Welcome everyone to UMC's 2022 third 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 two hours after the conference is finished. Please visit our website www.umc.com under the Investor Relations, Investors Event section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Thank you, and welcome to UMC's conference call for the third quarter of 2022. I'm joined by Mr. Jason Wang, the President of UMC, and Mr. Chitung Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial results, followed by our president's key message to address UMC's focus in fourth quarter 2022 guidance. Once our president and CFO complete their remarks, there will be a Q&A section. UMC's quarterly financial report 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 risk that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now I would like to introduce UMC's CFO, Mr. Chitung Liu, to discuss UMC's third quarter 2022 financial results. Thank you, Michael. I would like to go through the 3Q 2022 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, the third quarter of 2022, consolidated revenue was TWD 75.39 billion, with gross margin at 47.3%. Net income attributable to the stockholder of the parent was TWD 27 billion, and the earnings per ordinary shares were TWD 2.19. Utilization rate in the third quarter remain at 100% plus. Overall, wafer shipment and also ASP are pretty much in line with our previous quarter's guidance. Next page, please. For the third quarter, revenue grew up by 4.6% sequentially to TWD 75.39 billion. Gross margin rate of 47% or in absolute dollar, NT dollar terms is TWD 35.66 billion. Operating income margin reached 40% compared to 39.1% in the previous quarter. Net income attributable to the shareholder of the parent was TWD 26.99 billion or equivalent of EPS 2.19. This is a meaningful growth compared to 1.74 EPS in the previous quarter. For the first three quarters, the cumulative revenue grew up by 37%, thanks to the help from shipment increase as well as ASP enhancement and also the NT dollar depreciation. All three factors play important roles. For the gross margin rate for the first three quarters was around 45.8% or TWD 96.6 billion. Operating income surpassed TWD 80 billion for the first three quarters, which is a 38.3% operating income margin rate compared to 22.1% in the same period of 2021. For the net income for the shareholder of the parent is TWD 68.131 billion or 32.3%, and that's a 71% year-over-year growth. EPS for the first three quarters reached TWD 5.45 per share. We pay out TWD 3 per share cash dividend back in the early part of third quarter. After that, the post-dividend cash on hand is about TWD 180 billion. Our total equity today is about TWD 315 billion for the end of third quarter this year. As I mentioned earlier, ASP remained firm and in line with our previous quarter's guidance, continued to stay at current level in the third quarter of 2022. In terms of revenue breakdown. We see some decline, the percentage of revenue for our Asian market from 55% in the previous quarter to 52% in third quarter of 2022. For the other regions, we see a minor increase. Our IDM continued to outperform Fabless in recent quarter, especially in the third quarter. Right now, IDM stands for about 17% of our total revenue. In terms of segment breakdown, there's not much change except Consumer now is in same percentage of revenue as our other revenue, which is mainly composed of auto and industrial. In terms of geometry breakdown, for 2022, 20-nm reached 25% for the first time, and that's mainly due to the newly increased capacity from our P5 facility in Tainan. 65 nm is about 18%, and 90-nm is about 8%. Capacity in Q4 will only slightly increase, mainly coming from HeJian, the Suzhou eight-inch wafer Fab. Every other Fab will remain about similar. We have revised down our full year cash-based CapEx from the previously $3.6 billion now to $3 billion for 2022. We can elaborate more details for this downward revision for our annual CapEx budget. The above is a summary of UMC's results for third quarter of 2022. 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, Chitung. Good evening, everyone. Here, I would like to share UMC's third quarter highlights. In Q3, our result benefited from product mix optimization and a more favorable exchange rate, while Fab capacity remained fully utilized. Despite softening demand in consumer end markets, strength in certain wireless communication area drove further expansion in our 22-nm, 28 -nm business, which accounted for 25% of overall third quarter revenue and lifted wafer average selling price. We believe our industry leading position in O-L-E-D, OLED display driver IC will continue to drive growth for our 22-nm, 28 -nm technologies amid growing adoption of OLED panels in smartphones and other end devices. We also saw sustained momentum in our automotive business during the quarter, and we intend to pursue more cooperation opportunities with existing and potential automotive customers. Moving into the fourth quarter, we expect to face headwinds amid demand weakness impacted by factors including the inflationary environment and Ukraine war. While UMC will not be immune to the inventory correction affecting the industry, we will work closely with our customers as they adjust elevated inventories to align with the current market conditions. At the same time, we will continue to deliver differentiated technology processes to enable customers' product pipeline. We have revised the company's 2022 capital expenditures down to $3 billion. Our capacity expansion in Tainan and Singapore are still progressing as planned in order to meet long-term supply commitments. Despite near-term turbulence, the structural story of increasing silicon content driven by the rise of 5G, AIoT and EV remains intact. With our comprehensive technology offering focused on manufacturing excellence and resilient financial structure, UMC will further increase our exposure to strong growth markets and consolidate our specialty technology leadership. Now, let's move on to the fourth quarter 2022 guidance. Our wafer shipment will decrease by approximately 10%. ASP in U.S. dollar will remain flat. Gross profit margin will be in the low 40% range. Capacity utilization rate will be at 90%. Our 2022 cash based CapEx will be revised to $3 billion. That concludes my comments. Thank you all for your attention. Now we are ready for question. Thank you, President Wang. 