Prepared remarks
Welcome, everyone, to UMC's 2026 Second Quarter Earnings Conference Call. For your information, this conference call is now being broadcast live over the Internet. Webcast replay will be available within 2 hours after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations Investors Event section. Now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. And Mr. Lin, please begin.
Thank you, and welcome to UMC's conference call for the second quarter of 2026. I'm joined by Mr. Jason Wang, the CEO of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial results, followed by our CEO's key message to address UMC's focus and third quarter 2026 guidance. Once our CEO and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial reports are available on our website, www.umc.com, under the Investors Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including 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 ROC securities authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu to discuss UMC's second quarter 2026 financial results.
Thank you, Jinhong. I'd like to go through the 2Q '26 investor conference presentation material, which can be downloaded or viewed in real time from our website, starting on Page 4. For the second quarter of 2026, consolidated revenue was TWD 68.73 billion with gross margin at 32.5%. Net income attributable to the shareholders of the parent was TWD 42.26 billion, and earnings per ordinary share was TWD 3.39. Utilization rate in quarter 2 climbed to 85% from 79% in the previous quarter, and total wafer shipment in the second quarter reached 1.13 million 12-inch wafer equivalent. On Page 5, we will start the sequential comparison. Revenue grew 12.6% quarter-over-quarter to reach TWD 68.7 billion. Gross margin rate increased by over 3 percentage points to 32.5% or TWD 22.3 billion. And because of recent stock market performance, our investment and dividend income together reached TWD 30 billion in the second quarter under nonoperating income and expenses, which helped our net income to reach TWD 42.2 billion. Net income attributable to the shareholders of the parent is TWD 42.26 billion or an EPS of TWD 3.39 per share in the second quarter. On Page 6, for the first six months of the year, the year-over-year comparison for the first half: our revenue grew 11.3% year-over-year to TWD 129.77 billion in the first six months of 2026. Gross margin rate also grew by over 3 percentage points to 30.9% or TWD 40.1 billion in the first six months of 2026. For the net nonoperating income, similar to what happened in the second quarter, for the first half the total nonoperating income reached TWD 35.6 billion, which led our net income to reach TWD 58.4 billion in the first six months of the year. EPS was TWD 4.68 in the first half of 2026. On Page 7, cash on hand is around TWD 124.7 billion, with total equity reaching TWD 443.9 billion at the end of the second quarter of 2026. On Page 8, our blended ASP increased by a low single-digit percentage in the second quarter of 2026. For revenue breakdown on Page 9, Asia remained our largest revenue pool, around 66% of total revenue, and North America reached about 22%. On Page 10, IDM didn't really change much. This quarter is around 15% versus 14% in the previous quarter. For sales breakdown by application on Page 11, there's almost no change for the revenue among the three major segments. For revenue breakdown by technology on Page 12, our total revenue under 40nm is still around 52%, with 22nm/28nm becoming our largest revenue pool, representing 37% of total revenue. Our quarterly capacity has shown some increase in our Singapore site, Fab 12i for the second quarter, and there will be a more meaningful increase in the coming quarter to reach 192,000 12-inch wafer capacity for our Singapore site. On Page 14, our annual CapEx budget has been raised to USD 2 billion from the previous number of USD 1.5 billion, which we will elaborate in more detail later during the conference call. That above is the summary of UMC results for the second quarter of 2026. More details are available in the report, which has been posted on our website. I will now turn the call over to the CEO of UMC, Mr. Jason Wang.
