United Microelectronics Q4 2024 Earnings Report

United Microelectronics EPS Results

• Actual EPS: $0.10
• Consensus EPS: $0.13
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: $5.30

United Microelectronics Revenue Results

• Actual Revenue: $1.84 billion
• Expected Revenue: $1.86 billion
• Beat/Miss: Missed by -$18.29 million
• YoY Revenue Growth: +4.90%

United Microelectronics Announcement Details

• Quarter: Q4 2024
• Date: 1/21/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 21, 2025
• Conference Call Time: 4:00AM ET

United Microelectronics (NYSE:UMC) operates as a semiconductor wafer foundry in Taiwan, China, Hong Kong, Japan, Korea, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It serves fabless design companies and integrated device manufacturers. United Microelectronics Corporation was incorporated in 1980 and is headquartered in Hsinchu City, Taiwan.

United Microelectronics Q4 2024 Earnings Call Transcript

Key Takeaways

• Q4 2024 results: Consolidated revenue was TWD 50.4 billion with a 30.4% gross margin, net income of TWD 8.49 billion and EPS of TWD 0.68.
• Full-year 2024 revenue rose 4.4% year-over-year to TWD 232.3 billion, gross margin was ~32.6%, and net income reached TWD 25.2 billion.
• The quarter included a non-operating loss of RMB 1.4 billion due to mark-to-market losses on the investment portfolio.
• 22 nm/28 nm momentum: These specialty platforms now account for about 34% of revenue, with 22 nm revenue up 15% in 2024 and expected to contribute more in 2025.
• Q1 2025 guidance calls for flat wafer shipments, ASP down mid-single digits, gross margin above 25%, and capacity utilization around 70%.

Presentation

[Operator]

Welcome everyone to UMC's 20 12 year question and answer session. Please make ground noise. After the presentation, follow the instructions given at the time if you would like to ask the question. For your information, this comes live over the Internet. Webcast replay will be available within an hour.

[Operator]

The conference call is now being broadcasted 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. Lin, please begin.

[Michael Lin, Investor Relations & UMC Acting Spokesperson at United Microelectronics]

Thank you, and welcome to UMC's conference call for the Q4 of 2024. I'm joined by Mr. President of UMC and Mr. Qidong Jason Wang, Hung Liu, the CFO of UMC. In a moment, we will hear our CFO present the 4th quarter financial results, followed by our President's key message to address UMC's focus and Q1 2025 guidance.

[Michael Lin, Investor Relations & UMC Acting Spokesperson at United Microelectronics]

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 SEC and the IOC's security authorities.

[Michael Lin, Investor Relations & UMC Acting Spokesperson at United Microelectronics]

During this conference, you may view our financial presentations material, which is being forecast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chidong Liu, to discuss UMC's Q4 2024 financial results.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

Thank you, Michael. I'd like to go through the 4Q24 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the Q4 of 2024, consolidated revenue was TWD 50,400,000,000 with gross margin at 30.4%. Net income attributable to the stockholder of the parent was TWD 8,500,000,000 and earnings per ordinary share were TWD 0.68. Detailed ratio rate in the Q4 was 70%, slightly down from the previous quarter of 71%.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

On the quarterly income statement, operating revenue was basically flat around NT50.4 billion. And gross margin rate maintained at 30.4 percent or NT18.3 billion dollars Due to mark to market loss of the investment portfolio for both UMC and UMC Capital, we registered a RMB1.4 billion loss of non operating income in Q4 2024. The result is the net income attributable to the shareholder of the parent reached TWD8.49 billion or $0.68 EPS per share. For the cumulative whole year 2024 performance, on a year over year comparison, revenue increased 4.4% Y o Y to RMB232.3 billion. Gross margin rate was around 32.6 percent or CNY 75,600,000,000 Operating expenses is under control around 10.9%, similar to the 10.7% in 2023.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

The net income for TWD225.2 billion or TWD 4, was TWD 473.8 20 dollars per share. EPS per ADS is KRW0.58. On the balance sheet, our cash on hand is over TWD 100,000,000,000 and total equity for the company at the end of 2024 reached TWD 378,000,000,000. ASP last quarter at Q4 was flat around around flat quarter over quarter. And let's go down to Page 9 for revenue breakdown.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

For Q4 2024, the Asia sales represent about 61%, which declined 4 percentage points from the previous quarter, and Europe increased from 5% to 11% in Q4 2024. For the whole year, the Asia part of the revenue increased from 57% in 2023 to 63% in 2024. Europe declined about 3% to 8 percentage points from 11% in the previous year. And U. S, North America didn't really change that much from 27% to 25%.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

