United Microelectronics Corporation (UMC) Q4 2025 Earnings Report, Transcript and Summary

Welcome, everyone, to UMC's 2025 Fourth 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 has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Thank you, and welcome to UMC's conference call for the fourth quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results followed by our President's key message to address UMC's focus and the first quarter 2026 guidance. Once our President and 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 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 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 security 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 fourth quarter 2025 financial results.

Thank you, Michael. I'd like to go through the 4Q '25 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the fourth quarter of 2025. Consolidated revenue was TWD 61.81 billion, with a gross margin around 30.7%. The net income attributable to the stockholder of the parent was TWD 10.06 billion and the earnings per ordinary shares were TWD 0.81. Utilization rate in the fourth quarter is stayed the same as the previous one, around 78%. For the sequential comparison, revenue grow 4.5% quarter-over-quarter to TWD 61.8 billion. Gross margin improved to over 30% to now 30.7% or gross margin of TWD 18.95 billion. And the non-operating income remained similar to that of last quarter. And the net income overall contributed to shareholder of the parent is around TWD 10.05 billion or EPS of TWD 0.81 in Q4 of 2025. For year-over-year comparison, on Page 6, revenue grew by 2.3% to reach TWD 237.5 billion for the whole year of 2025. Gross margin rate is around 29% or TWD 68.9 billion. And for the net income attributable to the shareholder of the parent for year 2025, is around TWD 41.7 billion or 17.6% net income rate. EPS for 2025 was TWD 3.34, which is a decline compared to that of TWD 3.8 in 2024. On Page 7, our balance sheet at the end of 2025. Cash amounts still more than TWD 110 billion, with total equity of the company is now TWD 379.8 billion at the end of 2025. For ASP on Page 8, you can tell for the last three quarters or four quarters, it pretty much remained similar level for our blended ASP for throughout the 2025. For revenue breakdown on Page 9. For quarterly comparison, the change is mainly showing in the increase in Asia and Europe with now North America represents about 21% in Q4 of last year. For the full year breakdown on Page 10, the change is similar. We see North America dropped from 25% in 2024 to 22% in 2025. For Page 11, IDM for Q4 revenue still represent about 20%, almost no change. But for the full year number on Page 12, IDM account for 19%, increased by 3 percentage points to 19% in 2025. For quarterly revenue breakdown by application, it remains almost similar quarter-over-quarter on Page 13. For the annual performance on the application breakdown on Page 4 (sic) [ Page 14 ] consumer increased by 3 percentage points to 31% from 28% in the previous year. And we continue to see 22-nanometer to be our key driver of growth for the recent quarters and also forward-looking as well. So 22 and 28 nanometers revenue in Q4 '25 now represent 36% of the total revenue pool. On Page 16. For the full year, the increase of 22 and 28 nanometers revenue is 3 percentage points, and we also show about 2 percentage point increase in 14-nanometer on a year-over-year comparison. Capacity remained flat on a quarter-over-quarter comparison base, but it will decline by roughly 1% due to the annual maintenance schedule. On Page 18, our latest forecast for 2026 CapEx plan is around USD 1.5 billion, which is slightly declined from USD 1.6 billion in the year of 2025. The above is a summary of UMC's results for Q4 2025. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang.

Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results. In the fourth quarter, our results were in line with the guidance with a flattish wafer shipments amid mild demand across most of the markets. The 4.5% revenue increase during the quarter was supported by favorable foreign exchange movements as well as a sequential growth in our 22- and 28-nanometer business, which continues to improve our product mix. With the 22- and 28-nanometer segment, 22-nanometer's revenue increased 31% quarter-on-quarter to a record high, accounting for more than 13% of total fourth quarter revenue. Looking at the full year, UMC delivered solid performance in 2025 with shipment increasing 12.3% and revenue in U.S. dollar up 5.3% year-on-year. Going into the first quarter of 2026, we expect wafer demand to remain firm. UMC is confident that 2026 will be another growth year as a tape-out on our 22-nanometer platform accelerate, and other new solutions continue to gain business traction. We have been working hard to lay the foundation for our next phase of growth, investing for the future in both capacity and technology. In 2025, we completed the new Phase III facility at our Singapore Fab 12i, which is already playing a central role in supporting customers to diversify supply chain. At the same time, we are striving to expand our footprint in the U.S. through an innovative yet cost-effective modes of partnership, such as our 12-nanometer collaboration with Intel and the recently announced MoU with the Polar Semiconductor. The leadership UMC has built over the past few years across specialty technologies, including embedded High Voltage, Non-Volatile Memory, and BCD, has and will continue to sustain stable business growth. Looking ahead to 2026 and beyond, we expect advanced packaging and silicon photonics to serve as a new growth catalysts, positioning UMC to address the evolving needs of a high performance of applications across AI, networking, consumer, automotive and more. Now let's move on to first quarter 2026 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2026 cash-based CapEx budget will be USD 1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Yes. Thank you, President Wang. [Operator Instructions] Now first question will be coming from Sunny Lin, UBS.

So, I have a few questions. Number one, Jason, may we have your thoughts on overall market outlook for 2026. And then for semi versus foundry? And if UMC can continue to outgrow your adjustable market for this year?

Sure. Well for 2026, we expect AI-related segment remains as the primary growth driver in semi-industry. And furthermore, with the continuous commercial deployment of Edge AI applications, demand for chip using a general purpose server is also expected to rise. In contracts, the adverse effect of the memory supply imbalance could put some pressure on specific consumer electronics. But overall, the semiconductor industry is projected to grow by mid-teens in 2026. The question for foundry market, we believe that AI demand will remain strong and is the main contributor behind the low 20% growth projection in the foundry market this year. On the other hand, although the memory pricing may impact demand of the foundry market, at this time, we -- at UMC, we estimate that our addressable market will grow by low single-digit percentage. And UMC's growth was expected to outperform the average growth of our addressable market.

Got it. So, then my second question is on pricing. Lots of discussions and obviously, Chinese peers are raising pricing. So how should we think about the pricing outlook for mature foundry and for UMC through 2026? Would UMC be able to start to reflect better value? And if yes, which product categories should we expect more upside from here?

Okay. Well, we do anticipate a more favorable ASP environment in 2026 versus 2025. This outlook really reflects our disciplined pricing strategy and the positive impact from multiple reasons, product mix optimization, loading improvement and reduced exposure to more commoditized market segment. As you're referring to China players, we expect the strong growth momentum in our 22-nanometer demand to support our product mix in 2026 as well. Overall, our pricing strategy remains consistent and is anchored to the value where we deliver technology differentiation and manufacturing excellence. So, we do think the 2026 pricing environment is more favorable now. Now the question about which product, and I mean, we don't comment pricing on specific product or any specific node. But in general, we do see the environment is more favorable now.

No probolem. That's very helpful. And then a follow-up would be on the overall industry supply versus demand for the coming few years. TSMC on the recent earnings conference talked about the plan to optimize capacity for mature nodes to better support cloud AI demand in coming few years. So from your perspective, how should we think about the opportunity here? Are you starting to see more client engagement for new products in the coming few years?

We're always excited to see more customer engagement. So -- but more importantly is we need to prepare ourselves to cope with the market dynamics, and we welcome any opportunity to support our customers. So, we view this landscape shift as an opportunity to further optimize our product mix and gradually improve ASP and margin as well.

No, got it. Got it. And then maybe lastly, just on your Singapore expansion. How quickly are you planning to ramp capacity in 2026 and in 2027? And how should we think about the differentiation of products that you have for Singapore versus the Taiwan capacities for 22- and 28-nanometer? And then with that, how should we forecast the depreciation in 2026 and 2027?

Well, first of all, for the year of 2026, the capacity increase will be around 1.2% year-over-year for us. And for our Singapore facility, the expansion will start in the second half of 2026. And with capacity deployment ramp from second half of 2026 will continue into the 2027. In terms of the node available in our Singapore facility, it's our strategy that we have a geographically diverse manufacturing booking between Taiwan, Singapore, Japan, U.S. and from a technology, no coverage standpoint, we would like to coverage most of the nodes. So the customer has a benefit of passing different sets of forecast.

