Earnings Transcript for UMC - Q4 Fiscal Year 2024

Operator: Welcome, everyone, to UMC's 2024 Fourth Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcast in live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. And now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Michael Lin: Thank you, and welcome to UMC's conference call for the fourth quarter of 2024. 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 first quarter 2025 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 presentations material, which is being forecast live through the Internet. Now I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2024 financial results.

Chi-Tung Liu: Thank you, Michael. I'd like to go through the 4Q '24 investor conference presentation material, which can be downloaded or viewed in real-time from our website. Starting on Page 4, the fourth quarter of 2024, consolidated revenue was TWD 60.4 billion, with gross margin at 30.4%. Net income attributable to the stockholder of the parent was TWD 8.5 billion, earnings per ordinary share was TWD 0.68. Utilization rate in the Q4 was 70%, slightly down from the previous quarter of 71%. On the quarterly income statement, operating revenue was basically flat, around TWD 60.4 billion and gross margin rate maintained at 30.4% or TWD 18.3 billion. Due to mark-to-market loss of the investment portfolio, for both UMC and UMC Capital, we registered a TWD 1.4 billion loss of nonoperating income in Q4 '24. The result is the net income attributable to the shareholder of the parent reached TWD 8.49 billion or TWD 0.68 EPS per share. For the cumulative whole-year 2024 performance on a year-over-year comparison, revenue increased 4.4% Y-o-Y to TWD 232.3 billion. Gross margin rate was around 32.6% or TWD 75.6 billion. Operating expenses is under control around 10.9%, similar to the 10.7% in 2023. The net income for 2024 was TWD 47.2 billion or TWD 3.8 per share. EPS per ADS is USD 0.58. On the balance sheet, our cash on hand is over TWD 100 billion, and total equity for the company at the end of 2024 reached TWD 378 billion. ASP last quarter at Q4 was flat, around flat to quarter-over-quarter. And let's go down to Page 9 for revenue breakdown. For Q4 2024, the Asia sales represent about 61%, which declined 4 percentage points from the previous quarter, when Europe increased from 5% to 11% in Q4 2024. For the whole year, the Asia part of the revenue increased from 57% in 2023 to 63% in 2024. Europe declined about 3% to 8 percentage points from 11% in the previous year, when U.S. -- North America didn't really change that much from 27% to 25%. For quarterly, IDM revenue remained flattish from 15% to 16%. For the full year, it declined from 22% in 2023 to 16% in 2024. In terms of application breakdown, we see Consumer segment decline about 2% to 29%, and Communication also declined about 3% to 39%. And others, including Automotive and Industrial in this single quarter, due to customers' order modulation and wafer ship difference increased from 14% to 19%. On Page 14, our full-year application breakdown, Communication is around 42%, and Consumer is about 28%. On Page 15, our technology breakdown, our 22 and 28-nanometer shipment continue to increase and right now represent about 34% of the total revenue and 40-nanometer also see some increase from 13% in the previous quarter to 16% in this quarter. For the whole year, 28, 22 represent about 34% of our total revenue when 14-nanometer remaining constant around 14%. Capacity continued to increase, mainly from our 12A Tainan P6 operation. And it will somehow decline a little bit because of the Chinese New Year holiday schedule and also annual maintenance schedule in the Q1 of 2025. CapEx budget for 2025 currently stand around TWD 1.8 billion. And the actual CapEx number for 2024 was a bit over USD 2.8 billion. The above is a summary of UMC results for Q4 2024. 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.

