United Microelectronics Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

Key Takeaways

  • UMC reported Q2 revenue of TWD56.8 billion (+4% QoQ), a 35.2% gross margin, net income of TWD13.78 billion, and EPS of TWD1.11, driven by a weaker NT dollar and improved product mix.
  • Wafer shipments rose 2.5% QoQ to 31k 8"-equivalent wafers with 63% utilization in Q2; Q3 guidance calls for mid-single-digit shipment growth and ~70% utilization.
  • Announced industry-first 3D IC RF-SOI wafer stacking and a 22 nm embedded high-voltage platform, bolstering its specialty technology offerings for AI, 5G and automotive markets.
  • Foresees H2 margin pressure from a ~20% YoY rise in depreciation and higher utility rates, with Q3 gross margin guided to the mid-30% range despite efforts on efficiency and product mix.
  • 2024 cash-based CapEx remains at US$3.3 billion and Singapore 12 nm P3 is on track for volume ramp in H2 2026, underscoring disciplined capacity expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
United Microelectronics Q2 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome everyone to UMC's 2024 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.

Operator

Webcast replay will be available within 2 hours after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. And now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr.

Operator

Lin, please begin.

Speaker 1

Thank you, and welcome to UMC's conference call for the Q2 of 2024. I'm joined by Mr. Jason Wang, President of UMC and Mr. Chitung Liu, the CFO of UMC. In a moment, we will hear our CFO present the Q2 financial results, followed by our President's key message to address UNT's focus and Q3 2024 guidance.

Speaker 1

Once our President and CFO complete their remarks, there will be a Q and A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial 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 subsequent filings with the SEC and the IOC Securities Authorities.

Speaker 1

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. Chitung Du to discuss UMC's Q2 2024 Financial Results.

Speaker 2

Thank you, Michael. I'd like to go through the 2Q24 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the Q2 of 2024, consolidated revenue was RMB 56,800,000,000 with gross margin at 35.2%. The net income attributable to the stockholder of the parent was RMB 13,800,000,000 and earnings per ordinary share were RMB 1.11 dollars In the 2nd quarter, our wafer shipment increased 2.5% quarter over quarter to A31,012 inches wafer equivalent in the second quarter. And utilization rate in the second quarter was 63% compared to 65% in the previous quarter.

Speaker 2

Revenue grew by 4% quarter over quarter to TWD56,800,000,000 Other than the 2.5 percent Q o Q wafer shipment increase, the other were helped by the weaker NT dollar exchange rate. In the gross margin, as we mentioned earlier, was 35.2% or nearly TWD 20,000,000,000 With the help minor help from the non operating income, the total net income reached RMB13.77 billion and the net income attributable to the shareholder of the parent was NT13.78 billion or NT1.11 EPS in the second quarter. For the first half of the twenty twenty four, our revenue was almost flat compared to the same period of last year, which was TWD111,000,000,000 for the 1st 6 months of the year. Gross margin was around 33.1 percent or NT36.8 billion dollars and net income margin is around 21.8 percent or TWD 24,200,000,000. EPS in the first half was TWD 1.95 per share.

Speaker 2

Our cash level is around RMB121 1,000,000,000 and our total equity in the first at the end of Q2 of 2024 was RMB356 1,000,000,000. ASP remained flat in Q2 of 2024. In terms of revenue breakdown, Asia gained about 1% of the revenue distribution to 54% when North America stay unchanged at 25%. IDM declined notably from 18% in the previous quarter to 13% in Q2 2024. Communication also declined from 48% in the previous quarter to 39% in quarter 2.

Speaker 2

Consumer and computer growth by single digit percentage respectively. 20228 revenue continued to be around 33% and 14 nanometer declined from 14% in the previous quarter to 12% in this quarter. I see as the 12a continued to increase and in the Q3 of 2024, our 12 A capacity will reach 400 about 1,012 inches equivalent wafers in the 3rd quarter. Currently, the estimate for our 2024 CapEx remains unchanged around US3.3 billion dollars The above is a summary of UMC results for Q2, 2024. More details are available in the report, which has been posted on our website.

Speaker 2

I will now turn the call over to President of UMC, Mr. Jason Wang.

Speaker 3

Thank you, Qi Dong. Good evening, everyone. Here I would like to share UMC's 2nd quarter results. In the Q2, wafer shipments increased 2.6% quarter over quarter and fab utilization rate improved to 68% as we saw notable demand momentum in the consumer segment. Contribution from our 20 to 28 nanometer business rose sequentially on healthy demand of Wi Fi and digital TV applications.

