United Microelectronics Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Q2 wafer shipments rose 6.3% QoQ to 957,000 wafers and utilization climbed from 59% to 76%, driving a 1.6% sequential revenue increase.
  • Neutral Sentiment: Gross margin stabilized at 28.7% after absorbing a ~3 ppt drag from NT$ appreciation, while EPS improved to NT$0.71 in Q2.
  • Positive Sentiment: Revenue from 22 nm and 28 nm nodes hit a record 40% of total sales, boosting market share in communications ICs.
  • Negative Sentiment: Q3 guidance calls for low-single-digit wafer shipment growth but a drop in NT$ revenue and flat gross margin due to FX headwinds.
  • Positive Sentiment: Phase III of the Singapore Fab12i is on track to start production in early 2026, expanding capacity to support specialty node demand.
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Earnings Conference Call
United Microelectronics Q2 2025
00:00 / 00:00

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Operator

Welcome everyone to UMC's Financial 2025 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 the time if you would like to ask the question. For your information, this conference call is now being broadcasted live over the internet. Webcast replay will be available within two hours after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Michael Lin
Head of Investor Relations at UMC

Thank you. Welcome to UMC's conference call for the second quarter of 2025. 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 second quarter financial results, followed by our President's key message to address UMC's focus and third quarter 2025 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section.

Michael Lin
Head of Investor Relations at UMC

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 overseas security authorities. During this conference, you may view our financial presentation material, which is being broadcasted live through the internet. Now, I would like to introduce UMC's CFO, Mr. Chitung Liu, to discuss UMC's second quarter 2025 financial results.

Chitung Liu
CFO at UMC

Thank you, Michael. I'd like to go through the 2Q 2025 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, second quarter of 2025, consolidated revenue was NT 58.8 billion, with a gross margin at around 28.7%. The net income attributable to the stockholder of the parent was NT 8.9 billion, and earnings per ordinary shares were NT 0.71. Wafer shipment in quarter two increased to 957,000, up about 6.3% quarter-over-quarter. However, the effective NT dollar exchange rate also appreciate similar magnitude from 30.81 in Q1 Sorry, from 32.89 in Q1 to 30.81 in Q2. Utilization rate increased from 69% in Q1 to 76% in quarter two.

Chitung Liu
CFO at UMC

Revenue as a result increased about 1.6% sequentially to NT 58.75 billion. Gross margin, as we mentioned earlier, reached 28.7% or NT 16.8 billion. This is already factored in around 3% of the Forex impact, 3 percentage points in quarter two. Net income reached NT 8.8 billion or 15.1% net income percentage rate. EPS is NT 0.71 in second quarter compared to NT 0.62 in the previous quarter. On page six, for first half comparisons, revenue increased by 4.7% to NT 116 billion. Gross margin reached 27.7% compared to 33.1% in the same period of 2024.

Chitung Liu
CFO at UMC

Net income attributable to the shareholder of the parent for first half of 2025 was NT 16.67 billion or 1.34 in EPS terms. Cash remains over NT 100 billion, reached about NT 101 billion at the end of first half of 2025. Total equity for the company is now around NT 337.04 billion. It edged up a little bit in the second quarter, mainly due to the better product mix. On page nine, for revenue breakdown, there's literally no change on a sequential comparison basis. Europe increased to 8% and Asia reached about 67%. IDM edged up slightly to 19% compared to 18% in the previous quarter. In terms of application breakdown, the change is also very minor.

