United Microelectronics Corporation ($2303)

Welcome, everyone, to UMC's 2026 First Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted 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, Events section. Now I would like to introduce Mr. David Wong, Investor Relations Manager of UMC. Mr. Wong, please begin.

Thank you, and welcome to the UMC's conference call for the first quarter of 2020. I'm joined by Mr. Chi-Tung Liu, CFO of UMC; and Mr. Michael Lin, Senior Director of Finance. In a moment, we will hear our CFO present the first quarter financial results, followed by our key message to address UMC's focus and second quarter 2026 guidance. Once our CFO complete their 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 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. Chi-Tung Liu, to discuss UMC's first quarter 2026 financial results.

Thank you, David. I'd like to go through the first quarter 2026 investor conference presentation material, which can be downloaded or view in real time from our website. Starting on Page 4, the first quarter of 2026, Consolidated revenue was TWD 61.04billion with gross margin at 29.2%. Net income attributable to the stockholders of the parent was TWD 15.17 billion, and the earnings per ordinary share were TWD 1.29, which showed pretty good growth compared to both last quarter as well as the same quarter of last year. . On Page 5. First, starting from the sequential comparison, revenue was basically flat or down 1.2% sequentially to TWD 61.4 billion, gross margin at 29.2%, a slightly decline from the previous quarter of 30.7%. Net income attributable to shareholders of the parent note has increased 50% sequentially to TWD 15.17 billion partially due to the strength of the stock market performance and the nonoperating income grew 50% to TWD 5.3 billion in the first quarter of 2026. EPS, as a result, reached 1.29 in EPS per share is 0.204 in the first quarter of '26. On Page 6, year-over-year comparison, revenue grew by 5.5% year-over-year, mainly due to shipment increase. And gross margin also show a 2.5 percentage point improvement to 29.2% to TWD 17.8 billion in the first quarter of '26 and EPS also show nearly more than 100% growth in the net income compared to TWD 7.7 billion in the first quarter of last year. On Page 7, balance sheet highlights. Total equity reached TWD 406 billion and cash on hand, still over TWD 100 billion at the end of first quarter of 2026. On Page 8, our ASP declined slightly in the first quarter of 2016, mainly due to a better than excited wafer shipment which bring down the blended ASP. On Page 9, our revenue breakdown by different geography, the changes are very minor. We see some decline in Europe region from 11% in the previous quarter to 9% in this quarter. And the other region pretty -- stay relatively similar compared to the Q4 '25. On Page 10, IDM show a figure declined from 20% in the previous quarter to now 14% of the total revenue. On page 11 communication also declined 3% quarter-over-quarter to 39% when consumer increased by 4% to 32% in first Q '26. For technology breakdown, our revenue below 40-nanometer still remain over 50% of the total shipments and 22 is around 34%, slightly declined from the previous quarter. On Page 13, there's some annual maintenance schedule or maintenance in the first quarter of '26, resulting in a slight decline in available capacity in the first quarter of '26. And we will see the total available capacity to go back to the previous level in the second quarter of '26. On Page 14 is our overall budget annual CapEx, which, for the time being, still stay around USD 1.5 billion. And the above is a summary of UMC's results for first quarter of 2026, Next, I would like to go to share our key messages. So in the first quarter, our wafer shipment increased 2.7% sequentially on a relatively strong growth in the consumer segment, lifting overall utilization rate to 79%, which we saw continued improvement. Despite decline in blended ASP during the quarter, which I explained earlier, this is partially reflected higher 8-inch wafer shipment and gross margin held firm at 29.2%. And demand for our 22-nanometer logic and specialty process continue to gain momentum. With 10-nanometer revenue now reach another record high and accounting for about 14% of total first quarter revenue. At the end of this year, over 50 customers will have completed tape-out on our 22-nanometer platform for a very diverse range of applications, including display driver IC, network chips and microcontrollers. We continue to invest in the next-generation technology beyond 22-nanometer, our 12-nanometer collaboration with our partner will provide customers with technology continuity as well as U.S.-based manufacturing option. UMC also recently announced important development in the emerging business, including a strategic partnership to deploy [indiscernible] lithium, photonics for AI infrastructures. Turning to second quarter, we expect strong wafer shipment growth across both 8- and 12-inch portfolio, supported by a strong rebound in the communications segment as well as healthy demand across computer consumer and industrial markets. When the current memory supply shortage and ongoing comfort in the Middle East, operating certain headwinds and market volatilities. UMC continued to foresee resilient market demand. UMC will continue to monitor industry and macroeconomic development closely. By prudently managing our business to cope with market dynamics, amid-evolving semiconductor landscape change. Now let's move on to second quarter 2026 guidance. Our wafer shipments will increase by high single digits terms will increase by low single digit. Gross margin will be approximately 30% and capacity utilization rate will be in the low 80% range. Our 2026 cash CapEx, as I mentioned earlier, so far, we'll maintain around $1.5 billion budget. So that concludes my comments. And thank you all for your attention. Now we are ready for questions.

