United Microelectronics Corporation (NEW)

Welcome everyone to UMC's 2026 Second 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 that 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 is finished. Please visit our website www.umc.com under the Investor Relations, Investors, Events 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 second quarter of 2026. I am joined by Mr. Jason Wang, the CEO of UMC. and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial results, followed by our CEO's key message to address UMC's focus on third quarter 2026 guidance. Once our CEO and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial reports are available at our website. www.umc.com under the Investors' Financials section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For more detailed description of this risk and uncertainties, please refer to our recent and subsequent filing with the SEC and ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UMCCFO, Mr. Chi-Tung Liu. Thank you, Michael.

I'd like to go through the 2Q26 Investor Conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, second quarter of 2026, consolidated revenue was $68.73 billion NT, with gross margin at 32.5%. Net income attributable to the shareholder of the parent was $42.26 billion NT, and earnings per ordinary share was $3.39 NT. Utilization rate in quarter two climbed to 85% from 79% in the previous quarter, and total wafer shipment in the second quarter reached 1.13 million, 12-inch wafer equivalent. On page five, we will start the sequential comparison. Revenue grew 12.6% quarter over quarter to reach $68.7 billion NT. Cost margin rate increased by almost over three percentage basis points to 32.5% or $22.3 billion NT. Because of the recent stock market performance, our investment and dividend income together reached $30 billion in the third quarter under the non-operating income and expenses, which helped our net income to reach $42.2 billion. And for the net income attributable to the shareholder of the parent, is 42.26, or an EPS of 3.39 per shares in the second quarter. On page six, for the first six months of the year, the annual comparison, for the first half, our revenue grew 11.3% year-over-year to $129.77 billion in the first six months of 2026. Gross margin rate also grow by over three percentage basis points to 30.9% or 40.1 billion NT in the first six months of 2026. For the non-operating income, similar for what happened in the second quarter, for the first half of the total non-operating income, Operating income reached $35.6 billion, which leads our net income to reach $58.4 billion in the first six months of the year. EPS was 4.68 in the first half of 2026. On page seven, cash on hand is around $124.7 billion NT. with total equity reached $443.9 billion at the end of the second quarter of 2026. On page 8, our blended ASP increased by a low single-digit percentage in the second quarter of 2026. For revenue breakdown on page 9, Asia remained our largest Thank you very much. and there's almost no change for the revenue among three major segments. For revenue breakdown by technology on page 12, total revenue under 40 nanometer still around 52%, with 22 and 28 nanometer is becoming our largest revenue pool, represent 37% of the total revenue. Our quarterly capacity has shown some increase in our Singapore site 12i for the second quarter, and there will be a more meaningful increase in the coming quarter to reach 192,000 12-inch wafer capacity for our Singapore site. On page 14, our annual TAPAS budget has raised Thank you, Chi-Tung.

Good evening, everyone. Here, I would like to share UMC's second quarter results. In the second quarter, our wafer shipment increased 10.6% quarter-on-quarter, driven by strong demand in communication and consumer service, further improving utilization rate to 85%. Revenue from our 2228 nanometer business continues to set record high, with 22 nanometer revenue representing 17.5% of the second quarter sale. Earlier this month, we announced the company's first mass production delivery of a 12-inch photonics IC to a customer, a major milestone for UMC that demonstrates the company's high-volume silicon photonics manufacturing capability on 12-inch wafers. As we prepare to launch our silicon photonics platform available for general customer use in 2027, Looking ahead to the third quarter, we expect demand momentum to remain stable across the computer, communication, and consumer segments. With the shipment projected to increase by high single digits, driven by strong demand of power management ICs, sensors, and microcontrollers, our 8-inch portfolio is also seeing a strong rebound. and utilization is expected to improve significantly in the third quarter. With our 12-inch capacity already at a healthy utilization rate supporting core businesses, we must also prepare in advance to ensure UMC is well positioned to capture future opportunities driven by AI. To ensure we are ready to scale rapidly to support our customers, We announced today that our board of directors has approved a plan to expand clean room capacity at our Singapore P4 facility and to construct a new FAP in Tainan, Taiwan. The plan will be executed in phases, enabling UMC to remain focused on capital discipline with a flexibility deploying capacity to fulfill customer demands. As a result, 2026 capital expenditure budget will be revised upward to U.S. $2 billion. Now, let's move on to third quarter 2026 guidance. Our wafer shipment will increase by high single digits. ASP in U.S. dollar will remain firm. Gross margin will be in the mid-30% range. Capacity utilization rate will be greater than 90%. To support the growing customer demand in silicon photonics advanced packaging, the 2026 CAPEX will be raised to US$2 billion from US$1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Yes, thank you. 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 start 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, you can please press start key and number two to cancel the question. Now we'll have our first question, Laura Chen from Citi. Go ahead, please.