As for the depreciation forecast, we are looking for some like low teen annual increase in the full year depreciation expenses. As for next year, we don't have the exact number here, but it's very likely to be the similar amount for 2026. So in a way, we will see the depreciation curve to peak either this year or next year with a very similar numbers.

Next one, Haas Liu, Bank of America.

Congrats on the results. I would actually like to follow-up on the pricing. If we look at the like-for-like pricing environment, based on your current mid- to high 70 percentage of the utilization, if we strip out any of the consideration of the product mix improvement, are you able to improve or just to pass on your higher manufacturing costs or material costs to your customers at this stage? Or you still receive a meaningful pushback from your customers?

Well, I mean, the pricing discussion is always ongoing. The overall pricing strategy remains consistent, as I mentioned earlier. In 2026, we do see some market dynamic changes, so forth. Certain customers we do have some adjusted pricing upward. And so -- and for a certain customer, we still have some of the pricing -- I mean, the onetime pricing adjustment at the beginning of the year to support their market share expansion, as well as the competitiveness. So net-net, within the environment more favorable now in 2026.

Okay. Yes. So, when you talk about you are supporting your customers to gain market share by strengthening their cost structure. Do you mean you are actually adjusting down your pricing for those customers? Or is it actually up for this year?

We have a mix of that. For certain customers, we have adjusted pricing upward. And for certain customers, we will apply the onetime price adjustment downward, yes.

Okay. Got it. And then just on the near term, a couple of your Fabless customers recently talked about earlier and also stronger inventory restocking because of the memory price hike. I was just wondering what impacts your first quarter outlook here, if your customers are seeing stronger inventory pulling in the traditional low season. Why is your shipment for first quarter is still relatively flat? And then, what's your puts and takes for the first quarter overall business outlook? Just wondering whether -- which part of the business is actually relatively stronger and weak?

For Q1, by segment, we are actually in line with our addressable market seasonality. We didn't see a significant changes due to the inventory restocking. But if you're looking into by applications, we expect the revenue contribution from consumer segment to increase driven by the WiFi and DTV and set-up box, while the revenue from the communication and automotive will decline due to a softer demand of ISP and DDI products.

Okay. That's pretty clear. And then since you just mentioned about seasonality, are you expecting this year's seasonality to look pretty similar to the previous few years that first quarter could be relatively light and second quarter and third quarter, you will be able to see a relative strength into the year?

I can have -- probably provide you with this. If we look at the whole year, with the new project of a multiple specialty technology across the embedded high-voltage, non-volatile memory, power management, IC, RF SOI, it supports the end markets in communication, consumer, automotive and AI servers which will ramp in second half 2026. So, we're more looking at this year that our second half will outperform the first year -- first half, I'm sorry, the second half will be better than the first half. So that may be the deviate from the traditional seasonality. But as far as for us, we think the overall shipment for the year will be a growth year and as well as second half will be better than the first half.

Okay. Yes. And last question before I jump back in the queue is that, just based on the comment you had just now, what is the underlying market unit demand assumption you have right now? Is it smartphone -- is it the overall smartphone market will actually grow or decline based on your current base case scenario that second half will be better? Or it is actually already factoring a relatively more conservative expectation that smartphone TV, PC, this kind of consumer markets will actually see a unit decline?

Always with the current forecast from our customers. I mean, we do see gains on product segments, all applications. We do see some share gains on those applications. So right now, the forecast does show us that's more of a share gain in the market -- end market demand associated.

Next one, Felix Pan, KGI.

I just have a couple of questions about the future growth driver, particularly in the remarks, you mentioned about the advanced packaging and silicon photonics. So my first question will be besides the Interposer, what else we might have, some engagement for advanced packaging? And for Interposer, what's the capacity expansion plan for 2026? And my second question will be the silicon photonics, particularly in the Singapore fab, a lot of rumor about your potential customer. Is there any color, any client engagement or any contribution can generate from this segment? Any color will be grateful. Thanks.