Jason Wang: Well, thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results -- our fourth quarter results and guidance. With wafer shipments and utilization slightly exceeding expectations. For full-year 2024, revenue grew 4.4% year-on-year, reflecting a steady improvement in demand across Communication, Consumer and Computer segment. Our 22/28-nanometer portfolio remains the largest contributor with revenue increasing 15% in 2024. Notably, customers are showing strong interest in migrating to our 22-nanometer specialty platform for next-generation networking and display driver applications, which offers significant power saving and performance advantage over the 28-nanometer solution. Tape-outs for 22-nanometer products are accelerating, and we expect to see higher revenue contribution from 2025 onwards. Looking into 2025, the semiconductor market is posted for another year of growth, driven by strong demand for AI service as well as increasing semiconductor content in smartphones, PCs and other electronic devices. To capture opportunities in the fast-moving market, UMC continues to invest in technology, innovation, developing industry-leading specialty solutions to ride the next wave of system upgrades and stay ahead of the competition. Building on our technology foundation, UMC is also actively expanding our advanced packaging offering to help unleash the potential of AI in upcoming years. In conjunction with technology development, our key capacity expansion projects are progressing as planned. Our new Singapore Phase 3 fab will enhance customer supply chain resilience, while the 12-nanometer collaboration with our U.S. partner will offer customers a migration path beyond 22 nanometers. Now let's move on to first quarter 2025 guidance. Our wafer shipments will remain flat. ASP in U.S. dollars was decreased by mid-single-digit percentage. Gross margin will be higher than 25% with January 21 earthquake impact. Capacity utilization rate will be approximately 70%. Our 2025 cash-based CapEx will be budgeted at USD 1.8 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Operator: [Operator Instructions] And our first question will be coming from Sunny Lin, UBS.

Sunny Lin: So my first question is on gross margin. And so these above 25% gross margin guidance for Q1, could you help us understand what are some of the major factors? Because if we look at the Q1 2024, your blended ASP was also down by about mid-single digit, but you were able to keep up your gross margin. And so I wonder why the meaningful decline for Q1 this year. And then maybe the second part for gross margin is how should we think about the full year. With this above 25%, should we consider that as a fair assumption for full year? Or would you expect some recovery in coming few quarters? Maybe let me stop here, and I have a few follow-ups.

Chi-Tung Liu: Thank you. First of all, the earthquake earlier this morning does have the impact on our Q1 margins, maybe about low single digit. And, however, the part of the -- or a large part of the loss will be compensated through insurance in the later stage. And secondly, the Q1 margin is impacted by both ASP decline, which is one-off and also the increased depreciation expenses. So we don't expect anything structural in terms of our profitability change. The one-off pricing adjustment and depreciation plus earthquake this morning lead to this higher than 25% gross margin guidance. We will continue to deploy aggressive cost management to offset the headwind cost focusing on multi-sourcing strategy, streamlining process flow, supply chain, pricing management and power reduction measures on facility and tools. Of course, we will continue to invest for the future, including the automation transformation. So as for the rest of the year, we will give the guidance on a quarterly basis.

Sunny Lin: Got it. If I could follow up on the depreciation increase, and so what's your current guidance for the growth for depreciation for 2025? And how much depreciation will increase going to Q1? Should we assume most of the depreciation increase to happen in first half because you have completed your 28-nanometer expansion in Taiwan, and therefore, the depreciation increase will start to moderate going to second half?

Chi-Tung Liu: The depreciation increase in 2024, as we guided, was low 20%. As a matter of fact, it's very close to 20%. As for 2025, the guidance will be high 20% for the whole year. And we don't really have a full quarterly breakdown yet for the depreciation expenses because it varies according to the tool installation, et cetera. But the peak of the depreciation, we will see way down until maybe 2027 to see pickup. So it's still another year or 2 to go in terms of depreciation increase.

Sunny Lin: Got it. My second question is on your cash dividend. So how should we think about your policy? Obviously, I think last year, business was through the trough, but on the other hand, your cash flow should start to improve substantially given the lower CapEx. I understand the cash dividend, we still need to go through the approval from the Board, but any color from your strategy would be very helpful.

Chi-Tung Liu: Yes. We understand UMC need to maintain somewhat better than average dividend yield in order to attract our investors. And we will strike a dedicated balance between business growth and shareholder returns. Most importantly, we want to ensure shareholders receive a stable and consistent cash dividend.

