United Microelectronic Corp. Q2 2026 Earnings Call

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 a 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. Chih-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 and 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 a more detailed description of these risks and uncertainties, please refer to our recent and subsequently filings with the SEC and our 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 UMC's CFO, Mr. Chih-Tung Liu, to discuss UMC's second quarter 2026 financial results.

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 four, second quarter of 2026. Consolidated revenue was TWD 68.73 billion, with gross margin at 32.5%. Net income attributable to the shareholder of the parent was TWD 42.26 billion, and earnings per ordinary share was TWD 3.39. Utilization rate in quarter two climbed to 85% from 79% in the previous quarter. The 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 TWD 68.7 billion.

Gross margin rate increased by almost over 3 percentage basis points to 32.5% or TWD 22.3 billion. Because of the recent stock market performance, our investment and dividend income together reached TWD 30 billion in the third quarter under the non-operating income and expenses, which help our NT net income to reach TWD 42.2 billion. For the net income attributable to the shareholder of the parent is TWD 42.26 or EPS of 3.39 per share in the 2Q. 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 TWD 129.77 billion in the first six months of 2026.

Gross margin rate also grew by over 3 percentage basis points to 30.9% or TWD 40.1 billion in the first six months of 2026. For the net, non-operating income, similar for what happened in the 2Q. For the first half of the total non-operating income reached TWD 35.6 billion, which leads our NT net income to reach TWD 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 TWD 124.7 billion, with total equity reached TWD 443.9 billion at the end of 2Q of 2026. On page eight, our blended ASP increased by low single-digit percentage in the 2Q of 2026.

For revenue breakdown on page nine, Asia remains our largest revenue pool, around 66% of total revenue, and North America reached about 22%. On page 10, IDM didn't really change much. This quarter is around 15% versus 14% in the previous quarter. For sales breakdown by application on page 11, there's almost no change for the revenue among three major segments. For revenue breakdown by technology on page 12, total revenue under 14 nanometer is still around 52%, with 22 and 28-nanometer is becoming our largest revenue pool, representing 37% of the total revenue. Our quarterly capacity has shown some increase in our Singapore site, Fab 12i, for the 2Q, 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 CapEx budget has raised or increased to $2 billion from the previous number of $1.5 billion, which we'll elaborate more details later during the conference call. This about is the summary of UMC results for 2Q of 2026. More details are available in the report, which has been posted on our website. I will now turn the call over to CEO of UMC, Mr. Jason Wang.

Thank you, Chitung. 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-over-quarter, driven by strong demand in communications and consumer segments, further improving utilization rate to 85%. Revenue from our 22/28-nanometer business continues to set record highs, with 22nm revenue representing 17.5% of the second quarter sales. Earlier this month, we announced the company's first mass production delivery of a 12-inch silicon 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 IC, 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 announce 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 fab in Tainan, Taiwan.

The plan will be executed in phases, enabling UMC to remain focused on capital discipline with the flexibility deploying capacity to fulfill customer demands. As a result, 2026 capital expenditure budget will be revised upward to $2 billion. Let's move on to the third quarter 2026 guidance. Our wafer shipment will increase by high single digits. ASP in USD 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 $2 billion from $1.5 billion. That concludes my comments. Thank you all for your attention. We are ready for questions.

Yes, thank you. 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 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 star key and number two to cancel the question. 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 UMC have a good progress on the silicon photonics. Also see that the power management IC improvement. I assume that these are all prepared for the AI related business. I'm just wondering, for the longer term, does UMC have any indication or target of your AI related revenue? Can you also give us a breakdown products that you are aiming for? Thank you. Well, first of all, our AI related business is driven by the specialty semiconductor solution, support a broad range of applications, including the power management, connectivity, FPGA, as well as our growing advanced packaging and silicon photonics business.

Those are the focus. This business would have already began important contribute, become a contributor to our growth in 2026. The current revenue for 2026 is projected to close to approximately $300 million for this year. Looking ahead, in three years, we'll expect this AI exposure to exceed US $1 billion.

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

Well, right now, what we see from the market is the worldwide demand's improving with a broader and more sustainable momentum. It remains more AI-led. AI is leading that, and it's spilling over into memory, connectivity, and power segment. AI demand recovery is still mixed across different end device markets, and supply reduction plus inventory normalization are moving to the market toward to more of a balanced and predictable environment. We do see the future outlook is increased 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 is 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 nanometer and 65 nanometer technologies. We will not characterize the current environment as a full broad-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. For UMC, our wafer shipment will grow year-over-year on 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 in both AI and non-AI market. The 8-inch loading will improve to mid-80% range, while mature 12-inch loading will also increase quarter-on-quarter on AI-related demand.

