Prepared remarks
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 an 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.
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 the 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 are under control and 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 the 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 remains 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 contributed 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 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 shows a mild growth on Page 10 to 18% of the total revenue breakdown in Q1 2025. And the consumer segment is the strongest in Q1, mainly driven by Wi-Fi, DTV, set-top box, and DDI. And communication and computers didn't really change that much. And we're happy to see our 40-nanometer and below revenue now over 50% of our total revenue. Now reached 53% in Q1 when 22 and 28-nanometer revenue accounts for 37% of the total revenue breakdown.
In Q1, there was some disruption from the earthquake, but mainly there's also the annual maintenance schedule. So capacity in Q1 was lower. And for quarter two, we see the back-to-normal capacity as well, with some mild increase coming out of Singapore fast due to the ramp starting. On Page 14, our 2025 CapEx remains unchanged at $1.8 billion. So this about summarizes 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, 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 highlights include 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 customers 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 provides 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 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, 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 the 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 the capacity utilization rate will also recover to 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.
Questions and answers
Thank you, Chitung. Ladies and gentlemen, we will now start the question and answer session. Our first question comes from Sunny Lin at UBS. Please go ahead.
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 the second half? And how is 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 tariffs?
Okay, so UMC collaborates closely with customers for technology and product qualification across multiple fabs, reducing risks and ensuring supply chain resilience. We adopt a forward-looking approach to mitigate business risk, including a geographically diversified manufacturing footprint. By 2027, we will have a manufacturing base for the most advanced available technology in the U.S. UMC also has a healthy financial structure to navigate through macro uncertainty. Although the escalating trade tensions and global tariff policy have increased uncertainties in the semi-industry, we have not seen market demand change in the very near term, i.e., quarter two 2025 yet. Of course, visibility in the second half is becoming very limited. Longer term, customers may decouple their internal manufacturing options and explore external wafer sourcing options. UMC's strategic positioning is focused on technology differentiation, global manufacturing diversification, product mix optimization, and manufacturing asset management. 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 of our expectations at the beginning of the year. And that will give us some buffer for the increasing uncertainty in the second half.
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 a meaningful drop-off going into the second half because there are not much being pooled in?
There's not that much pooling, you are correct, for quarter two. There's some customers who are sidelined and they want to take some precautionary action. But there are some customers doing the opposite. So net impact for quarter two is very limited. But again, we cannot really see through the second half. What we are seeing right now doesn't really suggest there will be a shortfall in the coming quarters.
Got it. Thank you. My follow-up question on tariffs is in terms of the potential disruptions about the supply chain on the pricing side. And so if tariffs 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?
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 bases. All that attribute works to insulate UMC and our customers away from low entry barrier markets. Besides the pricing pressures, UMC remains committed to delivering differential technology and ensures our customers gain market share through long-term strategic partnerships. So our value proposition is really to work with our customers in a transparent manner. Any disruption or cost increase through tariffs, we believe we will co-work with our customers to come up with a solution.
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 sales going into the second half of 2025?
First of all, our guidance for the second quarter is mid-70 for the company as a whole. And of course, 12-inch is higher than corporate average and 8-inch is below corporate average. Among 12, I would say 22 and 28 is the better sector, if not the best sector. 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 answers your question.
That's very helpful. So mid-teen percentage in terms of total sales, correct?
That's correct.
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?
Maybe Michael can answer the question.
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. We expect the early PDK to be ready for the first wave of customers by 2026 as planned. In fact, we have been aligning with key customers on the device specs to speed up the ramp-up as quickly as possible. Right now we are putting the process technology Arizona Fab and so far the progress is on track.
Got it. And so basically sales contribution, you guys deal from 2027?
Yes.
Got it. Thank you very much.
Thank you.
Thank you. Next one, Laura Chen, Citi. Go ahead please.
Hi, thank you very much for taking my questions. I also want to know more about 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?
We have plenty of U.S. based IDM customers who consistently rank among our top customers. 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, at the current stage, the most important project is this 12-nanometer U.S. footprint collaboration with these U.S. partners.
Understood. Because previously I also have the news, I understand that management already kind of denied, but I'm just wondering, other than our current clients in U.S. IDMs, is there any chance we can also work with Global Foundries on some sort of joint venture or cooperation, any type of collaboration?
I don't want to comment on market rumors. I think for issues like this that are so sensitive and important has to come from an official announcement from any company involved. But I think from again, from UMC's perspective, we are consistently looking for strategic options to enhance shareholder value. Anything that can help to increase our competitiveness as well as shareholder value, we will certainly look into that. Currently, there's no ongoing so-called 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 a merger. There are many other collaborations we can still pursue to enhance shareholder value and returns. And that is our mandate. And we are continuing to explore all different kinds of options.
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 utilization rate improvement and also the gross margin back to 30%. So can we kind of assume that Q1 is the trial for the gross margin since we have the one-time pricing adjustment back in Q1 as the overall demand seems to back to normal? So I'm just wondering what's our view on the overall gross margin trends going forward.
Unfortunately, we mentioned the second half visibility becomes very limited with a lot of increasing uncertainty. So it makes it very difficult to predict the numbers for the second half. We can only give guidance a quarter at a time. But our possibilities largely depend on product mix, pricing utilization rate, foreign exchange movement, and COGS. We have taken several initiatives to enhance our possibilities that include business engagement, technology differentiation, driving efficiency in operations, and improving our CapEx efficiency to manage the depreciation impact. So the current gross margin level reflects Q1 2025, one-time pricing adjustments, as well as depreciation increases, mainly coming from P6 in Tainan, as well as the upcoming P3 in Singapore. We are actively looking to improve our product mix, such as more specialty content, and higher 22-28 wafer shipments, and drive efficiency in operation when our EBITDA margin can still remain intact.
