Operator: Welcome everyone to UMC’s 2025 First 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. [Operator Instructions]. For your information, this conference call is now being broadcast in live over the Internet. Webcast replay will be available within an hour 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. David Wong, Investor Relations Manager of UMC. Mr. Wong, please begin.

David Wong: Welcome to UMC’s conference call for the first quarter of 2025. I’m joined by Mr. Chitung Liu, CFO of UMC, and Mr. Michael Lin, Senior Director of Finance, because President Wong is absent due to urgent personal matter. In a moment, our CFO will present first quarter financial results, followed by our key message to address UMC’s focus and second quarter 2025 guidance. After our CFO’s remarks, there will be a Q&A session. UMC’s quarterly financial reports are available at our website, www.umc.com, under the Investors, Financials section. During this conference, we may make forward-looking statements based on management’s current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company’s control.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC securities authorities. During this conference, you may view our financial presentation material, which is being broadcasted live through the Internet. I would now like to introduce UMC’s CFO, Mr. Chitung Liu, to discuss UMC’s first quarter 2025 financial results.

Chitung Liu: Thank you, David. I’d like to go through the first quarter 2025 Investor Conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the first quarter of 2025 consolidated revenue was NT$57.86 billion, with gross margin at around 26.7%. Net income attributable to the stockholder of the parent was NT$7.78 billion, and the earnings per ordinary share was NT$0.62. Wafer shipment was flat sequentially compared to the previous quarter. However, it was up 12% year over year for the same period of 2024. On Page 5, on the sequential comparison, wafer revenue declined 4.2% sequentially to NT$57.85 billion, mainly due to this one-time price adjustment in the beginning of calendar year.

Gross margin was impacted by the lower ASP as well as the earthquake during the Chinese New Year holidays. It went down to 26.7%, or NT$15.4 billion, and we expect to see margin recovery in the coming quarter. Operating expenses is under control represent about 10.6% of the total revenue of NT$6.1 billion. That gives us the overall operating income around NT$9.7 billion, or 15.9 percentage points. In terms of non-operating income due to the weakness in the stock market, we have some losses coming from mark-to-market investment valuation, which is around Nt$439 million loss. Total net income attributable to the shareholders of the parent in Q1 2025 was NT$7.777 million, or EPS of NT$0.62 in Q1 2025. For the year-over-year comparison, revenue increased by 5.9%.

This is mainly due to the wafer shipment increase as I mentioned earlier, around 12% year-over-year wafer shipment increase. But it’s offset by the ASP decline. And for the net income comparison, we see a 25% year-over-year decline. And therefore, EPS also was lower in the same magnitude. On the next page, cash position still remain over NT$100 billion. It’s about NT$106 billion at the end of March 31st. Our total equity now reached NT$390 billion at the end of Q1 2025. On Page 6, there’s a routine beginning of the year one-off price adjustment, which actually contribute to most of the revenue decline in Q1 of 2025. So roughly the ASP declined by about 4% to 5% in Q1. For revenue breakdown, we see a good growth coming out of our Asian-based customers.

It’s now reached around 56% of our total revenue. North America customers, on the other hand, represent about 22% of the pie. IDM show a mild growth on Page 10 to 18% of the total revenue breakdown in Q1 2025. And consumer segment is the strongest in Q1, mainly driven by Wi-Fi, DTV, set-top box, and DDI. And communication computers didn’t really change that much. And we’re happy to see our 40-nanometer and below revenue now is over 50% of our total revenue. Now reached 53% in Q1 when 22 and 28 nanometer revenue account for 37% of the total revenue breakdown. In Q1, there was some disruption from earthquake, but mainly there’s also annual maintenance schedule. So capacity in Q1 was lower. And for quarter two, we see the back-to-normal capacity as well, some mild increase coming out of Singapore fast due to the ramp is starting.