Okay. 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 technology, manufacturing capability, and long-term partnership with customers. As the demand and industry condition continue to improve, we are working with the customer to ensure pricing appropriately reflected that value while supporting continuous investment in technology and capacity.

Thank you very much. Very helpful.

Thank you. Next one, Gokul Hariharan, J.P. Morgan. Go ahead, please. Yeah.

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? What are the kind of milestones we should look at? What are the kind of phases that you are looking to kind of phase this capacity in? How should we compare it to your previous plan about four, five years back when you had this new phase in Tainan, and then you also build out the Singapore fab? Is it similar scale or it's going to be much more of scale?

Okay. Let me maybe start off, what drives that, right? 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 rate, driven by the need for more bandwidth and more efficient power. The second is the automotive electrification trend continues. They are 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 powers.

These industry trends, combined with our entry into the advanced packaging such as logic and memory stacking, as well as the silicon photonics, will accelerate the growth within the UMC addressable market. Within our existing portfolio, we also see that advanced packaging is enabling our customer 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 believe that TAM 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 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 UMC.

That's truly this is behind the decision as well as the how we want to execute this. You also have a follow-on question in terms the scale.

The details, the schedule. The milestone and the schedule, right?

For right now, for the Singapore, we will invest in the clean room for our P4 facility and the tool purchase to expanding our silicon photonics capacity. In Tainan, the construction of the 12A, P7, and P8 will set up a robust foundation for the UMC to scale the advanced packaging alongside with the customers' long-term product roadmap. 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. From the milestone-wise, now the board has approved it, and then we're going to start engaging with the follow-on activities. Then we will report back in terms the install schedules, once we get the confirmations from our staff.

Got it. Understood. 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? Is it going to be gross margin accretive, given you have 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's current status. Overall, the 12 nanometer cooperation project with Intel is advancing smoothly, and we anticipate the product tape-out will commence in 2027. All the PDK will be ready in late 2026, and the customer will design and design in and ready to tape-out in 2027. 2027 will still at an early stage of ramping the product, I would say, probably at a pilot stage. The production will be more meaningful in 2028. That's the current status of the 12 nanometers. In terms the business model, that will be accreted to our current model, current financials.

Okay. Maybe one last question on gross margins, Jason and Chih-Tung. You are already guiding for above 90% cross utilization and gross margin is kind of reaching mid-30s. Any thoughts about how you think gross margins could progress in this cycle? Because feels like in the past cycles where utilization had reached above 90%, gross margins were probably at a higher level, given you probably had a little bit more price leverage. Just wanted to understand how you think about where gross margins can reach, given the demand seems to be pretty strong and utilization continue 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, versus last year. We continue to improve our fundamentals, and we do expect the new project, like silicon photonics and advanced packaging, will enhance our EBITDA margin. The higher depreciation expenses will certainly have a slight impact on the gross margin. I think with the announcement of the new fab in Tainan and also the new clean room in Singapore, it's no doubt the depreciation expenses will increase as a result. We are confident to deliver higher profit numbers and also enhance our EBITDA margins. The gross margin will also highly depend on the installed equipment and the depreciation expenses curve as a result.

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

Yeah, the new clean room and the new shell in China certainly change the curve. Now we are expecting the depreciation to increase by low teens for over the next two years, at least.

Low teens each year over the next two years, or low teens Low teens each year, at least.

Yeah. Okay. Understood. Yeah. Thank you very much.

I'll go back to the queue.

Thank you. Next one, Charlie Chan, Morgan Stanley. Go ahead, please. Hi, Jason, Chitung.

Thanks for taking my question. Just some quick follow-up about the previous topic. First of all, I know you kind of getting share, but how about your customers chip inventory, right? Because the end market seems to be pretty challenging. According to our analysis, it seems like some of your fab IC design company, their revenue is kind of undergrowing your wafer shipment. I'm wondering whether you are concerned about the chip inventory accumulated at your customer side.