Chitung Liu
CFO at UMC

Consumer went down to 33% by 1%. Communication increased by 1% to 41%. Advanced technology revenue continued to increase. With now revenue below 40 nm represent more than half of the total revenue, which is 55% in quarter two, when 22 and 28 nm represent 40% of the company's total revenue. On page 13, the capacity breakdown, we will continue to see some minor capacity increase. For the third quarter, capacity increase will come from mainly 12X in China. After the first six months, our CapEx budget for year 2025 remained unchanged at an estimate of $1.8 billion. The above is the summary of UMC results for second quarter 2025. 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
President at UMC

Thank you, Chitung. Good evening, everyone. Here, I would like to share UMC's second quarter results. In the second quarter, the utilization rate increased to 76%, as the wafer shipment grew 6.2% quarter-over-quarter, primarily driven by comunications in image signal processors, NAND controllers, Wi-Fi, and LCD controllers. While we experienced an increase in the overall utilization and the growth of our 22 and 28 nm portfolio, the unfavorable foreign exchange movement of the NT dollar kept our gross margin to 28.7% by nearly 3 percentage points.

Jason Wang
President at UMC

Revenue from our 22 and 28 nm portfolio continued to grow sequentially. Now accounting for 40% of the total sales, a record high in both percentage and absolute dollar terms. Our industry-leading 22 and 28 nmsolutions continue to win adoption by customers, and we expect to see further market share gains in wireless communication over the coming quarters.

Jason Wang
President at UMC

We have always believed that with the right differentiation, 22/28 nm is a strong and long-lasting node with a robust product pipeline. In addition, the new Phase III facility at our Singapore Fab 12I, set to start production in 2026, will enable UMC to better serve customers seeking diversified manufacturing for enhanced supply chain resilience. Looking ahead to the third quarter, we expect a mild increase in wafer shipments.

Jason Wang
President at UMC

However, adverse foreign exchange movement will lead to a decline in NT dollar revenue. We are closely monitoring the near-term uncertainties and risks as the market anticipate U.S. tariff policies. To navigate macro and geopolitical headwinds, including foreign exchange risks, UMC will continue to actively manage our foreign exchange exposure and maintain financial flexibility to enhance our financial structure and business resilience. Now let's move on to the third quarter 2025 guidance.

Jason Wang
President at UMC

Our wafer shipment will increase by low single digit percentage. However, NT dollar denominated revenue is fully exposed to fluctuation in the foreign exchange rate. For instance, a 5% appreciation in the NT dollars will result in a corresponding 5% reduction in reported NT dollar revenue. ASP in the U.S. dollar will remain firm. Q3 gross margin will be approximately Q2 gross margin, subject to the foreign exchange effect. Therefore, our Q3 gross margin will be approximately equal to that of Q2, under the assumption the foreign exchange rate is at a current level. Capacity utilization rate will be in the mid 70% range. Our 2025 cash-based CapEx budget will remain unchanged at $1.8 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Operator

Yes. Thank you, President Wang. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question for any of today's speakers, please press star key and number one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press star key and number two to cancel the question. Thank you. Now, please press star one on your keypad if you would like to ask the question. Thank you. Now, first we'll have Brad Lin, Bank of America, for questions. Go ahead, please.

Brad Lin
Brad Lin
Analyst at Bank of America

Hi. Thank you for taking my question, sir. I have two questions. The first one will be on the ASP trend. What's the initial outlook and view on the ASP trend into 2026, given the higher expense and cost? Obviously, we are happy to learn the ASP in near term. Yeah, any initial view for 2026? Thank you.

Jason Wang
President at UMC

Well, typically, we don't guide anything beyond 2025. As you said, we can talk about the near term of the ASP outlook, but you'll be interested in looking into a longer-term ASP projection. Let's share about the ASP strategies. Our goal is to continue to differentiate our technology offerings and product mix, and to maintain and improve our ASP resilience. We want to further widen the gap in technology offerings, while increasing the revenue contribution by those respective nodes.

Jason Wang
President at UMC

Following our rollout of the 22 and 28 nm technologies, we will continue to provide specialty technology in 40 and 35 nm nodes, where the percentage of our revenue contribution competing with the pricing boundaries will continue to decline. For the near term, our CFO actually mentioned our Q2 ASP saw a low single-digit increase, driven by the higher 22 and 28 product mix. In Q3, we expect the product mix to remain unchanged, therefore the ASP will remain firm for this year. Yeah.