Speaker 3

Together with a favorable exchange rate and improved product mix, 2nd quarter gross margin was better than what we previously guided to. During the quarter, we have announced the technology updates, including a 3 d IC solution to stack RFSOIs wafers, which is the first of its kind in the industry and a 22 nanometer embedded high voltage platform, currently the most advanced display driver foundry solution in the market. They reflect UMC's commitment to building on our leadership across a number of specialty technologies that are crucial for the development of AI, 5 gs and automotive. Looking to the Q3, we expect to see end market dynamics improve further, particularly in the communication and computing segment, which will drive higher fab utilization. Our 22 nanometer, 28 nanometer business remains a promising growth driver with a number of tape outs taking place in the second half for applications, including display drivers, connectivity and networking.

Speaker 3

At the same time, we do expect to face some margin pressure going into the second half due to pickup in depreciation expense related to capacity expansion as well as higher utility rates. Despite these cost challenges, we believe we will continue to demonstrate our resilience as we did during the recent market downturn and deliver on our strategy of providing differentiated technology solutions and a diversified manufacturing footprint to help our customers to strengthen their supply chain management. Now let's move on to the Q3 2024 guidance. Our wafer shipments will increase by mid single digit percentage. ASP in U.

Speaker 3

S. Dollar will remain firm. Gross margin will be in the mid-thirty percent range. Capacity utilization rate will be approximately 70%. Our 2024 cash based CapEx will be budgeted at US3.3 billion dollars That concludes my comments.

Speaker 3

Thank you all for your attention. And now we are ready for questions.

Operator

Yes. Thank you, President Thank you. And our first question is from Sunny Lin, UBS. Go ahead please.

Speaker 4

Thank you very much for taking my questions. Really glad to see improving gross margin in Q2. And so my first question is on the utilization rate outlook. You are seeing some improvement going to Q3 to about 70%. But if we look at in the past full cycle, your utilization rate were around 85% to 90%.

Speaker 4

In a better up cycle, could be over 90%. And so now with the improving cycle, but still considering some oversupply issues, what would be a reasonable estimate for your utilization rate going to 2025?

Speaker 3

Well, I mean, I think we are focused on our 2024 first. And for 2024, we are confident on our promising Q3 wafer demand as they continue to increase. However, we foresee that UMC's customer demand forecast has started to reflect more of a seasonal pattern where the second half of twenty twenty four wafer shipment will increase relative to the first half. That's supported by healthier inventory level with the consumer communication and computing segment, where the demand in auto remains soft. And we expect to see the mild pickup in communication consumer and computing segment.

Speaker 3

However, despite a mild recovery in the Q3 twenty 24, we have not seen signs of strong rebound as the customer remain prudent on managing their inventory level. So customer will continue to be prudent on their inventory management, which that will lead likely will probably will likely lead to a seasonal Q4. And then starting from Q1, 2025, once the out of inventory get to a healthier level, we believe that 2025 will get back to normalcy via the industry demand outlook.

Speaker 4

Got it. Thank you very much. Also my second question is on how should we think about the structural gross margin. There are some puts and takes. One is on pricing.

Speaker 4

A couple of your peers mentioned stabilizing dynamics from Q3. Is that what you are expecting for next couple of quarters? And then second, on depreciations, you have guided depreciation should increase in second half of this year. But any sense about 2025? Should we still expect like 20% type of increase for your depreciation?

Speaker 4

I will assume it could be less because you are delaying the Singapore expansion. And then the third, maybe on the cost inflation, any view on the potential impact going to 2025?

Speaker 2

Yes. In terms of the depreciation, this year we still estimate around 20% year over year increase for 2024 over 2023. As for 2025, we don't have the final numbers yet. We will report that in the next quarter earnings call. But the magnitude should be similar to that of this year.

Speaker 2

In terms of the cost item, we are looking at higher seasonal utility cost in the Q3. And our quarterly depreciation is likely in terms of the increase rate, 3rd quarter will be the highest, around 10% Q over Q increase. So we will continue to work diligently in terms of controlling our cost item, hopefully, through the better efficiency and some of the automation, we will be able to offset the pressures from the increasing cost item. So one way to look at this, we will remain a solid EBITDA margin and we'll improve along with higher utilization rate. And we will continue to strengthen our competitiveness and improve product mix to maintain our structural profitability.