Yes, hi. Thank you for taking my questions and congratulate for the good result and outlook. It's great to see that UNC has a good progress on the silicon photonics and also see that power management IC improvement. So I assume that these are all prepared for the AI-related business. So I'm just wondering for the longer term, does UNC have any indication or target of Your AI-related revenue, and can you also give us a breakdown of the products you are aiming for? Thank you.

Well, first of all, our AI-related business is driven by the specialty semiconductor solution. Supported a broad range of applications, including the power management, connectivity, FPGA, as well as our growing advanced packaging and silicon photonics business. Those are our focus. This business has already become a contributor to our growth in 2026. The current revenue for 2026 is projected to close to approximately $300 million for this year. And looking ahead, in three years, we'll expect this AI exposure to exceed U.S. $1 billion.

Yes, thank you. Very helpful. My second question is about the overall demand outlook. We know that Q3 will see the iteration rate improvement, but I think consumer electronics demand in general is still quite weak. So what's the management view about the sustainability into probably Q4, or do you have any visibilities into maybe early next year?

Well, right now, what we see from the market is the worldwide demand is improving with a broader and more sustainable momentum. But it remains more AI-led. AI is leading that. It is building over into memory connectivity and power segment. Now, AI demand recovery is still mixed across different end-device markets. and Supply Reduction Plus Inventory Normalization are moving to the market towards a more balanced and predictable environment. So we do see the future outlook is increasing in terms of visibility. For the AI-related demand, while they remain very strong, what may be changing is the XPU demand remains strong. Besides that, the bottleneck It's not only on compute, but also on memory, connectivity, power management that I mentioned earlier. In the near term, we are seeing upside to our silicon photonics, power, and FPGA-related product, particularly in our 40-nm and 65-nm technologies. For the non-AI, it's uneven. So we will not categorize the current environment as a four-ball-based recovery yet. In the near term, we do acknowledge that consumer segment, including the handset, PC, and the notebook, will experience a year-over-year decline. However, for UMC, our wafer shipment will grow year-on-year, 22, 28, as well as our 8-inch business. In conclusion, our 2026 wafer shipment will increase, both driven by our own foundry share gain as well as the customer share gain. Thank you very much. In that case, can I also just quickly check what's your view on the ASP trend into the second half? Our pricing strategy has always remained consistent. We are not trying to maximize the short-term pricing based on the market cycle. Instead, we focus on maintaining a sustainable business model through value-based pricing that reflects our differentiated technologies, manufacturing capability, and long-term partnership with customers. As the demand and industry conditions continue to improve, we are working with customers to ensure pricing Thank you very much.

Very helpful.

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

Hi. Thanks for taking my question. Jason, could you talk a little bit about the capacity expansion plan At Singapore P4, as well as your plan to construct a new fab in Tainan, like what are the kind of milestones you should look at and what are the kind of phases that you are looking to kind of face this capacity in? I think, how should we compare it to your previous plan about four, five years back when you had this New Face in Tainan, and then you also built out the Singapore Fab. Is it similar scale, or is it going to be much smaller scale?