Brad Lin
Brad Lin
Analyst at Bank of America

Got it. Thank you very much. My second question would be, we have seen in the presentation, 14 nm and below mix listed in the slide as 0 for a while, but still listed in there. Should we expect the number to increase, and will that be from 12 nm or potentially also 6 nm?

Jason Wang
President at UMC

Well, okay. 12 nm is still a bit far for us, and for that particular program, the cooperation with Intel is progressing well and remains on track according to the project milestone. At present, our both teams are working on verifying silicon performance for the pilot line, and we expect that the earliest PDK will be ready for the first wave customer in June 2026. We expect customer product tape out to begin in 2027; we'll probably see some revenue in that timeframe. I think that's the 12. We continue marching that direction. If we're going beyond that, we don't have any concrete plan for anything beyond the 12 nm today.

Jason Wang
President at UMC

Our development effort will continue to focus on that, to broaden our specialty technology portfolio on both ends. That is definitely on our roadmap, but once we have more concrete updates, we'll be sharing with you. Currently, the most important task is to deliver the highly competitive solutions for mass production at 12 nm through our close cooperation with our partners. For anything beyond that, we will explore the future opportunity through the partnership arrangement, which we believe that will be mutually beneficial.

Brad Lin
Brad Lin
Analyst at Bank of America

Sure. Sounds great. Thank you very much.

Operator

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

Charlie Chan
Charlie Chan
Analyst at Morgan Stanley

Hi, Jason. Chitung. Good afternoon. My first question is about the tariff impacts your customers' behavior. Do you see them pulling in, and what does it impact to your second half sustainability or outlook? Thank you.

Jason Wang
President at UMC

Sure. Good afternoon, too. We do observe the soft demand offset in the Q2, as well Q3 is partly driven by the inventory build-up, in anticipation of a potential U.S. tariff. For UMC's first half 2025 results, which is in line with our guidance of the Q2, wafer shipment increased to 6.2%-6.3% quarter-over-quarter, while the Q3 demand increased on a higher base, we expect the shipment will still grow mildly sequentially. There are some observations about that. Given the 2025 market dynamics, such as the adjustment to the U.S. policies and ongoing geopolitical and macro uncertainty, the usual seasonal pattern may be different. We, along with our customers, will closely monitor those end market signals. Yeah.

Charlie Chan
Charlie Chan
Analyst at Morgan Stanley

I see. Thank you. Yeah, I think lots of discussion about the future advanced packaging technology, right? Jason, can you share with us about your business development here? I think you have some interposer capacity, right? How are we going to utilize those capacity going forward? Maybe some color about the potential applications.

Jason Wang
President at UMC

Sure. Well, we don't want to miss out the advanced packaging opportunity. We are preparing our advanced packaging solution. What we see is for the growing energy consumption of the cloud AI, as well as the potential growth in the edge AI market. First, to address the power efficiency requirement for the high computing processor, UMC is developing the 2.5D interposer, with the DDC and discrete DTC, which is that's going to be the roadmap coming up. Right now, the current interposer is moving on to the next generation. We're waiting for to introduce this and expect to ramp after that.

Jason Wang
President at UMC

Second, the UMC is leveraging the scalable 3D wafer-to-wafer stacking and TSV to enhance the competitiveness of our specialty technology. We are currently in mass production for the extremely small form factor for the 5G and 6G RFIC. MBased on the success of the 5G and the 6G RFIC, with the wafer-to-wafer stacking, we are also developing memory-to-memory stacking and memory-to-logic stacking service for the high bandwidth computation requirements.

Charlie Chan
Charlie Chan
Analyst at Morgan Stanley

Okay. Thank you. My last question, again, is always want to consult you or pick up your points about the semiconductor cycle, I believe this is the third consecutive year we don't see sort of second half recoveries. What do you think is happening on this semiconductor industry? Why we don't see seasonality or so-called cyclicality, right? Because I remember, in the past, you have upcycle and shortage, overcapacity, and then correction. We seem to don't see that anymore.