For quarterly, IDM revenue remained flattish from 15% to 16%. For the full year, it declined from 22% in 2023 to 15% in 2024. In terms of application breakdown, we see consumer segment declined about 2% to 29%, and communication also declined about 3% to 39%. And others, including Automotive and Industrial, in this single quarter, due to customers' order modulation and wafer shift difference increased from 14% to 19%. On Page 14, our full year application breakdown, communication is around 42% and consumer is about 28%.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

On Page 15, our technology breakdown, Our 22 and 28 nanometer shipments continue to increase and right now represent about 34% of the total revenue. And 40 nanometer also see some increase from 13% in the previous quarter to 16% in this quarter. For the whole year, 20 8, 2022 represent about 34% of our total revenue, but 14 nanometer remained constant around 14%. Capacity continued to increase mainly from our 12A TEN9 P6 operation, And it will somehow decline a little bit because of the Chinese New Year holiday schedule and also a new maintenance schedule in Q1 of 2025. CapEx budget for 2025 currently stands around RMB1.8 billion and the actual CapEx number for 2024 was a bit over US2.8 billion dollars The above is a summary of UMC results for Q4 2024.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang.

[Jason Wang, Director & President at United Microelectronics]

Well, thank you, Qisong. Good evening, everyone. Here, I would like to share UMC's 4th quarter results. Our 4th quarter results met guidance with wafer shipments and utilization slightly exceeding expectations. For full year 2024, revenue grew 4.4% year on year, reflecting a steady improvement in demand across communication, consumer and computer segments.

[Jason Wang, Director & President at United Microelectronics]

Our 22 nanometer, 28 nanometer portfolio remains the largest contributor with revenue increasing 15% in 2024. Notably, customers are showing strong interest in migrating to our 22 nanometer specialty platform for next generation networking and display driver applications and power saving and performance advantage also, which offers significant 28 nanometer solutions. Payvaults for 22 nanometer products are accelerating and we expect to see higher revenue contribution from 2025 onwards. Looking into 2025, the semiconductor market is hoisted for another year of growth, strong demand for AI service as well as driven by increasing semiconductor content in smartphones, PCs and other electronic devices. To capture opportunities in the fast moving market, UMC continues to invest in technology innovation, developing industry leading specialty solutions to ride the next wave of system upgrades and stay ahead of the competition.

[Jason Wang, Director & President at United Microelectronics]

Building on our technology foundation, Yuanxi is also actively expanding our advanced packaging offering to help unleash the potential of AI in the coming years. Jiangsuing with technology development, our incoming capacity expansion projects are progressing as planned. Our new Singapore Phase 3 fab will enhance customer supply chain resilience, while the 12 nanometer with our U. S. Partner will offer customers an integration migration path beyond 22 nanometer.

[Jason Wang, Director & President at United Microelectronics]

Now let's move on to Q1 2025 guidance. Our wafer shipments will remain flat. ASP in U. S. Dollar will decrease by mid single digit percentage.

[Jason Wang, Director & President at United Microelectronics]

Gross margin will be higher than 25% with January 21 earthquake impact. Capacity utilization rate will be approximately 70%. Our 2025 cash based CapEx will be budgeted at US1 $800,000,000 That concludes my comments. Thank you. Thank you all for your attention. Now we are ready for questions.

[Operator]

Yes. Thank you, President Wong. And ladies and gentlemen, we will now begin our question and answer session. You.

[Operator]

Our first question will be coming from Sunny Lin, UBS. Go ahead please.

[Sunny Lin, Analyst at UBS Group]

Good afternoon, Jason and Qi Dong. Thank you for taking my questions. So my first question is on gross margin. And so on this above 25% gross margin guidance for Q1, could you help us understand what are some of the major factors? Because if we look at the Q1 2024, your blended ASP was also down by about mid single digit, but you were able to keep up your gross margin.

[Sunny Lin, Analyst at UBS Group]

And so I wonder what's the meaningful decline this year? And then maybe the second part for gross margin is how should we think about the full year? Was it above 25%? Should we consider that as a fair assumption for full year? Or would you maybe let me stop here and I have a few follow ups. Do you expect a recovery in coming few quarters?

[Chi Tung Liu, SVP & CFO at United Microelectronics]

Thank you. First of all, the earthquake does have the impact on our Q1 margin. Earlier this morning, maybe about low single digit. And however, the part of the or large part of the loss will be compensated through insurance in the later stage. And secondly, the Q1 margin is impacted by both ASP decline, which is one off and also the increased depreciation expenses.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

So we don't expect anything structural in terms of our profitability change. The one off pricing adjustment and depreciation, but the earthquake this morning lead to this higher than 25% gross margin guidance. We will continue to deploy aggressive cost management to offset the headwind costs, focusing on multi sourcing strategy, streamlining process flow, supply chain pricing management and power reduction measures on facility and tools. Of course, we will continue to invest for the future, including the automation transformation. So as for the rest of the year, we will give the guidance on a quarterly basis.