[Operator Instructions] Our first question will be coming from Gokul Hariharan of JPMorgan.

First of all, on the pricing environment, I think last time, you guys have talked about pricing environment being more favorable. Any more improvement that you're seeing on the pricing front right now in terms of your distinctive customers. Is it mainly to reflect the higher operating costs? Or are you able to kind of recognize some price increases even beyond the operating cost improvement. And when I look at Q2, low single digit Q-on-Q price increase, is that mainly a blended price increase because 12-inch is growing faster? Or is there a like-for-like price increase included here as well? .

So yes, we recently sent out a letter to our customers talking about the price increase to happen in the second half of 2026. So the blended ASP in Second quarter increase is yes, mainly from the mix improvement. And I would say, 22 and 28-nanometer will be a main help for the blended ASP increase in second quarter. And in the first half of '26, we are underway, we are seeing resilient demand across a broad range of certification, including communication, industrial and consumer and even the AI-related segment. For us, this momentum is contributing to a sustained increase in tight capacity environment across UMC's portfolio. And to support such demand, UMC continues to enhance manufacturing efficiency and invest in technology and capacity to ensure reliable high-quality wafer supply. For this ongoing investment together with increasing key cost drivers, including raw materials, energy and logistics and potential to sustain our long-term operational excellence and service commitments. In light of these factors, we will implement a wafer price adjustment in the second half of 2026, which will set up a more favorable position for the upcoming 2027. So the pricing reflects both the evolving supply and demand environment and the continued investment required to support our customers' growth. So pricing adjustments were based on the factors, including UMC's product mix, strategy, capacity agreement and also the long-term partnership. So this pricing adjustment will be implemented. Hopefully, we will do our best in a very disciplined and sustainable manner to ensure our operational health and continuing to support our customer growth and long-term success.

Got it. So just to follow up on that. I think if I remember right, I think your latter was like 8% to 10% for 8-inch and 12-inch. Are we seeing further potential for increasing price, like -- and what is the reception you're hearing from the customers that you've been in consultation with I think is there except a broad acceptance of this price increase? Or you see some degree of pushback given some of the customers, the demand seems to be still pretty flattish.

Yes. Last thing we don't want to do. We never really did this being opportunist and to take advantage of customers. So that's something we will never do. So our pricing strategy has always been anchored in the value where we deliver our differentiated technology, diversified manufacturing footprint hopefully, again, overcast operational excellence. So these trends continue to enhance our customers' product competitiveness and strengthen their supply chain resilience. Semi supply chain evolves, we are seeing market recognition unit value, and this is driving structurally higher and more sustainable demand. And we remain committed to investing in this core strength to reinforce it type of value creation. . So in parallel, we continue to enhance AP through structure product mix optimization. This includes strong momentum in our 22-nanometer platform and reduction in commoditized plasma exposures and thereby strengthening UMC's long-term ASP profile. I'm pretty sure we didn't really mention anything numerical in our letter to customers. So it will be based upon different segments, different technology and our long-term partnership.

Got it. My second question on gross margin. So we had some improvement in utilization from like mid-70s to low 80s in Q2 based on your guidance. Gross margin is still roughly hanging around 30% now. With this price increase, like how should we think about gross margins? Are we likely to get back to like a high 30s or 40% kind of levels that we were in back in the '21, '22 kind of time frame or that might require a much bigger improvement in utilization.