Okay. A big question. So, let me see if I can cover -- cover that. And well, if I look back, I mean, I understand you asked for 2026. But let me look back this. We have delivered a very solid 2025 performance with a 12.3% shipment growth and 5.3% revenue growth, which outperformed our addressable market. This result is supported by our differentiated 22-nanometer technology and other specialty offering across both 12-inch and 8-inch amid a world-class market, a broad-based market demand recovery. And building on the 2025, we do view 2026 as a year of both continuity and evolution. We believe the UMC will once again taking shares and outperform its addressable market, and we will also see several positive inflation. First of all, as our guidance suggests, we are seeing a more favorable pricing environment. This will result of tighter supply globally as well as our differentiated technology and geographical footprint, which will drive our growth for the next few years. We are on track with our 12-nanometer cooperation with Intel, which should start see tape-out in 2027. Now that's the existing one. And your question about silicon photonics and advanced packaging. Secondly, we see 2026 as a pivotal year for those high performance, high potential opportunities such like the silicon photonics and advanced packaging. And we are making those deliberate choice, working with INEX to invest and scale them into a significant driver for our future. If you ask specifically about the advanced packaging. And there are two distinct opportunities for advanced packaging. One, we call enablers, the other we call 10 extenders. Major to explain this. I know it's long, but bear with me. So the fourth enabler, we are seeing the 2.5D and 3D packaging as well as the chiplet move well beyond just the data center and ultra high-end chip and start to spread across the broader market. Over time, we expect that advanced packaging to be adopted even on mature nodes. A good example is RF SOI. We have mentioned many times where we're already in production. In addition to the RF SOI, we are also exploring other applications with leading partners and believe we are at least 2 to 3 years ahead of our competition. What this really means for customers is better power efficiency, small form factor, and differentiated products. And for UMC, it is a strategic win-win. We believe our leadership in advanced packaging will enable us to capture more shares, sustain our higher ASC and drive better margin in many of our already established business in the long run. On the 10 extenders, we also believe that advanced packaging will help UMC address new opportunities. For example, customers are coming to us for AI-related applications. This is not necessarily just the XPU related, but we are adding value by stacking memory with the logic, adding DTC to the stack or selling the discrete DTC. We are also working with our partners to enable a total solution. Meanwhile, we are working with more than 10 customers in advanced packaging currently and expand more than 20 new tape-outs in 2026. We foresee revenue in 2027 will be a significant year for us. And the capacity question you have that capacity plan will be aligned with the customer ramp plan and market outlook. You also asked about silicon photonics. For silicon photonics, we are developing solutions, which includes ASIC, OIO, OCS, and CPO. Our collaboration with INEX allow us to deliver industry standard PDK to our customers in 2027. In addition to platform preparation, we also work with the customer on captive technology of 12-inch PIC aiming for possible product, which is expected to ramp this year. We will also combine our advanced packaging know-how with the silicon photonics as many of the applications require the integration and different substrates, process, technology and materials. Looking ahead to achieve 1.6T bandwidth and beyond, we're working with both customers and vendors for the test finding on heterogeneous material such as the TFLM. Those technologies could also be used in additional applications such as quantum computing. Again, we hope to integrate the new material the advanced packaging technology as well. So those are all integrated altogether. That's why I gave you a bit of a longer answer. I hope that explains it.

Yes. Okay. But just -- let me just a quick follow up and rephrase my question. So for silicon photonics, what's the earliest timetable we can see the revenue contribution, like most likely?

For the 12-inch PIC, for the pluggable product, we'll be expecting to ramp this year.

Okay. And about the -- because as I know about the Interposer, currently is the -- Interposer is also the bottleneck for our partner to expand their capacity. So, is there any color we can give -- how much capacity growth for the Interposer, like how much year-on-year growth or something like that?

Well, right now, the capacity planning will be aligned with the customer for the 2027 ramp. So, we will probably provide you some clarity when that comes. Right now, in 2026, we will focus on the tape-out.