Well, I mean Charlie, first, we're always cautious about the inventory situation, right? Not to the level that we need to be worried at this point. For the first quarter 2026, the DOI level is actually rose slightly. They gone up a little bit. What we see is really coming from one PC, was strongest driver of the inventory buildup. As 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 remain weak. There are some area are weaker. Although the demand in the automotive and industrial sector is stable, their DOI remain higher than the historical average.

For the Q2 2026, while we're tracking that, the overall consumer spending remain weak, and we expect semiconductor sales to stay strong in 2026, which will drive the DOI up by several basis again. Currently, we're not to the level that we need to be worried, but we are cautious of continuing tracking the progress of that area.

I see. Thank you. Would that kind of impact your negotiation with customers to a way to pass into the cost because you're increasing your investments, right? Do you think there's some dynamic change for you to reflect your value next year?

I mean, first of all, the market outlook for us, we remain optimistic because it's driven by both AI-related and non-AI-related demand. While that demand and industry continues to improve, the pricing environment become more constructive. The engaging discussion with customer is actually a constructive discussion. Given 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 clean room for two phases. My understanding is that, for 2.5D, your previous focus was more about the interposer production, and you do have some 3D IC, but it's more for RF. First of all, are you going to do like a full stack of the 2.5D, for example, CoWoS? And for the 3D IC, are you going to do not just the RF, but also some AI accelerator kind of products? Lastly, we noticed that your vice-chairman now moved to Unimicron. I'm not sure whether we can link these two developments together. UMC very aggressive in advanced packaging and your partnership with Unimicron in substrate will be even closer than before.

Should we think that way?

From our advanced packaging offering, I'll start out with that. You're absolutely right. We started with the interposer solution and follow with the RFSOI 3D IC, the chiplet solution. Offering is actually more than that now. The overall addressable market is projected to more than double by 2030 in our addressable market, because it extended from the 2.5D interposer with DTC, discrete DTC, 3D wafer-to-wafer stacking, and which that's what you're referring to, the RFSOI, 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 tape out in 2026 and early 2027. We actually feel pretty optimistic about this advanced packaging space.

That's why we start deploying the facility preparation. Now, like you said, we have already entered production for the 3D wafer-to-wafer hybrid bonding bridge die and discrete DTC. That will follow by the wafer-to-wafer stacking as well. We'll continue broaden our advanced packaging offering, but not to the CoWoS solution, because it's not a platform solution. It is advanced packaging capability serving various different combination of a solution, both from our existing offering to even the new offering, new integration options. We see many different new exciting opportunities there. Not a CoWoS. Okay. In terms of ecosystem, we're working with entire ecosystem in terms the our solution to serve our customers. It's not going to be limited to any one particular.

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 company, and we remain as an investor. Not at this current point, but once there's an opportunity rise in the ecosystem, we definitely will explore that with them. Yeah. Okay. Thank you. Last one, if I may, just the AI-related revenue.

Jason, did you say that your overall revenue from AI already exceed $1 billion? Was that your comment? Yes.

Close to TWD 300 million this year.

In three years, we will exceed TWD 1 billion.

Okay. How would you define the AI-related revenue? I believe PIC silicon photonics, silicon interposers. What's your kind of strict definition about your AI revenue?

the solution that associate with AI as an end product, including the connectivity, power management, those are all category as AI exposed solutions. Yeah. Okay. silicon photonic can be considered as the connectivity.

Yes, as a part of the connectivity solution. Yes. Okay. Yeah, I think that's all from me.

Thanks for the update. Thank you.

Thank you. Next one, Sunny Lin, UBS.

Go ahead, please. Thank you very much for taking my questions.

Congrats on the very strong outlook. I want to follow up on the new expansions. May I double confirm that these two new expansion would be mainly for silicon photonics and advanced packaging, not for typical foundry business? 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? Will it be fair to assume that maybe we think that the embedded capacitor may be the major one, or how should we think about the contributions from the various projects that you are working on?

First of all, they announced the clean room preparation in our Singapore P4 facility. It's prepared for the silicon photonics capacity. The Tainan facility of the P7 is prepared for the advanced packaging. In terms of the advanced packaging addressable market growth, that includes the DTC, like you said, and some, the interposer between DTC, discrete DTC, the wafer-to-wafer stacking, and the memory-to-memory stacking. A very broad offering of advanced packaging. The DTC does play a major part of that, and that's a very significant part of that since I think we have more than 35 different products taping out. There's a high percentage of those are considered as the DTC.