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. Our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please. Okay. Yes, thank you. I wanted to ask the first question just about the you're guiding a somewhat mild or moderate correction in the outlook fourth quarter. Could you discuss if it's still largely these consumer areas like PC, Android, and the digital TV? Or is that extending now if you're seeing any broadening out to auto industrial networking or also the IDMs, which look like they had a good quarter in third quarter. Well, for the Q4, the auto and industrial segment remains stable for now. While the inventory level is still healthy for the auto and industrial segment in Q4, we have observed that PC and smartphone are still undergoing a prolonged inventory correction compared to the previous quarter's estimate, which indicates there are no tangible sign of a recovery in the near term. We do foresee that downward trend for the consumer segment will continue to linger into first half 2023 due to a slow inventory digestion. It's our belief the bottom of this down cycle will mainly determine when the end system market start to resume its momentum. At this point, the visibility is still low. In the Q4, we are able to mitigate our 8-inch Fab loading to remain 100% in Q3 after swapping some allocation from notebook, PC, smartphone to auto and IoT. However, the lighter eight-inch utilization will happen in Q4, and mainly because impacted by the deteriorating market condition in the smartphone and PC because the inventory correction. Randy? I'm here. Sorry, they removed me from the queue. Sorry. No, I'm back in. Okay, yeah, no, I wanted to ask my second question, actually taking that into consideration, is there a rough way to think, given that what you were saying on consumer and could see a little bit of broadening, where you see utilization trending toward first half? I'm curious at this stage, 2023 now, I think originally you were thinking a growth industry and UMC would grow. If you have an initial view for 2023, industry and then UMC outlook. Sure. Well, I mean, we, you know, after the quarter from last quarter, given the rising macro uncertainties and ongoing inventory correction, like I say, in the PC and the smartphone space, and as well as the high inflationary cost pressure, and the, we do foresee the semi and foundry industry will decline in 2023 now. But that's off a very high base of 2022. For UMC, you know, while the visibility, you know, in 2023 is low, we still expect our 12A P6 will come on stream by mid-2023. With our ASP outlook as expected to remain firm, you know, as the management's goal is to grow in line or outperform with UMC's addressable market. I kinda wanna emphasize that it's within our addressable area. Yes. Okay. Just to understand, so do you expect your addressable market just trying to understand that versus the industry downturn do you think your addressable market is growing next year? I think given the current condition, it will be very challenging to see that up. I think it will probably decline in 2023. Okay. Understood. I think we should be able to give you much more clarity for another quarter. Yeah. Okay. Probably January. Yeah. Okay. No, that's helpful. If I could ask on the two parts on the CapEx. One is the if there was a timing, the $ 3.6 billion coming to $3 billion as it was tracking a bit behind through the year, or are you pushing out certain projects. If there's a view then would that be additive or a view on next year. The other part of the question just on that P6, is that still. It had LTAs tied to it. Are those LTAs still covered or are you seeing customers trying to reschedule, or some change where some of that capacity in this environment may not be utilized? Okay. For the first, the 2022 CapEx cut, there are two reasons that led to the cut, the cash base CapEx. First, it was primarily due to the equipment vendor delay. All right? The second is, you know, given the current downturn, we are reprioritizing some of the project to respond to the current cyclicality. Meanwhile, we still keeping our commitment to our P6 LTA customers. The question is there any changing in the LTA customer for P6, right now the both customer and us are taking seriously and commitment to this relationship, so commitments and partnership. We have not seen any significant changes in this space. Some of the LTA has some impact to it, but is more in the near term now with the P6. Okay. I'll just clarify that. Some impact on the near term, not P6. What's happening to the other LTAs? Then I'll get back in the queue. Sure. We do see going through this market turbulence and obviously not all our customers are immune from it. Inventory correction continues to worsen, and our customers are treating this LTA while they're treating it seriously, but they are reprioritizing some of their product mix and reflect to the end markets, as well as minimize some of the obligations to avoid some of the LTA penalties. As a result, there are some LTA penalties already happening, but it's very insignificant. We don't wanna get into specifics on the LTAs, but at this point, all subjects of business are still operating compliant to the LTA terms. Okay. Great. No, thanks a lot. Appreciate the call, Jason. Sure. Thank you, Randy. Next question, Gokul