So unfortunately, we're still in the peak of our depreciation increase cycle. And I think in the previous quarter, we mentioned our depreciation curve will only pick up starting from next year. So we're still seeing quarter-after-quarter depreciation expenses. So if you ask me about EBITDA margin, I think I will be more comfortable talking about better upside. But if you talk about gross margin or operating margin, we saw a lot of pressure from depreciation expenses increase not to mention the recent geopolitical tension lead to raw material cost and the energy cost and logistic costs to increase. So, our utilization rate will be in the low 80% range in Q2. However, the margin uplift from higher shipments will be largely offset by the higher depreciation and higher utility costs, like I mentioned. For the remainder of 2026, the [indiscernible] in Singapore ramp-up will start in meaningful terms in the second half of 2026, which will continue to carry higher depreciation expenses over the next several quarters. And of course, from UMC's side, we will continue to proactively deploy cost reduction as including multi-sourcing streaming -- streamlining our operations, managing supply chain pricing and drive automation transformation. So all these measures will help UMC to partially offset the cost headwinds and maintain our -- hopefully enhance our EBITDA margin.

Next one, Charlie Chan, Morgan Stanley.

Also congratulations for a very strong guidance and outlook. But I do have some questions about the details, especially you commented about the Communications segment is very strong. So may I know is that coming from AI related working or also the smartphone business, you're also seeing circorebound? .

So first of all, communication was weaker in third quarter. So there will be a meaningful rebound in the second quarter. And this will be driven for UMC will be driven by DDI networking, FPGA and [indiscernible] so those segments show stronger growth in the Communications segment for the second quarter.

Okay. And if I may, I think company also offering a lot of new technology nonmeter SiConTech foundry service or your advanced packaging, right? So can you mention talk about your future plan for those advanced packaging capacity expansion and also potential revenue contribution in the coming 2 years. .

These are 2 questions. One is a package and one is photonic. So maybe David can help to answer the question. .

As far as advanced packaging, as you're aware, we're seeing more engagements pick up on our advanced packaging solutions. And as you know, we're working with more than 10 customers on advanced packaging. And currently, we expect more than 35 new tape-outs in 2026. And we foresee that revenue for advanced packaging next year will be significantly higher. And as of now, we're in production with our -- for a bridge solution and discrete DTC deep trench capacitor with more products that will ramp up shortly.

I know for the Bridge diode DTC, are those working with other foundry partners and is that part of the TSMC supply chain or TSMC supply chain? .

Yes. We don't really comment on our partnership but as you know, as we talked about last quarter, these things are picking up a little bit of steam.

Okay. Okay. So on top of that, do you need to further expand your circle interposer capacity for that bridge tie demand or the current capacity is sufficient for that. So I'm assuming that taking the process more wafer capacity whereas a bridge tie, more advanced, right? But it doesn't really much a woofer capacity. .

Yes. As far as capacity planning for all of our new businesses, that will be aligned with our customers as well as the market demand and our ramp-up schedule will be aligned with the market outlook. .

Okay. Okay. Thanks David.

We're moving on to silicon photonics as well.

Sure Yes, please. .

So for silicon photonics we're now working with industry-leading customers that will help us ramp on Celcom photonics. Additionally, preliminary data shows that our silicon photonic performance is on par or better than our peers. This is a result of our manufacturing excellence and also the fact that we use 12-inch equipment versus peers. In addition, we're on track to deliver our PDK1.0 2027, which is based on the IMAX license. We are also enabling integration for our customer by evaluating hybrid bond, TSV and chiplet integration. .

Next question Sunny Lin, UBS.

Congrats on the improving outlook. So my first question is to follow up on what you guided earlier this year. And so 3 months ago, you did guide better growth from second half of this year by new products and market share expansion. And now GPU is going to be pretty solid. But I wonder how should we think about going to second half? Do you still hold the view that for this year, you should see even stronger growth going to second half of the year? So .