Speaker 3

So if we go back to the ASP question, the UMC's pricing in 2024 has remained consistent and well aligned to our strategy as you can see. We expect pricing will stay competitive as we continually working with the customer to ensure their product offering remain competitive in the marketplace as well. It's our belief that the elevating our customers' product competitiveness will help customers to win more market share. So our pricing strategy has remained consistent and aligned to the value proposition that UMC offers, which includes the stay competitive and resilient against the market dynamic, such as the capacity situation, technology solution, customer partnership and manufacturing performance. So we will constantly managing our pricing strategy, but we remain fairly consistent with our current strategy.

Speaker 4

Thank you. One quick follow-up on your Singapore 12 inches expansion, any update you could share with us in terms of the ramp up schedule?

Speaker 3

For the P3, the schedule has not changed. We expect the PC P3 ramp will reflect in our I mean, in the when we project the 12P3 production will start in January 26 and the ramp up to higher volume starting from the second half of twenty twenty six.

Speaker 4

Got it. Thank you very much.

Operator

Thank you, Sunny. Next one Gokul Hariharan, JPMorgan. Go ahead please.

Speaker 5

Yes. Hi. Thanks for taking my question. So first of all, just wanted to get into the gross margins, which have come in slightly better than or significantly better than your original guidance in Q2.

Speaker 2

And Q3 also looks

Speaker 5

like you're kind of holding a mid just wanted to just wanted to understand what is going into this gross margin kind of getting back from the, let's say, 30% level to 35% level recently even with a lot of the cost pressures. Just wanted to understand any anything specific that you're doing to kind of get the gross margins moving up? And should we expect that as the depreciation ramp continues, we can hold this level? Or we think that this level could kind of drop back to the early 30s levels that we had in Q4 last year and Q1 of this year?

Speaker 3

I mean, yes, Qidong kind of touched that a little bit earlier. For the Q2 gross margin, I have to say it's mainly coming from the favorable foreign exchange rate movement that contributed to a better than guided gross margin result. The for the Q3, while the utilization has increased a little bit, but the gross margin actually remains at the mid-thirty percent range. The it's really because the decrease in Q3, the right depreciation expense from the capacity expansion of the 12AP6 and the 12IP3, along with some of the seasonality utility rates. And that will become that will be considered for our Q3 gross margin guidance.

Speaker 3

And however, like Qitong mentioned earlier, we foresee our EBITDA margin will remain firm relative to the Q2 2024. Got it.

Speaker 5

And Jason, on the pricing side, just looking at it 12 inches versus 8 inches are you seeing any noticeable differences in terms of pricing tendencies? And also for your 8 inches business, do you feel that 8 inches can ever get back to the 90%, 95% utilizations that we used to have? Or you see that this is a point in time where AT and T eventually has to migrate to something else and a lot of the core logic kind of business and even some of the analog power management business eventually migrates down to 12 inches given that there's

Speaker 6

a lot of capacity coming online.

Speaker 3

Okay. Well, I mean, on the ASP, the while we while our ASP remains firm, the from the like to like pricing will remain unchanged. And however, the blended ASP will reflect the change in product mix as well as the 8 inches 12 inches composition. So I think that's on the ASP front. So at this point for the second half, we'll remain firm on our pricing, okay?

Speaker 3

The 48 inches business outlook, the 8 inches loading in Q2 actually improved a little bit because the power management IC you mentioned in the computing application, we foresee that the Q3 will further increase a little bit, driven by the embedded nonvolatile memory, demand for auto server related application. However, like you said, can it ever get back to 95% level? We certainly hope so. We however, we anticipate continuous pressure on some of the 12 inches maternal fab, like you said, and that has impacted 8 inches supply chain, while certain mainstream application will remain while the certain mainstream application will remain on the 8 inches node, we what we currently do is we have identified a number of additional project and opportunity with our key customers to gradually lift our 8 inches loading. So I think from a goal wise, we are not giving up yet.

Speaker 3

I think the 95% still our goal. And but from the timing wise, we'll probably take some time to gradually lift to that level. And so we'll continue we're going to continue our efforts by doing so and we can update you accordingly.

Speaker 5

Okay. Thanks, Jason. Maybe one last question from me. Your the interposer for some of the AI related 2.5D packaging products, What percentage of the revenues are they given that you called it out in your prepared remarks? And is there any further capacity expansion plan for you beyond, I think, the 6 ks that you mentioned a few quarters back?

Speaker 3

Well, we first of all, we already we have already doubled our interferometer capacity to 6 ks as we reported previously that in response to incremental demand at the beginning of 2024. For any additional interposer capacity expansion will be assessed based on customer alignment. So we follow with our customer closely and there is additional incremental requirement and we'll consider. But at this point, with alignment is at 6 ks.