Sunny Lin: Also last 3 years, you pay $3 or above cash dividend. And so when you mentioned like sustainable, should we consider that as from an absolute amount point of view?

Chi-Tung Liu: It's both. It's blended. So you should blend the absolute dollar concept along with the dividend yield and also the payout ratio.

Sunny Lin: Got it. No problem. My last question is for Jason. And so I want to get your view on the overall semi-cycle, more specifically into 2025. And how do you think about UMC's adjustable foundry market growth for this year? Are you seeing any green shoots from consumer restocking or supply chain prebuild?

Jason Wang: Sure, of course, yes. For the semi outlook, I mean, yes, it's our view that semiconductor industry, we are expecting to see a 10% growth in 2025, mainly driven by the high demand of AI servers as well some of the moderate growth in consumer electronics and increase of semiconductor content from the AI smartphone and AI PC notebook replacements. So the -- predominantly the dominant growth still remains to be an AI server area. For the foundry, we expect the 2025 foundry market will grow in mid to high teens percentage. Again, that includes the AI momentum. For the UMC addressable market, we have observed that inventory for consumer electronics has been digested to a healthy level and the demand of this product is expected to grow moderately while we see the increase in semiconductor content as well. These factors will be the main driver for the -- about low-single-digit growth in the mature normal market. So I think in UMC addressable we're projected at low-single-digit growth for 2025. And for UMC, it's our goal that we will outgrow our addressable market while maintaining our structural profitability.

Sunny Lin: Maybe one more follow-up. Customers have started to see some upside from the supply chain preview, ahead of the potential tariffs in first half of this year and provide this guidance of low-single-digit growth for 2025. Have you considered some upside from that regard?

Jason Wang: Can you repeat that again? I didn't -- I kind of break out on the beginning. Sorry.

Sunny Lin: No problem. Sorry about that. So just one quick follow-up. So when you mentioned this low-single-digit growth for your addressable market for 2025, I wonder have you considered some upside from the potential supply chain preview ahead of tariffs? Because in recent few months, we have started to hear from fabless indicating that some rush orders are coming through from China ahead of the tariff.

Jason Wang: Yes, I got it. Okay. Well, for the Q1, the -- for the Q1 guidance that we just provided, it is somewhat better than the traditional seasonality. We guided shipment will be somewhat in flat. And the short-term visibility still remains limited, partly because of the nonfundamental factors as the U.S. tariff. We certainly hope that Q2 will grow sequentially. And the current projection, it's not 100% including those, but because of the lack of visibility, unless the Q2 can be sustainable, otherwise, we still project that will be a low single digit. In other words, that low single digit is not including the tariffs, but we did see better than the traditional seasonality Q1 projection, yes.

Operator: Next one, Gokul Hariharan, JPMorgan.

Gokul Hariharan: First question on pricing, Jason, what are we assuming? Are we basically taking a one-time price reduction across the spectrum, about 5% or something like that? Also, I wanted to understand, do you feel that you can hold off on any further price declines through the course of the year given there seems to be both price pressure from your larger competitors in Taiwan as well as price pressure from a lot of the new capacity on 28-nanometer in China as well?

Jason Wang: Of course. I mean, we are experiencing that for the past years. And again, our pricing strategy remains unchanged, and we will -- but, however, we do respect the -- to follow the market price like we said in the past. At the beginning of the year, we always plan there will be a one-off pricing adjustment, and the pricing outlook will resemble a similar pattern like 2024, which will be about a flattish year after the one-off adjustment. And the -- to mitigate the market pressure, the pricing pressure, we'll continue to strengthen our product portfolio, and we do expect 22-, 28-nanometer revenue contribution will continue to increase and will represent a high 30% range for us and the growing tape-out momentum in 22 can mitigate the potential 28 competitions. It's our view that in 2025, we will continue working on differentiating from the industry peers in the mature foundry market. We know the competition is there. Geopolitically, the outlook taking place in the semiconductor industry is again unprecedented than we have experienced in the last year in 2024 as well. Some of the initiative is already happening and that -- against the supply chain resilience, the -- because of the oversupply situation in the industry. Now for UMC, we are one of the few foundry suppliers who can support global fab operations. We have envisioned a need for diversified manufacturing strategy many years ago while at the same time, we believe the fundamental competitiveness is to strengthen our technology differentiation. So in conclusion, our pricing strategy is unchanged compared to the previous year, and we are gaining shares in our addressable market. And UMC's diversified manufacturing footprint and competitive technology offering will still set us apart from our peers. That's our view.