Thank you, Chi-Tung. Good evening, everyone. I would like to share UMC's second quarter results. In the second quarter, our wafer shipment increased 10.6% quarter-on-quarter driven by strong demand in communications and consumer segments, further improving utilization rate to 85%. Revenue from our 22/28nm business continues to set a record high with 22nm revenue representing 17.5% of second quarter sales. Earlier this month, we announced the company's first mass production delivery of a 12-inch photonics IC to a customer, a major milestone for UMC that demonstrates the company's high-volume silicon photonics manufacturing capabilities on 12-inch wafers. We are preparing to launch our silicon photonics platform available for general customer use in 2027. Looking ahead to the third quarter, we expect demand momentum to remain stable across the computer, communication and consumer segments with shipment projected to increase by high single digits, driven by strong demand for power management ICs, sensors and microcontrollers. Our 8-inch portfolio is also seeing a strong rebound and utilization is expected to improve significantly in the third quarter. With our 12-inch capacity already at a healthy utilization rate supporting core business, we must also prepare in advance to ensure UMC is well positioned to capture future opportunities driven by AI. To ensure we are ready to scale rapidly to support our customers, we announced today that our Board of Directors has approved a plan to expand cleanroom capacity at our Singapore P4 facility and to construct a new fab in Tainan, Taiwan. The plan will be executed in phases, enabling UMC to remain focused on capital discipline with the pace of facility deployment aligned to fulfill customer demand. As a result, the 2026 capital expenditure budget will be revised upward to USD 2 billion. Now, let's move on to the third quarter 2026 guidance. Our wafer shipment will increase by high single digits. ASP in U.S. dollars will remain firm. Gross margin will be in the mid-30% range. Capacity utilization rate will be greater than 90%. To support the growing customer demand in silicon photonics and advanced packaging, the 2026 CapEx will be raised to USD 2 billion from USD 1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.
Questions and answers
Yes. Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. Now we'll have our first question, Laura Chen from Citi.
Congratulations on the good result and outlook. It's great to see that UMC has made good progress on silicon photonics and also see improvement in power management ICs. I assume that these are for AI-related business. For the longer term, does UMC have any indication or target of AI-related revenue? And can you also give us a breakdown of products that you are aiming for?
First of all, our AI-related business is driven by specialty semiconductor solutions, supporting a broad range of applications including power management, connectivity, FPGA as well as our growing advanced packaging and silicon photonics business. Those are the focus. This business has already begun to contribute to our growth in 2026. Current revenue for 2026 is projected to be close to approximately USD 300 million for this year. Looking ahead, in three years we expect AI exposure to exceed USD 1 billion.
Very helpful. My second question is about the overall demand outlook. We know that in Q3 we will see the deterioration rate improvement. But consumer electronics demand in general is still quite weak. What's management's view about sustainability into probably Q4? Do you have visibility into maybe early next year?
Right now, what we see from the market is worldwide demand is improving with a broader and more sustainable momentum, but it remains more AI-led. AI is leading and it's building into memory, connectivity and power segments. AI demand recovery is still mixed across different end device markets. Inventory normalization is occurring and the market is moving toward a more balanced and predictable environment, which gives us increased visibility. For AI-related demand, XPU demand remains strong. Beyond compute, bottlenecks are also in memory, connectivity and power management. In the near term, we are seeing upside to silicon photonics, power and FPGA-related products, particularly in our 40nm and 65nm technologies. Non-AI demand is uneven, so we would not categorize the current environment as a full-blown broad-based recovery yet. Consumer segments including handset, PC and notebook will experience a year-over-year decline. However, for UMC, wafer shipment will grow year-on-year on 22/28nm as well as our 8-inch business. In conclusion, our 2026 wafer shipment will increase, driven by our foundry share gains and customer share gains in both AI and non-AI markets. The 8-inch loading will improve to the mid-80% range, while mature 12-inch loading will also increase quarter-on-quarter on AI-related demand.
Okay. In that case, can I also quickly check your view on the ASP trend into the second half?
Our pricing strategy has always remained consistent. We are not trying to maximize short-term pricing based on the market cycle. Instead, we focus on maintaining a sustainable business model through value-based pricing that reflects our differentiated technology, manufacturing capability and long-term partnerships with customers. As industry demand conditions continue to improve, we are working with customers to ensure pricing appropriately reflects that value while supporting continuous investment in technology and capacity.
Next one, Gokul Hariharan, JPMorgan.
Jason, could you talk about the capacity expansion plan at Singapore P4 as well as your plan to construct a new fab in Tainan? What milestones should we look at? What phases are you planning? How does this compare to your previous plan four or five years back when you had new phases in Tainan and built out the Singapore fab? Is this similar scale or much smaller?
