Welcome everyone to UMC's 2021 fourth quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question -and -answer session. Please follow the instructions given at that time if you would like to ask the question. For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference is finished. Please visit our website www.umc.com under the Investor Relations Investors Events section. Now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Thank you, and welcome to the UMC's conference call for the fourth quarter of 2021. I'm joined by Mr. Jason Wang, the President of UMC, and Mr. Chih-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 2022 guidance. Once our president and the 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 this risk, please refer to UMC's filing with the SEC in the U.S. and the ROC securities authorities. Now, I would like to introduce UMC's CFO, Mr. Chih-tung Liu, to discuss UMC's fourth quarter 2021 financial results. Thank you, Michael. I would like to go through the 4Q21 investor conference presentation material, which can be downloaded from our website. Starting from page three, the fourth quarter of 2021 consolidated revenue was TWD 59.1 billion, with a gross margin at 39.1%. The net income attributable to the shareholder of the parent was TWD 15.95 billion, and earnings per ordinary shares were TWD 1.3. Capacity utilization rate remained at 100%+. Please turn to page four. On this Q4 comprehensive income statement. Operating revenue grew sequentially 5.7% to TWD 59.1 billion. Gross margin, as we reported, at 39.1%, improved 12.5% to TWD 23.1 billion. We controlled the operating expenses, and the percentage of the revenue declined a little bit to 11.5% to TWD 6.82 billion. With a non-operating income of TWD 558 million, our net income attributable to shareholder of the parent was TWD 15.949 billion or an EPS of TWD 1.3 in Q4. For the whole year, on page five, 2021 revenue grew by 20.5% year-over-year in TWD terms to TWD 213 billion. In USD terms, the growth rate was higher, around 26%-27%, given the stronger TWD appreciation against US dollars. Gross profit margin was 33.8% or TWD 72 billion in the year of 2021. The overall net non-operating income is a little bit over NT$10 billion, grew up by 70% year-over-year, mainly due to the stronger stock market performance and most of the financial assets we hold are valuated according to the stock market performance. Income tax expenses also grew significantly to NT$6.7 billion, mainly due to a lower base in 2020 and also stronger profitability in 2021. For the full year, the EPS is 4.57, grew up by 91.1% in net income terms. On page six, cash continued to pile up to NT$ 132.6 billion by the end of 2021, and total equity also grew to NT$ 281.2 billion by the end of 2021. On page seven, the ASP trend continued to inch up. In the Q4 of last year, we saw ASP grow by more than 3%. In terms of revenue breakdown for page eight, Asia still remain our largest portion of our revenue contribution with 56% in Q4, and North America is 21%. For the full year on page nine, the ratio didn't change much compared to the quarterly numbers. For page 10, both quotes are identical that IDM contributes around 14% of the total revenue. For the full year, we see a three percentage point increase for IDM revenue to 15% in 2021 versus 12% in 2020. On page 12, Communication also remains around 46% of the pie. For the full year, on page 13, we see a Computer segment grow by three percentage points to 17%, and Consumer also grows three percentage points to 27% compared to the year of 2020. For Q4 of 2021, by technology breakdown on page 14, for 22, 28 nm, that account for about 20% of our total revenue, with 38% of the revenue coming from 14 nm and below in Q4. For the full year on page 15, we see a pretty meaningful increase in 22, 28 revenue from 14% in the previous year to 20% in 2021, which also help our blended ASP. On page 16, continue to see some mild capacity expansion. Although in Q1 there will be some annual maintenance, so most of the increase is scattered among different fabs, which shows in this table on page 16. On page 17, so far currently our 2022 CapEx is budget around $3 billion. For year 2021, the actual spending was about $1.8 billion. The above is a summary of UMC's results for Q4 2021. 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, Chih-tung. Good evening, everyone. I would like to update the fourth quarter operating result of UMC. In the fourth quarter, strong demand continued to drive full loading across our fabs. While overall wafer shipments grew 1.7% quarter-over-quarter to 2.55 million 8 inch equivalents. For the full-year, revenue in 2021 rose by more than 20% year-over-year, and operating income reached a record high, driven by a surge in our 28 nm business. The 75% year-over-year revenue increase from 20 nm technologies strengthen our overall wafer ASP and reflect the robust shift demand related to 5G, AIoT and automotive megatrends. It also substantially contributed to the improvement in the company's financial structure. Our healthy 28 nm product pipeline will further diversify our product portfolio and customer base enable UMC to capture additional market share. Looking ahead into Q1 2022, we anticipate the demand across all nodes in UMC's addressable market will continue to outpace the supply. Our growth in the long term is supported by industry megatrends, which will be capitalized by structural changes occurring in the industry. We will continue to deepen cooperation with customers with our differentiated specialty technologies, manufacturing excellence and capacity expansion, closely