[Sunny Lin, Analyst at UBS Group]

Got it. Thank you very much, Chidong. So if I could follow-up on the depreciation increase. And so what's your current guidance for the growth for depreciation for 2025? And how much depreciation will increase going to Q1?

[Sunny Lin, Analyst at UBS Group]

Should we assume most of the depreciation increase to happen in first half because you have compared your 28 nanometer expansion in Taiwan and therefore the depreciation increase will start to moderate going to second half?

[Chi Tung Liu, SVP & CFO at United Microelectronics]

The depreciation increase in 2024, as we guided, was low 20%. As a matter of fact, it's very close to 20%. As for 2025, the guidance will be high 20% for the whole year. And we don't really have a full quarterly breakdown yet for the depreciation expenses because it varies according to the tour installation etcetera. But the peak of the depreciation, we will see way down until maybe 2027 to see pick off.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

So it's still another year or 2 to go in terms of depreciation increase.

[Sunny Lin, Analyst at UBS Group]

Got it. Thank you very much. My second question is on your cash dividend. So how should we think about your policy? Obviously, I think last year business was through the trough.

[Sunny Lin, Analyst at UBS Group]

But on the other hand, your cash flow should start to improve substantially given a lower CapEx. I understand the cash dividend would still need to go through the approval from the Board, but any color from your strategy will be very helpful.

[Chi Tung Liu, SVP & CFO at United Microelectronics]

Yes. We understand UMC need to maintain somewhat better than average dividend yield in order to attract our investors. And we will track a dedicated balance between business growth and shareholder return. Most importantly, we want to ensure shareholder receive a stable and consistent cash dividend.

[Sunny Lin, Analyst at UBS Group]

So last 3 years, you paid $3 or above cash dividend. And so when you mentioned like sustainable, should we consider that as from an absolute amount point of view?

[Chi Tung Liu, SVP & CFO at United Microelectronics]

It's both. It's a blended. So you should blend the absolute dollar concept along with dividend yield and also the payout ratio.

[Sunny Lin, Analyst at UBS Group]

Got it. No problem. My last question is for Jason. And so I want to get your view on the overall semi cycle more specifically into 2025, UMC's adjustable foundry market growth and how do you think that for this year? Are you seeing any green shoots from consumer restocking or supply chain preview? Thank you.

[Jason Wang, Director & President at United Microelectronics]

Sure. Of course. For the semi outlook, I mean, it's our view that semiconductor industry will expect to see a 10% growth in 2025, mainly driven by the high demand of AI service as well as some of the moderate growth in consumer electronics and increased semiconductor content from the AI smartphone and AI PC notebook replacement. So, the predominant growth still remains to be an AI server area. For the foundry, we expect the 2025 foundry market will grow in mid to high teens percentage.

[Jason Wang, Director & President at United Microelectronics]

Again, that includes the AI momentum. For the UMC addressable market, we have observed that inventory for consumer electronics is expected to grow moderately in China has been digested to a healthy level. And the demand of this, while we see the increase in semiconductor content as well, These factors will be the main driver for the about low single digit growth in the mature market. So, I think in UMC addressable, we'll project it at low single digit growth for 2025. And for UMC, it's our goal that we will grow our addressable market, while maintaining our structural profitability.

[Sunny Lin, Analyst at UBS Group]

Thank you, Jason. Customers have started to see some upside from the supply chain pay bill ahead of the potential tariffs in first half of this year. And provide this guidance of low single digit growth for 2025. Have you considered some upside for that regard?

[Jason Wang, Director & President at United Microelectronics]

Can you repeat that again? I didn't. I kind of break out on the beginning. Sorry.

[Sunny Lin, Analyst at UBS Group]

No problem. Sorry about that. So just one quick follow-up. So when you mentioned this low single digit growth for your adjusted market for 2025, I wonder, have you considered some upside from the potential supply chain preview ahead of tariffs? Because in recent remarks, we have started to hear from fabless indicating that some rush orders are coming through from China ahead of the tariff.

[Jason Wang, Director & President at United Microelectronics]

Yes, I got it. Okay. Well, for the Q1 guidance that we just provided, it is somewhat better than our TV. We guided shipments will be slightly traditional seasonality in flat. And the short term visibility remains limited, partly because of non fundamental factors as the U.

[Jason Wang, Director & President at United Microelectronics]

S. Tariff. We certainly hope that Q2 will grow sequentially And the current projection is not 100% including those, but because of the lack of visibility, unless the Q2 can be sustainable, Otherwise, we still project that will be a low single digit. In other words, that low single digit is not including the tariffs, but we did see a better than the trade deal seasonality Q1 projection, yes.