Let me start with what drives that decision. When we map industry growth over the next five years, we see several important trends. Within the AI data center, while growth in compute and memory will remain high, we also see connectivity and power growing at a high CAGR driven by the need for more bandwidth and more efficient power. Second, the automotive electrification trend continues, not just EV but autonomy and infotainment. Third, emerging applications such as robotics and satellites will drive high growth in compute, memory, sensing, connectivity and power. These industry trends, combined with our entry into advanced packaging such as logic and memory stacking and silicon photonics, will accelerate growth within UMC's addressable market. Advanced packaging is enabling customers to think differently about architectures and designs. Since we believe we are ahead of our peers in advanced packaging, this is leading to share gain and many new opportunities. We believe the TAM will grow significantly compared to the past. Each expansion phase will be executed based on market validation, alignment and customer commitments, which will provide long-term capacity assurance to our partners and loading protection to UMC. In Singapore, we will invest in the cleanroom for our P4 facility and purchase equipment to expand our silicon photonics capacity. In Tainan, construction of 12A, P7 and P8 will set up a robust foundation for UMC to scale advanced packaging alongside customer roadmaps. We're building a foundation— a shell for 12A, P7 and P8. The cleanroom installation at this time is focused on Singapore P4. From the milestone standpoint, the Board has approved the plan and we will start engaging follow-on activities and report back on the installation schedule once we get confirmations from our installers.
I'll add on the details and the schedule. The Board has approved the investment and we are now starting the engagement with installers and vendors. We will provide more specific schedule details once tooling and installer timelines are confirmed.
Understood. And just a follow-up on the Intel collaboration on 12nm. Now that we are likely to start recognizing some revenues next year, how should we think about how meaningful these 12nm base revenues are going to be? Is it gross margin accretive given you have a revenue sharing and profit sharing kind of agreement with them? Could you talk about how to model this contribution going into next year?
Let me update the 12nm status. The 12nm cooperation project with Intel is advancing smoothly. We anticipate product tape-outs will commence in 2027. The PDK will be ready in May 2026, and customer design-ins are ready to tape-out in 2027. So 2027 will still be at an early pilot stage of ramping product; production will probably be more meaningful in 2028. At the current status, for the 12nm business model there will be contribution accretive to our current financials, but significant volume is expected more meaningfully in 2028.
Okay. Maybe one last question on gross margins. You're guiding for about 90% utilization and gross margin in the mid-30s. Historically when utilization reached above 90%, gross margins were higher. How do you think gross margins could progress this cycle? Can we go beyond 40% gross margins like in 2022, or is that a challenge now?
Our utilization rate and operating income have increased versus last year, and we expect to continue improving fundamentals. We do expect new projects like silicon photonics and advanced packaging will enhance our EBITDA margin. However, higher depreciation expenses from new fab ramps will have a swing impact on gross margin. With the announcement of the new fab in Tainan and the new cleanroom in Singapore, depreciation expenses will increase. We are confident we can deliver higher profit in absolute terms and improve EBITDA margins, but gross margin will depend heavily on the installed equipment and the depreciation expense curve.
Previously we thought depreciation might taper down after this year. Is that still the case or should we expect some increase in depreciation next year as you bring on new cleanrooms and phases?
Yes, the new cleanroom and the new shell certainly change the curve. We now expect depreciation to increase by low teens percentage over the next two years at least.
Next one, Charlie Chan, Morgan Stanley.
Jason, Chi-Tung, a few follow-ups. First, how about your customers' chip inventory? The end market seems challenging. According to our analysis, some fabless revenue is influencing your wafer shipment. Are you concerned about chip inventory accumulated at customers?
We're always cautious about inventory, but not at a level that causes immediate concern. For Q1 2026, DOI rose slightly. Inventory buildup came from a few areas. HPC was a strong driver; PC experienced early stocking due to rising memory prices. Inventory and DOI for smartphone and consumer segments are rising simultaneously, indicating weakness in the end market. Automotive and industrial demand is stable but DOI remains higher than historical average. For Q2 2026, while overall consumer spending remains weak, we expect semiconductor sales to stay strong in 2026, which will drive DOI up by several days again. We're tracking this closely and remain cautious.
With that, does this affect your negotiation with customers about passing through cost because you're increasing investments? Do you see a dynamic change to reflect more of your value next year?
The market outlook remains optimistic because it's driven by AI-related and non-AI-related demand. As demand conditions improve, the pricing environment becomes more constructive. Discussions with customers are constructive given increased visibility, and we expect the annual pricing trend to be better than previously anticipated, with more meaningful pricing uplift in 2027.
Can I follow up about advanced packaging? You plan to extend advanced packaging cleanroom in two phases. Previously you focused on interposer production and some RF 3D IC. Are you planning to do the full stack of 2.5D, for example CoWoS, and for 3D IC will you go beyond RF to AI accelerators? Also, your Vice Chairman moved to Unimicron—should we link these developments, with closer partnership in substrate?
Our advanced packaging offering began with interposer solutions and RFSOI 3D IC and chiplet solutions, but it now includes more. The addressable market for advanced packaging is projected to more than double by 2030 because it expands from 2.5D interposers with DTC, discrete DTC, and 3D wafer-to-wafer stacking including memory-to-memory stacking. Customer engagement is building with more than 10 active customers and over 35 new products in discussion expected to tape out in 2026 and early 2027. We are optimistic about advanced packaging. We have already entered production for 3D wafer-to-wafer hybrid bonding, bridge die and discrete DTC, and these will be followed by additional wafer-to-wafer stacking. We will continue to broaden our offering, but we are not positioning to compete as a CoWoS-only provider. Our ecosystem engagement will be broad and not limited to any one partner. Regarding Unimicron, at this point the connection is mainly financial investment. It is part of our investor portfolio. We remain open to exploring ecosystem opportunities with any partner if they arise.
Last one: the AI-related revenue — did you say the revenue will exceed USD 1 billion in three years and about USD 300 million this year?
Yes, close to USD 300 million this year, and in three years we expect to exceed USD 1 billion. AI-related revenue includes solutions associated with AI end products: connectivity, power management and other categories of AI applications.
Next one, Sunny Lin, UBS.
Congrats on the strong outlook. I want to confirm that the two new expansions are mainly for silicon photonics and advanced packaging, not for typical foundry nodes. You mentioned advanced packaging addressable market for UMC should more than double by 2030—can you share the addressable market size you are forecasting for UMC and how to think about contributions from various projects? Would embedded capacitors be a major part?
Yes. The announced cleanroom preparation at Singapore P4 is for silicon photonics capacity, and the Tainan facility P7 is prepared for advanced packaging. Advanced packaging growth includes DTC, interposers with DTC, discrete DTC, wafer-to-wafer stacking and memory-to-memory stacking. DTC plays a major part and a significant percentage of the more than 35 products discussed are DTC-related. I can't provide a single precise dollar figure for UMC’s addressable market today, but we believe the addressable market for our advanced packaging stack will be more than double by 2030. Inflection for advanced packaging revenue should occur when the new supply comes online. Given construction and tooling lead times, this would be in the 2028 to 2029 timeframe.
Got it. Regarding the Singapore expansion for P3, given stronger demand, how should we think about capacity you will ramp by the end of this year and by the end of 2027?
Part of the approved CapEx today includes capacity expansion in our P3 facility. In the existing facility we will be adding BCD, which is power management, as well as silicon photonics. For 12A in Taiwan, we will start putting customized memory stacking and DTC solutions in 12A in Tainan. We are also adding test capacity in our 8-inch facility. These additions are within existing facilities and will ramp as tooling and installation are completed. Given tool and install timing, we expect production ramps in late 2027 into early 2028.
Got it. A final question on silicon photonics: you have 12-inch licensed from imec and 8-inch TFLN solutions. Can you share the respective strengths and how customers should choose? Which one will drive more meaningful revenue in coming years?
For silicon photonics, our 12-inch solution offers better process control, which yields better performance, lower propagation loss and better yield. We have demonstrated that to customers. Our TFLN solution has the world's first TFLN modulator in production already, and it is a strong solution for beyond 400G. Combining the two creates integration options—TFLN for modulators with silicon photonics PIC on 12-inch, integrated via advanced packaging. We can offer optical IO through interposers with PICs and provide TFLN components for Co-Packaged Optics (CPO) solutions. We believe combining the two gives us a unique position. Which one drives more revenue depends on customer requirements; both have important roles.
Next one, Haas Liu, Bank of America.
Congrats on great results. First, regarding CapEx outlook over the next couple of years: you mentioned AI revenue could be around USD 1 billion in three years. How should we think about CapEx growth trajectory to achieve that? Relatedly, how should we think about equipment investment as a percentage of CapEx over the next two years, given the revision to depreciation outlook?
Following today's Board meeting, we've approved nearly USD 5 billion of investment for the next period. That USD 5 billion is a starting point to be spent across 2026 and 2027 and is a phased strategy. We will adjust based on customer commitments and wins. Regarding depreciation, as I mentioned earlier, we expect depreciation to increase by low teens percentage year-over-year for at least this year and 2027. For 2028, the number will depend on further CapEx decisions.
So the Board approved USD 5 billion to be spent across 2026 and 2027, and 2028 depends on phase expansion. Understood. Second, regarding which applications will drive AI revenue growth: you mentioned connectivity, silicon photonics and power management. Can you rank which will be the main drivers in terms of revenue contribution?
From a growth perspective, silicon photonics and advanced packaging are still early-stage and will have the highest compound annual growth rates. Our existing solutions will also grow but at a lower rate. In terms of absolute revenue contribution in three years, connectivity (including silicon photonics), power management and certain specialty nodes that serve AI infrastructure will be significant. The fastest growth rates will be in silicon photonics and advanced packaging.
Compared to peers who have been in the market for a few years, what is your strength in silicon photonics and advanced packaging—technology roadmap, customer relationships, or demand spillover?
For silicon photonics, our 12-inch solution gives us process advantages relative to 8-inch competitors: better process control, better performance and yields. For TFLN, we believe it's the best option for beyond 400G. So we have technology differentiation, not just spillover. On advanced packaging, we have capabilities across multiple integration approaches and strong customer engagement, which positions us well to capture growth.
One quick follow-up on gross margin uplift in Q2 and guidance for Q3. Can you quantify factors supporting gross margin—utilization, pricing, FX, depreciation? Any quantitative color?
The higher Q3 gross margin guidance is mainly attributed to higher utilization. Loading was 85% in Q2 and our guidance for Q3 is above 90%. Multiple factors matter, including ASP, product mix, utilization, foreign exchange and depreciation. Our focus is to enhance profitability. Over the next few years we expect EBITDA margin to improve steadily, while gross margin will be influenced by the depreciation curve from new investments.
Next one, Katherine Yu, Goldman Sachs.
My first question is about strategy for more advanced nodes going forward. You're working with Intel on 12nm—where does that go from here? Could you enter more advanced nodes like 7nm and below? What are the key factors you need to see before committing beyond 12nm?
The simple answer is we must first deliver the 12nm and prove the business model. The 12nm collaboration is progressing smoothly. We need a successful 12nm foundation before exploring next generation nodes. The 12nm is already expanding into derivatives, including high-voltage derivatives (for example 14nm-class high-voltage variants), and there are more specialty technology discussions ongoing. Execution and business model validation at 12nm will be prerequisites for considering moves to more advanced nodes.
This needs to be a mutually beneficial collaboration. The current focus is on 12nm only. UMC is open to low-asset or partnership migration strategies, but without a successful 12nm it will be difficult to proceed.
Got it. Second, how would you characterize the current cycle versus the 2021 chip shortage cycle? The last time was broad-based, supply-driven super cycle with utilization over 100% and aggressive ASP increases. This recovery looks more AI-concentrated. Do you agree the nature of demand has changed? How should we think about margin trajectory and pricing power versus the last upcycle? Is surpassing the 2022 peak gross margin possible?
Yes, this cycle is different. AI-related segments are the primary growth driver for the industry. With commercial deployment of edge AI, demand for chips in general-purpose servers will rise, but that demand is also AI-related. Non-AI demand is mixed across end markets. The semiconductor industry is projected to grow meaningfully, driven mainly by AI. It is not a broad-based recovery like 2021; it's more concentrated. We do see the pricing environment becoming more constructive as demand and industry conditions improve.
We focus on delivering higher profit in absolute dollar terms for shareholders. New fab ramps in Singapore and Tainan increase depreciation, which will have a significant impact on near-term gross margin. We are confident EBITDA margins will show steady growth over the next cycle and expansion phases, but gross margin will depend on how depreciation is booked.
And ladies and gentlemen, we thank you for all your questions, and that concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. Thank you.
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.
Thank you. And ladies and gentlemen, that concludes our conference for 2Q '26. Thank you for participating in UMC's conference. There will be a webcast replay within 2 hours; please visit www.umc.com under the Investors Events section. You may now disconnect. Thank you again. Goodbye.