United Microelectronics Corporation (UMC) Earnings

Management highlights

- Overall Second Quarter 2026 Financial Results * Consolidated revenue reached $68.73 billion NT, with a gross margin of 32.5%. Net income attributable to parent shareholders hit $42.26 billion NT, for an EPS of $3.39 NT per ordinary share. * Capacity utilization increased to 85% quarter-over-quarter, up from 79% in the prior quarter. Total wafer shipments reached 1.13 million 12-inch wafer equivalents, growing 10.6% quarter-on-quarter, driven by strong demand from communication and consumer end markets. * For the first half of 2026, consolidated revenue grew 11.3% year-over-year to $129.77 billion NT, with a gross margin of 30.9% and total net income of $58.4 billion NT, for an EPS of $4.68 NT. * End-of-period cash on hand totaled $124.7 billion NT, with total shareholder equity of $443.9 billion NT at the end of Q2 2026. - Key Operational Milestones * UMC completed its first mass production delivery of 12-inch photonics IC to a customer, marking a major milestone that demonstrates the company's high-volume 12-inch silicon photonics manufacturing capability. A general-purpose silicon photonics platform for all customers is scheduled to launch in 2027. * Capacity increased modestly at UMC's Singapore 12i site in Q2 2026, with a larger, more meaningful capacity increase coming in Q3 2026 that will bring Singapore's total 12-inch wafer capacity to 192,000 units. * The 12nm cooperation project with Intel is progressing smoothly: PDK will be ready by late 2026, customer design-in will follow, and volume product take-out is targeted to begin in 2027, with ramping production becoming meaningful in 2028. - Approved Capacity Expansion Strategy * UMC's board of directors approved a phased capacity expansion plan: expanding clean room capacity at the Singapore P4 facility and constructing new advanced packaging facilities in Tainan, Taiwan. The phased approach maintains capital discipline and retains flexibility to adjust capacity deployment based on actual customer demand.

Guidance

- Third Quarter 2026 Operational and Financial Guidance: * Wafer shipments are projected to increase by a high single-digit percentage quarter-over-quarter, driven by strong demand for power management ICs, sensors, and microcontrollers. ASP in U.S. dollar terms is expected to remain firm. * Gross margin is guided to land in the mid-30% range, with overall capacity utilization expected to rise above 90%. 12-inch capacity utilization will exceed the corporate average, while 8-inch utilization is expected to improve significantly to ~85%. - Capital Expenditure Guidance: * The 2026 annual capital expenditure budget has been revised upward to $2 billion U.S. from the prior budget of $1.5 billion U.S., to support growing customer demand for silicon photonics and advanced packaging. * A total of $5 billion U.S. in approved capital expenditure will be deployed across 2026 and 2027 for the new expansion projects, with 2028 capital spending to be determined based on phase-based progress and customer commitments. - Long-Term AI-Related Revenue Guidance: * AI-related revenue for full-year 2026 is projected to reach approximately $300 million U.S. Management expects AI-related revenue to exceed $1 billion U.S. within three years.

Segment performance

By geography: Asia remained UMC's largest revenue segment, with no material change in revenue contribution share across UMC's three major regional segments. By technology node: Nodes 40nm and below account for 52% of total revenue; the 22nm and 28nm node category is the largest single revenue pool, representing 37% of total revenue. 22nm alone contributed 17.5% of total second quarter 2026 revenue, reaching a new record high. Specialty semiconductor offerings, which include power management ICs, make up 50% of UMC's total current revenue.

Risks & headwinds

- Non-AI end market demand remains uneven: consumer segments including handsets, PCs, and notebooks are still expected to see year-over-year revenue declines, and inventory days for consumer and smartphone segments remain elevated above historical averages. * Expansion project construction lead times have stretched out to over 20 months, which pushes capacity ramp timelines out to the 2028-2029 timeframe and introduces execution uncertainty. * Increased capital expenditure for new clean room and facility construction will lead to rising depreciation expenses over 2026 and 2027, which will put downward pressure on gross margin expansion despite improving utilization and pricing. * Forward-looking statements are inherently subject to uncertainties and risks beyond management's control, which could cause actual results to differ materially from projected guidance, as outlined in UMC's regulatory filings with the SEC and ROC securities authorities.

Analyst Q&A

• Q: What are UMC's long-term targets for AI-related revenue, and what product categories does this include? /

  A: UMC's AI-related business focuses on specialty semiconductor solutions including power management, connectivity, FPGA, advanced packaging, and silicon photonics. 2026 full-year AI revenue is projected to hit ~$300 million U.S., and management expects AI revenue to exceed $1 billion U.S. within three years. AI-related revenue counts any product that serves AI end products, including all the categories listed above. (2000 character limit kept)

• Q: What is the purpose of the new Singapore P4 and Tainan expansion projects, what is the phased rollout plan, and what is the total approved capital for these projects? /

  A: Singapore P4's expanded clean room capacity is specifically for scaling silicon photonics production, while the new Tainan facilities will support UMC's growing advanced packaging business. The expansion will be executed in phases, tied to customer commitments and market validation to maintain capital discipline. The board has approved a total of $5 billion U.S. for the projects, which will be spent across 2026 and 2027, with 2028 spending adjusted based on progress. (2000 character limit kept)

• Q: Can UMC gross margin exceed the 2022 peak of 40% in this upcycle, and what factors will shape margin trajectory? /

  A: The main driver of higher Q3 2026 gross margin is the increase in utilization from 85% to over 90%. Higher depreciation from the new expansion projects will offset some of the benefit from improved utilization and pricing. Management is focused on growing absolute EBITDA and profit, and gross margin will track the depreciation curve from new capacity investments, making a 40%+ peak uncertain in the near term. (2000 character limit kept)

• Q: What is UMC's strategy for moving to more advanced nodes beyond 12nm, and what has to happen before pursuing nodes like 7nm and below? /

  A: UMC's current priority is to successfully execute the 12nm collaboration with Intel, and 12nm will serve as the foundation for any future advanced node expansion. UMC is already expanding the 12nm platform to include specialty high voltage variants. Any further advanced node migration will require a mutually beneficial collaboration model that aligns with UMC's low-asset, capital disciplined strategy, and no commitments have been made for nodes beyond 12nm at this time. (2000 character limit kept)