We remain optimistic about our overall 2026 business outlook. In the first half, we are seeing resilient demand for the far range of application such as communication, industrial, consumer and AI-related sector. So this momentum we think is continuing to sustain an increasingly tight capacity environment across UMC's portfolio. So we expect this momentum to continue into second half, especially our 22-nanometer logic embedded HV platform where we expect to grow in the high teen percentage range for those segments second half compared to first half. . There's also another driver coming from 8-inch recovery, which is progressing to deliver good growth year-over-year because of a somewhat low base last year. So the stronger second half outlook support our expectation of the full year performance improvement. I think we still stick to UMC is going to perform the growth of our addressable market in 2026. And so we definitely, from UMC side, we committed to deliver a better performance and with this last year's results. And hopefully, this will be a turning point for UMC to broaden our addressable market. And this AC uplift we talk about in the second half, together with our strategic investment for the upcoming 12-nanometer contraction and advanced packaging are all going to support UMC's sustainable long-term growth.

So may I follow up on full year outlook. And so I think several foundries have reported better outlook for 2026. And so one or just a market, do you see some upside for low single-digit growth.

So I think the UMC addressable market show some incremental improvement but not really significantly different and overall market, I think, is definitely better if you include all the AI boom. So overall, the semiconductor industry is projected to now grow by mid-teens in 2026. UMC, the addressable market may be slightly better, but still grow by the low single-digit percentage which is, again, only slightly better than our last quarter's forecast.

And my second question if we look at high level, there are lots of concerns around disconnect between consumer end market and the foundry improvement. And so maybe if you could help us understand why for th share although smartphone and PC end market are showing some weakness border, mature funding space, including UMC get to see improving demand throughout the year, it things. And then for UMC how should we think about your server exposure? What will be the key products that you get to serve from server? And then from here, would you be able to benefit from server opportunity as well? .

Our technology predominantly support customers addressing high-end market segment, the noted demand tend to be more resilient even with recent memory testers supplies typically prioritized for those are high-end, high-value devices. As a matter of fact, our value-added technology, including 28, 22, high-voltage and IFSOI will help customers gain more shares in the high-end smartphone segment in 2026. This will also help UMC navigate the headwinds from the communication/mobile segment. So when we remain attentive to the potential impact from either memory testers or our current -- our current assessment is that any potential headwinds are manageable. We will continue to monitor the situation closely with our customers. . And the other factor is really UMC has been focused on the commoditized segment. So any so-called generic commodity type of market segment, UMC will certainly try to scale down our exposures. That will also help our overall position as a foundry. As for server, we don't really have a breakdown by the server end market, which we can maybe try to do that. But this is maybe 2 layers, 3 layers away from our market segment.

Next question Haas Liu, Bank of America.

Congrats on the very good result and the guidance. I guess 2 questions from me started from utilization. You reported in the first quarter of 79% and will be up to 80% plus or minus range in the second quarter. Would you be able to provide some of the breakdown between 8-inch versus 12-inch notes and also your expectation for second half this year, judging from your guidance just now that you think second half will be better than first half, also separate between -- respectively for 12-inch into second half? .

So it's not around 80%, it's above 80%. So it will definitely add something and for the second quarter. And for Q2, we will see stronger growth coming from 22 and 28 relatively speaking. And 8-inch will continue with some rebound -- but it's really -- but our Japanese operation is below corporate average, which is more in the 55-nanometer, 80-nanometer technologies. So for quarter 2, even though it will show some improvement, it's still slightly below corporate average. 12-inch as a whole are still slightly above average but the gap is certainly narrowing. .

Okay. Got it. And second question is just regarding the pricing, right? You discussed about the like-for-like pricing blended pricing outlook seems to be tracking better because of improving mix as well as improving utilization across the board. But I think 2 things. One is just on the pricing outlook for full year. I remember last time you mentioned it is going to be firm throughout this year. Would you be able to provide some update on that and second thing is for the pricing on a like-for-like basis, would you be able to just share with us that your strategy on pricing. I understand there's a lot of macro factors moving -- a lot of moving factors in the macro environment that you might need to pass on the cost to your customers. But would you be able to share if there's any time in the history that your customers are happily willing to or we're willing to except the price hike when your utilization is at around low 80 percentage levels. . So 2 questions here. First 1 is on the pricing outlook for full year. Any update on that versus the last time frame outlook. Second thing is just on your long-term view that regarding the pricing environment right now, versus your long-term trajectory of the business, the 80%? Is this sufficient enough for your customers to accept a price hike across the board? .