Okay, that's very fair. Thank you very much.
Thank you.
Next one, Brad Lin, Bank of America Securities. Go ahead, please.
Thank you for taking my question. Congrats on the solid Q1 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.
I think we do see increasing customer appreciation for UMC's regionally diverse manufacturing base. For various reasons, customers may need to have certain types of product manufacturing in specific manufacturing sites. UMC, with operations in Singapore, Taiwan, Japan, and China, and upcoming U.S. capacities, I think our customers appreciate even more recently with the options we can offer. So I think that's the feeling and also the sentiment we get from the recent conversations with many of our major customers.
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 meaningful contributions from this kind of impact?
So far, it's very difficult to quantify. But for our Singapore fab, probably the best example that P3 is going to volume production in early 2026. I think it's becoming a very pursued location for its less impacted geopolitical tension. 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. The same argument can apply to any other site we have. So I cannot give you a quantified answer for now. Just the customer appreciation certainly will endorse our customer relationships and the so-called thickness for the longer term.
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.
For Q1, the consumer segment grew as our CFO alluded to, driven by Wi-Fi, DTV, set-top box, and driver IC. But all the other segments, such as communication, remained relatively flat, and we saw computing decline due to a softer demand in IO. The automotive for Q1 also declined due to softness in microcontrollers, DDI, as well as power management. But for Q2, we expect all major segments for computing, communications, and consumer to grow. For computing segments, we expect that growth will be driven by 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-top box. And last, but for automotive, we expect that segment to be flattish looking for Q2.
Should we expect any meaningful recovery from this auto industry, which seems to be, well, relatively softer for a while?
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.
Got it. Thank you very much.
Thank you. Next one, Charlie Chan, Morgan Stanley. Go ahead, please.
Thanks for taking my question. Chitung, my first question would be also on growth margin. So, it seems like in Q1, you're doing a little bit better than guidance of mid-20%. And Q2 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.
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 streamlining our operations, managing supply chain pricing, and driving automation transformation. These measures kind of help us to offset, or at least partially, some of those cost headwinds, including green energy, including annual salary adjustments. So, there are a couple of headwinds we need to offset. Our cost reduction efforts, and in the beginning of the call, we mentioned that Q1 and Q2 is slightly ahead of our expectations 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 in the second half. Pursuing a better gross margin is the analyst's mandate for the management team. We hope we can do better.
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.
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 very aggressive product launch timelines, 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. It's also the first time we collaborate with our partner, and there are also many tasks that need to be solved before we can even try to catch up with our aggressive timeline. So, again, there's pressure and a wish to do so, but in reality, so far we are on track with our planned schedule.
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 nanometers. 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.
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. Both companies decided, and there is a contract between the two companies to execute this 12-nanometer collaboration. For UMC alone, of course, I can speak for UMC, we appreciate this collaboration with our U.S. partner. We offer our country know-how and the bulk of the technology structure. The U.S. partner offers on-site capacity with very limited depreciation. So we think it's a very innovative mutual benefit collaboration. Certainly, we don't want to be limited to the current node only. However, this contract only covers 12 nanometers for now.
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 being for a second half?
Our view for the whole 2025 hasn't really changed. Our view on the 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 low single digits for our addressable market, which we intend and 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 expectations. 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.
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?
Let's stick to the qualitative statement that we're trying very hard to outperform our addressable market.
Next one, Gokul Hariharan, JPMorgan. Go ahead, please.
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 flattish. How should we think about margins? 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.
Depreciation increase is still high 20% for 2025. Each quarter is sequentially going up. So we are facing higher depreciation expenses each quarter. That's the pressure. And for margin guidance, I think I have to highlight that about two percentage points in Q1 were impacted by the earthquake. That's one factor out. If you add back that 2%, the increase is more mild for the second half. Again, we are very sensitive to loading for the second half in terms of where we are for the margin. We know the factors such as pricing and depreciation. But we don't know the factors for foreign exchange and loading. 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.
Understood. So is 22-28 combined now higher margin compared to the corporate average already or is it still not there yet?
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 anyway without the extra 22-28 contribution. More production is always better.
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 the Singapore fab? Because I think previously you kind of slowed it down a little bit compared to the previous plan given the demand outlook. Is that something that we could anticipate some change?
I think that's definitely dynamic. The future capacity ramp for Singapore will depend on alignment with our customer needs. 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.
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?
As for now, our key focus is on Wi-Fi connectivity and high-speed interface SoC products. 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.
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 items in the COGS. Overall, U.S. manufacturing will probably have higher manufacturing costs than manufacturing in Taiwan. So these two factors will need to see how to offset each other. There are still many variables. We have to wait until closer to 2027.
Got it. Thank you very much.
Thank you.
Next one, Felix Pan, KGI. Go ahead, please.
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 on the tariff on semiconductor plays? That's my first question.
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. How to deal with this possible potential tariff together with our customers is our key approach.
Okay, so if that means you don't rule out the possibility that the foundry also has to bear the cost to some degree, is that right?
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.
Okay, understood. The second question, I understood, that the visibility for the 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 do you see the inventory level across the different applications from your perspective?
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 remain 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.
Okay, can I just have a quick follow-up on that? I understood, different from other cycles, currently besides the auto, every other application is at a healthy level. But because of the 90-day pause for the tariff things, do you see the inventory likely to elevate in the second quarter? Do you think it's likely like that and how serious for the inventory to pop up?
As we mentioned, there's not much so-called net positive impact from the tariff rush orders 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. Thank you.
Thank you. And ladies and gentlemen, that concludes today's Q&A session. And I'll turn things over to UMC IR Manager for closing remarks. David, please.
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.
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.