Next one, Gokul Hariharan, JPMorgan.

Could you go a little bit deeper into that advanced packaging comment that you made? What is the involvement level of UMC in some of these advanced packaging solutions? Are you doing full stack? Or is it basically like previously where you were largely focused on the Interposer side of the equation? And in terms of the tape-outs that you have, what are the nature of these tape-outs? Are these mostly data center ASIC-related products? Or is this a much wider array of products other than just data center ASIC?

Sure. Well, first of all, we have reported in our advanced packaging space. We have building up some of the capability from wafer-to-wafer stacking and TSC as well as Interposer, the 2.5D and the many different capabilities. And then the way we see it, like I explained, for the enabler is we can apply those to many of the current products that we currently serve. And then -- and one example I mentioned is the RF SOI. So we have wafer-to-wafer hybrid bonding with the RF SOI solution for the mobile space already. And then, some of the capability can be built for the DTC for the stacking as well as some of the customers looking at discrete DTC already. And we are combining some of the capability into segments, the logic and the memory. Of course, we do not provide memory ourselves. So the customer will have to provide memory wafer to us. And so then we can provide wafer-to-wafer hybrid bonding on those. So on one hand, the way we see it is advanced packing is a capability per se, and it implies to the product and then we call it enabler and also expander. And the -- meanwhile, the product coverage is all the way from the mobile space, power management discussion, the AI-related -- AI-related product and also for the BCD application as well. So they were -- it's our belief is for a better reason or for the higher performance reason, and many different applications will start adapting the advanced packaging. So we think this is going to be a broad success on the advanced packaging space.

Got it. And any plans to further expand your Interposer capacity? I think we had expanded, I think up to 6,000 and then kind of stopped it there. Now some of that demand seems to be kind of coming back for some of -- one of your customers in China. So, is there any plans to expand the capacity further?

There are discussions around that. Right now, if you look at the technology itself, we have some common tools in place already, which that we can leverage of our 40-nanometer capacity, of our 65-nanometer capacity. From those common tool space, we're already allocating to this area. Now for the unique tools, then we will put in the plan for the future expansion and for the customer ramp profile. And we believe that will probably happen in 2027.

Got it. Understood. That's clear. Another question I had is on the -- just your expectations for the communication, consumer segment which is north of 70% of revenue, given all these concerns about smartphone, PC. How are you budgeting for this? Are your customers telling you that they are really concerned about this memory cost inflation? Or right now, you still don't really hear that from the customers that that's going to be a big issue from a unit perspective going through the year?

Well, we're also cautious about that topic. As of today, we have not observed any demand impact on our customers' forecast for the year, despite the recent surge in that price. And our technology predominantly supported customers addressing the higher end of the market segment, where the demand tends to be more resilient in the past and in the period of memory tightness. So, because the supply usually typically prioritize in such high-end higher-value device. While we remain attentive to the potential impact on the memory market and our current assessment is that any potential headwinds are probably manageable, and we will continue monitoring the situation properly with our customers together.

Got it. My last question is on the geographic split of revenues. I think, could you talk a little bit about the Intel 12-nanometer progress? And any color on how you will be booking revenues or profits from this partnership given the fabless, Intel fab, while you are essentially the provider of customers and some degree of IP as well into it? And secondly, on the Xiamen's fab, what's the strategy for the Xiamen's fab medium to long term, given many of your semiconductor peers in Taiwan have kind of progressively exited capacity in Mainland China?

Well, for the 12-nanometer project with Intel, overall, the 12-nanometer cooperation project with Intel continues to advance smoothly. We remain on schedule to deliver the PDK and associated IP to customer in 2026. Furthermore, we anticipate the product tape-out will commence in 2027, making the significant step towards to commercialized deployment and future revenue growth. Right now, UMC and Intel are working closely to ensure successful tape-outs and an efficient ramp up for the mass production. As the project advance, it is expected to further strengthen USD position in the U.S., right, for customer as well for us. Because the geo diversification manufacturing. Right now, the application on the 12-nanometer cooperation, including products on digital TV, WiFi connectivity and high-speed interface products. In terms of the business model, and it's probably not available for us to comment. But it is a win-win strategy that we see and will be very synergetic for both parties as well as for our customers. And we have very high confidence this will be a win-win model.