[Sunny Lin, Analyst at UBS Group]

Got it. Very helpful. Thank you very much.

[Operator]

Thank you. Next one, Gokul Hanayalan, JPMorgan. Go ahead please.

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Yes. Hi. Good evening and thanks for taking my question. First question on pricing, Jason. What are we assuming?

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Are we basically taking a one time price reduction across the spectrum, about 5% or something like that? Also, I wanted to understand, do you know that you can hold off on any further price declines through the course of the year, given there seems to be both price pressure from your larger competitors in Taiwan as well as price pressure from a lot of the new capacity on 20 nanometer in China as well?

[Jason Wang, Director & President at United Microelectronics]

Of course. I mean, we are experiencing that for the past years. And again, our pricing strategy remains unchanged. And we will however, we do respect to follow the market price like we said in the past. At the beginning of the year, we always plan there will be a one off pricing adjustment.

[Jason Wang, Director & President at United Microelectronics]

And the pricing outlook will resemble a similar pattern like 2024, which will be about a flattish year after the one off adjustment. And the to mitigate the market pressure, the pricing pressure, we'll continue to strengthen our product portfolio And we do expect 22 nanometer, 28 nanometer revenue contribution will continue to increase and will represent high 30% range for us. And the growing table momentum in 2022 can mitigate the potential 28 competitions. It's our view that in 2025, we'll continue working on differentiate from the industry peers in the mature foundry market. We know the competition is there.

[Jason Wang, Director & President at United Microelectronics]

The geopolitically, the outlook taking place in the semiconductor industry is again unprecedented than we have experienced in the last year in 2024 as well. Some of the initiatives already happening and that the against the supply chain resilience, the because the oversupply situation in the industry. Now, for UMC, we are one of the few boundary suppliers who can support global fab operations. We have envisioned a need for diversified manufacturing strategy many years ago, while at the same time, we believe the fundamental competitiveness is to strengthen our technology differentiation. So in conclusion, our pricing strategy is unchanged compared to the previous year, and we are gaining shares in our addressable market.

[Jason Wang, Director & President at United Microelectronics]

And UMC's diversified manufacturing footprint and competitive technology offering will still set us apart from our peers. That's our view.

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Got it. Thanks, Jason. So just one more question on pricing. I remember that a lot of LTA contracts were negotiated back in 2021, came into force in 2022, many of them were 3 year, 3 to 4 year kind of contracts. So I presume a lot of them are coming up for renewal this year and probably next year.

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

How does that influence pricing? I'm sure clients are going to be asking for lower price given the current situation compared to back in 2021, 2022. So just wanted to understand like not just for this year, but like going forward a couple of years, do we think that the price curve is generally going to be downward sloping given this pressure?

[Jason Wang, Director & President at United Microelectronics]

I think pricing is one of the LTA, I mean, the concept of LTA is really more of the mutual commitment from both customer and UMC that we have to commit and honor our agreement in improving capacity and while our partners and the customers remain committed, engaging with UMC on an ongoing basis and for the future growth. So, fundamentally, access has never changed. Now, the market dynamic doesn't putting some pressure on those LTA. So, we like I said, we all respect the market price dynamics and we're closely working with our customers to navigate through this process and for in order for them to protect and continue to be competitive in their marketplace. So, there is ongoing discussion with our LTA owners and with the goal that we will continue working together going forward and help them to be competitive in the marketplace.

[Operator]

Gokul, do you mute yourself?

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Yes. Hi, sorry. Sorry about that. So maybe one last question. Could you talk a little bit about the capacity ramp for the Singapore fab?

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Are you taking a little bit of a slower course of action? How much capacity do you expect to come online for the Singapore fab this year and potentially next year? And this CapEx kind of moderation down to $1,800,000,000 from $3,000,000,000 Is that where we should expect it over the next couple of years? Or is it just a 1 year thing?

[Jason Wang, Director & President at United Microelectronics]

Sure. I mean, the for the capacity expansion in 2025, our Singapore, the E3 production event is still on track. And for the January 26 and start on January 26, So that milestone remains unchanged. However, the volume has somewhat adjusted. And so, we're following the given the current market dynamics, we are seeing that ramp profile, but the timing did not change and the customer alignment we are adjusting.

[Jason Wang, Director & President at United Microelectronics]

The 2024 CapEx mainly spending in the P3 building facility and that is the major portion which already complete and deployed. So the for the CapEx projection going forward, we do not expect there will be any uptick from the current level.

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Okay, understood. And lastly, gross margin, given Qitong's guidance on depreciation, kind of high-20s kind of growth, revenue growth you're expecting reflect mid single digit. Are we is it fair to expect that gross margin stays in this mid-20s level through this year? Is that a fair kind of characterization of margins?