Speaker 5

And any thoughts on the revenue contribution from this business? Is it like 4%, 5% of your revenue already? Or is it much smaller than that?

Speaker 3

I don't think we have a breakdown that with me right now, but it's not a significant revenue from that. But I think your estimate is about right.

Speaker 2

It's actually less than 4%, 5%. Yes. Okay. Thank you very much.

Operator

Thank you, Gokul. Next we'll have Bruce Lu, Goldman Sachs. Go ahead please.

Speaker 7

Hi, Jason. This is Bruce. I want to ask about the regarding to the Vanguard who has build a capacity with the customer for 12 inches in Singapore. They seems to me that they have a lot customer who signing up for the capacity in the future. So I want to know what do we miss here.

Speaker 7

I mean what's the reason why UMC didn't get this business? UMC has the legacy capacity in Singapore. UMC has the TSMC like process. And obviously, you don't have the you have the existing capacity, which doesn't really require a customer to prepay or any additional wafer price hike. I mean, what do we miss here?

Speaker 7

I mean, any possibility we can win back the business or get the future business away from our competition?

Speaker 3

Well, I mean thank you, Bruce. I think there's a few things. One is obviously, we don't comment on our competitors and they must have clear reasons by doing the capacity expansion. We actually feel fairly comfortable with our capacity situation in terms of 12 inches mature node, which is that's what you're referring to. Despite in the recent quarter, the 40% and the 65% revenue has declined a little bit quarter over quarter due to the customer ongoing correction within the automotive industrial segment.

Speaker 3

But we do expect the 40 and 60 5 nanometer business will grow eventually in Q3, driven by higher demanding auto and computing applications. Longer term, we expect to growing our 40x60x product pipeline based on the specialty and the larger technology such as non volatile memory, RFSOI, BCD, OLED display and ISP. So our offering is very broad and I think our solution are competitive. So if we come back to look at this thing fundamentally without commenting about our competitors' custom base, I think beside who you have mentioned, we have seen more regional mature capacity build up, driven by increasing importance of the semiconductor industry in addition to the geopolitical tension. It's our view that this is a change in the competitive landscape.

Speaker 3

So there's a three thing that I'd like to say in order to stay competitive. And first of all, we need to stay competitive so that we're working closely with our customer to provide competitive and comprehensive specialty technology with a continuous and no migration path That's coming from our existing customer as well as a new customer. Secondly, we are one of the few foundry that have economic scale and highly efficient operations across all our fabs, whether it's in Singapore, Japan, Taiwan or China with a technology offering that could post the cross bet to serve our porting to our cross bet to serve our customers' sourcing needs. Going forward, we'll continue to invest where we have strength and differentiation through capacity expansion At 12 I Singapore as well as our 12 nanometer collaboration with the U. S.

Speaker 3

Partner to fuel our future growth. So I don't think we're missing anything. I think there's the within our addressable market, we focus on our customer engagement and continue delivering our solution and make sure that we can grow with our customer together. So in a way, I won't comment that there's something that we're missing here. I think we have adequate solution to serve our customer right.

Speaker 7

David, I'm not trying to be critical, but the thing is that your customer seems the choice to choose the competition, while we believe actually as far as we can see that you can have a better cost structure, you have the better process, you have it seems to me you have pretty much everything you need. So I just wondering that what does the customer think? I mean, how can we prevent that?

Speaker 3

I mean, I agree with you. I do think we have a much complete and comprehensive solution. And I think we have a much cost effective solution as well. And the operation is a lot more efficient and with scale as well. And so I agree with you.

Speaker 3

But there are multiple considerations for customer engagements. And there's reason beyond that we both look at it and that's what we just discussed. So I think there's a different reason behind it. And I really can't comment about our competitor as well as our customer, but I can assure you that we'll continue to strive to improve and enhance our competitiveness and then we continue maintaining and gaining our market shares in those space.

Speaker 7

Okay. So my second question is regarding to the technology requirement for the display driver IC, which is an important part for your 28 nanometers. Do we really need to migrate to 14 or 12 nanometers? And when do we expect to see that? Is the partnership with Intel, the timing is available or is ready is good enough for to catch up the trend?

Speaker 3

There's a couple of questions you have actually. The 12 nanometer cooperation is not only limited with the high voltage solution. So if from a technology development standpoint, our technology advancement into a next generation node has never slowed down. And we are considering a disciplined ROI capacity deployment. However, from a technology development standpoint, we will continue.