Okay. And any thoughts for the Xiamen capacity?

Yes. For the Xiamen, I kind of touched that earlier as well. I look at Xiamen, not just Xiamen itself, our core part of our competitive advantage is our geographically diverse manufacturing footprint. And the Xiamen play one of the important space for us and particularly for the local customer. So -- and at this point, the fab is actually at a full capacity. We are running at a full utilization as well. And we see -- we continue seeing many different engagements coming to this and we will across regionally optimize it from the customer engagement and product loading standpoint.

Okay. Just one more on blended ASP. I think, Jason, you mentioned that the ASP environment is more favorable this year. But overall utilization is still in the mid-70s as of Q1, right? So do you expect that this year, we could see a scenario that we could see blended ASPs moving up meaningfully like 5% to 10% or something like that, like we have had in the past or that requires a much higher level of utilization that is probably not happening this year, given your low single-digit foundry growth expectation?

Sure. I mean, the high utilization is one of the important factors, but that's not the only factor. We want to make sure the pricing strategy is enabled not only ourselves and our customers to be competitive as well. So -- but we do see the pricing environment is getting more favorable to foundry because of the loading reason. And so -- but the magnitude of that, we probably have to continue to manage it. And if we have a clarity, we will share that with you.

Next one Alex Chang, BNP.

I just have a very quick one. I just saw the company announced that they started the mass production of SuperFlash Generation 4. So just wonder how much revenue contribution from the non-volatile memory business in the past quarter or maybe past year? And also how much revenue is contributed by the power management ICs for the server-related applications?

I mean, we don't have a breakdown to provide. And the way that we break it down is based on specialty technology that includes the high-voltage and non-volatile memory and the PCB space. Right now, the specialty revenue representing about 50% of our overall revenue. And I can let you know the high voltage is about 30% of that. And the rest of that, I would say, is a combination of the non-volatile memory as well as the DCB.

Next one is Laura Chen from Citi.

I just want to follow up on the deterioration rate and also the gross margin outlook. Jason, you mentioned that the pricing environment seems to be improving more favorable. And together with firm shipment and better product mix as well as the utilization rate, so how should we think about the gross margin trend? You guided that will be high 20% for Q1. But with these favorable factors, how should we think about the margins throughout the year? That's my first question.

Yes. Gross margin can be highly dependent upon utilization rate, ASP, product mix, depreciation and foreign exchange rate. So there's a lot of variables. So beyond this quarter, it's difficult for us to give a firm outlook. For the first quarter guidance, which is high 20s, is mainly due to the higher cost, especially the higher depreciation expenses. As I mentioned, it will grow by low teens in the full year of 2026. As for 2026, we will continue to cope with higher depreciation expenses as well as the other inflationary pressure for our production, raw material and other costs. To mitigate and cope with the headwinds, we will continue with our cost reduction efforts and also all the activities to improve our productivity and drive operation efficiency. And these measures hopefully will help UMC to deliver a stable EBITDA margin and ensure our long-term financial resilience to remain intact. As a matter of fact, our 2025 EBITDA margin is actually a good improvement compared to that of 2024.

Yes, sure. And also, I think for the advanced packaging and as well as the silicon photonics is one of the key things that UMC may have a great opportunity. We know that UMC has already working on advanced packaging, previously on Interposer, probably now we'll see more various different design. So could you share with us what's about the revenue contribution of your advanced packaging right now? And how would that look like in 2, 3 years?

Currently, the Interposer was exposed to very limited customer base and also narrow application. While we have engaged with more than 10 customers and expecting more than 20 new tape-outs in 2026, we do foresee that revenue of packaging -- advanced packaging growth in 2027 will be significant.

So, significantly means that, could that be like 5%, 10% or higher?