Gokul Hariharan: Got it. So just one more question on pricing. I remember that a lot of LTA contracts were negotiated back in '21, came into force in 2022. Many of them were 3-year -- 3- to 4-year kind of contract. So I presume a lot of them are coming up for renewal this year and probably next year. How does that influence pricing? I'm sure clients are going to be asking for lower price given the current situation compared to back in 2021, 2022. So I just wanted to understand like not just for this year, but like going forward a couple of years, do we think that the price curve is generally going to be downward sloping given this pressure?

Jason Wang: I think pricing is one of it. The LTA -- I mean the concept of LTA is really more of a mutual commitment from both customer and UMC that we have to commit and honor our agreement in improving capacity, and while our partners and the customers remain committed, engaging with UMC on an ongoing basis and for the future growth. So fundamentally, this has never changed. Now the market dynamic does put in some pressure on those LTAs. So we -- like I said, we all respect the market price dynamics. And we're closely working with our customers to navigate through this process and for -- in order for them to protect and continue to compete competitively in their marketplace. So there is ongoing discussion with our LTA owners and with the goal that we will continue working together going forward and help them to be competitive in the marketplace. Gokul?

Operator: Well, Gokul, did you mute yourself?

Gokul Hariharan: Yes. Sorry. Sorry about that. So maybe one last question. Could you talk a little bit about the capacity ramp for the Singapore fab? Are you taking a little bit of a slower cohorts of action? How much capacity do you expect to come online for the Singapore fab this year and potentially next year? And this CapEx kind of moderation down to TWD 1.8 billion from TWD 3 billion, is that where we should expect it over the next couple of years? Or is it just a 1 year thing?

Jason Wang: Sure. I mean the -- for the capacity expansion in 2025, our Singapore, the P3 production win is still on track, and for the January 26 and -- starting from January 26. So that milestone remains unchanged. However, the volume has somewhat adjusted. And so we are following -- given the current market dynamics, we are -- and the customer alignment, we are adjusting that rent profile, but the timing did not change. The 2024 CapEx, mainly spending in the P3 building facility, and that is the major portion, which is already complete and deployed. So the -- for the CapEx projection going forward, we do not expect there will be any upticks on the current level.

Gokul Hariharan: Okay. Understood. And lastly, gross margin, given Chi-Tung's guidance on depreciation, kind of high 20s kind of growth, revenue growth you're expecting, looks like mid-single digit, are we -- is it fair to expect that gross margin stays in this mid-20s level through this year? Is that a fair kind of characterization of margins?

Chi-Tung Liu: It's difficult to guide the full year, especially on quarterly patterns for the gross margin right now. I think all we can say is we try very hard, at least from an EBITDA margin point of view to have intact structure EBITDA margin. Of course, the depreciation numbers will go up continuously over the next 2 years. But our goal is really to have intact structure profitability. And hopefully, we will see more 22-nanometer shipment along with recovering capacity utilization rate to offset the increased cost side of the equation.

Operator: Next one, Brad Lin, Bank of America.

Brad Lin: I have 2 questions. One is on the silicon interposer business outlook. Would you please share the latest updates and expansion plans for UMC's silicon interposer business? And also beyond AI application, do you also foresee non-AI application adopting this kind of the, well, so-called CoWoS technologies as well?