Speaker 3

For the high voltage, in fact, we already have delivered 22 nanometer solution to help our customers migrating from 28 nanometer for high end OLED display in the premium smartphone space. The 22 nanometer has already entered production now and we have we are expected to reach high volume production in 2025 And we are very confident that we'll maintain high shares in this market. Now UMC is the only technology provider on the 22, which offer more competitive die area and unmatched power saving around 30%. And so the UMC's 22 high voltage platform extends battery life and offers superior visual experience. So we also provide sizable capacity offering in 2022 and that has into all our fab like I said earlier.

Speaker 3

This will actually strengthen our customer supply chain resilience beyond 2022 into your question about the FinFET. Our engineering development team are working on further expanding our high voltage platform portfolio to the FinFET being anticipating the AI smartphone. Now is there a benefit to the FinFET? We certainly think so. And at this point, I think the 22 is the best in the class right now and the 14 is under development.

Speaker 3

I mean, the FinTech is under development. Now if we beside the high voltage on the 12 nanometer, the 12 nanometer program, we can serve many different applications and giving after our since our announcement of the collaboration, we have received numerous inquiries from various industry leading players. And according to the earlier evaluation feedback from those customers, our 12 nanometers performance will be very competitive in the industry to serve different applications. So it's not only limited at the high voltage space.

Speaker 7

A very quick follow-up. Do you expect the switch driver IC to a tough FinFay in 2026?

Speaker 2

2026,

Speaker 3

I think that's a bit of early. I think this the 2022 will probably still remain as the mainstream. I see. Thank you.

Operator

Thank you, Bruce. Next question, Charlie Chan, Morgan Stanley. Go ahead please.

Speaker 6

Thanks. Jason, Ji Dong. Good afternoon and congrats for a very good results, both margin and revenue surprise to the upside, especially I think most of your peers commented that outside of AI, the cycle recovery remains to be very slow. So a very, very good execution. And I still want to follow-up a little bit on the gross margin question.

Speaker 6

So maybe first to Qitong, because according to my calculation, the NII dollars of depreciation maybe 3% points over the past quarter. So contribution to gross margin could be 1 percentage points. But you're saying that the 2Q gross margin beats many coming from the FX. So do we miss anything on that comment?

Speaker 2

So roughly every 1% of $20 depreciation will lead to about 0.4% of the margin increase. So 3% ForEx movement translate into about 1.2, 1.3 percentage point for quarter 2. And of course, there's some minor items including the utility increase. Our previous forecast was slightly higher than the actual adjustment rate. But I think again, ForEx is still the main factors for the 35.2% gross margin versus our guidance of 30 ish gross margin.

Speaker 6

Okay. Thanks. Yes, that's clear. So maybe next question to Jason. I mean, we heard you about, you can be flexible on pricing.

Speaker 6

You want customers to stay competitive, right? So I was assuming that probably there will be some ASC erosion, but in return you can get some business opportunity. But it turns out that your pricing is firm, but your revenue still grow nicely in the quarter. So again, what did we miss? Are we too conservative on the end demand or what are we missing?

Speaker 6

Thank you.

Speaker 3

Well, I mean, first of all, from the like you said, the like to like pricing remain unchanged, but the blended ASP reflects the change of product mix between 8 inches 12 inches as well, mainly because we that's aligned to the end markets. We do see some of the some of the segment have exiting the inventory correction cycle. So some of the restocking, the demand is actually coming back. While we actually stay away from the commodity market, salmon. So I think we've been trying to manage this try to balance this portfolio as well as the product mix diligently.

Speaker 3

I think that's more of a result that in addition to that, I also believe you have to stay fundamentally competitive is by offering the differentiated technology solutions. So we're going to continue to advance that and continue expanding our specialty technology in space and hopefully that we can continue maintaining that. Now, if it comes down to if we do need to elevating our customer for their product to be competitive in their market space and helping them to win more market share, we certainly will address that. And our angle is we try to creating a win win scenario to benefit both sides in the long run. I see.

Speaker 6

Thank you. Yes. And maybe on that inter process side, because my understanding is that the end customer is probably migrating to the next generation AI GPU and the interposer design may change. So I'm a little bit concerned whether you stand about whether you can maintain the interposer capacity. I'm concerned that interposer business may go away, maybe 1 or 2 years.

Speaker 6

Is that a fair concern?

Speaker 3

Sure. Absolutely. I mean, just like any other technology, the product will continue migrating into the next generation. But at the same time, like any other capacity on different technology nodes, There also another product pipeline is coming into that. So the product pipeline management is a key.