On Page 14, our 2025 CapEx remain unchanged at $1.8 billion. So this about is the summary of UMC financial results for Q1 2025. Next, I would like to share our key messages. So I apologize for still putting Jason’s picture here because it’s rather short-noted. And it’s also, more importantly, it’s a very good picture. So our results in the first quarter were in line with our previous guidance, with flattish wafer shipment and one-time pricing adjustment at the beginning of the year to reflect market conditions. First quarter highlight includes 22, 28 nanometer revenue keeping a record high, representing 37 of the total sales. That was driven by a 46% quarter over quarter increase in 22 nanometer revenue from products such as OLED display driver ICs, ISPs, as well as digital TV, Wi-Fi, and audio codec chips.

We expect customer to take out additional 22 nanometer products in the coming quarters. As customers increasingly migrate to our 22 nanometer logic and specialty platform for next generation applications. Earlier this month, we also officially inaugurated our new Singapore Phase 3 fab, which provide additional 22 nanometer capacity to support future growth. Pilot runs are underway and it’s on schedule to ramp up to volume production in early 2026. The expansion in Singapore also further broadens our geographic diversification, enabling customers to strengthen their supply chain resilience. Meanwhile, in February, our Board of Directors proposed a cash dividend of NT$2.85 per share, which is subject to approval for shareholders from shareholders in the upcoming AGM on May 28.

Looking ahead to the second quarter, we are expecting a moderate rebound in demand across all segments, according to near term alignment with our customers. Beyond that, of course, we have to be cautious about wafer demand projections as policies and markets are still adjusting to the recent tariff announcement. To navigate this challenging environment, we are working closely with customers to monitor trends in end market demand. We also strengthen our competitive advantage by focusing on execution of key technology products, such as the 12 nanometer collaboration with U.S. partners, ensuring our customers have access to geographically diverse manufacturing options. In addition, we are implementing cost reduction plans and accelerating AI and intelligent manufacturing systems to enhance operational efficiency.

Through these key focuses, we are confident that UMC can maintain our financial and business resilience. Now let’s move on to the second quarter of 2025 guidance. Wafer shipment will increase by 5% to 7% sequentially. ASP in U.S. dollar terms will remain flat. Gross margin will be back to approximately 30%. And capacity utilization rate will also recover to the around mid-70% range. As I mentioned earlier, the cash-based CapEx will remain unchanged at about $1.8 billion. That concludes our remarks. Thank you all for your attention. And now we are ready for questions.

Operator: Thank you, Chitung. And ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] And our first question will be coming from Sunny Lin, UBS. Go ahead, please.

Sunny Lin : Thank you very much for taking my questions. So my first question, I want to start from the tariff impact. And so for the short term, how are tariffs affecting the customer order behaviors for Q2 and second half? And how are that impacting your business planning? And it does seem like you are having a good recovery for Q2 sales. How much of that is driven by the pulling orders due to tariff?

Chitung Liu: Okay, so UMC collaborate closely with customers for technology and product qualification across multiple facts, reducing forges to size specific risks and ensuring supply chain resilience. We adopt a forward-looking approach to mitigate business risk, including a geographically diversified manufacturing footprint. And by 2027, we will have manufacturing base for most advanced available technology in the U.S. UMC also has a healthy financial structure to navigate through macro uncertainty. And although the escalating trade tensions and global tariff policy have increased uncertainties in the semi-industry, and we have not seen market demand change in a very near term, i.e., quarter two 2025 yet. Of course, visibility in the second half is becoming very limited.

And longer term, customer may decouple their internal manufacturing options and explore external wafer sourcing options. And UMC’s strategic positioning focusing on technology differentiation, global manufacturing diversification, product mix optimization, and manufacturing asset. So I think in short, there’s very little change we observe for the second quarter. However, if you include our Q1 results plus our quarter two guidance, we think we are slightly ahead our expectation at the beginning of the year. And that will give us some buffer for the uncertainty, the increasing uncertainty in the second half.

Sunny Lin: Got it. Thank you very much, Chitung. So basically, you are saying the growth in Q2 is not so much driven by pooling just a little bit. And so in that case, should we be less concerned about meaningful drop-off going to second half because there are not much being pooled in?