Jason Wang: Sure. For the silicon interposer existing capacity, there's no plan to expand. And the -- some of the products already migrating to the next generation and we do have a product pipeline that's coming into this, but there is a caveat between that. So for the application being associated with the interposer as well as advanced packaging, we continue to see quite a bit of momentum on that. And so I can probably give you a bit of a detail on that front is we -- our customers are seeing increased requirements for the communication bandwidth and energy efficiency point of view, particularly in the AI application. So we foresee there will be increasing need for the integrated memory, logic and even sensor's chiplet for the better AI performance. So we have broadened our packaging technology offering beyond this interposer, the 2.5D interposer, which will allow us to develop a new system architect with multiple partners enlarging our addressable market. So -- I mean, that's where we stand on the current interposer, which is half -- and no expansion on that. But meanwhile, we're expanding our broader knowledge of advanced packaging offering for the future engagement.

Brad Lin: That's pretty clear. It sounds like despite limited expansion, we should see more value addition and high utilization rate for this business line. Am I correct?

Jason Wang: Yes, we do expect there will be a pipeline coming in and with numerous different products and applications.

Brad Lin: Got it. So my second question would be on the, well, geopolitical impacts on the customer orders. So have -- have you observed any significant share gains from the overseas clients due to the, well, rising geopolitical dynamics? When does the management expect this to drive the, well, revenue growth meaningfully? And also conversely, do you anticipate any downside risk from so-called China-for-China trend here?

Jason Wang: I mean we don't see any downside. And in fact, we see -- I mean, we don't see multiple different directions. There is product moving into certain regions and some products is moving out certain regions. So there are multiple dynamics and directions on those adjustments from our customer sourcing strategy. And with UMC's diversified manufacturing side provides supply resilience to fulfill various customers from resourcing strategies or requirements. We actually do see we position ourselves well, and we welcome any opportunity from our customer. And as of currently, there are many ongoing projects, which will materialize after 2025.

Operator: Next question, Charlie Chan, Morgan Stanley.

Charlie Chan: First of all, Happy New Year. And the earthquake is a little bit unfortunate and hope your financial damage will be fully recovered later this year. So first of all, I wasn't very clear about your comments about second quarter seasonality, Jason. If I may, can I double confirm that you said 2Q you're expecting fab utilization to go a little bit higher and above the seasonal? Can you clarify your comments about second quarter growth?

Jason Wang: Well, first, thank you, and Happy New Year to you, too. In the -- we definitely will navigate through this earthquake situation very quickly, and we can recover and help our customers with their delivery -- urgent delivery and wafer shipments. And now coming back to the Q2, it's too early to provide a Q2 guidance, and we typically will provide quarterly guidance, outlook projection. What I said earlier, it was the -- our Q1 2025 is better than seasonality. It's better than we originally expected. The short-term visibility remains unlimited, partly because the nonfundamental factors like this for the U.S. tariffs in related to the U.S. tariffs. We certainly hope -- what I said, we certainly hope that Q2 will grow sequentially. But at this point, the visibility remains low. So we just have to wait and see. Once we have clarity, we will provide more guidance. Meanwhile, we are confident with our current 22-nanometer product pipeline, which will enter production this year and to fill our 2025 second half growth. So we expect to grow our revenue in 2025, mainly with the expectation that we will have the product launch of 22 starting in second half of 2025.

Charlie Chan: Okay. Got it. Yes. So by the way, you were very correct about last year's industry growth. So I think you said low single -- sorry, single-digit growth, right, and it turns out to be like a 6% growth for overall foundry sector. So yes, I also quite agree with you that inventory levels are quite healthy and semi content increase in PC, smartphone probably will make this year a little bit better than last year. . Yes, so switching gear to those advanced packaging business, right? So -- I think last call you talked about interposer, but recently, there was a news talking about you probably will do wafer-on-wafer, right, which is kind of a 3D packaging for a U.S. customer. Do you want to talk more about these developments? And how do you compare your wafer-on-wafer or hybrid bond technology to your industry peers, like TSMC or SPIL. I think SPIL is more on the chip level 3D packaging, right? But just a kind of a comparison between your 3D-IC technology versus either TSMC, that would be great.