Again, we really don't want to be perceived as the opportunists to take advantage of our customers. So the pricing adjustment coming back to our pricing strategy. So the improvements are fundamentally anchored in our value proposition and also the technology and manufacturing service, which is supported by structured demand rather than short-term pricing tactics. So we are seeing customer market share gains along with ongoing structure shift in the foundry landscape generating durable demand for UMC. And we want to emphasize our differentiated technology and global footprint, enable customers to strengthen their competitive sense across all segments, including AI communication, consumer and industrial automotive segment. So that's like stated in our letter to customers, starting from the second half of 2026, we will implement disciplined pricing adjustments to mitigate some cost headwinds by maintaining customers' competitiveness. Meanwhile, hopefully, more product mix optimization driven by a strong 22-nanometer demand will continue to drive ASP expansion. Even though the steady recovery in high loading may partially offset the ASP blended business. Our overall inch recovery plan is progressing well, with several fabs running nearly 100%,

That's great. That's very clear. And I think just a quick follow-up on that is probably the firm pricing outlook for full year, you guided last time. Is it still holding the same statement? Or is this actually incrementally better? And on the EBITDA margins, you stated -- you mean just now that you have a better target on that? Would you be able to quantify it?

So if we take out the increased depreciation largely coming from the Singapore fab ramps, with better loading and potentially some pricing adjustments in the second half. We are confident if you take out the depreciation, the improved outlook should be able to offset some of the cost increase, especially in energy and logistics, et cetera. And our pricing outlook certainly with the price increase letter to customers is slightly better than the previous quarter.

Next one, [indiscernible] BNP.

Total management, congrats on the very good result and the guidance. My question is a follow-up to a previous one. So the consumer segment revenue seems very strong with a 4 percentage point increase in the product mix. So I wonder, is it because of the demand recovery or the pricing dynamic changes -- and going forward into the second quarter and the full year. So how would you see the trend will be like? .

So consumers are growth in Q1 was mainly driven by WiFi and DTV set-top box segment. For the second quarter, the growth will continue and will be driven by MCU, LCD controller and power-related products. .

Next one, Laura Chen, Citi.

Yes. Can you hear me clearly? Congrats for the good results. I'm just wondering that the progress with Intel's engagement, so we already have good progress per management the previously mentioned. Just wondering that for next year, if we start to see some like progress and breakthrough, how should we think about that the potentially again, increasing maybe R&D force or any impact on our like revenue and also expense? .

So we cannot give revenue guidance now. I think the timing ones we are talking, we are planning by later 2027, we will start to see initial commercial production. In terms of investment, it's already happening, and that's also partially reflected in our increased R&D expenses. Maybe Michael can help me to comment more in some details. .

Yes. Yes, this 12-nanometer project work with Intel continue to go well. We remain on schedule to be delivered PDK and social IP to customers in 2026. And we anticipate that the product tape-out will commence in 2027 which we're making a significant step toward the commercial deployment and future revenue growth. And in an Intel are working costly to ensure this successful take-up and efficient ramp-up to mass production for the 12-nanometer customer product. So the application that we for this 12-nanometer project will be included in the DTV, Wi-Fi connectivity and high-speed interface products.

Sure. I'm also wondering that since the expansion in the U.S. is probably one of the direction UMC is looking for. So I'm just wondering that following the 12-inch technology, any plan to further engage with the more advanced node with Intel? .

So we have to seek to however we have and to make it execute well and solid. So we cannot speculate the future. So our focus now is to deliver the 12-nanometer platform to customers. So in the future, if anything makes sense for both partners as well as our customers, certainly will consider to expand our collaboration to other derivative technologies, but for the time being, the only focus is on 12-nanometer platform.

And next one, Felix Pan, KGI. .