Chitung Liu: There’s not that much pooling, you are correct, for quarter two. There’s some customer who are sidelined and they want to take some precautionary action. But there are some customer doing the opposite. So net impact for quarter two is very limited. So, but again, we cannot really see through second half. And what we are seeing right now doesn’t really suggest there will be a shortfall in the coming quarters.

Sunny Lin: Got it. Thank you. My follow-up question on tariff is in terms of the potential disruptions about the supply chain on the pricing side. And so if tariff are pushed through, either for finished goods or direct semi-chip or both, based on your current discussions with clients, would you expect some impact on UMC’s pricing and margin as well? As maybe potentially everyone in the supply chain will need to share the cost to some extent?

Chitung Liu: I think we don’t have a general answer. So let me start with our UMC pricing policy or strategy. We don’t compete purely on pricing. Our strategy is built around technology differentiation and manufacturing excellence via regionally diversified manufacturing basis. All that attribute works to insulate UMC and our customer away from low entry barrier market. And beside the pricing pressures, UMC remain committed to deliver differential technology and ensuring our customer to gain market share through the long-term strategic partnership. So our value proposition is really to work with our customers in a transparent method. Any disruption or the cost increase through tariff, we believe we will co-work with our customers to come up with a solution.

Sunny Lin: Got it. And then I have a question on 28-nanometer. And so roughly, what’s the utilization rate in Q1 and Q2? And how should we think about the mix of 22 nanometer within the whole 28 and 22 nanometer cells, let’s say going to second half of 2025?

Chitung Liu: First of all, our guidance for second quarter is mid 70 for the company as a whole. And of course, 12 nanometer, 12 inch, 12 inch is higher than corporate average and inch is below corporate average. Among 12, I would say 22, 28 is the better sector, is not the best sector. And right now, 22 and 28 represent 37% of our total revenue and 22 alone, I would say it’s more than mid teen and continue to increase. And that will be a key growth driver for UMC’s 2025 growth. So I hope that answer your question.

Sunny Lin: That’s very helpful. So mid-teen percentage that in terms of total sales, correct?

Chitung Liu: That’s correct.

Sunny Lin: Thank you very much. And then maybe my last question. And so on this partnership with Intel on 12 nanometer, what’s the latest update that you could provide us? And will it be possible that we see an earlier production in 2026? And I guess lately given the maybe rising reshoring interest in the U.S., are you seeing much stronger demand for these collaborations?

Chitung Liu: Maybe Michael can answer the question.

Michael Lin: Sure, the joint development is on track. We are progressing well according to the project milestones. At this moment, we are verifying the silicon performance for the pilot line. And we expect the early PDK will be ready for the first wave of customer by 2026 as planned. In fact, we have been aligning with key customers on the device spec to speed up the ramp up as quickly as possible. Right now we are putting the process technology Arizona Fed and so far the progress is on track.

Sunny Lin: Got it. And so basically sales contribution, you guys deal from 2027?

Chitung Liu: Yes.

Sunny Lin: Got it. Thank you very much.

Chitung Liu: Thank you.

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

Laura Chen: Hi, thank you very much for taking my questions. I also want to know more about like U.S. cooperation. If only Intel’s, other than Intel’s, would you have any opportunities to work with other IDMs in the United States?

Chitung Liu: We have plenty of U.S. based IDM customers as consistently among our top customers. And I think I don’t need to mention their names, but you definitely know who they are. So from time to time we have JDPs, we have capacity support and that will continue to be our strategic collaboration going forward. So we do have other IDM customers in the U.S. working closely with UMC. But of course the current stage, the most important project is this 12 nanometer U.S. footprint collaboration with these U.S. partners.

Laura Chen: Understood. Because previously I also have the news, I understand that management already kind of denied, but I’m just wondering like other than our current clients in U.S. IDMs, is there any chance we can also work with Global Foundry on some sort of like a joint venture or a cooperation, any type of the cooperation?