linked to the demands of our partners. At the same time, we will keep pushing for cost reduction and meticulously managing our CapEx in order to deliver sustainable and healthy returns for our shareholders. Next, I would like to take a few minutes to share our view on the industry outlook and where we see UMC's position in the industry going forward. UMC has enjoyed a banner year in 2021. Over the past three years, the company has performed and achieved our business goals, thanks to the positive market dynamics and strong partnership we have developed with our customers. We believe the current semiconductor market megatrends, namely the continuous penetration of 5G phones, the acceleration of EV adoption, and the fast proliferation of IoT devices, will continue to drive higher demand for silicon content. That, in turn, will lead to a growing demand for foundry capacity and technology, not only at the bleeding edge nodes, but also for UMC-focused market in the foreseeable future. We have been working closely with our customers, aligning our technology solution to capture those megatrend-driven opportunities. We are well prepared and ahead of competition across many platforms. The demand and supply imbalance we have experienced over the past two years may find some relief as the new capacity will come online. Yet, it has made clear the need for structure and dramatic transformation in a foundry value chain towards closer cooperation and mature mutual risk mitigation. Many of our customers recognize the importance of the closer collaborations and have responded by participating in our accelerated capacity expansion partnerships and reach a multiyear long-term supply agreement with us. The LTA provides long-term capacity assurance to our partners and loading protection to UMC in return. In addition, we are also working with end system companies and automakers to enhance visibility and transparency in the supply chain, with the aim of addressing uneven supply in the industry and long-term under-supply challenges. LTAs are more than a protection mechanism for UMC. They are endorsement from our customers and point to UMC's strengthened position among our foundry peers. In the past few years, we have also significantly enhanced the company's structural profitability, giving us the necessary resilience to weather through the market fluctuations. We envision UMC will continue the growth momentum achieved over the past two years based on our comprehensive technology offering, foundry position, and customer relationship. Our goal is to make UMC a $10 billion company by 2024 with ROE over 20%. Last but not least, I would like to highlight our focus on ESG. While ESG is at the forefront of many corporate agendas today, corporate social responsibilities have been UMC's top priority over a decade. Over the years, sustainability has become deeply embedded in our culture and become part of our corporate DNA. In June last year, UMC publicly committed to reach net zero emission by 2050, the first semiconductor foundry to do so. In the 2021 DJSI, we were ranked first in the semiconductor sector, an important recognition for our ongoing commitment to the environment, our communities, and our shareholders. We sincerely invite you to visit our website, where you can download our annual corporate sustainability report. Now, let's move on to the first quarter 2022 guidance. Our wafer shipments will remain flat. ASP in US dollar will increase by 5%. Gross profit margin will be approximately 40%. Capacity utilization rate will be at 100%. Our 2022 cash-based CapEx will be budgeted at $3 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions. Yes, thank you, President Wang. Ladies and gentlemen, we will now begin our question-and-answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Thank you. Now, please press zero one to ask the question. Thank you. Our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please. Okay. Yes, thank you, and congratulations on a good result. I wanted to ask the first couple questions on the CapEx. For the $3 billion budget, I wanna clarify, is most of the spending tied to the Phase Six project, or do you have any other additional projects? And should we view this spending with that Phase Six as a high base, or is it your view we may have follow-on expansion to maintain this higher level of spending? Okay. Well, I mean, the $3 billion CapEx, part of that was the $500 million CapEx budget that rolled over from our 2021. The other includes our maximization of the 12A P6 and 12X P1 that we have announced. The 12X P1 capacity will increase 5,000 per month, and the P6 will increase another 5,000 per month. For the 12A P6 capacity after the 5,000 per month will reach 32,500 per month for our P6, which is higher than what we previously announced. You know, after we added 5,000 per month capacity at each side, you know, we believe we can actually continue serving the strong customer demands, and we'll continue to enhance our economic scale on each side and maximize the production efficiency. That's pretty much what that $3 billion includes. Overall, based on that, the overall 2022 capacity will increase about 6% year-over-year. Okay. For the timing, to clarify for the 32,500, when is the timing when that would be available for, like, wafer shipments? The 5,000 amount will be commenced in Q2 2024. Of 2024. Okay. That's later. Yes. Okay. For the $10 billion goal, is it the view with these projects you have the capacity or, like, if you could go through, do you have additional space between China, Singapore, Taiwan to do additional kind of phase? Or do you need