[Chi Tung Liu, SVP & CFO at United Microelectronics]

It's difficult to guide the full year, especially on quarterly patterns for the gross margin right now. I think all we can say is we try very hard at least from an EBITDA margin point of view to have intact structure EBITDA margin. Of course, the depreciation numbers will go up continuously over the next 2 years. But our goal is really to have intact structure profitability. And hopefully, we will see more 22 nanometer shipments along with recovering capacity utilization rate to offset the increased cost side of the equation.

[Gokul Hariharan, Managing Director at JP Morgan Chase & Co]

Okay. Thank you.

[Operator]

Thank you. Next one, Brett Lin, Bank of America.

[Brad Lin, Director at Bank of America Merrill Lynch]

Beyond AI application, do you also foresee non AI application adopting this kind of the well so called cobwas technologies as well? Thank you.

[Jason Wang, Director & President at United Microelectronics]

Sure. For the certain industry product pipeline that coming into this, but there is a cadence between that. So for the application being associated with the we continue to see quite a bit of momentum on that. And so I can probably give you a bit of a detail on that front is we our customer has seen increased requirements point of view, particularly in the AI application and for the communication bandwidth and energy efficiency. So we foresee there will be increased needs of integrated memory, logic and even sensors, chiplet for the better AI performance.

[Jason Wang, Director & President at United Microelectronics]

So we are broadening our packaging technology offering beyond this interposer, the 2.5e interposer, which will allow us to develop a new system architect with no expansion on that. But meanwhile, we I mean that's where we stand on the current intervals of which is part is ending or broadening our content packaging offering for the future engagement.

[Brad Lin, Director at Bank of America Merrill Lynch]

Thank you very much. That's pretty clear. It sounds like despite Lengshan, we should see more value addition and high utilization rate for this limited business line. Am I correct?

[Jason Wang, Director & President at United Microelectronics]

Yes, we do expect there will be a pipeline coming in and with numerous different product and applications.

[Brad Lin, Director at Bank of America Merrill Lynch]

So my second question would be on the well, got it. Thank you very much. So geopolitical impacts on the customer orders. So have you observed any significant share gains from the overseas clients due to the well rising geopolitical dynamics? When does the management to expect this to drive the well revenue growth meaningfully?

[Brad Lin, Director at Bank of America Merrill Lynch]

And also conversely, do you anticipate any downside risk from so called China for China trend here? Thank you.

[Jason Wang, Director & President at United Microelectronics]

Any downside and in fact, we see I mean, we don't need multiple different directions. There is product moving into certain regions and some product is moving out certain regions. So there are multiple dynamic and direction on those adjustments from our customer sorting strategy. And with UMC's diversified manufacturing side that provides to fulfill various customers foundry sorting strategies or requirements by resilience, we actually do see we position ourselves well, welcome any opportunity from our customers and we as currently there are projects that which will materialize after 2025, many ongoing.

[Brad Lin, Director at Bank of America Merrill Lynch]

Thank you very much, Jason.

[Jason Wang, Director & President at United Microelectronics]

Sure.

[Operator]

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

[Charlie Chan, Analyst at Morgan Stanley]

Hello, Jason, Qidong. First of all, Happy New Year. And the earthquake is a little bit unfortunate and hope your financial damage will be fully recovered. So first of all, I wasn't very clear about your comments about Q2 seasonality. Jason, if I make, can I double confirm that you said 2Q, you are expecting fab utilization to go a little bit higher and above the seasonal?

[Charlie Chan, Analyst at Morgan Stanley]

Can you clarify your comments about 2nd quarter growth? Thank you.

[Jason Wang, Director & President at United Microelectronics]

Well, first, thank you and Happy New Year to you too. And we definitely will navigate through this 1st place situation, hopefully quickly and we can recover and help our customer with their delivery, urgent delivery and wafer shipments. And now coming back to the provide quarterly guidance outlook projection, what I said earlier, too early to provide a Q2 guidance and we typically it was the our Q1 2025 is better than seasonality is better than we originally expected. The short term visibility remains unlimited, partly because the non fundamental factors like this for the U. S.

[Jason Wang, Director & President at United Microelectronics]

Tariffs in relate to the U. S. Tariffs. We certainly hope what I said is, we certainly hope that Q2 will grow sequentially. But at this point, the facility remains low.

[Jason Wang, Director & President at United Microelectronics]

So we just have to wait and see. Once we have clarity, we will provide more guidance. Meanwhile, we are confident with our current 22 nanometer product pipeline, which will enter production this year and to fill our second half growth. So we expect 2025 to grow our revenue in 2025, mainly with expectation that we will have the product launch of 2022 starting in second half of 2020.