Okay. Let me maybe start off. What drives that? What drives that decision that we made today? When we map out the industry growth over the next five years, we see several important trends. Within the AI data center, while growth in compute and memory will remain high, we also see the connectivity and power also growing at a high taker, driven by the need for more bandwidth and more efficient power. The second is the automotive electrification trend continues, not just for EV, but for autonomy and infotainment applications. The third is when we look at these emerging applications such as the robotic satellites, we know that again, very high growth in compute, memory, sensing, connectivity, and power. This industry trend combined with our entry into the advanced packaging such as logic and memory stacking, as well as the silicon photonics, will accelerate growth within the UMC addressable market. Within our existing portfolio, we also see that advanced packaging is enabling our customers to think differently about new architectures and designs of their products. Since we believe we are ahead of our peers in advanced packaging, this is leading to a share gain and many new opportunities Therefore, we actually believe that TEN actually will grow significantly compared to the past. Consistent with this long-term outlook in terms of how to do this, we're going to execute each expansion phases. What we'll pursue is based on the market validation, this alignment, and customer commitment, which will provide both long-term capacity assurance to our partners and loading protection to You also have a follow-on question in terms of the scale, the milestone, and the schedule, right? For right now, for Singapore, we will invest in the clean rooms. for our P4 facilities, and the tool purchase to extending our silicon photonics capacity. In Tainan, the construction of a 12A, P7, and PA will set up a robust foundation for the UNC to scale the advanced packaging alongside with the customer's long-term product romance. But that's only going to be more of the foundation. We're building the shelf. for the 12A, P7, and P8. The clean room installation at this time is focused on the Singapore P4. And from the milestone-wise, now the board has approved it, and then we're going to start engaging with the follow-up activities. And then we will report back in terms of the install schedule once we get a confirmation from our staff.

Got it. Understood. And just follow up on the Intel collaboration on the 12 nanometer. Now that we are likely to start recognizing some revenues next year, how should we think about how meaningful these 12 nanometer based revenues are going to be? and is it going to be like cross margin accretive given you have like a revenue sharing and a profit sharing kind of agreement with them? Could you talk a little bit more about how we should model this contribution going into next year?

Well, first let me update the 12 current status. The overall the 12 nanometer cooperation project with Intel is advancing smoothly. And we anticipate the product take-out will commence in 2027. So all the PDK will be ready in late 2026, and the customer will design and design in and ready for take-out in 2027. So 2027 was still at an early stage of ramping the product, I would say, probably at a pilot stage. The production will probably be more meaningful in 2028. That's the current size of the 12 nanometers. In terms of the business model, there will be a credit to our current model, the current financials.

Okay. Maybe one last question on gross margins, Jason and Chi-Tung. Okay. So you are already guiding for above 90% utilization and gross margin is kind of reaching mid-30s. Any thoughts about how you think gross margins could progress in this cycle? Because it feels like in the past cycles where utilization had reached above 90%, gross margins were probably at a higher level. We've probably had a little bit more price leverage. So I just want to understand how you think about where gross margins can reach, given the demand seems to be pretty strong and utilization is going to improve. Can we go beyond 40% gross margins like we did back in 2022, or that is a little bit of a challenge right now?

Our utilization rate and operating income have increased Thank you very much. Thank you. It's no doubt the depreciation expenses will increase as a result. So we are confident to deliver higher profit members and also improve, enhance our EBITDA margins. But the gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

Okay, so Chi-Tung, I think previously we were expecting maybe after this year depreciation curve could kind of taper down. Is that still the case, or we should expect that there is still some increase in depreciation next year as you bring on some of the new clean room and some new faces?

Yeah, the new clean room and the new shell in China certainly changed the curve. And now we are expecting the depreciation to increase Thank you very much.

I'll go back to the queue.

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

Hi, Jason, Chi-Tung. Thanks for taking my question. Yeah, so just some quick follow-up. All the previous topics. So, first of all, I know you kind of are getting shared, but how about your customers chip inventory, right? Because the market seems to be pretty challenging. So, according to our analysis, it seems like some of your fab companies, their revenue is kind of undergrowing. I'm wondering whether you're concerned about the chip inventory accumulated at your customer side?