Jason Wang
President at UMC

Certainly, the visibility is actually lower nowadays. You are absolutely right. When we started here, in 2025, we actually expect that 2025 gross outlook will be slightly better than our addressable market. We think our addressable market is going to grow slightly, at a low single digit. We think at this moment, we still expect our 2025 gross outlook will remain unchanged. That's safe. Beyond the 2025 or 2026, we have to closely working with our customer, sharing their visibility as well as monitoring the DOI situation. As of today, I think the DOI is getting to the healthy level.

Jason Wang
President at UMC

We've seen that DOI approaching to the healthy level about a quarter or two quarters ago. Right now, the computer, consumer, and communication segment is still healthy, remain healthy. While the automotive and industrial still remain high. I think while monitoring the macroeconomics, as well as the DOI, we can only hope that sooner or later we will see the upcycle. Right now, the visibility is pretty low, yeah.

Charlie Chan
Charlie Chan
Analyst at Morgan Stanley

Okay. Yeah. Maybe try again about Brad's question about wafer pricing. Yeah, because obviously, FX impact, all the Taiwan something a lot, in terms of gross margin. Would that be a factor you can put on the table to negotiate with your customers for next year's pricing?

Jason Wang
President at UMC

We continue working with our customer in terms of pricing conversations closely. Those are more of a tactical conversation. I think fundamentally, like I recall earlier, I think our key focus is try to differentiate our technology offering. That we can continue to enhance our product mix to improve the ASP resilience. I think that's where we're marching. We have a very clear roadmap today that on many fronts of our technology development. Our goal is from further widen the gap in technology offering and increase the revenue contribution from those respective nodes and technology offering. Which we think that we can make sure that our ASP can remain resilient. Yeah.

Charlie Chan
Charlie Chan
Analyst at Morgan Stanley

Great. Thanks, Jason. Very helpful.

Jason Wang
President at UMC

Thank you.

Operator

Next one, Gokul Hariharan, JPMorgan. Go ahead, please.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Hi, Jason and Chitung. Thanks for taking my question. First of all, for the Singapore fab 20-nmand 22-nn expansion, could you talk a little bit about what is the current pace of the ramp-up, and the kind of customers that you're ramping up there? Obviously, some of the pricing negotiation that you had back in 2022 and 2023, obviously had some price escalators. Could you talk a little bit about whether those price escalators still exist given the environment has definitely changed somewhat? That's on the 20-nm part. Yeah.

Jason Wang
President at UMC

Sure. Well, for the 12I, the Singapore facility, given the current max market dynamics and customers alignment, we project the 12I phase three production ramp will start in January 2026. It will ramp up with a higher volume, starting in the second half of 2026. That's the current ramp plan. Many of this ramp schedule and alignment is based off the customers close communications. Right now, given the application ramp-up is going to be mainly in the communication with our 22-nm high-voltage devices. We still believe our 22- and 28-nm high-voltage solution are differentiated on the market. The ASP still remains very healthy at this point, yeah.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Got it. Secondly, on gross margins. We are roughly in the mid-70s utilization, and we are kind of in the mid to high 20s gross margin. I think depreciation definitely started to grow again and looks like it is going to grow into the next couple of years as you bring in 12X. Could you talk a little bit about what is the realistic pathway for us to get back to that mid-30s gross margins or low to mid-30s gross margins that we have talked about? Currency is not something that we control, maybe talk about some of the other factors, like, is that a realistic goal that you are pursuing? I think back to some of the previous questions, can pricing be a realistic tool to get there, or is it more challenging to use price as a tool to get there?

Jason Wang
President at UMC

Well, absolutely. That has been our mission to continue to improve the gross margin back to the reasonable level. Given the current loading, it is fluctuating around the 70%. That has been putting some pressure in terms of the gross margin, while the depreciation increase. The focus is very clear. I answered Charlie earlier that we are focused on technology development, technology offering, even the newer technology offering, and the partnership engagement, and with the product mix improve. We think that we have a path, going back to the reasonable level. For the past, we have been maintaining our foundry share in our addressable market segment. Based on our current design pipelines, we are anticipating more share gain in 2026, as well as going into 2027, particularly in the 22 and 28 nm market today.

Jason Wang
President at UMC

While we roll out the other technology offerings, we think this will continue to improve, we will definitely march into the direction to go back to the right level of the gross margin level, yeah.

Chitung Liu
CFO at UMC

If I may add on to that. Our annual depreciation growth is going to peak out. If you recall, in year 2023, our depreciation expense increased by more than 20% year-over-year. Similar magnitude for 2024. Sorry, similar magnitude for this year, for 2025. For 2026 and 2027, the increased magnitude will be a lot less. Could drop down to single digits. Hopefully, we will have a better cost structure, moving into year 2026 and 2027.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Thanks, Chitung. Maybe one more question on the high voltage side for 28 and 22. Jason, do we have a pathway below 22 nm for high voltage, given there's been some discussion about some of the driver IC related products moving below that, be it to some kind of a FinFET node, but enabling high voltage?

Jason Wang
President at UMC

It's definitely on our roadmap today. They are. While we still believe that 22 high voltage will be the most compelling and competitive solution today as well as next couple of years. Yes, the FinFET solution of the high voltage is on our roadmap today. Yes.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Any timeline in terms of when you think customers will start demanding this?

Jason Wang
President at UMC

That we're still aligning with our customers. Again, it's contemplating between the value proposition of the 22 versus the next node. We are closely working on that. I think I don't have a specific time frame, but I don't want to give it a guess right now, because, given all the data on hand, we still think the 22 nm high voltage will have a length. It will probably be another year to closer to two years.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Understood. Maybe one last question. Several of the consumer fabless companies are guiding down Q3 quite meaningfully. Your own wafer orders are slightly moving up in Q3. Should we expect that there could be a hiccup in Q4? Every year seems to be a different seasonality, but just wanted to understand how you think about that inventory cycle for many of the Asian consumer fabless companies, which are your key customers as well.

Jason Wang
President at UMC

Sure. The inventory situation actually is quite healthy, with few major segment already. Although in industrial, I think they're still high. The rest of it is actually quite healthy. At this point, given the visibility, we do not guide Q4 at this time. Our view for the full year 2025 will remain unchanged. Again, I touched that earlier, that we expect our addressable market will grow by that low single-digit, and we will still outgrow the addressable market in 2025.

Jason Wang
President at UMC

The biggest challenges nowadays is really the visibility. Given the macro uncertainties and the geopolitical concerns, I think the customer is being cautious. It doesn't mean they don't have a demand. The question is they want to play this thing in a different manner. We're working closely with them, meanwhile, the Q2 is growing, Q3 slightly sequentially, Q4, we just have to play and see, we'll definitely report that next quarter. Meanwhile, we've seen an overall 2025 projection is still unchanged.

Gokul Hariharan
Gokul Hariharan
Analyst at JPMorgan

Okay. Yeah. Thank you, Jason. Thank you.

Operator

Thank you. Next question, Sunny Lin, UBS. Go ahead, please.

Sunny Lin
Sunny Lin
Analyst at UBS

Thank you very much for taking my questions. My first question is on 20 nm. If we look at Q2, Jason, what's driving the revenue upside? Is it driven by the 22 nm migration or is it through a product mix upgrade? Looking ahead, could you share a bit more on your share gain in wireless communications and maybe some of your other products going to 2026?

Jason Wang
President at UMC

Well, for the near term, the 22 and 28 revenue contribution increase is mainly coming out from the communication in Q2. Computing and communication segment, mainly on communications in Q2. Going forward, we are highly confident in the continuous growth of our 22 and 28 nm business in 2025 and beyond, going into 2026. The strong demand outlook is supported by the continued tape-out momentum on many different applications, thanks to the customers, of course.