[Charlie Chan, Analyst at Morgan Stanley]

Got it. Thanks. Yes, so by the way, you were very correct about last year's industry growth. So I think you said low single sorry, single digit growth, right, and turned out to be like a 6% growth for overall foundry sector. So yes, I also quite agree with you that inventory labels are quite healthy and semi content increase in PC smartphone probably will make this year a little bit better than last year.

[Charlie Chan, Analyst at Morgan Stanley]

Yes, so switching here to those advanced Packaging business, right? So I think last call, we talked about interposer, but recently there is news talking about you probably will do wafer on wafer, right, which is kind of a 3 d packaging for a U. S. Customer too. I want to talk more about this development and how do you compare your wafer on wafer or hybrid bond technology to your end of the peers like TSMC or 3 d packaging, right?

[Charlie Chan, Analyst at Morgan Stanley]

But the comparison between your 3 d IC technology versus either just kind of TSMC or that will be great?

[Jason Wang, Director & President at United Microelectronics]

Sure. Well, first of all, talk about the you talk about projection. I do want to have some kind of inventory projection on our side. The location on the the DOI decrease as expected in the Q3 of 2024, we well, we have this quarter in the past. That is indicating a stable demand in the end market. In terms of applications, the DOI inventory for consumer electronics are approaching the healthy level. However, the DOI remains relatively high in the automotive and industrial sectors.

[Jason Wang, Director & President at United Microelectronics]

And we believe it will still take more time to digest.

[Charlie Chan, Analyst at Morgan Stanley]

Got you.

[Jason Wang, Director & President at United Microelectronics]

And the Yes.

[Charlie Chan, Analyst at Morgan Stanley]

Thanks for that.

[Jason Wang, Director & President at United Microelectronics]

Yes.

[Charlie Chan, Analyst at Morgan Stanley]

Yes.

[Jason Wang, Director & President at United Microelectronics]

So coming back to the advanced packaging. First of all, we typically do not comment on any market speculation and specific customers. Like I said, we are broadening our packaging technology offering beyond the 2.5b interposers, which we have shipped in the past. The wafer on wafer bonding hybrid bounding is one of the capability and technology that we provide. And in addition to that, there's also the inter portal with DTC, discrete DTC and so on.

[Jason Wang, Director & President at United Microelectronics]

And so, they are multiple technology offering and more like in a toolbox for us. And so we do see the well, the market direction is they are product going to require a higher bandwidth and more efficient in many of the different applications. And then we can engage with our customer with those technology capability and tailor to their solution needs. So I think our current stage is trying to equip ourselves to be capable of doing so, then we will be able to broaden our solution and serve our customers to enlarge our addressable market.

[Charlie Chan, Analyst at Morgan Stanley]

I see. How about the optical related application, I mean, PIC, right, photonic IC. I remember to stake PIC and EIC, you also need Hub Rebound, right? So I'm not sure if UNZ is also considering the kind of a CPO. I don't think there's kind of a supply chain, only in the Rupee, right? I think other customers like Broadcom, Marvell, they are also pushing these.

[Charlie Chan, Analyst at Morgan Stanley]

So does UMC has any kind of plan to get in CPOs into this market?

[Jason Wang, Director & President at United Microelectronics]

I mean, we're not going to miss out any potential growth opportunity. Well, certainly, when we talk about the increase of communication bandwidth and efficiency on energy efficiency, it applies to many different applications, not limited to the current the GPU and the processors and there are many others. And so the many others will probably require integrating memory logic like the GPU, but in a different bandwidth and also the different capability. So yes, we do see there will be various applications that require such technologies. And so again, we believe by broadening our technology offering will help us to enlarge our addressable market without missing out.

[Charlie Chan, Analyst at Morgan Stanley]

Thank you. Yes. And last one from me is really your key partner Intel. So there was an organization change. So I'm not sure if you're comfortable to comment or share what does that mean to your partnership with Intel?

[Charlie Chan, Analyst at Morgan Stanley]

Any positive or negative given the recent senior management and CEO change of Intel?

[Jason Wang, Director & President at United Microelectronics]

Well, I mean, what I can share with you is this strategic cooperation was very committed to bring this most is definitely a rising for both companies. And our partner and us are both competitive to our nanometer solution to the Western footprint. And we are seeing a very strong customer interest. We have been working closely and diligent to accelerate the delivery schedule since day 1. And at the moment, we are verifying the telecom performance already for the pilot line, and we expect the early PDK will be ready for the 1st wave of customer by 2026 as planned.

[Jason Wang, Director & President at United Microelectronics]

Therefore, we believe this cooperation will be beneficial for the industry, our customer and for both companies. So, I do not foresee any changes in this cooperation. And as of now, our key focus on Wi Fi connectivity, high speed interface SoC product. In addition to cooperating on the 12 nanometer larger process, we're also exploring potential Finite Specialty Technology Solutions to further complement our portfolio with diverse product application. So we first of all, we are still very excited about the engagement and we are very committed and we see a very good progress at this point.