I am expecting more than that. But I mean, if you're referring to the overall revenue contribution, we'll probably give you more guidance later. But if you're looking at the packaging itself, it's going to be significantly larger than what we're shipping today.

Next, we'll have Bruce Lu, Goldman Sachs for questions.

I want to go a little bit deeper for the silicon photonics. I mean, as you might know that your peers like GlobalFoundries, Taiwan Semi, pretty vocal about that. Can you tell us how big do you think the addressable market for silicon photonics for you guys in 2 years? And how do you win market? What is the competitive advantage for you in this business? I mean, other than working with INEX?

Well, I mean, the Singapore facility is not going to only serving the silicon photonics. Singapore facility is one of our important manufacturing site, they serve our worldwide customers, all different applications. And so it's part of our geographical diverse manufacturing strategy. So...

No, no, no, my question is for silicon photonics, our business strategy?

The silicon photonics strategy in Singapore. Okay.

No, no, no, no. I'm sorry, let me rephrase my question. So the growth driver for UMC, one of it is the CPO, I'm assuming having more business in the silicon photonics. In -- for your peers like GlobalFoundries or Taiwan Semi, they are pretty vocal about the silicon photonics and have meaningful revenue contribution already. For UMC perspective, what is your competitive advantage for UMC to win this business? And how much business you can win or how big is the addressable market for you in 2 years?

Got it. So, for the silicon photonics, our strategy is simple. Our cooperation with INEX allowed us to deliver the industry standard PDK to our customer in 2027, particularly in 12-inch. So many of our competitors is today at 8-inch and we are focused on this in 12-inch. And as we believe the 12-inch will have that advantage. And right now, we already have certain products that have proven that performance is a better and a pluggable product, and which we will expect to ramp this year. And meanwhile, we're also combining the silicon photonics with our advanced packaging know-how, so for many different type of applications then we can integrate that. So by doing that, we think we will be even providing even more value from advanced packaging combining with silicon photonics at 12-inch. I think that's where we believe we are competitive.

But that's mostly for plug-in, right? Because if you don't have the EIC, the pure CPO product might not be your key growth driver?

You're correct. We're not looking at a completely CPO package. We're looking at particularly in the PIC and OIO and OCS.

I see. I understand. That's very clear. Next one is -- and we see that the progress for the Intel project for 12 nanometers is pretty smooth. I just want to know what is the next step? I mean, when we can see a further collaboration in 10, 7 nanometers and beyond? I mean, obviously, whatever you said, the advantage at 12-inch, you can also use the same argument for 7-nanometer. What's stopping you to do that?

Well, you're also right on that. And our focus right now is on delivering the 12-nanometer platform to customers. In the future, should it make sense for both UMC and Intel as well as our customers, we will surely consider expanding our collaboration to other derivatives as well as the technologies. Yes.

But what is stopping now? What is the show stopper now?

It's not -- I won't call it stopping. I think the focus is a focus on 12-nanometer. We have to deliver a 12-nanometer today, and make sure that we deliver that program. We execute it well. And I think anything that makes sense on that, unlike you said, I think there will be a discussion, yes.

I see. Because we already assumed that you can deliver something in '27. So given that working for 7 nanometers, maybe you need 2, 3 years, we want to see the project kickoff as soon as possible.

[Operator Instructions] Now we'll have our last question, [ Sappho ] Neuberger Berman.

It's been a while. And congrats on the progress you've made throughout this couple of years. I just have a few questions. The first one is, on the market dynamics, I think previously, Sunny has asked about the TSMC is shrinking or defocusing on this mature foundry process. And it looks like not just TSMC, but also the other foundries are -- seems to be doing some leading-edge logic foundry seems to be doing the same thing. And also Powerchip recently just reached agreement with Micron as well as Intel fab, which means they're trying to streamline and re-org some of the foundry process, too. So it seems like there's a lot of supply is kind of being taken away because of the rolling out effects from the AI and crowding out some of these older nodes. On the supply side, it seems to be that actually decreasing. And on the demand side, if you look at, I think, TI just to report overnight. I think it seems like that there's been more obvious recovery on the analog MCU space. So on demand side, that's also improving. But the supply side, that's actually decreasing. So it looks like supply-demand dynamics is moving to a more favorable situation. I think that's the point why you were mentioning the pricing dynamics favorable this year. So I'm just curious about your view, if we try to compare the current like the mature foundries dynamic situation right now versus, I mean, back in 2021 when there is a severe shortage back then. How would you compare this time around versus last cycle?