Well, I mean, Charlie, first, I mean, we're always cautious about the inventory situation, right? I mean, but not to the level that we need to be worried at this point. For the first quarter, 26, the DOI level is actually rose slightly. They've gone up a little bit. What we see is really coming from one PC was the strongest driver of the inventory buildup, but the AI infrastructure build cycle is still ongoing. In the PC, I mean the HPC was the strongest driver. In the PC segment, early stocking and shipment occurred in response to rising memory prices. We are seeing that. The inventory and the DOI for the smartphone and consumer segment are rising simultaneously. indicating the end market remains weak. So there are some areas that are weaker. And although the demand in automotive and industrial sectors is stable, their DOI remains higher than the historical average. For the Q2 26, while we're tracking that, the overall consumer spending remains weak, and we expect the semiconductor sales to stay strong in 2026, which will drive the DOI by several days again. But currently, we're not to the level that we need to be worried, but we are cautious of coming and tracking the progress of that.

I see. Thank you. Yeah, so would that kind of impact your kind of negotiation with customers to the cost because you're kind of increasing your investments, right? Do you think there's some... The market outlook for us, we remain optimistic because it's driven by both AI-related and non-AI-related demands.

While those demand and industry continues to improve, the pricing environment become more constructive. So the discussion, engaging discussion with customer is actually a constructive discussion. You know, giving that visibility and we expect the annual pricing trend to be better than we anticipated and we even expecting more meaningful pricing uplift in 2027.

Okay, great to hear. Can I follow up a little bit about advanced packaging business plan because I think it's pretty new to me that you want to extend your advanced packaging cleanroom for two phases. My understanding is that for 2.5D, your previous focus was more about the interposer And you do have some 3D IC, but it's more for RF. First of all, are you going to do like the full stack of 215D, for example, coalesce? And for the 3D IC, are you going to do not just the RF, but also some air accelerator kind of products? And lastly, we noticed that your vice chairman now kind of moved to Unimicron. So I'm not sure whether we can link these two developments together. UNC is very aggressive in advanced packaging, and your kind of partnership with Unimicron in substrate will be Even closer than before. Should we think that way?

I mean, from our advanced packaging offering, start out with that. You're absolutely right. We started with the interposer solution and followed with the RF-SOI 3D IC, the chipless solution. But offering is actually more than that now. The overall addressable market is projected to more than double by 2030 in our addressable market because the expanded fund, the 2.5D interposer with DTC, discrete DTC, 3D wafer-to-wafer stacking, which that's what you're referring to, the RFSI, and the memory-to-memory stacking as well. Our customer engagement is building up. with more than 10 active customers now and over 35 new products in discussion and expect to take out in 2026 and early 2027. And we actually feel pretty optimistic about this advanced packaging space. And that's why we started employing the facility preparation. Now, like you said, we have already entered production for the 3D waver-to-waver hyperbonding. and many more. So, we're going to continue to broaden our advanced packaging offering, but not to the CoWatch solution, because it's not a platform solution. It is advanced packaging capability serving various different combinations of a solution, both from our existing All three to even the new offering, new integration options. So we see many, many different new exciting opportunities there, but not a co-op, okay? Now, in terms of ecosystem, I mean, we working with Okay. Any kind of strategic angle or synergy or partnership between you and Unimicron going forward, besides the kind of financial investment? At this point, it is mainly driven by the financial. It's one of our investor portfolio companies, and we remain as an investor. So not at this current point, but once there's an opportunity rise in the ecosystem, we definitely will explore that with them.

Okay, thank you. And last one, if I may, just a... The AI-related revenue. So, Jason, did you say that your overall revenue from AI already exceeds the $1 billion? What was your comment?

Yes, close to $300 million this year. And in three years, we will exceed $1 billion.

Okay. Then how would you define the AI-related revenue? I believe... RIC, Silicon Photonics, Silicon Interporters. But what's your definition about your AI revenue?