Got it. Thank you. Very helpful. Would you be able to share with us any color about the size of the addressable market that you are looking at? Also be helpful for to think about the trajectory for your revenue coming from advanced packaging. Would it be fair to assume that your advanced packaging should see inflection point when your new supply start to be on board? Given a lead time for expansion, would that be maybe in late 2028, 2029 timeframe?

Yes. I think given the current construction timeframe, it's been stretched out. There's a lot of activity going on in terms of construction side. From a timing standpoint, we're still looking at somewhere greater than 20 months, in terms of lead timing. That will push us into 2028 and 2029 cycle. However, like the earliest question, in terms of milestone, I will probably like to share them when I have more specific data. Right now, we're getting roughly a 20-month lead time on the construction. 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. Maybe a question on your Singapore expansion for the P3. Now given the stronger demand outlook, how should we 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 approval budget CapEx today, that includes some of the capacity expansion in our P3 facility. In the existing facility, we will be adding the PCD, which is power management solution, as well as silicon photonics. For the 12A in Taiwan, we'll start putting some of the CMS, which we call customized memory stacking, and the DTC solution in our 12A in Tainan. Meanwhile, we're also putting some TFLN, the capacity set up in our eight-inch facility. That will be underway now. That's all going to happen within our existing facility.

Got it. Well, so sorry, just to add one question on Singapore P3. Is there a target for your capacities, maybe let's say by end of this year and end of next year?

Once we release this, given the two lead time install, we expect we will see some production ramp on this in, I would say late 2027, 2028, early 2028.

Got it. Okay. Thank you. Now, maybe last one on silicon photonics. Given you have two solutions, one on 12-inch, that you license from imec, and the other one on 8-inch by TFLN. Would you be able to share some color regarding the respective strengths of two solutions, and how should the client choose? 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 on, for silicon photonics, we are releasing a 12-inch solution, and that's which we believe that will be the best solution for our customer and how to differentiate what our other competitors do on 8-inch. The 12-inch will offer better process control, which will give us better performance. For example, the 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 400G per lane 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, that will be an integration option for those two. We can implement the TFLN with our silicon photonics, the PIC, and through our advanced packaging solution. Along with that, we can offer the optical I/O, the OIO, which is the interposer with the PIC through our advanced packaging, and we also can provide the TFLN as a component for the CPO solution. We think there's a lot of various combination of this and between the two, we think that we have a unique position on that. Yeah. Thank you very much.

Very helpful. Thank you. Next one, Hans Lu, 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 TWD 1 billion contribution. How should we think about that, your CapEx growth trajectory in the next few years to achieve that goal? Relatedly, I think, how should we also think about 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 full meeting approved nearly $5 billion already.

That's the number we will work with over the next two years or maybe three years. 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. We don't really have a full number, but to start with, $5 billion for the next two to three years is probably the beginning. In terms of depreciation, as I mentioned, it will be low tens increase year over year for at least this year as well as 2027. For 2028, it will depend on the CapEx number based upon the factor I just highlighted.

Got it. That's very clear. In the next two years, in 2027 and also 2028, your CapEx will be at least $5 billion.

No for the new investments.

Total will be, today's board approved TWD 5 billion, which will be.

Okay spread across 2026 and 2027.

The 2028 numbers will depend on the phase expansion.

Got it. Very clear. 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, your AI revenue could reach 10% of your total sales versus low single digits this year. Would you be able to try 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. 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, because the silicon photonics and the advanced packaging is still at early stage. From the compound annual growth rate standpoint, they are the fastest-growing and highest growth rate. We also believe our current existing solution will also grow. Particularly, it's driven by also the AI, in the AI space. Those will also grow, but in a lower pace.

That's my follow-up question. Just regarding your strategic positioning. When you start 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 strength is compared to them? Is it from the technology roadmap perspective or your customer relationship, or it is still coming from the immense skill over which you could also capture some of the fast expanding addressable markets within that big pie? Thank you. Well, I think from the silicon photonics, like I mentioned earlier, we are the first offering the 12-inch solution, and we believe that's actually a better process compared to the eight inches on the market today.

It offers much better performance and the process control, we think there's a huge differentiation there. I think that's the technology process advantage. For the TFLN, Fan Out Flow, we also believe that's the best option for anything beyond the 400G in the market today, we're going to be putting to mass production on that as well.

