UMC Earnings Call: Targeting Over $1 Billion in AI Revenue Within Three Years, Seizing Advanced Packaging and Silicon Photonics Opportunities

UMC (2303-TW)(UMC-US) held its earnings call today (29). CEO Jason Wang stated that, benefiting from recovering demand in communications and specialty processes, wafer shipments are expected to increase 4% to 6% quarter-on-quarter, with overall capacity utilization rising above 90%. The company also expects AI-related revenue to reach nearly $300 million this year, with the potential to exceed $1 billion over the next three years.

Wang noted that shipments of computers, communications, and consumer electronics products remained stable in the third quarter. Demand for 8-inch products has also clearly rebounded, primarily driven by power management, analog chips, and microcontrollers (MCUs). The 8-inch capacity utilization rate is expected to improve significantly in Q3, with overall utilization surpassing 90%.

Looking ahead to the AI market, Wang pointed out that global semiconductor demand is gradually improving, with market momentum broader and more sustainable than in the past. However, the primary growth driver remains AI. AI demand has expanded beyond computing chips to memory, connectivity, power management, FPGAs, silicon photonics, and advanced packaging, shifting supply chain bottlenecks away from just compute units.

UMC’s AI-related business primarily covers specialty process solutions such as power management, connectivity chips, FPGAs, silicon photonics, and advanced packaging. AI-related revenue this year is close to $300 million, with expectations to exceed $1 billion in the next three years. Among these, advanced packaging represents the largest and most promising long-term growth segment.

To capture demand in AI and advanced packaging, UMC’s board has approved a nearly $5 billion capital expenditure plan, to be phased in over the next two to three years, covering 2026 and 2027. The company will dynamically adjust actual investment and capacity ramp-up speed based on customer commitments, secured projects, and market demand.

Expansion projects include cleanroom capacity at the Singapore fab and the construction of a new plant in Tainan. Capacity will also be expanded for BCD power management processes, clock-related chips, custom memory stacking, and other specialty process solutions. New capacity in Singapore is expected to come online gradually from late 2027 to early 2028.

In silicon photonics, UMC has recently delivered the first batch of mass-produced 12-inch silicon photonic integrated circuits (PICs) to customers and plans to launch a general-purpose silicon photonics platform for broader customer use by 2027. Compared to traditional 8-inch platforms, this platform offers advantages in process control, defect rate, yield, and performance, supporting future high-speed optical communications and AI data center needs.

In addition to 12-inch silicon photonics, UMC is expanding thin-film lithium niobate (TFLN) modulator capacity at its 8-inch fabs. It is currently engaged in the world’s first mass production of TFLN modulators and developing 40G per channel and 3.2T solutions. These can be further integrated with PICs and advanced packaging for optical input/output and co-packaged optics (CPO) products.

Wang believes the 12-inch silicon photonics and 8-inch TFLN platforms are complementary. The former offers process and cost advantages from larger wafers, while the latter is suitable for high-speed optical communication modulators. When combined with advanced packaging, they form a differentiated optoelectronic integration solution.

Regarding non-AI markets, Wang acknowledged that the overall environment cannot yet be defined as a full recovery. Consumer electronics may still see year-on-year declines in the short term. However, due to the company’s market share gains and customers’ growing presence in both AI and non-AI markets, UMC expects wafer shipments to increase significantly by 2026, with 8-inch and mature 12-inch capacity utilization improving quarter by quarter.

On pricing, Wang stated that the company does not pursue short-term price maximization with market cycles, but instead adopts a value-based pricing strategy. As demand and industry conditions improve, the company is negotiating with customers to ensure prices reasonably reflect the value of differentiated technologies and the costs of ongoing investments in technology and capacity.

Wang expects UMC’s gross margin to remain around 30% in Q3, benefiting from higher capacity utilization, improved specialty process product mix, exchange rates, and depreciation. Although new factory rents and depreciation may impact margins as new capacity comes online over the next two years, the company remains confident that EBITDA margin will continue to improve during the expansion period.

Regarding advanced process development, UMC currently focuses on the 12-nanometer process in collaboration with Intel (INTC-US), prioritizing validation of technology delivery and business models. Progress is going well, and the company is extending into high-voltage and other specialty applications. Only after clear results from the 12-nm collaboration will UMC further evaluate opportunities in sub-7nm processes.