Speaker 3

We continue engaging a new product coming into the existing capacity and while some of the existing product may migrate into the next generation. However, on our 3 d IC roadmap, in addition to interposer that which will engage in the pipeline, we're also developing the wafer to wafer hyperbonding, which that we have announced in the past quarter. So the way we view this is the 3 d IC solution offers the advantage including a form factor reduction, higher bandwidth and lower power consumptions. So not only on interposer, we also want to expanding our offering in that front. We are the 1st foundry that with the wafer to wafer bonding solution for the RFSOI that are production ready today.

Speaker 3

And our 2nd RFSOI wafer solution is able to achieving an impressive 45% form factor reduction. And even beyond the form factor reduction, our high bandwidth, hybrid bonding solution can also cover memory and ASIC with our qualified IP foundations that will make our offering well positioned to address the increasing needs of inference engine of the various edge AI applications in the future. At the moment, we are working closely with AI focused customer on tailored solution to meet their specific needs and in a various combination of our hybrid bonding technologies. In summary, we are confident that the InterVosa hybrid bonding has a great potential and we are committed to continue to invest in R and D to ensure we can serve our customers the best we can.

Speaker 6

Understood. Thank you. And last one, I'm not sure if I missed it, but about your 12 nanometer partnership with Intel. One is that I wanted to know about the progress and maybe whether the timing can be ahead. And as you also see that Intel is changing their foundry business leadership, do you think that will change or as far as your partnership with Intel?

Speaker 3

I mean, first, the 12 nanometer cooperation with Intel has been on track for mass production in 2027. And that project is very much on track and progressing well. And from a schedule wise, right now, we are working diligently with our partners and as well as the key customers to further accelerate the schedule. Overall, we are cautiously optimistic about the progress and we'll update accordingly. So I actually feel very good about the current progress.

Speaker 3

Now the in terms of leadership question and the project itself is I can see the progressing well. And I think the leadership will continue to view that as a stand. So I think the objective of this cooperation has not changed. The goal remains the same. And our current focus is to deliver a very competitive solution for the MAX production in the 12 nanometer through this cooperation.

Speaker 6

Jason, sorry, very, very last one. Because I'm still a little bit surprised by to the upside by your Q3 revenue guidance, right, because you're one of your major customer MediaTek, their Q2 inventory days actually went up to 72 days, right? 1Q was 66 days. So first of all, inventory base has started to go up again. And they are guiding their Q2 revenue to be flat, right?

Speaker 6

So I'm just wondering why you can outgrow the market, especially customers inventory data go out again? Sorry for keep coming back to this inventory or cycle question?

Speaker 3

I mean, first of all, I mean, we see a continuous inventory improvement across all 7s. And some of the customer may have seen a little bit of hiring up. And so the basically 2,007 have improved their inventory level and we have seen that. And we expect to see the inventory will reach relatively healthy by end of this year. And so that's also we guided that the customer was still cautious of have a cautious approach to their inventory management based on the current market outlook.

Speaker 3

However, the for the automotive segment, the end market demand for the automotive line still remains very soft compared to other segments. And the inventory level has improved, but the basic inventory is still above the seasonal level. So I think the beside the auto, the rest of the market segments, it will probably start experiencing some of the seasonality patterns. So I feel from an inventory correction point, we should have already exited for those communication consumer and computing.

Speaker 6

So in that case, do you change your industry assumption this time for ex memory and also foundry?

Speaker 3

You're talking about our addressable market outlook?

Speaker 6

Yes, yes. Did you do you revise the update this time?

Speaker 3

Last time we talked about our UMC addressable market will remain flattish and our outlook has not changed. And our projection still shows the UMC addressable market will remain flattish in 2024. And our goal is we expect to outperform our addressable market in 2020 4. As a sound our customer have adapt our solution and ramping and gaining market share for the second half.

Speaker 6

I see. Thank you. It's super helpful. Thanks guys.

Operator

Thank you, Charlie. Next one, Lola Cheng, Citi. Go ahead please.

Speaker 8

Thank you very much for taking my questions. I also have a follow-up questions in terms of the end demand. Jason, you mentioned that you see the relatively strong order for computing and also communication. So but some of your competitors, they mentioned that they just kind of rush order. So I'm wondering that is the order visibility can be sustainable into Q4 from your perspective?

Speaker 3

Well, I hope if I mislead you, I'm sorry about that. But Laurent, what I said is we expect to see a mild pickup in Communication, Consumer and Computing segment. And despite the however, despite the mild recovery in Q3, we have not seen the sign of a strong rebound as the customer remain prudent on managing their inventory level. So I think on the some of the market segments such as communication, consumer and computing area, I think we are in the process of exiting the inventory correction cycle by end of this year. And while the automotive will probably exiting by Q1 next year.

