UMC earnings call summary

Prepared Highlights

• Q1 2025 consolidated revenue was NT$57.86 billion, gross margin 26.7%, net income NT$7.78 billion, EPS NT$0.62 (CFO).
• Wafer shipment flat sequentially, up 12% year-over-year (CFO).
• Revenue declined 4.2% sequentially due to one-time price adjustment at beginning of year; ASP declined ~4%–5% (CFO).
• Gross margin impacted by lower ASP and earthquake; operating expenses 10.6% of revenue (NT$6.1 billion); operating income NT$9.7 billion (15.9% margin) (CFO).
• Non-operating loss of NT$439 million from mark-to-market investment valuation (CFO).
• Cash position NT$106 billion at March 31; total equity NT$390 billion (CFO).
• 22/28nm revenue at record high, 37% of total sales; 22nm revenue up 46% QoQ driven by OLED display driver ICs, ISPs, digital TV, Wi-Fi, audio codec (CFO).
• 40nm and below revenue over 50% of total, reaching 53% in Q1 (CFO).
• Revenue breakdown: Asia-based customers 56%, North America 22%, IDM 18%; consumer segment strongest (Wi-Fi, DTV, set-top box, DDI) (CFO).
• 2025 CapEx unchanged at $1.8 billion (CFO).
• Board proposed cash dividend of NT$2.85 per share, subject to shareholder approval on May 28 (CFO).
• Official guidance (Q2 2025): Wafer shipment +5% to 7% sequentially; ASP in USD flat; gross margin ~30%; capacity utilization rate recovering to mid-70% range (CFO).

Mgmt Quotes

• "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." (CFO)
• "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." (CFO)
• "We expect customer to take out additional 22 nanometer products in the coming quarters." (CFO)
• "Looking ahead to the second quarter, we are expecting a moderate rebound in demand across all segments." (CFO)
• "We are implementing cost reduction plans and accelerating AI and intelligent manufacturing systems to enhance operational efficiency." (CFO)

Prepared Metrics

Q&A Batch (1-5 of 8)

Q1 — Sunny Lin

• Topic: Q2 demand drivers, tariff impact on pricing/margins, 28/22nm mix, Intel 12nm partnership update
• Key points:
  • Q2 growth is not driven by pull-ins; net impact from customers taking precautionary actions vs. opposite actions is “very limited”.
  • 22/28nm combined = 37% of total revenue; 22nm alone is “more than mid-teen” of total sales and continues to increase.
  • Intel 12nm JDP is on track; pilot line silicon performance is being verified; early PDK ready for first wave of customers by 2026; sales contribution expected from 2027.
• Mgmt stance: Neutral on Q2 demand (no meaningful pull-in, limited net impact); cautious on H2 visibility (“cannot really see through second half”); bullish on 22nm as key 2025 growth driver.

Q2 — Chitung Liu (response to Sunny Lin follow-up on tariff)

• Topic: Tariff cost-sharing and pricing strategy
• Key points:
  • UMC does not compete purely on pricing; strategy is built on technology differentiation and regionally diversified manufacturing.
  • Any tariff-related cost increase will be co-worked with customers to find a solution; no general answer on pricing/margin impact.
• Mgmt stance: Neutral – no specific guidance on tariff impact; emphasizes transparent collaboration with customers.

Q3 — Brad Lin

• Topic: Customer appreciation for regional diversification, end-market demand trends (auto/industrial/consumer)
• Key points:
  • Customers increasingly value UMC’s regionally diverse manufacturing base (Singapore, Taiwan, Japan, China, upcoming U.S.).
  • Singapore fab P3 volume production in early 2026; demand quantification is “very difficult” now.
  • Q1: consumer grew (Wi-Fi, DTV, set-top box, driver IC); communication flat; computing declined (softer IO); automotive declined (microcontrollers, DDI, power management).
  • Q2: computing, communications, consumer all expected to grow; automotive flattish; auto inventory “relatively high” vs. other segments.
• Mgmt stance: Cautious on automotive (“remain a more conservative tone”); neutral on regional diversification benefit (no quantified impact yet).