Jason Wang
President at UMC

Again, it's really supported by UMC's differentiated technology and the regional manufacturing footprint as well. This includes our 12I fab in Singapore, which the P3 fab expansion is on track, and we are on track to ramp in 2026. It will begin to contribute in the revenue in the second half of 2026, this will further strengthen our 22 and 28 capacity and support the growth for the growing demand. The combination of the technology proposition, manufacturing quality, and the well-positioned capacity set up will ensure our 22 and 28 will remain the both growth engine for the next year, 2026.

Sunny Lin
Sunny Lin
Analyst at UBS

Thank you very much. On 12X, would you be able to price the wafers a bit higher, given the higher cost structure? When you talk about high volume production starting from second half of 2026, any type of capacity that we should expect?

Jason Wang
President at UMC

Well, we don't want to quote exactly capacity size, but we are quickly ramping our P3. We look at this 22 and 28 capacity on a total basis between our old facilities. I think the older utilization rate across the different facilities on 22 and 28 were above our corporate averages. Even today, they are above our corporate average. The question about I missed your earlier question, the first question.

Sunny Lin
Sunny Lin
Analyst at UBS

Pricing for Singapore. Would you be able to price a bit higher, given cost is higher as well?

Jason Wang
President at UMC

No matter. I missed it. It's a sensitive subject. Well, right now, again, our pricing position is based on our technology offering, our value proposition, I think that's the baseline of the ASP. In terms of the diversified location, we have to work with our customers to understand the needs, right? We want them to stay competitive, we want them to acknowledge the differentiate offering of our technology and as well the geolocation benefits. It's a subject that we will talk about with our customers, but mainly on the technology differentiation as well as their competitiveness.

Sunny Lin
Sunny Lin
Analyst at UBS

Got it. Thank you. That's helpful. I have a question on the Intel partnership. Seems like Intel is becoming less proactive in pursuing their foundry ambitions with the new management. I wonder, how does that affect the business development with UMC? Let's say if Intel want to scale down, and they will look to maybe sell the capacities. In that case, would UMC be interested in acquiring the capacity, assuming the price is reasonable?

Jason Wang
President at UMC

Well, first, I think it's hard to comment any speculation, and I don't want to comment about the product priority within the company, but I can only comment about our program. Our current program, like I said earlier, the cooperation with Intel is progressing very well, and the milestones remain on track. Most importantly, both parties are very committed to this 12 nm collaboration. I see no change at this point, and we still have very high expectation with this program.

Sunny Lin
Sunny Lin
Analyst at UBS

Got it. Thank you very much.

Jason Wang
President at UMC

Thank you.

Operator

Thank you. As a reminder, please press star key and number one on your keypad if you would like to ask the question. Thank you. Next we'll have Laura Chen from Citi. Go ahead, please. I'm sorry, Laura just dropped her line, and we'll take the next one. Jason Tsang, CLSA. Go ahead, please.

Jason Tsang
Jason Tsang
Analyst at CLSA

Thank you for taking my questions. I just want to follow up the impact from the FX ratio. Can you provide your FX ratios for Q3? Thank you.

Chitung Liu
CFO at UMC

First of all, every 1% move appreciation of NT dollars against US dollars, it will erode our gross margin about 0.4%-0.5% percentage point. That's where the 3% percentage point erosion come from, on back of the 6%+ NT dollar appreciation against US dollars. For Q3, we don't do forecasts, but we are using current Forex rate, which is nearly 29.8, when we give out our guidance. A reminder for quarter two, the weighted average was 30.81.

Jason Tsang
Jason Tsang
Analyst at CLSA

Thank you. My second question is in terms of the competition. It seems like your Chinese competitors now have a better or higher utilization rate currently. Do we see a better market or lower competition in the maturing node? How can UMC benefit from this lower competition? Thank you.