Well, the solution that associates with AI as an end product, including the connectivity, power management, those are all categories of AI exposure.

Okay, so Silicon Photonics can be considered as the

As a part of the connectivity solution, yes.

Okay, okay. Yeah, I think that's all from me. Thanks for the update. Thank you.

Thank you. Next one, Sony Lin, UBS. Go ahead, please.

Thank you very much for taking my questions. Congrats on the very strong outlook So I want to follow up on the new expansions. So may I double confirm that these two new expansions will be mainly for silicon photonics and advanced packaging, not for typical foundry business? And Jason, you just mentioned that you do think advanced packaging overall the addressable market for UMC should more than double by 2030. Would you be able to share with us the addressable market that you are forecasting For UMC in the coming few years. And we prefer to assume that maybe we think that the capacitor, embedded capacitor, may be the major one, or how should we think about the contributions from the various projects that you are working on?

Yeah, I mean, first of all, for the announced clean room preparation in our Singapore P4 facility is, prepared for the silicon photonics capacity. And the Thailand facility of the P7 is prepared for the advanced packaging. And in terms of the advanced packaging addressable market growth, that includes the DDC, like you said, and the interposer with DDC, discrete DDC, The wafer stacking and the memory-to-memory stacking, a very broad offering of the sense packaging. Now, the DTC does play a major part of that, and that's a very significant part of that. Since we have more than 35 different products taking out, there's a high percentage of those are considered of the DTC.

Got it. Thank you. Thank you. Very helpful. So would you be able to share with us any cover about the size of the adjustable market that you are looking at? And also be helpful for us to think about the trajectory for your revenue coming from advanced packaging. And so we'd be fair to assume that your advanced packaging should see inflation point when your new supplies start to be on board and given a lead time for expansion Would that be maybe in like late 28, 29 timeframe?

Yes. I think given the current construction timeframe, it's been stretched out. There's a lot of activity going on in the construction side. So from a timing standpoint, we do look at somewhere greater than 20 months in terms of lead time. And so that will push towards into 28 and 29 cycle. However, like the earliest question, you know, we, in terms of milestones, I will probably like to share them when I have more specific data. Because right now we're getting roughly 20 months of lead time on the construction. But, you know, since We'll just approve it today, and we'll engage in that discussion, and we'll probably report back when we have more specifics.

Got it. Thank you. And maybe a question on your Singapore expansion for the P3. And so now given the stronger demand outlook, how should you think about the capacities that you are going to ramp by end of this year and also by end of 2027? Yes. Part of the...

Thank you. Thank you. Thank you. The CMS, which we call Customized Memory Stacking, and the DTC solution in our 12A in Tainan. Meanwhile, we're also putting some Teflon, the capacity setup, in our 8-inch facility. So that will be underway now. That's all going to happen within our existing facility.

Got it. Sorry, just to... L1's question on Singapore P3. So, is there a target for your capacities, maybe, let's say, by end of this year and end of next year?

Yeah, I mean, once we release this, given the tooling time and install, we expect to see some production ramp on this in, I would say, late 2017, early 2018.

Got it. Okay, thank you. Maybe last one on silicon photonics. So now given you have two solutions, one on 12-inch value license on IMEC and the other one on 8-inch by TFLN, and so would you be able to share some color regarding the respective strengths of the two solutions and how should the client choose? and based on your current development, which one do you think may drive more meaningful revenue contribution in coming years?

Okay, let me maybe start off. For circumphotonics, we are releasing a 12-inch solution, and that's what we believe is the... that will be the best solution for our customer and how to differentiate the... Well, our other competitors to do on 8-inch. The 12-inch will offer better process control, which will give us better performance. For example, the product propagation loss, better yield, and we have demonstrated that on silicon wafers already to our customer. For the TFLN, We have the world's first TFLN modulator in production already, and we are working on the 40G per LAN, and for the 3.2T, that is based on the TFLN for the customer today. We think that's actually the best solution for beyond the 400G. Combining the two, there will be an integration option for those two. and the we can implement the TFLN with our certain photonics the PIC and the through our advanced packaging solution and along with that we can offer the optical IO the OIO which is the interposer with the PIC through our advanced packaging and we also can provide us a TFLN for as a component for the CPO solution and so We think there's a lot of various combinations of this between the two, and so we think that we have a unique position on that.