to expand further, go to greenfield? Well, that's actually a pretty good question. Let me answer this way. Our global expansion strategy will continue to follow the stringent ROI-driven criteria we have been following. You know, but at the same time, we will take into consideration of future market outlook and customer demand. We, UMC, you know, we have a very diversified regional production site, like you know, and so we do have the flexibility to assess the future expansion site and to meet those customer requirements. The question about the Fab 12X, the China fab. Currently, we have fab buildings that are constructed at both the Japan Fab 12N and the Xiamen Fab 12X. However, both fab sites will still require additional CapEx to build cleanrooms before installing tools and equipment. In addition to that, I think we, you know, UMC has a long way to evaluate different expansion options as well, beyond the current P5 and P6 in Taiwan. We will discuss our expansion plan accordingly, but we will evaluate all options right now. One last maybe for Chih-tung on the depreciation. If you could give a view this year and initial feedback based on this plan direction for next year. I think the key is really we want to keep this percentage of revenue under control. We will continue to do that. 2022 depreciation actually will decline year-over-year by approximately 5% or less. Followed by a flat to small increase in 2023, which depends on the cash-based CapEx this year and also next year because our current equipment delivery time is being prolonged. Okay. Hey, for the delivery, the first 27,500, has that pushed out at all, or is that second half 2023. You mentioned the 5,000 would be in 2024. When would the big capacity be available? Both P5 and P6, let me get back to P5 as well. P5 and P6 production ramp schedules are on track. P5, 10,000 per month capacity will come online by Q2 2022, upcoming quarters, in Q2. P6, we have encountered some equipment delivery delays. At the same time, we are working with the suppliers right now, along with internal engineering efforts, and we'll shorten the tool installation schedule. Right now, we still keep the schedule on track. The end goal is to ensure our capacity commitment to our P6 customers. Okay. I think. That is the Q2 2023. Okay, Q2. Okay. Yes. Right. Just one last question, and I'll get back to the queue. With some of the costs rising on labor, how should we take the view on OpEx now if a more increase or? You mentioned something about continuing on the cost reduction effort. How would that trend? Also some of the subsidy, if that would maintain similar level. For OpEx, as I mentioned, yes, we are seeing the trend for labor cost increase, but this is, really, a function of improved profitability. Our goal still remain the same. We hope, OpEx will grow, but as a percentage of revenue, it will continue to be under control, even trend down a little bit. Okay. Even trend down, meaning in absolute dollars? No, no. I mean percentage of revenue. Oh, percentage of revenue. Okay, I understand. Okay. No, thanks a lot for the incremental color. Appreciate it. Thank you. Next question, Zhihong, China Renaissance. Go ahead, please. Hi. Good day, gentlemen. Two questions from my side. The first one, I just want to tap your brain on the FinFET market. Does the company have any plan to go back to the FinFET market or be happy to just stay at 22 and 28? Well, I think we never abandoned the 14 FinFET. Mm-hmm. Our plans always keeping the 14 FinFET under the R&D activities. We have delivered the 14 technology, and we are engaging with, you know, a number of customers for the FinFET in 14 FinFET. We do not have any plans to go beyond 14. We do see that, you know, there will be very highly challenging for us to start addressing the FinFET beyond the 14. We will stop at 14 at this point. I see. Great. The other question, given the fact that we are making huge progress on gross margin expansion, and for this quarter we are guiding for something around 40% for gross margin, what would be the steady-state gross margin for the company going forward? Well, first, I mean, I would start out with this. You know, we do see an increase of the CapEx, and at the same time, we will manage and control depreciation through disciplined CapEx approach to maintain the gross margin based on our financial affordability and focus. Mm-hmm. focus on EBITDA margin expansion will invest into the future. You know, that's the principle that we follow with. If I may add on to that, our comprehensive technology portfolio and global leading customer base, coupled with the well-balanced mix and helping diversify offerings, and we think we actually are currently having higher than most of the competitors in terms of EBITDA margins. Mm-hmm. UMC EBITDA margin, we think there are still room for further enhancement due to mix improvement by specialty technology, expansion of 20 nm scale, and also some cost reduction effort, also productivity improvement and potential ASP increase. Company margin, especially gross margin, may vary along with the moving depreciation expenses, which derive from the investment for the future. Again, we will manage our gross margin through disciplined CapEx and balance with our financial affordability and our gross margin, which translate to absolute dollar dividend payout, will be in line or higher than UMC's long-term foundry growth. Thanks. Thanks, Chih-tung. Maybe a last question from my side. For the net other operating income, is it still fair to assume quarterly run -rate around TWD 1 billion ± for this year? No, no. I mean, this is very difficult