Jason Wang
President at UMC

At this point, more than half of our revenue, it comes from specialty technology solutions, which serve our customer demand in differentiated technologies. For instance, our 22/28 nm, I kind of touched on earlier, is probably the most competitive solution in high-end smartphone or OLED display market. In addition, our 22 ultra-low leakage and low power technology will deliver another 30%-50% better power saving compared to standard 28nm. We are positioning ourselves as a specialty foundry partner focused on low leakage, low power logic, embedded high voltage, BCD, embedded non-volatile memory, RFSOI solutions. We want to continue to provide specialty technology where the percentage of revenue contribution in this space will increase, the percentage of the revenue contribution competing with the Chinese foundries will continue to decline. I think that's our focus.

Jason Wang
President at UMC

I think that we have making quite a bit of progress already, we think there's more room for us to improve on that.

Jason Tsang
Jason Tsang
Analyst at CLSA

Got it. Thank you. I have no more question. Thank you very much.

Operator

Thank you. Next one, Laura Chen, Citi. Go ahead, please.

Laura Chen
Laura Chen
Analyst at Citi

Yeah. Thank you very much for having me back. Just a quick follow-up. Want to understand your view on the long-term growth margin outlook. We understand that there's a lot of moving parts, rising depreciation and also currencies, et cetera. We do see that recently, the utilization rate is kind of improving back to high 70%, and as we're moving into Q3, with the wafer shipment also going up. What's our view on our so-called long-term growth margin target? If you can give us more colors on that. Thank you, Jason.

Jason Wang
President at UMC

Well, right now, mid 70% is not great. Obviously loading will be one of the important focus. To improve the loading, fundamentally, you have to provide competitive solutions to customers. Like I said, we focus on technology differentiation, focus on new technology development, and then following with the key customer partners engagement.

Jason Wang
President at UMC

By doing that, we think the loading will increase. As well as the gross margin will get healthier. The other one is, of course, the cost and for the depreciation increase, Chitung also touched that earlier. These couple years, we have a significant depreciation increase. After this 2025, I think the increased percentage will start getting milder. While we improve the loading and maintaining the depreciate, the cost structure, and the next thing is of course the ASP management. From ASP management and with the more compelling solution, and you have a more diversified manufacturing site and the manufacturing qualities. We think the ASP will, at least planned ASP, will remain resilient. Not to mention, we will continue marching forward with our 12-nm development, and hopefully that we can continue to improve the product mix as well.

Jason Wang
President at UMC

Giving all those is putting a roadmap for us to improve our market relevance and position as well as our financial performance. For the past, we have already improved our structure profitability in terms of our break-even point and continue on that front, we already see an effect and benefits. Going forward, there's still work to do, and combining all those, we think we have a roadmap to march into a better result.

Laura Chen
Laura Chen
Analyst at Citi

Sure. Thank you very much. Chitung, can you also remind us what will be the depreciation cost increase for this year or maybe next year?

Chitung Liu
CFO at UMC

This year is low 20% year-over-year.

Laura Chen
Laura Chen
Analyst at Citi

Yes.

Chitung Liu
CFO at UMC

Next year is still a very rough estimate, as I mentioned, the magnitude of increase will decline significantly, maybe to below 10%.

Laura Chen
Laura Chen
Analyst at Citi

Okay. Thank you very much. My next question is also about our operation in China. As we know, we still have two fabs in China. Even though there's always very fierce competition, do we see any possibility that our IDM customers, if they want to enter in the Chinese market, they can also leverage our capacity there, thus to be kind of differentiation as well? Can you give us more update on your current strategy in China?

Jason Wang
President at UMC

First of all, with our diversified manufacturing sites, we'd definitely be able to serve different customer needs. If there is a customer need for their product to be produced in our China facility, that's something that would very much welcome us. The sensing that we have a customer moving from China to other locations, and we very much welcome that, and we believe with the diversified manufacturing offering will give us the benefit of supporting customers with their supply chain resilience needs. Right now for the IDM customer moving into the China facility, there's certainly some signals, I think the signal goes by level multiple different ways. We are working closely with different customer, and hopefully we can fulfill their desired needs. Yeah.