Thank you very much. Very helpful.

Thank you. Next one, Hans Liu, Bank of America. Go ahead, please.

Yes, thanks for taking my questions, and congrats on the great results. My first question is regarding your CAPEX outlook in the next couple of years. You mentioned that AI revenue in three years could be at around 1 billion US dollar contribution. So how should we think about your CAPEX growth trajectory in the next few years to achieve that goal? And relatedly, I think, how should we also think about that your equipment investment as percentage of your CAPEX in the next two years? Because it seems that you meaningfully revised up your depreciation outlook for the next two years. Thank you.

For CAPEX, today's board meeting approved nearly 5 billion U.S. dollars already. So that's the number we will work with over the next two years or maybe three years. And as our CEO pointed out, this is going to be a phase construction or phase expansion strategy. We will adjust accordingly based upon customer commitment and our customer wins. So we don't really have a full number, but to start with 5 billion U.S. dollars for the next two to three years is probably the beginning. And in terms of appreciation, as I mentioned, it will be low things increased year over year. for at least this year as well as 2007. And for 2028, it will depend on the CAPEX number based upon the fact that I just highlighted.

That's very clear. So in the next two years, in 2027 and also 2028, your CAPEX will be at least $5 billion for the new investments.

Total will be, today's board approved $5 billion. which will be spent across 2026 and 2027. And the 28 numbers will depend on the phase expansion.

Got it. Very clear. And then I think just regarding that capacity expansion plan you are targeting and the AI revenue mix you are targeting, that it seems like in three years based on our model that your AI revenue could reach 10% of your total sales versus low single digits this year. Would you be able to try to, or do you have any view on which part of the applications could actually be the main drivers? You mentioned a couple of drivers, for example, like connectivity, silicon photonics, and also power management IC, but would you be able to rank it in terms of the growth rate or from the revenue contribution perspective, which part of the application is going to be the key driver?

Obviously, from the growth standpoint, you know, because the silicon photons and the advanced packaging is still at the early stage. So, from the compound energy growth rate standpoint, they are the fastest growing and the highest growth rate. But we also believe our existing, our current existing solution will also grow. And so, it's driven by the, also the AI and non-AI space. Those were also robots in the lower phase.

Okay, yeah, and that's my follow-up question. It's just regarding your strategic positioning. When you started ramping your capacity for silicon photonics and advanced packaging in 2028, I was just wondering, compared to your peer solutions, which probably have already been in the market for a few years, what do you think your strengths is compared to them. Is it from the technology roadmap perspective or your customer relationship, or is it still coming from the demand spillover, which could actually, you could also capture some of the fast-expanding addressable markets within that big pie? Thank you.

Well, I mean, I think like I mentioned earlier, we are the first offering the 12-inch solution, and we believe that's actually a better process Thank you very much. Thank you. I think there's a big technology differentiation, not a spillover. I mean, there's the existing solution. I think there will be multiple factors, but in a much lower growth rate. I think it's just a quick follow-up before jumping back to the QE steps. Your gross margins

had a pretty nice uplift in the second quarter, and I think the guidance for the third quarter near term is also pretty solid as well. Would you be able to quantify the factors supporting your gross margins? For example, utilization, pricing, and FX, any of these are positives or negatives. Could you just try to share with us in a more quantitative way? Thanks.

So the higher quarter three gross margin guidance is mainly attributed to the higher utilization rate. So loading was 85% in second quarter. Guidance for the third quarter is 90% plus. There will be multiple factors including ASPE, product mix and utilization rate, foreign exchange rate and depreciation, et cetera, et cetera. So our focus is certainly to enhance our profitability. But as I mentioned earlier, For the next two or three years, we will continue to improve, deliver better results for EBITDA margin, and gross margin will come along with the depreciation curve.