Jason Wang: Sure. Yes. Well, first of all, you talk about projection. I do want to have some clarification on the inventory projection on our side. The -- we can see the DOI decrease as expected in the third quarter of 2024 with what we have in the quarter in the past, that's indicating a stable demand in the end market. In terms of application, the DOI inventory for consumer electronics are approaching a healthy level. However, the DOI remains relatively high in the automotive and industrial sectors, and we believe it will still take more time to digest. Yes. So coming back to the advanced packaging. First of all, we typically do not comment on any market speculation and specific customers. Like I said, we are broadening our packaging technology offering beyond the 2.5D interposer, which we have shipped in the past. The wafer-on-wafer bonding is -- hybrid bonding is one of the capability of technology that we provide. And in addition to that, there is also the interposer with TTC, discrete TTC and so on. And so there are multiple technology offerings and more like in the toolbox for us. And so we do see the -- well the market direction is there are products that are going to require a higher bandwidth and more efficient in many of the different applications. And then we can -- engaging with our customers with those technology capability and tailored to their solution needs. So I think our current stage is try to equip ourselves to be capable of doing so, then we'll be able to broaden our solutions and serve our customers to enlarge our addressable market.

Charlie Chan: I see. How about the optical-related application -- I mean, PIC, right, photonic IC? I remember to seg -- PIC and EIC, you also need hybrid bond, right? So I'm not sure if UMC is also considering the kind of the CPO supply chain. I don't think there's kind of only NVIDIA Rubin, right? I think other customers like Broadcom, Marvell, they are also pushing these CPOs. So does the UMC have any kind of plan to get into this market?

Jason Wang: Well, certainly, I mean, we're not going to miss out any potential growth opportunity. When we talk about the increase of communication bandwidth and efficiency -- energy efficiency, it applies to many different applications, not limited to the current, the GPU and the processors. And there are many others. And so the many others will probably require integrating memory logic, like the GPU, but in a different bandwidth and also the different capability. So yes, we do see there will be various applications that require such technologies. And so, again, we believe by broadening our technology offering, it will help us to enlarge our addressable market without missing out.

Charlie Chan: Yes. And last one from me is really your key partner, Intel. So there was an organization change. So I'm not sure if you are comfortable to comment on share. What does that mean to your partnership with Intel, any positive or negative given the recent senior management and CEO change of Intel?

Jason Wang: Well, I mean, what I can share with you is this -- the strategic cooperation is definitely a right thing for both companies. And our partner and us are both very committed to bring this most competitive 12-nanometer solution to the Western footprint. And we are seeing a very strong customer interest. We have been working closely and diligent to accelerate the delivery schedule since day 1. And at the moment, we are verifying the silicon performance already for the pilot line, and we expect the early PDK will be ready for the first wave of customers by 2026 as planned. Therefore, we believe this cooperation will be beneficial for the industry, our customers and for both companies. So I do not foresee any changes in this cooperation. And as of now, our key focus is on WiFi connectivity, high-speed interface SoC product. In addition to collaborating on the 12-nanometer larger process, we are also exploring potentials in the specialty technology solution to further complement our portfolio with diverse product application. So we -- first of all, we are still very excited about the engagement, and we are very committed, and we see a very good progress at this point.

Operator: Next one, Bruce Lu, Goldman Sachs.

Zheng Lu: Jason, the first question is a quick one. The Europe business went up quite a lot in fourth quarter. But application wise, we see that others' application went up a lot in fourth quarter. Can you tell us a little bit more detail? Do you have any market share gains there or any project win? Or what is the application which drives the Europe growth in fourth quarter?