I mean, that's a really good question. I mean, we saw on the market movement, the changes. And we also deep dive on this demand and supply outlook. And we think whether this is short term or long term. If you look at the driver behind us, we see -- you mentioned this is truly more of the AI phenomenon ripple effect. And so we see that AI remains to be very strong, at least in the foreseeable future. And I think this momentum will continue driving the overall demand. And meanwhile, in many of this -- the capability -- AI capability we portfoliating to even the other end market devices in the Edge AI as well. So as in this will continue. And from an economic standpoint, building any of the mature facility is not justifiable. So we do think that this could last longer compared to the over time. And I think the situation could be more of a structure going forward. And -- but again, this is at a very early stage of this market movement. So we'll pay attention to it, and we'll continue monitoring the progress. Meanwhile, like I said earlier, I think it is more a favorable pricing environment. But more importantly is we need to prepare ourselves to cope with this market dynamic. So we are welcoming all the opportunity that for us to engage in supporting the customer. And -- but the important focus today is we have to get ourselves ready to capture those opportunities.

Got it. Another question I have is your earlier comments on the pricing. I think the -- you offer some of the annual -- maybe some discount to some of our strategic clients for their share again, but also net-net wise, also seems to be pricing is going up for a majority of the clients. So net-net, it's going to still be the -- ASP still be positive. But I'm just curious about, for those clients that you're offering some discount at the beginning of the year, when it down the road is, if the next few months or quarter situation has become tighter -- and would you be able to reprice with these customers?

Those discussions will be ongoing. We're always working with our customers to reflect the market dynamics as well as the cost increases. So I'm sure, and I believe this conversation will surely happen. It happened in the past, it will happen now and will happen in the future. So the pricing discussion will continue. And I think customers understand that. And we just have to continue monitoring the market dynamic and maintain our competitiveness on both the customer and ourselves.

Yes. Well, a thought on that because of some of the pricing that started to affect it on the January 1 this year, this was actually negotiated already in fourth quarter last year, right?

That's -- some alignment on that on both volume and the pricing. So if volume has changed, of course, that's a different topic. So, there are some volume dynamic in that as well.

Yes. My question is actually is that because a lot of the pricing that's effective on January 1, beginning of the year, it was actually communicated 1 or 2 months ago before that, toward the end of last year when the time that the supply demand dynamics haven't been really that tight as compared to some of the changes that happened in the just past couple of weeks. Am I getting that right?

Yes, you're right. Yes. But those also is on certain conditions. So given the condition has changed, the some of the pricing are dynamic.

Yes. Yes. Exactly, that is what I'm trying to discuss with you. Because we also saw a lot of the other different components, different subsectors within the tech or semi supply chain that such as memory, I think the pricing were still down in July, August, but all of a sudden, September prices going up. So I'm just curious about that because when you negotiate some of this discount months ago, the supply-demand dynamics was not the same as today. So things remain fluid, dynamic and it still continue to be flexible and it's going to be dynamic and open for changes down the road, if things are moving more favorably.

I think the core of the pricing strategy is that it has to be consistent, and it has to anchor with the value that we deliver and also the customers' competitiveness. That is the core. Then usually, that is how we're centering about the pricing discussion. So that core is not compromised. Now if the condition has changed, yes, they always have some flexibility to it. So, one is called pricing strategy and position, another is core pricing negotiation. So there will be some flexibility, yes.

Yes. And the condition has started to change now.

Yes. So we do think the pricing discussion will be more favorable now, yes.

Ladies and gentlemen, we thank you for all your questions. 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 fourth quarter 2025. 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.