Chitung Liu: I don’t want to comment on market rumors. I think for issue like this is so sensitive and important has to come from the official announcement from any company involved. But I think from again, from UMC’s perspective, we consistently looking for strategic options to enhance shareholders value. Anything can help to increase our competitiveness as well as the shareholders’ value, we will certainly look into that. And currently there’s no ongoing so-called the merger activity right now. So again, we have to say that there’s no merger ongoing right now. But it doesn’t have to be merger. There are many other collaborations we can still pursue to enhance shareholders value and returns. And that is our mandate. And we are continuing to explore all different kinds of options.

Laura Chen: Yes, certainly. My second question is about the margin. Obviously into Q2, even though there’s a lot of macro uncertainty, we see that the iteration rate improvement and also the growth margin back to 30%. So can we kind of assume that Q1 is the trial for the growth margin since we have the one-time pricing adjustment back in Q1 as the overall demand seems to back to no more. So I’m just wondering what’s our view on the overall growth margin trends going forward.

Chitung Liu: Unfortunately, we mentioned the second half, the visibility becomes very limited with a lot of increasing uncertainty. So it makes us very difficult to predict the numbers for the second half. We can only give the guidance a quarter at a time. But our possibilities largely depend on product mix, pricing utilization rate and forex movement and COGS. We have taken several initiatives to enhance our possibilities that include business engagement, technology differentiation, driving the efficiency in operations and improving our CapEx efficiency to manage the depreciation impact. So current growth margin level reflects Q1, 2025, one-time pricing adjustment, as well as the depreciation increase, mainly coming from P6 in Tainan, as well as the upcoming P3 in Singapore.

And we are actively looking to improve our product mix, such as more specialty content and higher 22-28 wafer shipment and drive the efficiency in operation when our EBITDA margin can still remain intact.

Laura Chen: Okay, that’s very fair. Thank you very much.

Chitung Liu: Thank you.

Operator: Next one, Brad Lin, Bank of America Securities. Go ahead, please.

Brad Lin : Thank you for taking my question. Congrats on the, well, solid 1Q result and also the bright second quarter guidance. I have two questions. The first question would be in terms of the customer type, has UMC seen potential upside from maybe North America or IDM due to the current tariff issue? Thank you.

Chitung Liu: I think we do see increasing customer appreciation to UMC’s regionally diverse manufacturing base. So for various reasons, customer may need to have certain type of product manufacturing in some specific manufacturing sites. And UMC with operations in Singapore, Taiwan, Japan, and China, and upcoming U.S. capacities, I think our customer appreciates even more recently with the option we can offer. So I think that’s the feeling and also the sense we get from the recent conversation with many of our major customers.

Brad Lin: Thank you very much. That’s very clear. But a follow-up question on that is that at what time do we expect to see so-called meaningful contribution from this kind of impact?

Chitung Liu: So far, it’s very difficult to quantify. But for our Singapore fab, probably the best example that the P3 is going to volume production in early 2026. And I think it’s becoming a very pursuit after location for its less impacted geopolitical tension. So certainly if there’s any demand, and we see the capacity we can offer, we will certainly see a better performance out of our Singapore fab. And same argument can apply to any other side we have. So I cannot give you a quantified answer for now. Just the customer appreciation certainly will endorse our customer relationship and the so-called thickness for the longer term.

Brad Lin: Got it. Thank you very much. Hopefully that we can also gain more so-called LTA with that as well. If any, please do let us know. So my second question would be, well, in market demand. So could you also provide insights into the demand trends across the key end markets, such as especially for automotive and also industrial, as well as the consumer electronics. Have there been any notable shifts in the customer behavior or order patterns recently compared to our last earnings call? Thank you.

Chitung Liu: For Q1, consumer segment grew, as our CFO alluded to, driven by Wi-Fi, DTV, set-up box, and driver IC. But all the other segments, such as communication, remained relatively flat, and we saw computing kind of decline due to a softer demand in IO. Automotive for Q1 also declined due to softness in microcontrollers, DDI, as well as power management. But, as you know, for Q2, all major segments for computing, communications, consumer will grow. For computing segments, we expect that growth will be driven by a flash controller IC. For communication, it will be increased from ISP, networking, flash controller, as well as Wi-Fi. For consumer, it will grow due to continuous growth from DTV and set-up box. And last, but for automotive, we expect that segment to be flattish looking for Q2.