Yeah, that sounds great. And I think just one more is probably just on your power of AC exposure. Could you share with us how much of your revenue is coming from these products, no matter it is for which end markets? And I think the second thing is probably just on the Thank you. I mean, the 12-inch is still above corporate average. You know, we believe, we look at the, we expect the Q3, the loading will be greater than 90%, and the 12-inch is greater than corporate average, and the 8-inch is below.

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

Okay, so your power IC exposure is how much percentage of your sales now?

I mean, we categorize that as part of our specialty offering, and the specialty offering today is representing 50% of our revenue today.

Okay, got it. Thank you so much.

Thank you. Next one, Catherine Yu, Goldman Sachs. Go ahead, please.

Yeah, thank you for taking my question. So my first is on, I would like to know what's our strategy on more advanced nodes going forward? Because right now working with Intel on 12 nanometer and where does that go from here? Or is it fair to think that we could enter more advanced nodes, say, 7 nanometer and below? And if so, what would be this model look like? And maybe I'll put it this way, is that what are the key factors that we need to see before we're committed to expanding beyond 12 nanometers?

I think the simple answer to that is we have to first deliver the 12. We have to improve the business model as well, you know, deliver the 12. And so the overall 12 cooperation project is going smoothly. And so I think the 12 needs to be the solid foundation for us to explore the next generation. But meanwhile, the 12 nanometers representing more than just the pure logic today. We actually are already expanding that to the high voltage Pharma 12, which is 14 Hy-Vee, and they are more In terms of directives and specialty technologies in discussion right now. So there's a lot of activity and lots of work that we have to get done for the 12-millimeter today. But yes, I mean, the simple way to look at it is we have to execute the 12, and then we'll explore the Yang.

All right, so is it fair to say that the Yang may be entering into 7-millimeter and beyond IBM? After 2028?

Well, I mean, if there is a discussion, we'll probably have more creative milestones.

Yeah, this is really need to be a mutual beneficiary collaboration. And the current focus is on 12 nanometer only. Again, UMC is always open to find the best solution to have low asset type of migration. But again...

Thank you. So my second question is on how would you characterize the current cycle now versus the trip-shorter cycle in 2021? I think the last time was a more broad-based, supply-driven super cycle with utilization over 100%, with pretty aggressive AP increases almost every quarter. And this time the recovery looks more narrow to a more concentrated on AI. So do you agree that the nature of the demand has actually fundamentally changed? And the key question I want to ask is that how should we think about your margin trajectory going forward and the pricing power this time versus the last up cycle? Do you think it's possible for your gross margin to surpass the level, the peak level that we saw for in 2022 in the coming years?

Well, maybe start off with the outlook. I mean, like you said, we are seeing the AI-related segment remain as the primary growth driver for the entire industry. And with the continuous commercial deployment of AI application, demand for chips or in general service server is also expecting to rise, but that's also related to AI. In contrast, the non-AI demand is still mixed across different end market, end device market. While the overall semiconductor industry projected to grow higher to maybe low 20% range this year compared to earlier year, increased to low 20%, we think mainly it's driving by the AI. So yes, it's different than the previous. It's not a broad-based market. I will probably have Chi-Tung talk about the gross margin, but before that, I have the same answer on the AST, previous about the AST, is we do see the demand and the industry conditions is improving, so the pricing environment is becoming more constructive, so we think the pricing trend will be better.

As for gross margin, we really don't compare ourselves to the historical data. I mean, we certainly try very hard to deliver higher profit in absolute dollar terms back to our shareholders. And as I mentioned, because of the new Fed rent, both in Singapore and in Tainan, so the depreciation expenses and how we amortize Thank you very much.

Okay, thank you.

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

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact irnumc.com. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 2Q26. Thank you for all your participation in UMC's conference. There will be a webcast replay within two hours. And please visit www.umc.com under the investors event section. You may now disconnect. Thank you again. Goodbye.