I got 2 questions. So recently, there's a lot of rumor talking about UMC in talk with the plan about the potential memory foundry business. I know it's a little bit unlikely and Chi-Tung also mentioned that you guys going to scale down the commodity business, but I still want to some clarification. How the company see the opportunity for the current strong memory demand, both NAND or NOR? Is that possible? We do anything business related to the memory? That's my first question.

So again, we will not be able to comment on, of course, not a speculation like this. But our strength is really in the differentiated specialty technology, which elevate our competitiveness to collaborate with customers. So we will pursue long-term and sustainable business opportunities, which demonstrated by our current comprehensive technology portfolio such as embed HV and embedded non volatile memory, PCD, RFSOI, et cetera, et cetera. And again, we will not do short-term opportunity case. This is just not a way of managing business. .

Okay. Okay. That's very clear. My second question, regarding to the 8-inch tightness at the moment. So understanding, are these primarily driven by the global leading foundries, they optimize their capacity. So some they're seeing some business for the 8-inch foundry. So primarily, I think this is supply driven, but also we see some incremental demand improvement. So is that possible to break down how you see the 8-inch tightness is more man-driven or supply tightness driven? And if I can may have a follow-up follow up the has previous question. What's the 8-inch utilization rate in first quarter.

We like to see this is really because of our competitiveness. So we always prepare ourselves to cope with industry dynamics, and we welcome any opportunity to support customers. So we view this landscape shift as an opportunity rather than a given -- so we want to work hard to further optimize our product mix and gradually improve our performance -- so it's very difficult to differentiate the 2 factors you mentioned. And again, we like to think the only thing we can control is our own competitiveness and our technology portfolio. So we will continue to work hard to invest to broaden our technology portfolio and our service to our customers.

Okay. So the first quarter's utilization for 8-inch if I may.

First quarter, our company-wide was 79%. And as I mentioned previously, it was 8 inches below corporate average. But the situation, the delta the improvement in the second quarter is higher for 8-inch. Although for second quarter, the 8-inch average loading still will below corporate average.

Next one, Bruce Lu, Goldman Sachs.

My question is relating to the legacy note for 12-inch. Your competitor is talking about exiting the market. what's the real situation for us is facing right now? How much more business we can expect for the legacy node overflow or in different ways that we see the possibility to kick off another round of CapEx in -- especially in Singapore for LTL with the customer for the potential new business?

This is a very hypothetical question for us to answer. I mean it's very difficult. I mean, it's somewhat similar to the fundamental of our 8-inch views. The only thing we can control is our own competitiveness and technology portfolio, and we think there still have plenty of upside there. No matter 8-inch or 12-inch legacy market segment. And of course, the market dynamic shift help us have presented the opportunity, but it's really up to us to have the competitive edge to gain those opportunities. So those are the areas we are focusing right now. And if you talk about this advanced packaging, you're actually going to take some of the legacy part of the 12-inch capacity in our Singapore fab. And if the market dynamic continues with customer demand, certainly, there's upside in terms of capacity for those 12-inch capacity in Singapore.

I shall ask it in different ways that earlier, the previous investment is that you only take LTA for new capacity expense in exchange for your to is that still the case for the future capacity expansion?

We don't want to limit ourselves to the market opportunities and taking when the market presents the need and we need the customers to share the investment risk that's where the LTA comes from. And going forward, we saw the new technology opportunities such as stake and photonics and advanced packaging, we will continue to work closely with our customers including share the risk of further investment. But will that be in the form of or any other forms, we cannot comment because we are still in the early stage of the technology development. And the outlook is promising, but it's still a little bit too early to comment.

Understand. So my second question is, can you comment a bit about 40-nanometer high-voltage progress because I think we asked a question a couple of quarters ago when Jason answered that the driver IC might not need to go for 40-nanometer end up? And beyond. But right now, TSM is talking about like 14-nanometer high-voltage process, right? Is that the -- you said that the telling trend is getting clear that the driver IC will continue to migrate to the smaller geometry.

So I think stay first, we don't comment on comparable.

I'm talking about the driver IC technology trend, right?