Jason Wang: Chi-Tung actually commented about this earlier, the pickup in the Q4 automotive business really reflecting is the customer's modulation for their inventory management. So we see this one-off uptrend, and then, we'll align that to the end market demand, which I also touched on the inventory situation, the automotive and industrial sectors even though it remains high, and it will still take more time to digest. So -- it's more of inventory.

Zheng Lu: Okay. Next one is for your ASP, which is down like mid-single digit in first quarter. Is there a product mix issue or mostly for the one-off? I mean -- or is it pretty much mid-single digit across different nodes or any specific node has higher price erosion than other nodes, for example, like 28 or 8-inch versus 12-inch?

Jason Wang: Right. I mean, you're absolutely right, it is the blended base. The one-off mid-single digit is at a blended base. There are some -- the node that actual went social is commodity like solutions, they have deeper erosion. And, well, we have a differentiated technology, have a lower erosion and then combining with the product mix for the quarter, and then, we'll try to manage that at a one-off at a mid-level -- mid-single-digit adjustment.

Zheng Lu: Can I assume your 28 is a differentiated node with lower than mid-single-digit erosion?

Jason Wang: Yes. I can't really comment on every single node, but I can tell you, not only at 28, 22 and some other specialty technology as well has a better -- above the -- lower than the average blended basis, and some are higher, yes.

Zheng Lu: Lower than -- which means that ASP erosion is lower than corporate average of mid-single digit for 28 and 22.

Jason Wang: Yes. So that is the -- if blended is 5%, I mean some are smaller than 5%, some are higher than 5%, right?

Zheng Lu: Okay. One last one is that do you consider -- as you mentioned, you are the only one who can manufacture the wafer in different geographical location, and TSMC could -- make it clear that they charge premium in non-Taiwan capacity? Do you consider to charge premium for your Singapore or Japan fab with higher pricing?

Jason Wang: I mean the pricing is important topic, right? I mean we continue aligning with our customers with the angle that we need to help them to compete in their marketplace. So we will respect and follow that market pricing. And from a strategy point of view that we are unchanged. But from a competitiveness point of view, we will continue aligning with our customers to maintaining that. Now it's important to note that we look at this market in a way that we believe our market is growing in a low single digit and we want to position ourselves still gaining share in our addressable market while striking a balance between the growth and profitability, which we have shown in the -- consistently in our financial performance and with a resilient track record in the past. And it's our belief that with a healthy financial structure, we have the flexibility to continue to invest in the technology development and broaden our offering and for our future growth. So we want to stay competitive. But meanwhile, we want to manage that balance, yes.

Operator: Next one, Jason Zhang, CLSA.

Jason Zhang: My first question is in terms of your target utilization rate. As you are a competitor in China, now I think their utilization rate already reached to a very high level. So I just want to know which kind of levels of your utilization rate is more reasonable for UMC for this year or in coming year?

Jason Wang: Well, we always strive for increased utilization rate and -- but not on an unreasonable expense to get that. Right now, the current projection is about 70% level utilization, corporate average. The -- some of them now actually have a higher utilization, some of them have lower. For instance, our 8-inch loading is still under the recovery mode and which we will continue to strengthen our offering, and hopefully, we can recover that in the longer term. But right now, they are below the corporate average. Our 28 and 22 is actually above the corporate average. And we continue to see a strong momentum in the tape-outs, and so, I think in general, like I had answered Bruce, I try to strike a balance between that, and 70% right now is not -- I will not say high, but I think it will be a right number for us to maintaining that balance at this point. But, of course, we'll continue striking for better utilization rates. Yes.

Jason Zhang: Got it. So my second question is in terms of your competition. So I think your Chinese competitor now already has a very high utilization rate. So have you seen lower competition from those Chinese players in this year?