Q4 — Charlie Chan

• Topic: Gross margin trajectory, Intel 12nm acceleration requests, 2025 full-year guidance
• Key points:
  • Q1 gross margin had ~2pp impact from earthquake; Q1+Q2 slightly ahead of beginning-of-year expectation, providing a buffer for H2 uncertainty.
  • Customers request acceleration of 12nm U.S. solution; pressure exists but timeline is already aggressive and on track.
  • Contract with Intel covers only 12nm node; no plans for more advanced nodes (EUV) under current agreement.
  • 2025 foundry market expected to grow mid- to high-teen%; UMC’s addressable market grows low single digits; UMC intends to outgrow it.
• Mgmt stance: Neutral on gross margin (cost headwinds from depreciation, green energy, salary adjustments; cost reduction efforts partially offset); cautious on H2 uncertainty; bullish on outgrowing addressable market.

Q5 — Gokul Hariharan

• Topic: Depreciation, 22/28nm margin, Singapore P3 capacity, Intel 12nm customer profile and margin impact
• Key points:
  • Depreciation increase is still high 20% for 2025, sequentially rising each quarter.
  • 22/28nm combined is higher margin than corporate average if excluding new depreciation from Tainan P6 and Singapore P3; including depreciation, “may not be the case”.
  • Singapore P3 production ramp still on track for early 2026; prepay (PayPal) pickup seen, but capacity ramp depends on customer alignment.
  • Intel 12nm revenue contribution expected from 2027; no details on customer adoption or margin/EBITDA impact provided.
• Mgmt stance: Neutral on margin (depreciation pressure, loading uncertainty); cautious on Singapore acceleration (dynamic, depends on customer demand); no stance on Intel 12nm margin impact (no data given).

Q&A Batch (6-8 of 8)

Q6 — Michael Lin

• Topic: 12nm/FinFET specialty technology, U.S. manufacturing margin outlook, capacity allocation with Intel
• Key points:
  • Focus on Wi-Fi connectivity and high-speed interface SoC; exploring 12nm large process and potential FinFET specialty solutions to complement portfolio.
  • U.S. manufacturing expected to have higher costs than Taiwan; margin enhancement depends on capacity utilization rate and offset between limited depreciation in COGS and higher overall costs; many variables remain until closer to 2027.
  • Capacity allocated with Intel is more dynamic but requires a certain economy of scale to start; upside possible if market adoption exceeds expectations.
• Mgmt stance: Neutral – margin outcome uncertain due to offsetting cost factors; capacity scalability depends on customer adoption.

Q7 — Chitung Liu

• Topic: Tariff impact, inventory levels by application, second-half visibility
• Key points:
  • UMC will cooperate with customers transparently on potential semiconductor tariffs; cannot comment on competitor stance (TSMC).
  • Current days of inventory (DOI) similar to Q1 2025; consumer electronics inventory healthy; automotive and industrial DOI remain relatively high and need more time to digest.
  • No net net impact from tariff rush orders in Q2; second-half visibility very limited and could change overnight.
• Mgmt stance: Neutral/cautious – tariff environment challenging, inventory digestion still ongoing in auto/industrial, no clear view on H2.

Q8 — Chitung Liu

• Topic: 3D wafer-to-wafer packaging, 2.5D interposer demand, mature node growth outlook, competitive positioning
• Key points:
  • Excited about customer engagements in 3D wafer-to-wafer (RF front-end, sensor memory, logic); 2.5D interposer projects for HPC and deep trench capacitors growing; no significant revenue contribution expected in 2025 (very early stage).
  • Q1 and Q2 guidance slightly ahead of beginning-of-year expectations but not a structural recovery; geopolitical tensions and potential tariffs shadow H2; cannot conclude strong demand recovery or margin improvement.
  • 22-28nm platform key for differentiation; 22nm ultra-low power/leakage delivers 30%–50% power savings vs standard 28nm, targeting IoT, wearables, AI; diversified manufacturing locations help fend off commodity capacity competition.
• Mgmt stance: