UMC's Q3 2025: Contradictions Emerge on Geopolitical Diversification, 12-Nanometer Timelines, Inventory Outlook, and Pricing Strategies

Date of Call: October 29, 2025

Financials Results

• Revenue: TWD 59.13 billion in Q3 2025, slightly up sequentially vs Q2; first 3 quarters revenue TWD 175.7 billion, up 2.2% YOY
• EPS: TWD 1.2 per ordinary share in Q3 2025 (net income TWD 14.98 billion); first 3 quarters EPS TWD 2.54 vs TWD 3.12 in prior-year first 3 quarters
• Gross Margin: 29.8% in Q3 2025, up sequentially; first 3 quarters gross margin ~28.4%

Guidance:

• Wafer shipment for Q4 2025 expected to remain flat vs Q3 2025
• ASP in U.S. dollars expected to remain firm in Q4 2025
• Gross margin guided to approximately the high-20% range in Q4 2025
• Capacity utilization targeted in the mid-70% range for Q4 2025
• 2025 cash-based CapEx budget unchanged at USD 1.8 billion
• Company expects full-year 2025 shipment growth in the low teens and anticipates 22/28-nm double-digit YoY growth in 2026
• Singapore 12-inch IP3 production ramp to start Jan 2026 with higher volumes in H2 2026

Business Commentary:

* Revenue Growth and Market Trends: - United Microelectronics Corporation (UMC) reported consolidated revenue of TWD 59.13 billion for Q3 2025, marking a slight increase compared to the previous quarter. - The growth was driven by a 3.4% increase in wafer shipments and improved capacity utilization to 78%. - This increase was particularly supported by a pickup in sales of smartphones and notebooks, driving replenishment orders from customers.

• Regional Revenue Breakdown and Strategic Shifts:
• The North America market accounted for 25% of UMC's total revenue in Q3, a 5% increase compared to the previous quarter, while Asia declined by nearly 4 percentage points to 63%.

• The shift in revenue distribution reflects UMC's strategic focus on its 22-nanometer technology platform, which has seen significant adoption in the North American market.

• Capacity and Technology Investments:

• UMC plans to ramp up its production capacity in Singapore and the U.S. to enhance geographic diversification and supply chain resilience.

• These strategic capacity investments aim to align with customer needs and mitigate potential risks from geopolitical uncertainties, including potential tariffs.

• Cost Management and Gross Margin Stabilization:

• Despite higher labor, electricity, and material costs, UMC managed to stabilize its gross margin at 29.8% in Q3, with costs per wafer slightly higher compared to the previous quarter.
• Cost management strategies, including leveraging smart manufacturing and AI technologies, helped offset increasing costs, allowing UMC to maintain its competitive position.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted Q3 strength (wafer shipments +3.4%, utilization 78%), guided Q4 ASP firm and gross margin in the high-20% range, and emphasized 22nm/28nm momentum with expected double-digit YoY growth in 2026 — signaling confidence in recovery and tech-led growth.

Q&A:

• Question from Unknown Analyst (unspecified): Could you discuss how end-market trends look into Q4 and early 2026 — is the above-seasonal guidance driven by specific demand drivers and is there evidence of restocking?
  Response: Q4 shipment expected flat; 2025 full-year shipments up low-teens driven by 22nm and specialty (12/8"), and management expects YoY shipment growth to continue into 2026 with seasonality (Q1 may be challenging).

• Question from Unknown Analyst (unspecified): Are you implying wafer shipment could grow by low teens in 2026 as well?
  Response: No blended shipment guidance now; but 22nm and 28nm are expected to achieve double-digit YoY growth in 2026.

• Question from Unknown Analyst (unspecified): With FX turning more favorable and flat shipment/pricing, why wouldn't gross margin rise above Q3 levels into Q4?
  Response: Q4 gross margin guided to high-20% range; margins depend on utilization, ASP, mix, depreciation and FX — FX remained a ~3% revenue headwind and annual depreciation rose ~20% affecting margin.

• Question from Unknown Analyst (unspecified): Other manufacturing costs fell in Q3 despite higher labor/electricity — will that trend continue?
  Response: Other manufacturing costs will fluctuate; some items (e.g., bonuses) are profit-linked, so declines are not guaranteed and depend on rolling profit recognition.

• Question from Charlie Chan (Morgan Stanley): What geopolitical uncertainties (tariffs/rare earths) do you expect in 2026 and potential impacts?
  Response: UMC is monitoring tariff/rare-earth risks, remains cautious, and believes its geo-diversified footprint and planned overseas capacity (Singapore, U.S.) help mitigate risks and may create opportunities.

• Question from Charlie Chan (Morgan Stanley): Is there an update on possible semiconductor tariffs coming in January and can UMC obtain exemptions?
  Response: No concrete update; UMC is monitoring developments and will pursue case-making via U.S. investments but cannot confirm exemptions now.

• Question from Charlie Chan (Morgan Stanley): With peers hiking prices, what should we expect for UMC wafer ASPs into next year?
  Response: ASP remained firm in 2025 and is expected firm in Q4; UMC will provide 2026 ASP details in the January 2026 call.

• Question from Charlie Chan (Morgan Stanley): Any preliminary outlook on 2026 costs given commodity/labor pressures?
  Response: UMC is pursuing cost savings via supplier collaboration and internal efficiency (smart manufacturing/AI) but is not providing specific 2026 cost projections.

• Question from Charlie Chan (Morgan Stanley): Could BT substrate tightness constrain customers and demand into 2026?
  Response: No impact observed so far; supply-chain tightness is monitored and UMC is managing supply resilience, but no current customer disruptions identified.

• Question from Chia Yi Chen (Citigroup): Depreciation rose ~20% Y/Y in 2025 — will that trend slow in Q4 and provide gross margin upside?
  Response: Depreciation growth will ease to about low-teens in 2026 (from 20%+ in 2025); peak expected around 2026–2027, which helps establish an EBITDA floor.

• Question from Chia Yi Chen (Citigroup): Update on Interposer/wafer-to-wafer strategy and capacity expansion plans?
  Response: UMC is developing 2.5D interposer with DTC and wafer-to-wafer stacking (mass production for small RFICs today); no interposer capacity expansion planned currently despite strong customer interest.

• Question from Chia Yi Chen (Citigroup): How fast will advanced packaging opportunities grow over the next few years?
  Response: Management expects cloud/edge AI-driven packaging demand to ramp, with meaningful volume ramp likely late 2026 into 2027.

• Question from Sunny Lin (UBS): Progress on pricing negotiations and should we expect smaller price declines in early 2026?
  Response: UMC is engaging customers aiming to limit price declines, but specifics are under negotiation; firm guidance will be provided in January 2026.

• Question from Sunny Lin (UBS): Are LTAs expiring in coming quarters still a potential overhang on blended ASPs?
  Response: LTAs remain in place as mutual commitment mechanisms supporting capacity and commercial alignment; they continue to be used in pricing and capacity discussions.

• Question from Sunny Lin (UBS): Any update on Singapore expansion ramp timing in 2026?
  Response: 12-inch IP3 production in Singapore is projected to start ramping in January 2026 with higher volume beginning in H2 2026.

• Question from Gokul Hariharan (JPMorgan): How does the 12nm collaboration with Intel count toward U.S. capacity and tariff offsets?
  Response: The 12nm collaboration represents meaningful U.S. investment and capacity; UMC views it as foundational and aligned to mitigate tariff risk, though specifics on offsets are not detailed.

• Question from Janco Venter (Arete): Status of the 12nm PDK and business model for the Intel collaboration; will it cannibalize 22/28?
  Response: Early 12nm PDK expected Jan 2026, customer tape-outs begin early 2027; commercial/business model not disclosed now; no comment that it will cannibalize 22/28 — focus is on building new addressable market.

• Question from Charlie Chan (Morgan Stanley): On wafer-to-wafer stacking, who are memory partners, target applications and timing?
  Response: UMC is mass-producing wafer-to-wafer for small RFICs today and is developing memory-to-memory and logic-to-memory stacking for high-bandwidth applications; specific partners/timing depend on customer roadmaps and technology readiness.

Contradiction Point 1

Geopolitical Uncertainty and Diversification Strategy

It highlights potential inconsistencies in UMC's strategy regarding geopolitical uncertainty and its approach to geographical diversification, which could impact business operations and strategic decisions.

How is UMC addressing geopolitical uncertainty, particularly potential semi-tariff impacts on operations? - Charlie Chan(Morgan Stanley)

2025Q3: Geographic diversification is a strategic initiative, with capacity buildup in Singapore and the U.S. The goal is to achieve a balanced capacity split between Taiwan and overseas locations. - Jason Wang(Co-President & Representative Director)

Can you explain the Singapore fab expansion for 28nm and 22nm? - Gokul Hariharan(JPMorgan)

2025Q2: The 12i Singapore facility will start production in January 2026 with higher volume in the second half of 2026. Ramp is aligned with customer needs, mainly in communication applications with high-voltage devices. - Jason S. Wang(Co-President & Representative Director)

Contradiction Point 2

12-Nanometer Production Timeline and Partnership with Intel

It involves disparities in the reported timeline for the 12-nanometer production and the partnership with Intel, which could affect UMC's strategic positioning and customer expectations.

Can you update us on U.S. collaboration and the 12-nanometer business model? - Janco Venter(Arete Research Services LLP)

2025Q3: The collaboration with Intel is structured and progress is as expected. More details on the business model will be shared once in production. - Jason Wang(Co-President & Representative Director)

What's the initial outlook for the ASP trend in 2026, given higher costs? - Brad Lin(BofA Securities)

2025Q2: The 12-nanometer program is progressing well, with silicon performance being verified. Early PDK will be ready in June 2026 with customer product tape-out in 2027. - Jason S. Wang(Co-President & Representative Director)

Contradiction Point 3

Inventory and Demand Outlook

It raises questions about UMC's assessment of inventory levels and demand outlook, which are crucial for business planning and investor expectations.

Will consumer customers see a pickup in Q4? - Gokul Hariharan(JPMorgan)

2025Q3: The inventory situation for most segments is healthy. UMC doesn't guide Q4 yet but expects the full-year 2025 projection to remain unchanged. - Jason S. Wang(Co-President & Representative Director)

Are potential U.S. tariffs causing customers to pull in demand? - Charlie Chan(Morgan Stanley)

2025Q2: There is some demand upside due to inventory buildup anticipating U.S. tariffs, but the usual seasonal pattern may be different due to market dynamics and geopolitical uncertainties. - Jason S. Wang(Co-President & Representative Director)

Contradiction Point 4

Geopolitical Uncertainty and Tariffs

It involves the company's stance and strategies regarding geopolitical uncertainties and potential tariffs, which are crucial for understanding UMC's risk management and strategic positioning.

How is UMC addressing geopolitical uncertainty and potential semi-tariffs, and their impact on operations? - Charlie Chan (Morgan Stanley)

2025Q3: UMC is cautious about potential tariff impacts and is focusing on technology differentiation, manufacturing excellence, and customer trust. Geographic diversification is a strategic initiative, with capacity buildup in Singapore and the U.S. The goal is to achieve a balanced capacity split between Taiwan and overseas locations. Regarding semi-tariffs, discussions are ongoing, but UMC is prepared to manage potential impacts and considers opportunities from customer engagements. - Jason Wang(CFO)

How are tariffs impacting order behavior in Q2 and the second half? Is Q2 growth driven by tariff-related order acceleration? - Sunny Lin (UBS)

2025Q1: UMC collaborates closely with customers to mitigate business risks, with a diversified manufacturing footprint. Currently, there's no significant market demand change due to tariffs, but visibility in the second half is limited. - Chitung Liu(CFO)

Contradiction Point 5

Pricing Strategy and Margin Outlook

It involves the company's pricing strategy and margin expectations, which are critical for assessing UMC's financial health and market positioning.

Will price declines be more modest than in 2024 and 2025? - Sunny Lin (UBS Investment Bank)

2025Q3: While discussions on pricing continue, UMC aims to maintain a balance between protecting and gaining market shares. The company remains committed to cost savings and leveraging smart manufacturing technologies. More details on pricing will be shared in future conference calls. - Jason Wang(CFO)

Is Q1 a test of growth margins with demand rebounding? - Laura Chen (Citi)

2025Q1: UMC competes on technology differentiation and manufacturing excellence, not purely on pricing. Disruptions from tariffs will be addressed through collaboration with customers. Any cost increases will be managed through customer partnerships. - Chitung Liu(CFO)