to predict. Again, this is highly correlated to the share price performance of our- Oh, no. I need the operating and other non-operating income, not the non-operating income. Oh. The net other. Okay. Yeah. That's mostly related to the subsidy. Right. From our Xiamen operation. It still will be 85%-90% there for 2022. Mm-hmm. Okay. How long would that last? Would that go into 2023 and beyond? It's mostly on a six-year scheme. I think they will last into 2023. All right. I see. All right. I see. Maybe decline in 2024. Oh, okay. All right. Okay. Fair enough. Okay. Thank you very much, and congratulations. Thank you. Next question, Bruce Lu, Goldman Sachs. Go ahead, please. Hi. Thank you for taking my question. I mean, my question is, what's your expected foundry growth rate for 2022? You know, TSMC is guiding for 15%-20%, but your you know, $10 billion revenue guidance suggested like, you know, 10% compound growth for the next two -three years. If TSMC is guiding for, you know, 15%-20%, which means that if either you are losing market share in 2022 or onward or you're expecting like flattish growth in the coming two years. You know, is there something I missed? No. I mean, we have a long-term goal to bring the company over $10 billion, and by 2024. But for 2022, despite a lower contribution in wafer demand associated with the work from home and home learning, we still expect structural demand such as 5G, EV, and IoT will remain strong. We estimate the foundry industry growth in 2022 will be around 20%. At the same time, the UMC is projected to grow in line or higher than the foundry industry for 2022. I see. Okay. You can easily achieve a target by 2023. Well, 10 billion is not really a numerical target. It's really a goal. We want UMC to become a $10 billion+ company. Of course. I mean, you know, for me, you know, it's a, you know, I think it's an easier target for, you know, even in 2023. That's why I was a bit confused. Okay. Right. The next question is regarding to- Go ahead. Sorry. Go ahead. Okay. Sorry about that. The next question is more about the profitability. Your first quarter ASP expanded by 5% blended basis, which is supposed to be like, you know, wafer higher wafer price and better product mix. Your depreciation in 2022 expanded only by 5%. Theoretically, you should see more gross margin impact because of this ASP higher ASP. You know, why the gross margin only increased by 1%? It's approximately 40%. Also, for 2022, as we discussed, there is some structural change in labor costs, also associated with our improved profitability. For raw material costs, also there will be some kind of structural change with, in our view that just like the structural change takes place in the foundry industry. For 2022, we anticipate Some raw material increase along the rest of the year. You mean the non-depreciating cost increased a lot, which offset the benefit from the higher wafer price. Is that right? Yeah. I mean, yeah. Basically, we project the labor and raw material costs are increasing. We believe this is not only just the inflation, right? I mean, because the demand outpaces supply, and we see this happening throughout the supply chain. But the labor cost increase is more structural. Yeah. I see. I understand. Do you expect to, you know, further increase your wafer price to offset the impact? Because if the raw material cost continues to go up throughout the year. Well, I mean, you know, our ASP strategy is not exploiting short-term opportunistic profit, right? I mean, it should reflect our value and market price, which we delivered to our customer. At the same time we wanna strengthen our relationship with the customer in the long-term basis, and mutually growing with our customer. For that, our ASP will reflect the market value, and we will cooperate with our customer in coping the rising input cost, and the inflation if needed. We'll continue monitoring that. Yeah. Structurally, if the raw material cost is increasing, then, you know, because your value provided to a customer remain unchanged, you should be able to pass the incremental cost to your customers, right? Yeah. At the same time, we wanna make sure that the customer can achieve their growth as well. We closely working with them on that. Yeah. Understand. Thank you. I'll go back to the queue. Thank you. Thank you. The next question, Roland Shu, Citigroup. Go ahead, please. Hi. Good afternoon. My first question is for your $500 million CapEx pushed out from last year to this year. You said that was, you know, due to the extended equipment lead time. How about this $3 billion CapEx plan this year? Were you worried about this, you know, extended equipment lead time to continue impact the equipment delivery, and also continue impact your CapEx spending this year? The $3 billion is already incorporated in every possible scenario we have foreseen today. Mm-hmm. This is current condition. Okay. Your CapEx is cash based, means that you know you need to see all this equipment delivered to your fab, and you pay to equipment vendors like you recognize the CapEx, right? That's right. Yeah. We have factored in all the scenarios we have seen so far. Okay. Including part of the tool delays. Yes. My question is, you know, how confident you are you can receive all of this, you know, equipment you already ordered from the equipment vendors? Since then and now, with this, you know, you know, supply issues, the equipment lead time have been very long. Do you see any risk for you to fail to get most of these equipment this year? Well, given the latest update from our supplier, this will be considered with high