Brad Lin: Should we expect any meaningful recovery from this auto industry, which seems to be, well, relatively softer for a while?

Chitung Liu: So, the automotive right now, the inventory seems kind of relatively high, obviously, compared to other key segments of our business. So, for now, we remain a more conservative tone for the auto market.

Brad Lin: Got it. Thank you very much.

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

Charlie Chan: Thanks for taking my question. Chitung, my first question would be also on growth margin. So, it seems like 1Q, you’re doing a little bit better than guidance of mid 20%. And 2Q kind of hit 30% amidst some pricing pressure. Can you share with us some more color about which parts are doing better, no matter pricing or cost, or just a kind of impact, so you can deliver a better gross margin? Thank you.

Chitung Liu: Well, thank you for saying that’s better. Personally, I don’t think it’s better. We never feel enough to pursue a better gross margin. I think it’s a very important index internally for all the management teams. So, we continue to proactively deploy cost reduction efforts, including multi-stop streamline our operation, manage supply chain pricing, and drive automation transformation. So, these measures kind of help us to offset, or at least partially, about those cost headwinds, including green energy, including yearly, annually salary adjustment. So, there are a couple of headwinds we need to offset. So, our cost reduction efforts, and in the beginning of the call, we mentioned that Q1, Q2 is slightly ahead of our expectation, compared to the guidance we gave for the beginning of the year.

But that kind of only gave us a buffer. Hopefully, it’s enough for the increasing uncertainty for the second half. So, pursuing a better gross margin is the analyst’s mandate for the management team. We hope we can do better.

Charlie Chan: Sure, yes. Thanks for the comment, and I hope you can keep it up. And the second question is about your partnership with Intel in the U.S. Just out of curiosity, do you receive some requests that some of your customers want you to accelerate that U.S. operation with Intel? Because it seems like your foundry peer seems to receive a similar request, and even some customers are willing to pay a higher wafer price for their chips to be produced in the U.S. I know you have a planned schedule for the 12 nanometer in the U.S., but I’m just curious whether you are receiving similar requests that hope you can speed up.

Chitung Liu: The answer is yes. I think most of the customers like to see the 12 nanometer solution as early as possible, and they also have a very aggressive product launch time, and they hope our 12 nanometer solution can catch up with their product roadmap. So, yes, the pressure is there. We understand that, and we received inquiries from our so-called early adopt customers. That’s why we are under the pressure to try to expedite the whole process. But it’s already a very aggressive process, I mean timeline. So it’s also the first time we collaborate with our partner, and there’s also many tasks that need to be solved before we can even try to catch up with our aggressive timeline. So, again, there’s a pressure and a wish to do so, but in reality, so far we are on track with our planned schedule.

Charlie Chan: Got you. So, yes, thanks for that answer. So besides the hope for you to accelerate the plan, do you also see some desire for you to even kind of reach out to more advanced nodes? Because I know you need to plan ahead, right? Maybe three to four years if you want to further migrate to below 12 nanometer. I ask these questions because your industry peer already officially denied their future partnership with U.S. fab, which is Intel. So I’m not sure if that gives you more room or your customers wish you to migrate to more advanced nodes that would adopt EUV?

Chitung Liu: So if you are using the market story as a background for this question, I have to be extremely careful, right? So in that case, the answer is no. So we are only focusing on the current node, which is 12 nanometers. And both companies decided, and there’s a contract between two companies to execute this 12 nanometer collaboration. And for UMC alone, of course I can speak for UMC, we appreciate this collaboration with our U.S. partner. And we offer our country know-how and the bulk of the technology structure. And U.S. partner offer the on-site capacity with very limited depreciation. So we think it’s a very innovative mutual benefit collaboration. And certainly we don’t want to be limited to the current node only. However, this contract only covers 12 nanometers for now.