[Charlie Chan, Analyst at Morgan Stanley]

Got you. Thank you. Thanks, Jason. This is super helpful. Thank you.

[Operator]

Lou, Goldman Sachs. Go ahead please. Thank you. Next one, Bruce Lou.

[Bruce Lu, VP Asia Technology at Goldman Sachs]

Hi, Jason. The first question is a quick one. The Europe business went up quite a lot in 4th quarter. But application wise, we see that other applications went up a lot in 4th quarter. Can you tell us a little bit more detail? Do you have any market share against there or any project win?

[Bruce Lu, VP Asia Technology at Goldman Sachs]

Or what is the application which drive the Europe growth in Q4?

[Jason Wang, Director & President at United Microelectronics]

Chitung actually commented about this earlier. The pickup in the Q4 automotive business really reflecting is the customers' modulation for their inventory management. So, we see this one off uptrend and then we'll align back to the end market demand, which I also touched on the inventory situation, the automotive in terms of sector, inventory remains high and it will still take more time to digest. So it's more of an inventory.

[Bruce Lu, VP Asia Technology at Goldman Sachs]

Okay. Next one is for your ASP, which down the mid single digit in the Q1. Is there a product mix issue or mostly for the one off? I mean, or is it pretty much miss a gold digit across different node or any specific node has higher price erosion than other nodes, for example, like 28 or 8 versus 12

[Jason Wang, Director & President at United Microelectronics]

Right. I mean, you're absolutely right. It's the blended base. Continue aligning with our customers with the angle that we need to help them to compete in their marketplace, right? I mean, we so we will respect and follow that market pricing.

[Jason Wang, Director & President at United Microelectronics]

And from a strategy point of view that we unchanged, but from competitiveness point of view, we will continue aligning with our customers to maintaining that. Now, it's important to know that we look at this market in a way that we believe we want to position ourselves still gaining shares in our market growing in the low single digit and our addressable market, while striking a balance between the growth team, which we have shown consistently in our financial performance and with a resilient track record in the past. And it's our belief that with a healthy financial structure, we have the flexibility to continue to invest in the technology development in broadening our offering and for our future growth. So we want to stay competitive, but in the meanwhile, we want to manage that balance.

[Bruce Lu, VP Asia Technology at Goldman Sachs]

Okay. Thank you.

[Operator]

Thank you. Next one, Jason Zhang, CLSA. Go ahead please.

[Jason Tsang, Analyst at CLSA Limited]

Thank you for taking my questions. My first question is in terms of your target utilization rate. As your competitor in China are now, I think their utilization rate already reached to a very high level. So I just want to know which kind of levels of your utilization rate is more reasonable for UMC for this year or in coming year? Thank you.

[Jason Wang, Director & President at United Microelectronics]

Well, we always strive to increase utilization rate and but not on unreasonable expense to get that. Right now, the current projection is about 70% level of utilization corporate average. The Southern node actually have a higher utilization. Southern has lower. For instance, our 8 inches loading is still under the recovery mode and which will continue to strengthen our offering and hopefully we can recover that in a longer term, but right now they are below the corporate average.

[Jason Wang, Director & President at United Microelectronics]

Our 2822 is actually above the corporate average. And we continue to see a strong momentum in the PayPal. And so I think in general, like I answered Bruce, I try to strike a balance between that. And 70% right now is not I will not say high, but I think will be a right number for us to maintaining that balance at this point. But of course, we'll continue striking for better utilization rate.

[Jason Tsang, Analyst at CLSA Limited]

Got it. So my second question is in terms of your competition. So I think your Chinese competitor now already have already have a very high utilization rate. So have you seen lower competitions from those Chinese players in this year?

[Jason Wang, Director & President at United Microelectronics]

I mean the I can't really comment about the competitive behavior, but the bottom line is we need to stay competitive and competitively in many aspects. Your ASP need to be competitive, the solution need to be competitive, your manufacturing performance need to be competitive. So I think again, we look at all aspects and striking a balance of that. And we think this is not a one time or short term situation. This is we need to stay competitive in the long run.

[Jason Wang, Director & President at United Microelectronics]

If we look at this, in 2025, we project we will outgrow our addressable market, okay. And whether they are less pricing pressure or continued pricing pressure, we believe we will outgrow our addressable market. We are working on several new initiatives to drive even driving a future growth. And hence, to drive even driving future growth. And hence, our current portfolio, I mean, our addressable market, like I said, expanding on the on our current portfolio, we're advancing our specialty technology roadmap, for example, high voltage. We launched the industry first with Hi V in May 2024 to sustain our leading position to the next generation handset. Besides that, besides handset, the customer already adopt our Hi V platform for OLED display in the next generation tablet, laptops.