confidence. However, they say, you know, we continue seeing delivery interruptions in the supply chain. If there is a further delay, we have to have a way to mitigate that to keeping our original commitment to our customer. Mm-hmm. Right now, I mean, for the $3 billion question, I think that is already considered all the delivery schedule that we have updated from our suppliers. Understood. Thanks. My second question is, you know, for your blended ASP in 4Q. You have about maybe 4%, you know, quote-unquote blended ASP increase in 4Q. But I look at your product mix. You know, I do not, you know, you only have a 1% higher revenue contribution from 20 nm. I basically assume, you know, your blended ASP increase in 4Q was mainly came from this like-for-like wafer ASP increase. How about for the first quarter? Now your guides are, you know, your blended ASP to be up about 5%. How about, you know, the percentage from this, you know, mix improvement or the like-for-like improvement? Thanks. For the Q1 ASP 5% uptick, they basically reflect mostly in the pricing adjustment. It's a pricing adjustment. Yeah. The product mix will be pretty much the same as the 4Q, right? That's right. Yes. For you, for this year, 2022, you know, will you consider to further adjust the price like Bruce asked earlier? I touched that, you know, the ASP will reflect our market value and our relevancy in the supply chain. Uh-huh. It's our projection right now. The 2022 ASP dynamic will be similar to the 2021, based on the current view in the demand and supply. Our 2021 blended ASP increased by about mid-teens percentage. Okay. You said that 2022, you expect the blended ASP to increase similar as 2021 versus 2020. Right. Yes. Okay, thank you. Sure. Thank you. Next question, Frank Lee, HSBC. Go ahead, please. Okay. Thank you. Just wanted to ask about, I guess, this idea of the semi-content growth. I think you've alluded to that previously in this call as well in the past analyst meetings. I just wanted to, I guess, if you guys can give us a bit more color in terms of the semi content growth potentially by node. Are we seeing semi content growth pick up across all nodes in terms of what you see? Or are there any nodes in particular where you see, you know, even more semi content growth than expected? Well, we don't really have the by node numbers. We are confident so-called the UMC addressable market, which is 14 and below. The mature node by many of the analysts still will show very good growth. May not be as high as the bleeding edge, but good enough to let UMC to enjoy the mega trend. The simple answer is really across the board, across the most of the node for UMC's focus, UMC's addressable market. Okay. I guess if we're looking for semi content across the board, would you expect the level of semi content growth that we've seen over the last year to continue to be at the same pace? Or do you think it would start to slow down a bit? I mean, just generally expectations of how you see the semi content continuing in the next one -two years. Well, I mean, the market intelligence leads us to believe that the industry megatrend will actually continue to drive positive growth. It will spread our own nodes. We're just not ready, at this point, to discuss, you know, on by node basis. Okay. The overall, we think the growth will continue and because we see a number of areas have a significant silicon content increase from the 5G real estate increases. The silicon real estate increases because of more functions increase the functionality. As well as automotive, you see, some of the components actually increased by unit counts. So there are many different areas and spread out at different nodes. I think the megatrend is gonna drive this industry continue to grow for some time, yeah. Okay, thank you. Sorry, just my last question is just, you touched a bit about the auto market as well. You know, currently auto doesn't look like it's more than 10% of your revenue. The way we should look at autos, should we think about it as a much bigger impact relative to what the revenue occupies of the future capacity going forward? I'm just trying to get a sense of, I guess, you know, the new capacity going forward. How should we think about the auto space as part of the overall influence on the industry capacity? Well, from the absolute dollar standpoint, they're relatively small compared to the mobile space, the smartphone space. But they are important because they have a different characteristic. For instance, the auto components has a long life cycle. They have a longer longevity. We all put into that as a consideration. For some of those consideration, our auto revenue portion will actually continue to increase. Okay. All right, thank you. Next we'll have Sunny Lin, UBS for questions. Go ahead, please. Hi. Thank you for taking my questions. Congrats on the very strong performance. My first question is for next couple of years, clearly this constructive demand drivers for trailing edge, but several foundries are expanding and China is also accelerating the investment. I want to get your thought on how overall supply demand dynamics could trend next couple of years. We earlier kinda touched on the demand. Our market intelligence leads us to believe that the demand will continue to be strong because those megatrends are the reason. From the supply side, based on the announced capacity expansion plan, we do see the oversupply situation at 28-nm could happen beyond 2023, not before 2023. We still also believe the oversupply situation will be mild and short-lived, given that 28-nm will be a sweet spot for many applications, and expect