Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UMC's second quarter revenue grew by 4% quarter-over-quarter to TWD56.8 billion.
- Wafer shipments increased by 2.5% quarter-over-quarter, reaching 831,000 12-inch wafer equivalents.
- Gross margin improved to 35.2%, better than previous guidance.
- UMC announced technology updates, including a 3D IC solution and a 22-nanometer embedded high voltage platform.
- UMC's 22/28 nanometer business showed healthy demand, particularly for Wi-Fi and digital TV applications.
Negative Points
- Utilization rate in the second quarter was only 68%, which is lower compared to historical levels of 85-90%.
- IDM revenue declined notably from 18% in the previous quarter to 13% in Q2 2024.
- Communication segment revenue declined from 48% in the previous quarter to 39% in Q2 2024.
- UMC expects margin pressure in the second half due to increased depreciation expenses and higher utility rates.
- Despite a mild recovery in Q3, UMC has not seen signs of a strong rebound as customers remain prudent on inventory management.
Q & A Highlights
Q: What is the outlook for utilization rates going into 2025?
A: Jason Wang, President: We are focused on 2024 first. We foresee that UMC's customer demand forecast reflects more of a seasonal pattern, with wafer shipments increasing in the second half of 2024. We expect a mild pickup in communication, consumer, and computing segments, but no signs of a strong rebound yet. We believe 2025 will get back to normalcy once auto inventory levels improve.
Q: How should we think about the structural gross margin, considering pricing, depreciation, and cost inflation?
A: Chi-Tung Liu, CFO: Depreciation is estimated to increase around 20% year-over-year for 2024. For 2025, the magnitude should be similar. We are looking at higher seasonal utility costs in Q3. We aim to maintain a solid EBITDA margin and improve along with higher utilization rates. Jason Wang, President: Our pricing strategy remains consistent and aligned with our value proposition, helping customers win more market share.
Q: Can you provide an update on the Singapore 12-inch expansion?
A: Jason Wang, President: The P3 ramp schedule has not changed. We expect production to start in January 2026, with high-volume production beginning in the second half of 2026.
Q: What factors contributed to the better-than-expected gross margins in Q2 and the outlook for Q3?
A: Jason Wang, President: The Q2 gross margin improvement was mainly due to favorable foreign exchange rate movements. For Q3, while utilization has increased, gross margins remain in the mid-30% range due to rising depreciation expenses and seasonal utility rates.
Q: Are there noticeable differences in pricing tendencies between 12-inch and 8-inch wafers?
A: Jason Wang, President: While our ASP remains firm, the blended ASP reflects changes in product mix. For the 8-inch business, we anticipate continuous pressure from 12-inch mature node fabs but are working on additional projects to gradually lift 8-inch loading.
Q: What is the revenue contribution from AI-related 2.5D packaging products, and are there plans for further capacity expansion?
A: Jason Wang, President: We have doubled our interposer capacity to 6,000. Any additional expansion will be assessed based on customer alignment. The revenue contribution from this business is less than 4-5%.
Q: Why didn't UMC secure certain business that competitors did, despite having better cost structure and process?
A: Jason Wang, President: We feel comfortable with our capacity situation and expect growth in our 40 and 65-nanometer business. We focus on providing competitive and comprehensive specialty technology and maintaining efficient operations across all our fabs.
Q: Do you expect display driver ICs to migrate to 14-nanometer or 12-nanometer, and when?
A: Jason Wang, President: We have already delivered 22-nanometer solutions for high-end OLED displays. We are working on further expanding our high-voltage portfolio to FinFET. However, 22-nanometer will likely remain the main strength in 2026.
Q: How do you view the sustainability of order visibility into Q4?
A: Jason Wang, President: We expect a mild pickup in communication, consumer, and computing segments. However, we have not seen signs of a strong rebound as customers remain prudent in managing their inventory levels.
Q: How do you see the IDM revenue trend, and will they continue to rely on foundry partners?
A: Jason Wang, President: IDM customers were impacted by the global semiconductor downturn. We anticipate inventory levels will improve, and longer-term, IDMs will continue to rely on foundry partners, balancing internal capacity to ensure supply chain resilience.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