Charlie Chan: Okay, that’s a great answer as well. The last one, I think a very kind of technical, short-term question. So I’m sorry, but did you maintain your four-year guidance? And if that’s the case, what’s the implied half-and-half sustainability? How much conservative are you begging for a second half?

Chitung Liu: Our view for the whole 2025 hasn’t really changed. Our view on 2025 foundry market is expected to grow in the mid- to high-teen percentage. Like we mentioned earlier, the previous quarter. UMC’s addressable market should grow around, I mean, low single digits for our addressable market, which we intend and we have declared we’re going to outgrow that. Of course, I just mentioned that the first quarter plus the guidance for quarter two put us a little bit ahead of our expectation. But the uncertainties in the second half may offset that, which we don’t know clearly yet. So that’s the current view for the whole 2025.

Charlie Chan: So we probably use single digit, maybe mid-single digit as a full year guide and try to calculate the implied second half. Is that the right way to think about your narrative on the second half?

Chitung Liu: Let’s stick to the qualitative statement that we’re trying very hard to outperform our addressable market.

Charlie Chan: Okay. Thank you. I’ll be back to the queue. Thank you.

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

Gokul Hariharan: Hi, Chitung. Thank you, Michael. My first question is on margins. I think you kind of got back to 30% in Q2. How should we think about the cadence for margins? Because it looks like your implied expectation in the second half is going to be largely flourish, looks like. So if that’s the case, how should we think about margins? And could you also refresh what is your expected depreciation growth? I think last time you said high 20% for this year. Is that still the case given Q1? I think the increase was not that big sequentially.

Chitung Liu: Depreciation increase is still high 20% for 2025. Each quarter is sequentially going up. So we are facing higher depreciation expenses for every quarter. So that’s the pressure. And for margin guidance, I think I have to highlight that about two percentage points in Q1 was impact from the earthquake. That’s one out. So if you add back that 2%, the increase is more mild for the second half. And again, we are very sensitive to loading for the second half in terms of where we are for the margin. We know the factor such as pricing the depreciation. But we don’t know the factor for ForEx and loading. So of course we continue to try to enrich our product mix by having more 22 nanometers. So all these factors blended together create the formula for our gross margin, especially in the second half.

Gokul Hariharan: Understood. So is 22-28 combined now higher margin compared to the corporate average already or is it still not there yet?

Chitung Liu: If you exclude the new depreciation out of Tainan P6 and Singapore P3, of course it is. But if you include that, I’m not so sure. It may not be the case. But the depreciation is there any way without the extra 22-28 contribution. So of course the more the merrier.

Gokul Hariharan: That’s fair. Thanks, Chitung. So just on the Singapore P3, are you having any thought about accelerating the capacity plan given you mentioned you’re getting a lot more demand coming through or interest coming through for Singapore fab? Because I think previously you kind of slowed it down a little bit compared to previous plan given the demand outlook. Is that something that we could anticipate some change?

Chitung Liu: I think that’s definitely dynamic. So the future capacity ramp for Singapore will depend on the alignment with our customer needs. And of course we have begun to see a pickup in PayPal. So that may or may not translate into a pickup in customer demand. But PayPal definitely already sees a pickup. So it could happen. But the current plan is still the production ramp. The net production will be in early 2026.

Gokul Hariharan: Understood. And lastly on the Intel collaboration, I think once you start the 12 nanometer revenue contribution, could you talk a little bit about what kind of customers you’re seeing adopting this? And secondly, once you start the revenue contribution, what is the impact to your margins or EBITDA given the unique kind of arrangement that you have with Intel?

Chitung Liu: Michael, if you answer the first question, I can answer the second question.

Michael Lin: Okay. As for now, our key focus is on Wi-Fi connectivity and high-speed interface SoC product. So in addition to this 12 nanometer large process, we’re also exploring potential FinFET specialty technology solutions to further complement our portfolio with diverse product applications.