Speaker 3

And while we're exiting this and I think the customers remain prudent. So and I think right now the phenomenon is more showing we are going back to the traditional seasonal pattern anyway, the seasonal patterns of the that aligns to the market outlook.

Speaker 8

Okay. Thank you. That's very clear. And also I noted that for our IDMs at times, the revenue declined quite substantially since the peak in Q4 last year. Can we assuming that is mainly because of the automotive related or also we are seeing the same trend that for the consumer computing part is gradually improved, while automotive industrial found the IDMs that could still relatively muted for the next few months?

Speaker 3

Well, first of all, you're right. Our so our IDN customer were also impacted by the global semiconductor downturn across not only communication automotive, across the consumer, communication, computer and automotive segment. And some of the IDNs and their customer have a pile up inventory, which result in a decline in wafer demand at their foundry supplier. So I think that 2024 is a year with a complication of inventory correction as well as end market soft. So the however, we anticipate the inventory level will improve.

Speaker 3

And so although at a slower pace, again, and so longer term, we once the inventory correction is over and on the longer term, we foresee IDM will continue to rely on foundry partner and their contribution will gradually recover.

Speaker 8

Okay. Also a follow-up on that because we see some of the IDNs, our clients like Texas Instruments, they seems to also aggressively expanding their internal capacity. But once they are like demand getting stabilizing, are we still assuming that they will outsourcing like before or they will tend to insource more internally on your perspective?

Speaker 3

I think after the COVID, after the capacity constraint, there's many different companies that look at their supply chain resilience question. So having internal capacity is one of the solution to address that supply chain resilience question, a concern they have. And from the foundry partner standpoint, I think that remains very important. I think that will be considered one of the entire supply chain ecosystem. And I think the idea will continue rely on the foundry partner to an extent.

Speaker 3

However, they will probably balance that a little bit to ensure their supply chain resilience is improved.

Speaker 8

Okay. Thank you. And also, I have hopefully, you can give me more understanding about the CDIC business model. We know that a lot of advanced packaging or wafer base to some buy on the wafer foundry side. But since we are also expanding that the 3 d ICs, hybrid bounding type of design.

Speaker 8

Can you elaborate more on how is the business model going with the OSAT and also our competitors or potentially customers? Thank you.

Speaker 3

It's in our view,

Speaker 5

the semiconductor

Speaker 3

foundry OSAT ecosystem remains very important. So I think that's our view. So the 3 d IC roadmap that we have that require us to working closely with our ecosystem partners. And not only on the OSAT, also as well as the memory or ASIC on the qualified IP supplier as well. So I think the landscape will require us to expanding our ecosystem and to strengthen our partnership with our back end partner as well.

Speaker 3

So I think this in our view, still consider us an ecosystem to serve our customers.

Speaker 8

Okay. Thank you.

Operator

Thank you, Laura. Next we'll have Brad Lin, Bank of America. Go ahead please.

Speaker 9

Thank you for taking my question. So my first question is I want to follow-up on the inter poster capacity thing as we recognized some potential downside eyeing on the well potential well COASL or COASR adoption in the future. So we explained that we are well UNC is developing the wafer to wafer hybrid bounding. Does that mean that this inter poster capacity can be fungible and then apply to this kind of 3 d IC in the future?

Speaker 3

No, they are different offering and the interposer capacity will continue serving us interposer needs. And while we have a continued roadmap for the interposer going to the next generation as well. And so that advanced technology advancement is not going to stop. And at the same time, we see more interest coming from the for the interval certainly. And I think that we actually engaged different application of the continued pipeline for this interposer.

Speaker 3

3 d IC wafer to wafer, hyperbonding is extension of our advanced packaging offering. So we'll continue expanding that. And we think from our addressable for our addressable market, the wafer to wafer hybrid bonding will provide us the expansion of the addressable market. And I think they are well fitted with our solutions.

Speaker 9

Got it. And so we see well pretty good potential there on the well HAI from this wafer to wafer technology. So what time does UMC expect this contribution to rise and which are the well, maybe potential key clients?

Speaker 3

In the near term, we already announced for the RV SOI stacking, it's already ready for production. So on our front end, that's already started to production. And from in related to future AI exposure, I think the we kind of touched that last quarter as well. The AI extends on the cloud to edge, I think it will still take some time. The new but it's our belief the new use cases will inevitably emerge along with the value chain.