the demand will continue to migrate to 28-nm, and that 28-nm demand will continue to grow. With our strong 28-nm product pipeline, we have aligned it with our technology and market-based on the market megatrend, endorsed by the global leading customer with a multi-year LTA commitment. Between the LTA coverage and single source, we have approximately 80% coverage on our capacity. We are confident that our 80%, I mean, our 28-nm capacity expansions will protect us. At the same time, we have a pretty good expectation. We have actually high expectation on 28's growth. But that's, you know, give you a bit of a demand and supply overview. Got it. Thank you very much. That's very helpful. The 80% coverage, is that for 28 specifically or for your overall capacity? What I mentioned is actually for the 28 nm. Yeah. Would you be able to share with us, if we look at your total capacity across eight- and 12-inch, how many of the capacity is now covered by LTAs? The UMC, the LTA, and the single source business are actually endorsed by our customers' commitment and confidence in our technology. This is all designed into UMC platform. That's when we discuss LTA and single source. Many of them are single source product with our differentiated technology. The total revenue contribution up to now is around $18 billion, and they continue to pile up. Many of the products are related to industry megatrends, fulfilled by our specialty technology know-how. We expect those product will have a longer lifespan. Got it. Thank you. My second question is on your gross margin. So after price adjustment, is there still a margin difference between 8-inch and 12-inch? And do you have a gross margin target for next couple years? I think you mentioned a target for ROE that's above 20%, so I wonder if you also have a goal for gross margin as well. Thank you. About 20%+ ROE should give you a sense about our gross margin target, which we cannot really give you the numbers. Our real focus is EBITDA margin, which will continue to show further improvement. Gross margin can vary along with this depreciation curve. This year will be down slightly, next year will be up slightly. A year after that, maybe increase a little bit more. Our base also increase after two years of compound growth. We do have a goal for internal purpose, but the key is really to let our shareholder receive the dividends in line in terms of growth rate of the dividend to be in line or better than our foundry growth. Got it. That's very helpful. Thank you very much. Thank you. Next question, Charlie Chan, Morgan Stanley. Go ahead, please. Sure. Thanks. Gentlemen, and again, congratulations for your great results. I really want to consult you some kind of industry assumptions you just shared with us. You also quote that foundry industry is going to grow 20% year-on-year. Can you break down the shipment growth versus the ASP increase? Do you think, is it similar to your company's trend, that meaning the ASP increase account for maybe 15% of growth and shipment increase is at 5%? Well, I mean, our previous outlook based on the market data is we believe the foundry growth will be about 12% this year. Right. Now we revised to about 20%. Mm. Largely due to a higher utilization, some of the capacity expansion and also the ASP increase. Mm. You know, around the industry. There are a combination of few, and that make us to believe that 20% will be the current projection. Okay. Understood. If I may, can I ask, based on your kind of calculation, what is the foundries that supply capacity supply increase over the past year, I mean, 2021 and also this year? According to our calculation, it should be more than 10% last year, and it should be close to 10% in 2022. Just want to compare those with your assumption. Well, I mean, we obviously have, you know, some data internally via intelligence, but the data may be based on different bases. Mm-hmm. They may end up with different numbers. You know, I don't wanna mislead you. Mm-hmm. Because it associates with a different base level and different end result. Mm-hmm. I think you're probably talking about between the 6%-10% range. Yeah. About your communications is more than half of your revenue, right? Can you break down into smartphone versus non-smartphone in that communications segment? You mean within the communication segment? Yep. How much is smartphone? Oh, for the wireless, we project it's going to be about 85%. For the wired, it's probably gonna be about 15%. Oh, okay. I see. Yeah. I think I wanted to ask, this is really to, you know, allude to this kind of tech supply chain inventory debates. I guess the first of all, just a very near term, right, since you have exposure to smartphone as well, do you see any kind of a slowdown or inventory increase at your customers or channel for any of the segments, not just smartphone but also other consumer tech, PC, et cetera? Thank you. We kind of touched that a little bit earlier. Mm-hmm. you know, we do see some of the wave of demand associated with the work from home and home learning has been softness. On the smartphone side, we also see some softness, but they, you know, the overall smartphone probably are flattish Mm-hmm. except the lower-end side. Mm-hmm. We do expect the 5G smartphone penetrations to continue. Right. The automotive continue. We see a lot of activity on the IoT space, too. Mm-hmm. Those will easily offset those softness. I think at this point, we believe that demand will remain robust. Mm. If we talk about the near term, I think the Mm-hmm. For us this year, there are a few challenges. Mm. such as Omicron's case. Mm-hmm. for tools and