I think there's a big technology differentiation, not a spillover. From an existing solution, I think there will be multiple factors, but in a much lower growth rate, because found the spillover reason. Besides the existing technology also has its own driver that drives the growth. Coming back to the silicon photonics, which is the biggest, highest driver as well as advanced packaging, I think we have a very good differentiation there, yeah.

Okay. Yeah. I think just a quick follow-up before jumping back to the queries, Dennis. 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 qualify the factors supporting your gross margins? For example, like 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. The higher quarter three gross margin guidance is mainly attributed to the higher utilization rate.

Loading was 85% in the second quarter. Our guidance for the third quarter is 30% plus.

Okay. There will be multiple factors, including ASP, product mix, and utilization rate, foreign exchange rate, and depreciation, et cetera.

Our focus is certainly to enhance our profitability. As I mentioned earlier, for the next two, three years, we will continue to improve, deliver better results for EBITDA margin, and gross margin will come along with the depreciation curve.

That sounds great. I think just one more is probably just on your power IC exposure. Could you share with us how much of the revenue is coming from these products, no matter is for which end markets? I think second thing is probably just on the utilization by inch and also 12-inch. Last time you mentioned that 12-inch was still slightly higher than eight-inch, but what's your view right now for second quarter and also third quarter? Thank you. The 12-inch is still above corporate average.

We expect the Q3, the loading will be greater than 90%, and the 12-inch is greater than corporate average, and the eight-inch is below. I think I actually mentioned that earlier. I think the eight-inch will reach 85%.

Your power IC exposure is how much % of your sales now?

We categorize that is the part of our specialty offering. 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 questions.

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, seven nanometer and below? If so, what would the business model look like? Maybe I'll put it this way, is that what are the key factors that we need to see before we'd commit to expanding beyond 12 nanometer?

I think the simple answer to that is we have to first deliver the 12. We have to prove the business model as well, deliver the 12. The overall of the 12 cooperation project is going smoothly. I think the 12 needs to be the solid foundation for us to explore the next generation. Meanwhile, the 12 nanometers is representing more than just the pure logic today. We actually are already expanding that to the high voltage found in 12, which is 14HV. There are more in terms of derivative and specialty technologies in discussion right now. There's a lot of activity and lots of work that we have to get done for the 12 nanometer today. Yes, the simple way to look at it is we have to execute the 12, then we will explore beyond.

Right. Is it fair to say that beyond maybe enter into 7 nm and beyond maybe after 2028?

If there is a discussion, we'll probably have more creative milestones in terms of- Yeah, this really need to be a mutual- Right The current focus is on 12 nanometer only.

Again, UMC is always open to find the best solution, to have a low asset type of migration. Again, without a successful 12 nanometer, it's going to be difficult.

Got it. Thank you. My second question on how would you characterize the current cycle now versus the chip shortage cycle in 2021? I think the last time was a more broad-based, supply-driven super cycle with utilization over 100%, with pretty aggressive ASP increases almost every quarter. This time, the recovery looks more narrow, more concentrated on AI. Do you agree that the nature of the demand has actually fundamentally changed? 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 peak level that we saw for in 2022 in the coming years?

Well, maybe start off with the outlook. Like you said, we are seeing the AI-related segment remain as the primary growth driver for the entire industry. With the continuous commercial deployment of agent AI application, demand for chips or just in general purpose server is also expecting to rise, but that also related to AI. In contrast, the non-AI demand is still mixed across different end device market. While the overall semiconductor industry projected to grow higher to maybe low 20% range this year compared to earlier year, increase of low 20%, we think mainly is driven by the AI. Yes, it's different than the previous. It's not a broad-based recovery.

I will probably have Chih-Jung talk about the gross margin, before that, I have the same answer on the previous about ASP. We still see the demand and the industry condition is improving, the pricing environment is become more constructive. We think the pricing trend will be better. Yes. As for gross margin, we really don't compare ourselves to the historical data.

We certainly try very hard to deliver higher profit in absolute dollar terms back to our shareholder. As I mentioned, because of the new Fab 12i rent, both in Singapore and in Tainan, the depreciation expenses and how we amortize them will have a big impact on the near-term gross margin. I think we are a lot more confident to say our EBITDA margin will show steady growth over the next few cycle or next few expansion phases. The gross margin will be largely depends upon how we book the depreciation.

Okay. Thank you. Thank you.

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 ir@umc.com. Have a good day. Thank you.

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. Please visit umc.com under the Investors Event section. You may now disconnect. Thank you again.