Chitung Liu: As for the margin, certainly we hope it’s an enhancement to our corporate average. But it largely depends on the capacity utilization rate. And by structure, there’s limited depreciation cost item in the COGS. But overall U.S. manufacturing probably will have higher manufacturing costs than the manufacturing in Taiwan. So these two factors will need to see how to offset each other. So there’s still many variables. We have to wait until closer to 2027.

Gokul Hariharan: Got it. And the capacity allocated into this arrangement, is that largely a static capacity that Intel has already allocated? Because obviously, they have a lot of capacity on 14 nanometer given that was a full node for Intel, right? So they probably have quite a bit of capacity even after some of the conversion. So is that a static allocation or is it something that is dynamic depending upon how demand goes?

Chitung Liu: I would say it’s more dynamic. However, it definitely needs a certain economy of scale to start with. And it depends on how customer adoption for this technology and this collaboration. Certainly, we would be pleased. There could be upsides if the market adoption is more than expectation.

Gokul Hariharan: Got it. Thank you very much.

Chitung Liu: Thank you.

Operator: Next one, Felix Pan, KGI. Go ahead, please.

Felix Pan: Hi, good afternoon. There are two questions from me. First of all, still on the semiconductor tariff potentially, I just want to double confirm. I think a couple of months ago, I think TSMC made a statement that customers should care of the tariff things. I just wonder, is UMC also holding this kind of view if the tariff on semiconductor plays? That’s my first question.

Chitung Liu: So I cannot comment on our competitor. And I also mentioned earlier, UMC will adopt a very transparent cooperation alignment with our customers to cope with these potential tariff issues. So that’s our stance. So how to deal with this possible potential tariff together with our customers is our key approach.

Felix Pan: Okay, so if that means you don’t rule out the possibility that Foundry also has to bear the cost to some degree, is that right?

Chitung Liu: It’s not what I said, no. What I said was, we will cooperate with our customers in a very transparent environment and collaboratively to deal with this tariff issue.

Felix Pan: Okay, understood. The second question, I understood that the visibility for second half is still unclear. I think besides the demand profile, can you just share a little bit if potentially the down cycle is coming. Assuming that, how you see the inventory level across the different applications from your perspective?

Chitung Liu: Okay, so as far as the inventory goes, the current days of inventory remain similar to first quarter 2025. In terms of applications, the DOI as well as the inventory for consumer electronics remain at a healthy level. However, days of inventory for automotive and industrial segments remains relatively high and we expect that it will take more time to digest. Obviously, we will continue to carefully monitor the ongoing impact of the tariff policy. It has obviously created a very challenging environment in the semiconductor supply chain.

Felix Pan: Okay, can I just have a quick follow-up on that? I understood, different from other cycles, currently besides the auto, every other application are at a healthy level. But because of the 90-day pause for the tariff things, do you see the inventory, how likely to elevate in second quarters? Do you think it’s likely like that and how serious for the inventory to pop up?

Chitung Liu: As we mentioned, there’s not much so-called net net impact from the tariff rush order yet in the second quarter. So, it should translate to a normal inventory for the coming quarter. However, again, the second half visibility is very, very limited. So, anything using the current data to assume may change overnight. So, it’s very difficult for us to give a comment on that.

Felix Pan: Okay, thank you.

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

Jason Zhang: Thank you for taking my questions. My first question is in terms of the advanced packaging. I think previously you mentioned that UMC probably is moving to the advanced packaging market. So, can you provide us more details or long-term plan in terms of this new area? And I also saw the news or rumors suggest that UMC is cooperating with U.S. clients such as Qualcomm. So, I wonder if you can provide more details in terms of this new applications? Thank you.

Chitung Liu: All right. Thanks, Jason. Obviously, we can’t really comment on specific customers. But as far as packaging-wise goes, we’re very, very excited about our customer engagements in 3D wafer-to-wafer segments. That encompasses RF front-end modules. Also, for sensor memory as well as logic, we’ve gotten the requirements, and they’re actually picking up in terms of engagements. As far as 2.5D interposer, we have seen that the projects for HPC-related projects for interposers, as well as deep trench capacitors, these are requirements have also continued to grow. So, we expect that obviously will be a trend to come, and we will definitely prepare ourselves to accommodate these emerging trends.