Speaker 3

Right now, we're only seeing the growing number from existing AI, PC, notebook or smartphone that requires certain content to handle this case. But furthermore, the real opportunity that we believe lies beyond the existing edge device, which is in the new emerging application under the AI megatrends such as the ADAS, autonomous driving, robotics, Industrial 4.0, future breakthroughs, so which will drive significant increase of silicon content accordingly. And those the technology solution that we offer would definitely be beneficial to that. And I think the offering that we have not only on interposer 3 d IC wafer to wafer also for the other low power BCD number that we're all very well suited to meeting those demands in those AI related market.

Speaker 9

Got it. Got it. So that actually quite related to the second question that I want to I try to ask here is that well for the utilization rate, yes, even though we see pretty well good recovery in the second half of the year with well more than 70% of the UTR, but we are eyeing on the future. We are definitely not I mean the company is definitely not satisfied with only this level. So we totally believe that, well, UNC already will foresee some of the long term drivers to kind of potentially leave the UTR meaningfully back to a sustained 80% or 90% in the future.

Speaker 9

So I think you also mentioned that some of new device or application might be the ones like robots. So would you please share with us your visibility on that? And also, how would that bring you in the well, mid to long run? Thank you.

Speaker 3

Well, first of all, we're very, very optimistic about the future semiconductor market. The AI is going to be a very big driver. And however, I think the some of the new use cases will still have we have to see them to come. And I think this is still a bit early right now. However, we have very, very high expectation in the longer term.

Speaker 3

Meanwhile, while we ascertain the inventory correction cycle between end of this year to early next year, I think the market will go back to normalcy. So that means that we're very much a subject to the end market demand. And so I think for the next year, we have to wait and see how the end market demand goes, because there's still macroeconomics inflation concerns. And at this point, maybe too early to say how much of the utilization improvement utilization rate improvement we will expect. However, going longer term, I have no doubt the utilization rate will increase.

Speaker 3

While we don't have the clear projection on when, So our focus now is we want to continue to sustain our strong financial performance like what we did in the down cycle and as a result of our company resilience. This is a manifestation of our continuous effort in developing a competitive specialty technology offering as well as optimizing our customer base and product portfolio. I hope that the current performance shows that. Going forward, we will continue to focus on specialty technology development and our ROI driven capacity expansion to capture the market upturn once they come. On the specialty technology development, our industrial leading offers, which will broaden our addressable market and enhance our customers' competitiveness like what we have recently announced.

Speaker 3

And the customer are currently migrating their 28 nanometer products to our 22 nanometer technology. Customer will also adopting our 12 nanometer thinFET. For high voltage product, we expect the 4028 high voltage customer will adopting a 22 high V. Emerging memory application will transition to 2020 22. We are very confident about the 2018 2022 for the longer term.

Speaker 3

We also expect to see more interest in the 50 five-forty mature area such as RFS, SOI. And while we talk about all those from the future capacity expansion plan with our geographically diverse manufacturing footprint, we'll strive for growth through our P3 expansion in Singapore, 12 nanometer partnership in U. S. I think we're well positioned for the capture the future growth of semiconductor needs and the utilization rate will increase. And meanwhile, I think we just have to weather through and navigate through this cycle.

Speaker 3

And I think that's how I feel about the utilization rate projection.

Speaker 9

Got it. Thank you very much. And maybe one last question would be on the well, so given the product design lead time, we believe we definitely but definitely limited visibility into next year, but we believe we are totally engaging with the clients on the potential design or specialty technology adoption or the new node technology that are used in the next year. And then well, do we have a confidence do we have a good confidence level that the ASP will remain well resilient at least in terms of the spend ASP wise.

Speaker 3

I mean from a pricing strategy point, I mean we on a higher level, like I said, we believe we have to elevate our customers' competitiveness, right? And by doing so, that's you have to provide your value proposition, including the technology offering, including the partnership and at a with a scale capacity support, so on and so forth and the manufacturing performance. So it's the certainly that will help with the AC. But the bottom line is we want to stay competitive and we will. And I think that's been all along our pricing position as well strategy for the past year and as well as going forward.

Speaker 9

Got it. Thank you very much.

Operator

Thank you, Brett. And Brett was our last question for today's conference. We thank you for all your questions. That concludes today's Q and A session. I'll turn things over to UMC, Head of IR for closing remarks.

Speaker 1

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 UMC at irunc.com. Have a good day.

Operator

Thank you. And ladies and gentlemen, that concludes our conference for Q2 2024. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section.

Operator

You may now disconnect. Thank you and goodbye.

Powered by Quartr