United Microelectronics Corporation Q2 FY2025 earnings call

• Second quarter utilization rate increased to 76% with wafer shipment growing 6.2% quarter-over-quarter, driven by communications in imaging signal processors, NAND controllers, WiFi and LCD controllers. Revenue from 22- and 28-nanometer portfolio continued to grow sequentially, accounting for 40% of total sales.
• Singapore Fab 12i Phase 3 facility set to start production in 2026 to enable better service for customers seeking diversified manufacturing.
• Third quarter expected to have mild increase in wafer shipments, but NT dollar-denominated revenue exposed to foreign exchange fluctuation. Closely monitoring near-term uncertainties and risks like U.S. tariff policies.
• Cooperation with Intel on 12-nanometer project progressing well, with early PDK expected ready in June 2026 and customer product tape-out beginning in 2027.

Consolidated revenue in the second quarter of 2025 was TWD 58.8 billion, with a gross margin of around 28.7%. Net income attributable to the stockholder of the parent was TWD 8.9 billion and earnings per ordinary shares were TWD 0.71. Wafer shipment in quarter 2 increased to 967,000, up about 6.3% quarter-over-quarter. Utilization rate increased from 69% in Q1 to 76% in quarter 2. Revenue increased about 1.6% sequentially to TWD 58.75 billion. Gross margin reached 28.7% or TWD 16.8 billion. For the first half, revenue increased by 4.7% to TWD 116 billion. Gross margin was 27.7% compared to 33.1% in the same period of 2024. Net income attributable to the shareholders of the parent for the first half of 2025 was TWD 16.67 billion or TWD 1.34 in EPS terms. Cash was over TWD 100 billion, reaching about TWD 111 billion at the end of the first half of 2025. Total equity of the company was around TWD 337.4 billion. ASP edged up in the second quarter due to better product mix. Revenue breakdown: Europe increased to 8%, Asia reached about 67%, IDM up slightly to 19% from 18% in the previous quarter. Consumer went down to 33% by 1%, communication increased by 1% to 41%. Revenue below 40-nanometer represented more than half of total revenue, reaching 55% in quarter 2, with 22 and 28-nanometer accounting for 40% of total revenue.

• Third quarter wafer shipment to increase by low single-digit percentage. NT dollar-denominated revenue fully exposed to foreign exchange fluctuation; e.g., 5% appreciation in NT dollar leads to 5% reduction in reported NT dollar revenue.
• Q3 gross margin approximately equal to Q2 gross margin subject to foreign exchange effect.
• Capacity utilization rate in mid-70% range.
• 2025 cash-based CapEx budget remains unchanged at USD 1.8 billion.

• Foreign exchange rate fluctuation risk.
• Uncertainties and risks related to U.S. tariff policies beyond the company's control.

Q: What's the initial outlook and view on the ASP trend into 2026, given the higher expense and cost?

A: Typically, not guiding beyond 2025. Goal is to continue to differentiate technology offering and product mix, maintain and improve ASP resilience. Near term, Q2 ASP saw low single-digit increase driven by higher 22 and 28 product mix, and Q3 product mix unchanged so ASP remains firm for this year.

Q: Should we expect the 14-nanometer and below mix to increase? And will that be from 12-nanometer or potentially also 6-nanometer?

A: 12-nanometer is still a bit far. Cooperation with Intel on 12-nanometer project is progressing well, early PDK expected ready in June 2026, customer product tape-out beginning in 2027. No concrete plan for anything beyond 12-nanometer today.

Q: Do you see kind of pull in due to tariff impacts on your customers' behavior? And what does it impact to your second half sustainability or outlook?

A: Observe some demand upside in Q2 and Q3 partly driven by inventory buildup in anticipation of potential U.S. tariffs. Q3 demand increased on higher base, expect shipment to still grow mildly sequentially. Monitor end market signals closely.

Q: Can you talk about your business development in advanced packaging technology and utilization of interposer capacity?

A: Preparing advanced packaging solution for growing energy consumption of cloud AI and edge AI. Developing 2.5D interposer with DTC and discrete DTC. Currently in mass production for 5G and 6G RFIC, and developing memory to memory stacking and memory to logic stacking service.

Q: What is the realistic pathway for us to get back to mid-30s gross margins?

A: Focus on technology development, technology offering, new technology offering and partnership engagement, with improved product mix. Annual depreciation growth will peak out, and with improved loading and ASP management, aim to improve gross margin. Focus on technology differentiation and customer engagement to increase loading and improve financial performance.

Q: Would you be able to price a bit higher given higher cost structure for Singapore fab?

A: Pricing position based on technology offering and value proposition. Work with customers to understand needs, focusing on technology differentiation and their competitiveness.

Q: How does the Intel partnership affect business development with UMC?

A: Cooperation with Intel on 12-nanometer project is progressing well and remains on track. Current program with Intel is very committed, and see no change at this point with high expectation on the program.

Q: Can you provide your FX ratios for Q3?

A: Every 1% move appreciation of NT dollars against U.S. dollars erodes gross margin by about 0.4 to 0.5 percentage points. For Q3, using current ForEx rate near 29.8, and reminder that weighted average in Q2 was 30.81.

Q: Do we see a better market or lower competitions in the mature nodes? And how can UMC benefit from this lower competition?

A: Positioned as a specialty foundry partner focused on low leakage, low-power logic, embedded high voltage, BCD, embedded non-volatile memory, RFSOI solutions. Focus on increasing revenue contribution in specialty technology space where percentage competing with Chinese foundries will decline.

Q: What's your view on the long-term gross margin outlook?

A: Mid-70% utilization is not great. Focus on technology differentiation, new technology development, and customer engagement to improve loading. Depreciation increase magnitude will decline, and with improved loading, ASP management, and product mix, aim to improve long-term gross margin. Already improved structural profitability, and continue to work on road map to better financial performance.

Q: How is your China fab utilization versus the overall utilization? And what is the outlook for the price pressure in China?

A: 12X facility today is running at full capacity, above corporate average. No pricing differentiation between different locations for now. Focus on serving customer needs with diversified manufacturing sites to support supply chain resilience.