Laura Chen
Laura Chen
Analyst at Citi

Okay. Thank you very much.

Operator

Thank you. Next one, Timm Schultze Melander, Redburn. Go ahead, please.

Timm Schultze Melander
Timm Schultze Melander
Analyst at Redburn

Yeah. Hi there. Thank you very much for taking my questions. I had two, please. The first one is on pricing behavior, particularly just how rivals are behaving in terms of pricing in the communications segment. Is that disciplined pricing, particularly given the steady improvements in days of inventory, or is pricing more challenging? I had a follow-up.

Jason Wang
President at UMC

When there's ample capacity available, pricing become a topic. Not until the capacity become tightened, I think the pricing will always be a topic. I think from a behavior standpoint, it's really subject to the capacity situation. Given that the current capacity situation on different region are different, I think that conversation still quite often. Yeah.

Timm Schultze Melander
Timm Schultze Melander
Analyst at Redburn

Okay. That's very helpful. The second one was in terms of the collaboration with Intel. Good to know that the PDK 2026 production 2027 is still on track. Had a two-parter there. It's just, in terms of the work you're doing with your partner, do you see any impact from the headcount reductions? Does that influence that cooperation in any way? The second part, talking about gross margins, and the outlook in 2027, 2028, this journey, to get back into the thirties. Obviously, loadings are the most critical factor, does this cooperation with Intel play a material part in your sort of medium-term gross margin outlook? Many thanks.

Jason Wang
President at UMC

Dollar term, yes, it will. Because the business model that we have, coming back to the question about the headcount and the commitments or partners, is actually quite positive. I think the program itself is being expanding from the R&D development now get into the high volume production preparation. There's more involvement from different organizations. I would say, from the involvement standpoint, from the different organization, it's actually increased. I can't really comment about their headcount situation. I can tell you, we see lot more activity from various different departments and organizations because we're moving from the R&D, the activity gradually start moving into the so-called high volume production preparations. You can see, while we're expanding the activity scope, there's actually more involved with the program today.

Timm Schultze Melander
Timm Schultze Melander
Analyst at Redburn

That's super helpful. Many thanks.

Operator

Thank you. Now we are taking the last question. Alex Chang, BNP. Go ahead, please.

Alex Chang
Analyst at BNP

Thank you for taking my question. I only have one follow-up question regarding your China business. Can you comment, in terms of utilization, how is your China fab utilization versus the overall utilization? In terms of the price pressure, have you seen the ease in recent months? What is the outlook for the price pressure in China? Thank you.

Jason Wang
President at UMC

Our China 12X facility today is actually running at full capacity. It's above our corporate average. Since our different sites are mainly serving as the manufacturing facility, the business management is all centralized. At this point, there's no pricing differentiation between different locations for us.

Alex Chang
Analyst at BNP

Thank you.

Operator

Thank you. Ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session. I'll turn it over to UMC head of IR for closing comments.

Michael Lin
Head of Investor Relations at UMC

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact ir@umc.com. Have a good day.

Operator

Thank you. Ladies and gentlemen, that concludes our conference for second quarter 2025. Thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.

Analysts
    • Michael Lin
      Head of Investor Relations at UMC
    • Chitung Liu
      CFO at UMC
    • Jason Wang
      President at UMC
    • Brad Lin
      Analyst at Bank of America
    • Charlie Chan
      Analyst at Morgan Stanley
    • Gokul Hariharan
      Analyst at JPMorgan
    • Sunny Lin
      Analyst at UBS
    • Jason Tsang
      Analyst at CLSA
    • Laura Chen
      Analyst at Citi
    • Timm Schultze Melander
      Analyst at Redburn
    • Alex Chang
      Analyst at BNP
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