Jason Zhang: Got it. Thank you. So, how is the contribution do you expect in the future if those kind of projects can start meaningful shipments or volumes in this year or in the future? Thank you.

Chitung Liu: This is still in a very early stage. So, we don’t expect to see significant revenue contributions in 2025.

Jason Zhang: Got it. So, my second question is in terms of the demand side. I think your competitor in China also suggests that there is a very solid growth momentum on the demand side, and their utilization rate has a meaningful improvement since the second half of last year. And you also gave a very solid growth in Q2. So, can we assume that there’s structural improvements or recovery or growth in metro node? Or do we see lower competitions from Chinese players because of this kind of recovery or improvement? And looking into the future, if this kind of demand can further increase, I mean, can our selling price or gross margin can be driven by this kind of meaningful growth? So, I wonder if you can give us more color on it. Thank you.

Chitung Liu: Yes. I wish I could jump into that conclusion. I mean, that would be great. But unfortunately, that’s not what we see right now. What we are seeing is really for the first quarter and the second quarter guidance, we are a little bit ahead of beginning of the year guidance. So, it’s doing slightly better, but not too much. And the increasing geopolitical tensions and the potential tariffs certainly shadow the second half. And visibility has become very unclear for the second half. So, we cannot jump into the conclusion you mentioned. Although, UMC continue to focus on the differential technology in order to cope with the upcoming new competitors. And our 22-28 platform is crucial for UMC strategy to move away from the commodity type of market.

And we have probably the most competitive solution in 22-28 EIV, which has enabled UMC to become the leader in OLED display market segment. In addition, our 22 ultra-low power and 22 ultra-low leakage technology. These offerings deliver 30% to 50% power savings compared to standard 28 nanometer nodes. And it’s ideal for IoT device wearables and AI applications. So, all this plus our diversified manufacturing locations. We believe we are in a unique position to fend off those potential commodity capacities, no matter where you’re located. So, we are confident about our strategic position. So, hopefully that answers your question.

Jason Zhang: Understood. Thank you. I have no more questions. Thank you.

Operator: Thank you. And ladies and gentlemen, we’re going to take the last question. And the last one, Frank Lee, HSBC. Go ahead, please.

Frank Lee: Hi, thank you for taking my question. So, my question is, with the ongoing tension between U.S. and China, do you foresee any potential impact to your China facts? For example, are you expecting foreign customers to reallocate their orders from your China facility to maybe outside of China, such as Singapore, Japan, or even Taiwan? And do you foresee your localized customers to maybe reallocate, also allocate their orders to a domestic China country?

Chitung Liu: First of all, in order to mitigate the geopolitical tension, what we can do is first to 100% following the law. So, no matter if export control or any of the local compliance requirements, UMC devotes all the resources to meet the compliance and the export control requirements. So, we’re following every rule out there. There’s no gray area for that. And secondly, we are happy with our geographically diversified production base, because you never know at what point of the time there will be requirements for customers to move around their productions. In fact, our China fab today is actually enjoying higher than corporate average loading. And we’re certainly also seeing customers need to see more capacity available in our Singapore, Taiwan, or Japan fab. So, all we can do is really try to be as diversified as possible, and make sure all these Fabs can support each other in many of our major technologies and offerings. That’s all we can do.

Frank Lee: Okay. Thank you. That’s all I have.

Operator: Thank you. And ladies and gentlemen, we thank you for your questions. That concludes today’s Q&A session. And I’ll turn things over to UMC IR Manager for closing remarks. David, please.

David Wong: Thank you, everyone, for joining us today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at IR @umc.com. Have a good day.

Operator: Thank you. And ladies and gentlemen, that concludes our conference for first quarter ’25. We thank you for your participation in UMC’s conference. There will be a webcast replay within one hour. Please visit www.umc.com under the Investors Event section. You may now disconnect. Thank you and goodbye.

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UNITED MICROELECTRONICS CORP

Q1 2025

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