United Microelectronics Corp. Q3 FY2026 earnings call

• Capacity Utilization: Overall capacity utilization reached 92% in Q3 2026, a significant improvement from 85% in the prior quarter. Several 12-inch fabs operated at full capacity, and 8-inch operations saw strong recovery.
• Wafer Shipments: Wafer shipments grew 7.3% sequentially to over 1.2 million 12-inch equivalent wafers, setting a record high.
• Technology Performance: The 20-28nm business achieved record-breaking results, with 22nm revenue contributing 18.3% of wafer sales. Growth is driven by new products in display drivers, automotive radars, and fly-by ICs.
• New Business Areas: Active engagement in advanced packaging, silicon photonics, and silicon capacitors (DTC). Silicon photonics PIC technology outperforms peers in propagation loss, with 1.6T optical applications supported on both 12-inch and 8-inch platforms.
• Advanced Packaging Progress: Discrete DDC solutions for mobile/internet are in mass production. Substrate-embedded DDC for AI/server applications completed validation. Customized memory stacking passed initial customer verification.
• Strategic Expansion: Board approved additional CAPEX beyond the previously announced $5 billion. Specific capacity additions include ~18K units for silicon photonics, 22K for DTC, and 20K for Teflon modulators. Initial installation expected late 2028, reaching scale by 2030.
• Geographic Focus: Silicon photonics expansion focused on Singapore; silicon capacitor expansion in Tainan; Teflon modulator capacity in 8-inch operations.

In the third quarter of 2026, UMC reported consolidated revenue of 74.24 billion NT dollars (approx. 2.35 billion USD), representing an 8% sequential increase and a 16.1% year-over-year growth. The gross margin rate improved to 34%, up from 32.5% in the previous quarter, generating a gross profit of 25.2 billion NT dollars. Net income attributable to shareholders was 16.43 billion NT dollars, with earnings per share (EPS) at 1.32 NT dollars (0.206 USD). For the first nine months of 2026, cumulative revenue reached 204 billion NT dollars, and net income grew 136.5% year-over-year to 74.86 billion NT dollars. By technology node, 22nm and 28nm technologies accounted for approximately 35% of total revenue, while 40nm represented 16% and 65nm represented 19%. Consumer applications remained the largest segment at around 32% of revenue, followed by communication and computer applications.

• Fourth Quarter 2026 Guidance:
  • Wafer Shipment: Expected to increase in the low single-digit percentage range.
  • ASP: Expected to remain flat in US dollar terms.
  • Gross Margin: Expected to be comparable to the preceding quarter (Q3).
  • Capacity Utilization: Expected to remain in the low 90% range.
• 2026 Cash Tax Budget: Maintained at US $2 billion.
• Forward-Looking Outlook (2027):
  • Blended ASP: Management expects a turning point from ASP erosion to uplift, targeting a 10% year-over-year increase in blended ASP for 2027 compared to 2026.
  • Revenue Mix: AI-related revenue is projected to exceed 25% of total revenue by 2029 (three years out). Current AI-related revenue is near $300 million for 2026.
  • Growth Drivers: Shift from volume-driven growth (2026) to value-driven growth (2027), supported by pricing improvements and richer product/technology mix.

• Capacity Constraints: High demand in selected technologies exceeds available capacity, creating a mismatch that may constrain shipment growth despite healthy utilization.
• Cost Inflation: Rising raw material costs and increased depreciation due to accelerated capital expenditures pose headwinds to gross margin expansion.
• Investment Risk: Accelerated capacity expansion plans carry execution risks; management notes they are working closely with suppliers to expedite installations, but delays could impact timelines.
• Market Volatility: Uneven recovery in end markets (e.g., softness in PC/LCD controller/Wi-Fi segments) contrasts with robust automotive and industrial demand, requiring careful portfolio management.
• Competitive Landscape: While UMC believes its silicon photonics and advanced packaging capabilities are competitive, the industry faces potential overcapacity issues if end-demand growth does not keep pace with global supply expansion.

Q: Analyst asked for early visibility into 2027, specifically regarding growth drivers and whether it will remain volume-led or shift to value-led given capacity constraints. / A: CEO stated that 2027 growth will increasingly be value-driven rather than volume-driven, as utilization is already above 90% and several technologies are near full capacity. Key drivers will include AI infrastructure demand (power management, FPGA, connectivity) and emerging engines like silicon photonics and advanced packaging. The company expects to capture greater value through improved pricing and a richer product/technology mix, leveraging existing manufacturing footprint rather than relying solely on shipment growth.

Q: Analyst inquired about the sustainability of the 10% blended ASP increase target for 2027, asking if it reflects pure price hikes or mix changes, and how customers are responding to negotiations. / A: CEO clarified that the 10% figure represents a year-over-year blended ASP increase, marking a turning point from historical ASP erosion to positive uplift. This is driven by a constructive pricing environment, strengthening demand, and higher capacity in selected technologies. Negotiations are progressing well, with customers understanding the need for price adjustments due to rising costs and tight supply-demand dynamics. The increase reflects both direct pricing improvements and the benefit of a richer product mix.

Q: Analyst questioned the rationale behind accepting a 10% price hike in 2027 after years of stable pricing while improving utilization, and asked about consumer market demand outlook. / A: CEO explained that the price hike conversation is complex, involving contractual relationships and diverse applications, making a blended view more accurate. The increase is necessitated by rising cost headwinds and inflationary pressures, which customers understand given the industry's capacity constraints. Regarding demand, while there is weakness in PCs and some communication segments, automotive and industrial markets remain robust, and AI-driven upside demand continues to pile up backlogs, supporting overall utilization.

Q: Analyst sought details on the timeline and economics of the new CAPEX expansions for silicon photonics and advanced packaging, specifically when margins will normalize relative to corporate averages. / A: CFO noted that depreciation will rise for a couple of years due to heavy investment, but the company maintains disciplined spending. CEO added that the new businesses (silicon photonics, advanced packaging) are currently accretive and have higher margins than the corporate average. These new facilities are scheduled to start ramping in late 2028 and reach scale by 2030. Even with higher depreciation, the economics model projects these segments will remain profitable and supportive of long-term growth.

Q: Analyst expressed concern about the sustainability of AI demand amidst crypto market reactions and potential slowdowns in AI processor migration, asking how visible UMC’s specific exposure is. / A: CEO distinguished general AI demand from UMC’s specific focus on optical connectivity (silicon photonics) and power integration (advanced packaging). He argued that the demand for 1.6T to 3.2T migration and efficient power delivery is forward-looking and structural, driven by compute and speed requirements rather than speculative cycles. The company sees robust demand for these specific technologies, which are becoming replacement molds and critical infrastructure components, ensuring sustained relevance regardless of broader AI sentiment fluctuations.