equipment we talked about earlier, and also inflation. Mm-hmm. Right? Yes. For this year, we'll be focused on working closely with our both upstream and downstream partners to ensure the supply, the loading, and managing the cost issue. I am less concerned about the demand for the year, but I'm more focused on the overall, the other factors. Yeah. Okay. Just one very quick follow-up and I will be back to the queue. So regarding the kind of a tech supply chain inventory assumption, your industry peers assume that, you know, the supply chain needs to keep a very, very high inventory, probably given the logistics issue, right? But our concern is that, for consumer tech, the inventory value could discount no matter end products or the kind of chip components. So in your kind of full year assumption, do you consider, you know, timing of inventory correction? Or you think this year, through a year, we wouldn't see a kind of a inventory rebalancing for the tech supply chain? Well, I mean, for the inventory level, in our data shows it was still at a moderate level, for- Mm-hmm. for the inventory level. Mm-hmm. We do see some inventory pile up, whether it's for logistics reason or. Mm-hmm. For the high expectation outlook. Mm-hmm. You know, there are some inventory preparation reasons. Right. We couldn't judge that. Since on a high level, they're still within the moderate level. As long as we, you know, our material focus is on the megatrend, I think in the- Mm. Near term they're still on the uptrend mode. So Mm. We actually have, we Mm. still feel comfortable about it right now. However Yeah. Right. We both know the foundry is a cyclical industry. Indeed. And- Indeed. Yeah. And so- Mm. I think for UMC, we Mm. Well positioned to weather through the cyclicality of the business. Mm. you know, for the past few years, we've been prepared for this. We are ahead of our competition. Mm-hmm. Even though we have a comprehensive technology portfolio that aligns to the megatrend, like I mentioned earlier. We engage- Mm. with world-leading customers, coupled with a well-balanced 8-inch and 12-inch diversified offering. Right. Well, in addition, we receive customers' endorsement through the increase of LTA for the future- Mm-hmm. Capacity expansion arrangement. Mm-hmm. Including all the effort we have spent in this past few years, we believe the company has become more resilient in the event of macro uncertainty, if that happens. Mm-hmm. We haven't really seen any signs that were happening in 2022. Right. You know, I think, you know, it's more important that as a company, we need to get prepared for it. Yeah. Yeah. That's fair enough. Jason, thank you very much. I think that's very helpful. Thank you. Thank you. Thank you. Next question, Gokul Hariharan, JPMorgan. Go ahead, please. Yeah. Hi, thanks for taking my questions. I have a couple of questions on pricing. First of all, when you engage in price negotiations with customers recently, what is the feedback you're getting from fabless companies in terms of potential for further price hikes? Especially after the very big one-off price hike that has been seen from your larger competitor, which probably hits pretty much all the fabless companies across the board. Do you feel that there is more room to travel in terms of price increases from here on? I think Q1 obviously you've seen a meaningful price hike, but beyond that, how much scope of price adjustment do we see? Again, you know, we don't take the pricing, the ASP as a short-term optimistic tool. We are closely working with the customers to ensure we have a mutual growth, you know, and to capture the market opportunities. I think, you know, right now, they understand our pricing adjustment for Q1 and we're going to be closely working with them. You know, for UMC, the 2022 ASP projection for the year, we project it's gonna be similar to our 2021 number. So that already includes all the product mix as well as the pricing adjustment that we have aligned with our customers. So far, I think that's, you know, I think we do have the customers' understanding and alignment on those. If the market does continue, you know, the changes, you know, and we will work with our customer closely. Got it. I think it's probably the biggest level of price increases that we have seen in any of the past four or five up cycles. Roughly, I think if I take your mid-teen price increase blended basis in 2022, you're probably 30% higher than where 2020 was. Let's say there is a downturn sometime in the future, how do you think about pricing? Do you think this pricing can hold at generally this level? Or do you feel that there is going to be some level of accommodation needed, especially given the big magnitude of price increases we have seen in the up cycle? Well, I mean that's very good. I mean, that's also the logic behind that. We don't go out there just raising price for raising price. You know, the past couple years, we tried to realign our ASP to the market price and also reflect our market value. I think we have done that in the past. Now that we, you know, we're basically at the market price level and that this basically reflects our market relevance. I think the customer has that understanding going forward. The market dynamics, you know, we definitely have to cook that with that in mind. In general, I think this will stay fairly as, you know, where our market price will be. Yeah. Okay. Maybe one more question on demand and what customers are doing. I think, Jason, you mentioned there is some weakness that you're seeing in some parts of smartphone as well as some parts of work from home, Wi-Fi, et