I'm pretty sure our customers understand where this is coming from. But the key is really how UMC can help them to increase the compliance business in the longer term and get more shares. So I think that's the key message we want to deliver to our customer, and also we appreciate their long-term support.

Got it. Thanks. And also a follow-up question to Laura's question about the partnership. I want to associate that to my previous question about your administration, especially the bridge die and EDC, the deep trench capacitor. So is that the right way to think about that? Because Intel's EMIP-E also needs those bridge die and DTC discrete components. Do you think it's the right way to think about UNC would be a very important partner for Intel's EMIP-E or Intel's advanced packaging supply chain? Thank you.

There's a lot of speculation here, and we cannot do that. And we have to reflect our important partners. So, again, our current focus is on 12 nanometer platform and nothing else. And there's important collaboration for both parties, and we have to make it work. And this is too important, especially for UMC. We are putting all the possible resources to try to make sure we deliver.

But anyway, it sounds very reasonable because you have all the capability and technology that your key partner may want. But we look forward to your next updates. Thank you.

Thank you.

Thank you. And that concludes today's Q&A session. Now I turn things over to UMC IR Manager for closing remarks. Go ahead, 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 iratumc.com. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 1Q26. 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 Events section. You may now disconnect. Thank you again. Goodbye.