So we have a proven track record for driver IT and for the current industry-leading 22, 28 LED-display solutions, UMC are always recognized as a global leader -- so the customers are migrating to FinFET, and that's where our FinFET HV solution will continue to provide better performance, lower leakage more type basin. So again, it's all boiled down to our own competitiveness. We do have the upcoming FINFET heavy solution as well.

Next one Gokul Hariharan, JPMorgan.

So on the silicon photonic piece, could you talk a little bit more about the kind of engagements that UMC making? Are these mostly for pure electronics? Or are you also engaging in some of the CPO-related projects? And given that you also have this PDK for the IMEK version of the technology coming out soon, how should we think about the ramp of this CPO -- sorry, the organic related revenues over the next couple of years? Should we expect some meaningful progress next year? Or do we have to wait for this IMAX related IP to really be out there before we start to see some Photronics related revenues really kind of hitting the P&L.

Yes. As far as the current silicon photonics, the key milestone is for us to release the PDK in 2027 version 1.0 and obviously, it's based on the IMAX license. And as far as the current designs for PICs are basically pluggable solutions. But at the same token, we're also looking to enabling integration for customers by considering other hybrid bonds, TSV solutions or chiplet integrations, that will help us be in a better position when the CPO kind of takes place further down the road. But for now, it's pretty much all the -- a lot of the PICs discussions and designs that were under customer engagement. .

Okay. That's clear. Secondly, on the mature 12-inch nodes. I think 2022 still seems to be pretty strong in terms of mutualization, could you comment a little bit on 40 and 65, 55-nanometer? Like how are the utilization there? Especially given you commented, there is some lag in the Japan, which I think, if I remember right, was 55 and 40-nanometer and any forward-looking comments on how that utilization is likely to get filled given that you're also engaging some of the bridge projects. .

Yes. As far as for the 40 nanometer, 55 and 65-nanometer short term, I think the revenue contribution for Q2 will be healthy. From a longer-term perspective, we're confident on the business outlook for UMC's 40-nanometer and 55 and 65-nanometer technologies. So we are seeing longer term, there's going to be more designs, and that will hopefully lift some of that long-term utilization rates.

Any products that are -- that you can call out here that are critical here to lift that utilization rate? .

I think right now, they're under discussion on customer engagement. But once we've seen some real material uplift in UTR, we'll be more than happy to share them with you. .

Thank you. And ladies and gentlemen, in the interest of time, we're taking the last question. And the last one, Charlie Chan, Morgan Stanley.

Follow up question. So first question is really a follow-up on the pricing strategy. So as a previous caller just mentioned that you did some letter to customers. So I'm wondering what's customers' reaction, meaning are they kind of very happy to accept the price hike because it can also pass through to customers? Or given some end market difficulty. So some customers have some pushback. So it would be much easier if you can -- management can give us some like preliminary second half price hike assumption. .

Well, I cannot speak for our customers. Again, we appreciate their long-term support. And just like our vendors, those raw material supplier and the energy supplier to UMC it's going to be a win-win for the longer term. We need to continue to provide efficient manufacturing and continuous investment. So I'm pretty sure our customers understand where it is coming from, but the key is really how UMC can help them to increase the competitiveness in the longer term and gain more shares. So I think that's the key message we want to deliver to our customer. And also, we appreciate their long-term support.

Got it. And also a follow-up question to Laura's question about the Intel partnership. I want to associate that to my previous question about your administration, especially to bridge die and DTC, the deep trench capacitor -- so is that the right way to think about that because Intel right also need those Brigand DTC discrete components. Do you think -- is it rare to think about UMC would be a very important partner for interim or Intel's advanced page in supply chain.

There's a lot of speculation here, and we're not that. And we have to respect our important partners. So again, our current focus is on 12-nanometer platform, nothing else. And there is an important collaboration for both parties, and we have to make it work. And this is too important, especially for UMC, we are putting all the possible resources try to make sure we deliver.

But anyway, it sounds very reasonable because you have all the capability and technology that your key partner may want. But we look forward to your next update. .

And that concludes today's Q&A session. Now I'll turn things over to UMC IR Manager, for closing remarks.

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 [email protected]. Have a good day.

Thank you. And ladies and gentlemen, that concludes our conference for 1Q '26. Thank you for your participation 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.