cetera. Are these customers actively reducing orders with you, or they're still tending to keep higher inventory given the supply chain risks? Because end demand obviously I think you can see that is kind of weakening. But are you kind of seeing that translate to your orders as well, or are they still tending to keep more inventory? Well, right now, we continue experiencing a customer's escalations on a daily basis. I actually have, like I mentioned earlier, we do see some of the inventory increase on some components, but there are uneven supply situation. The escalation situation is actually immense. You know, it didn't change much. You know, we have been closely communicated with all the customer, whether it's auto or, you know, the communication or consumer customer. We have been very transparent and provide a very high visibility for them to understand it. If there is a challenge, we will continue alleviate the shortage situation. You know, we still under that mode. I think we haven't... We have not seen a sign or signal that we have gone into an inventory over-inventory situation. Yeah. Got it. Thank you very much. Thank you. Sure. Yeah. Next question, Randy Abrams, Credit Suisse. Go ahead, please. Yes, thanks for the follow-up. Yeah, I wanted to ask, just to follow up on the LTA then. If you could discuss the, in an inventory correction, the protection. Is it, quantity based where they can defer the quantity? And then, is the element also, any degree of pricing or prepayment involved? Like if you could just update the structure of these LTA's you've set up. Well, the way I would say is there's a well protected for both customer and us. You know, we have provided the capacity assurance while the LTA provides a loading protection in UMC in returns. The such loading protection includes the volume and the ASP and, you know, so- Deposit. Yeah, deposit. Okay. I probably won't be able to go into detail with that. Yeah, because we do have a confidential cost with our customers. Yeah. Okay. The other question I wanted to ask on 28, if you could go through how you see that. Is that the way we think about it is still about 20% year-on-year the next couple years, because now you have the overall company growing at that pace. Like if you could give an update how you see 28 growing. Back to your view of, say, oversupply two years from now in that node, is the plan by that time we go back to upgrading to FinFET, where we upgrade? Or is it your view is slow down capacity just knowing we might get to that oversupply situation, so beyond these current phases, making the plan to start slowing down, factoring what other players are doing? Sure. For 2022, the 28 nm capacity will grow additional 20% year-over-year. Beyond 2022, you know, we still have a very high confidence that 28 nm will be a sweet spot. For many applications. I think the demand will continue, the growth will continue. You know, based on our alignment with the customer and the endorsement based on LTA, I think those 28 nm capacity is well protected. As a potential risk mitigation for the 28 nm to migrating to 14 nm, that option's always there. There's a high commonality percentage of the two that actually be able to convert to 14 nm, and so I think that option will always be there, yeah. Just the last follow-up on the application, has there been broadening? You've talked in the past, things like the OLED driver, Wi-Fi 6, ISP. But when you mentioned the additional surge of business, are there any new promising applications for the sweet spot? Well, we start seeing the exploration of the 28 nm non-volatile memory that start get into a discussion. The ISP will also be in 28 nm, which is for the sensor controller. Those is all gonna be a very strong applications. Yeah. All right. Great. No, thank you very much. Sure. Ladies and gentlemen, we are taking the last question, which is from Bruce Lu, Goldman Sachs. Go ahead, please. Well, thank you for taking my follow-up. Like two questions. The first one is, your 2021 CapEx end up with $1.8 billion, which is like $500 million shortfall from the previous guidance. You just mentioned that maybe some of the tools push out to 2022. Which means that your $3 billion CapEx initially include those $500 million push out. Is that the right understanding? Yes. Yes. Which means originally, you know, we were expecting $3 billion CapEx, but effectively it's $2.5 billion. Is that the right understanding from my side? That's based upon the current payment schedule. Still, this number is not really, if you compare it to our larger competitor, it's actually a smaller numbers to maneuver. I mean, this number is dynamically adjusted according to our payment schedule, and this $3 billion is based upon our visibility right now. I see. I understand. The second thing is that, you know, when everyone is expecting like expanding 28-nm capacity, other industry-wise, you know, which means that for other legacy topics like 40 nm, which is like no one is expanding those capacity, and which we also see some of the big shortage of it, do you have any plan to increase the 40 nm or other node capacity? Well, if there is, we'll definitely report accordingly. You know, we definitely see that as well. We have seen the shortage across the whole nodes. If there is any plan on that, we'll definitely report that. Understand. Thank you. Thank you. 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 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 Happy Chinese New Year. Thank you, ladies and gentlemen. That concludes our conference for 4Q 2021. Thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Goodbye.