[Jason Wang, Director & President at United Microelectronics]

And so we'll continue to drive our roadmap into the 14 Hi V solution to further extend our leadership. So in that front, I think we can capture the growth and not continue fighting in the same space. In terms of enlarge our addressable market, we talked about our 12 nanometer collaboration that provides technology advancement and addressing high growth market. Early engagement customers already shown strong interest and they will put in the production we will put in our production schedule. And the feedback is great and our solution will be very competitive.

[Jason Wang, Director & President at United Microelectronics]

And again, that's a differentiation from that. And I talked about that we want to provide advanced packaging solution to serve AI application with a high growth potential and we continue to broaden that offering and develop that. I thought the financial strength to continue to invest in the areas that we can feel the future growth. So, I think there is the growth opportunity still lies in this industry because the industry is growing. And combination with our current portfolio enhancement and larger addressable market with the right financial model that view our future investment to capture those growth will differentiate from that.

[Jason Wang, Director & President at United Microelectronics]

And I certainly not try to I think we're just competing with the current utilization number, but in a way, I think to a very balanced, very healthy corporate and we try to strive to continue invest in the future and to be relevant in this industry. I maybe give you a little bit more, but I think that's sort of how we feel about this.

[Jason Tsang, Analyst at CLSA Limited]

Okay, okay. Got it. Question is in terms of demand side. My last question in terms of applications portfolio, I mean, which segment of your did you see as a better demand, I mean, such as computers, consumer or smartphone? And have you seen the demand recovery after Chinese government subsidy in Q1 or in Q4?

[Jason Wang, Director & President at United Microelectronics]

So first, for Q1 outlook, we expect the revenue contribution in consumer segment will increase due to a strength in WiFi, digital TV, set top box and display drivers. And the rest of the step is either flat or slightly decline. We talked about the Q1 outlook, it's like that the consumers are stronger, but we think it could trigger it by either the order subsidy and because we do see that Q1 has better than tariff or additional seasonality behavior. However, we're just hoping that due to the limited visibility of we can sustain that. At this point, Q2 couldn't give you the Q2 guidance, but Q1 is better than the Q1 is better than the seasonality.

[Jason Tsang, Analyst at CLSA Limited]

Okay. Thank you. I have no more questions.

[Brad Lin, Director at Bank of America Merrill Lynch]

Key business gross driver for UMC. So one follow-up. So as Jason highlights that the Advanced Packaging is to outpace the industry and also for while eyeing on the disciplined CapEx number itself, the future growth, should we also expect higher portion of the CapEx spent by UMC in the future to increase for this advanced packaging kind of the service like our industry leader?

[Jason Wang, Director & President at United Microelectronics]

Well, I mean, once the in our business, there's actually 2 major investments. 1 is investing in the technology development. The second is investing into the CapEx. Once the technology is is developed and the customer aligns in place, we'll certainly deploy the capacity investment. So, the CapEx will have that.

[Jason Wang, Director & President at United Microelectronics]

Now, given our past few years of CapEx investment, given the current market dynamics, I think the those advanced packaging CapEx will not affect the major trends of our CapEx projection. I think we still we're seeing our current trend.

[Brad Lin, Director at Bank of America Merrill Lynch]

Okay.

[Brad Lin, Director at Bank of America Merrill Lynch]

Thank you. Got it. That's very clear. And then that's my only question to follow-up. Thank you.

[Jason Wang, Director & President at United Microelectronics]

Thank you.

[Brad Lin, Director at Bank of America Merrill Lynch]

Happy New Year, by the way.

[Jason Wang, Director & President at United Microelectronics]

We have same to you.

[Operator]

Thank you. And 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. Thank you.

[Michael Lin, Investor Relations & UMC Acting Spokesperson at United Microelectronics]

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions

[Operator]

Thank you for your participation in UMC. Good to everyone. Thank you. Yes. Thank you.

[Operator]

Ladies and gentlemen, that concludes our conference for 4Q 'twenty six conference. There will be a web www.umc.com on this replay within 2 hours. Please visit the Investors Events section. You may now disconnect. Thank

Participants

Executives

• Michael Lin, Investor Relations & UMC Acting Spokesperson
• Chi Tung Liu, SVP & CFO
• Jason Wang, Director & President

Analysts

• Sunny Lin, Analyst at UBS Group
• Gokul Hariharan, Managing Director at JP Morgan Chase & Co
• Brad Lin, Director at Bank of America Merrill Lynch
• Charlie Chan, Analyst at Morgan Stanley
• Bruce Lu, VP Asia Technology at Goldman Sachs
• Jason Tsang, Analyst at CLSA Limited