Jason Wang: I mean the -- I can't really comment about the competitor's behavior. But the bottom line is we need to stay competitive, and competitive in many aspects, your ASP needs to be competitive, the solution needs to be competitive, your manufacturing performance needs to be competitive. So I think, again, we look at all aspects and striking a balance with that. And we think this is not a one-time or short-term situation. This is -- we need to stay competitive in the long run. If we look at this, the -- in 2025, we project we will outgrow our addressable market, okay? And whether they have less -- whether there are less pricing pressures or continued pricing pressures, we believe we will outgrow our addressable market. We are working on several new initiatives to drive -- even driving our future growth, enhance our current portfolio, expanding our addressable market. Like I said, the -- from our current portfolio, we're advancing our specialty technology roadmap, for example, the high voltage. We launched the industry first 22-nanometer high-V in May 2024 to sustain our leading position to the next-generation handsets. Beside that, beside handsets, the customer already adopted our high-V platform for OLED display in the next-generation tablets, laptops. And so we'll continue to drive our roadmap into the 14 high-V solution to further extend our leadership. So in that front, I think we can capture the growth and not continue fighting in the same space. In terms of larger addressable market, I -- we talked about our 12-nanometer cooperation that provides technology node advancement and addressing high-growth margin. Early engagement with customers already shown strong interest, and they will put in the production -- we will put in our production schedule. And the feedback is great, and our solution will be very competitive. And again, that's a differentiation from that. And I talked about that we want to provide advanced packaging solution to serve AI application with a high growth potential. And we continue to broaden that offering and develop that. I talked about that, we need to have financial strength to continue to invest in the area that we can fuel the future growth. So I think there is -- the growth opportunity still lies in this industry because the industry is growing. And in combination with our current portfolio's enhancement, the -- and larger addressable market can -- with the right financial model that fuel our future investments to capture those growths, I think we will differentiate from that. And I certainly not try to just competing with the current utilization number. But in a way, I -- we try to strive to a very balanced, very healthy corporation that can continue to invest in the future and to be relevant in this industry. I maybe give you a little bit more, but I think that's sort of how we feel about this.

Jason Zhang: Okay. Okay. Got it. My last question is in terms of the demand side. So in terms of your application portfolio, I mean which segments did you see as a better demand -- I mean, such as computers, consumer or smartphone? And have you seen the demand recovery after Chinese government's subsidy in Q1 or in Q4?

Jason Wang: So first, for Q1 outlook, we expect the revenue contribution in consumer segment will increase due to our strength in WiFi, digital TV, set-top box and display drivers. And the rest of the segment is either flat or slightly declined. We talked about the Q1 outlook, despite that the consumer is stronger, but we think it could trigger by either the tariff or the subsidy and because we do see that Q1 has better than traditional seasonality behavior. However, we're just hoping that Q2 can sustain that. At this point, due to the limited visibility, we couldn't give you the Q2 guidance, but Q1 is better than the seasonality.

Operator: And ladies and gentlemen, we are taking the last question. The last one, Brad Lin, Bank of America.

Brad Lin: So one follow-up. So as Jason highlights that advanced packaging is a key business growth driver for UMC to outpace the industry and also for the future growth while eyeing on the disciplined CapEx number itself. Should we also expect higher portion of the CapEx spend by UMC in the future to increase for this advanced packaging kind of the service like our, well, industry leader?

Jason Wang: Well, I mean, once -- in our business, it's actually 2 major investments. One is investment in the technology development, the second is investment into the CapEx. Once the technology is developed and the customer aligns in place, we'll certainly deploy the capacity investment. So the CapEx will have that. Now given our past few years of CapEx investment, given the current market dynamics, I think those advanced packaging CapEx would not affect the major trend of our CapEx projection. I think it will be still within our current trend.

Operator: And 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.

Michael Lin: 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 UMC at ir@umc.com. Have a good day, and we will also take this moment to wish everyone a Happy New Year. Happy Chinese New Year. Happy New Year to everyone. Thank you.

Operator: Ladies and gentlemen, that concludes our conference for 4Q '24. 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, and goodbye.