Hariharan, JP Morgan. Go ahead, please. Yeah, hi. Thanks for taking my question. First of all, could you talk a little bit about what we are seeing. I think you did call out 8 inch as one area where there is some utilization slack. Could we talk about 28 -nm and the rest of the 12-inch portfolio? Looks like 28 -nm still remains pretty solid in terms of utilization. Are we seeing slack in other parts like 40-nm, 65-nm, etc., in Q4 and as we look into Q1? And how do we expect utilizations to trend in first half? Obviously, not very clear at this point, but are we looking at utilization going all the way back to, like, 80% or even below 80% as we have seen in the past cycles? That's my first question. Okay. Well, that actually is a big question. Let me see if I got all of it. First of all, we touched the 8-inch and your question is about 28-nm. If I may, I like to kinda go back to about the segments first, and before I get to that. In Q3, we actually see the automotive revenue grow into double digits. The consumer growth low single digits. Communication grew low single digit, while the computing is declined about high single digit. While we swap in those, like I mentioned, swapping between the auto, industrial, and the PC and smartphone, I mentioned earlier, we'd be able to manage that full loading. Now, going into the Q4, we see all segments are declining except automotive. So from a sequential point of view, the automotive we do see a continuous double-digit growth, and while the others start seeing a declining. I think that happened to have impact to our 8-inch loading because PC and smartphone is majorly you know impacting the 8-inch. However, the lighter 8-inch utilization in Q4, I mentioned, was impacted by the continuous notebook and TV inventory correction. Our 12-inch product portfolio come with a more higher differentiation with leading specialty technology as well as some of the diversified market segment and sub-segment, and therefore is less vulnerable at this point compared to the 8 -inch i n Q4. Okay. Mm-hmm. While we see this correction lingering into first half, and we probably have to report the Q1 when the time comes. Now we know the 12-inch is actually much healthier than the 8-inch in Q4. For the 28-nm specifically is part of that. With our resilience on 28 nm mainly come from a robust demand from our targeted segment, such as the OLED driver and automotive space. At this point, the 28-nm remains healthy, at least for Q4. If we look at the 28 nm outlooks for the long term, we still believe 28 -nm and 22 -nm will be a long-lasting node, driven by the application such as ISP, OLED, driver IC, where this demand will continue to grow. We believe we're well positioned with those diversified product portfolio to capture this market opportunity. We see that's why we actually remain confident with our 28-nm and 22 -nm business, mainly because continuously strengthening our solutions and customer profile. I guess I answered the 28-nm as well as the call on between the 8-inch and 28-nm. I'm not sure if I captured all your questions. Yeah, thanks, Jason. That's very clear. One part is on utilization. I think you talk about 90% utilization in Q4. Should we expect utilizations to go all the way back down to 80% or below, like previous downturns? Or you have some offsets in first half which could kind of protect some of the utilization? Yeah. At this point, we won't be able to answer a question like this. I mean, as we mentioned earlier, still not be able to pinpoint where is the trough of the cycle or when's the end of the inventory correction. We will only be able to give you guidance on quarter-over-quarter basis. Got it. Thanks, Chitung. My second question is on pricing. I think if I go back and look at pricing, blended pricing, especially, in every downturn, we see some degree of price compression. Magnitude is different based on each downturn, but if you look at the last five, six downturns, we have always seen price compression on a blended basis. Now this time around, you have been a lot more resilient in your communication about pricing to the market as well as customers. Could you talk a little bit about what is your pricing strategy as we go into the downturn, especially as you mentioned, we still don't see the trough in terms of where this inventory cycle could drop out? Is your pricing strategy going to be dependent on how utilization shapes up or you would basically take a pricing strategy such that even if utilization is much weaker because the downturn is longer, pricing is something you would not be very variable on. Thank you. Okay. Well, I mean, the foundry is a cyclical industry, so it's a couple layers answer to that. One is the ASP position. Our strategy and position on ASP is the ASP will reflect both product mix and pricing adjustment. While we continue to improve our product mix, our pricing strategy is to reflect our value proposition on technology leadership and differentiation. We do value longer term partnership over the near-term cyclical factors. We believe the pricing reflect our market value and proposition. We would like to continue to strengthen our relationship with the customer on long-term basis on mutually growing with our customers. That's our view in terms of ASP. However, if for the short term, because of cyclicality reasons, between the ASP versus loading or utilization, we do examine that. Under the recent market conditions, we believe the trade-off between the loading and price will end up with very limited benefits in demand creation because the weakness being sell through end demand. Unless we see a significant benefit that I don't think there will be, much change on that. At this current point, we, for our, pricing in 2023, we expect it to be firm, but we closely monitor it, yeah, if there is a benefit to it. Okay, that's very clear. Thank you. I'll go back into the queue. Thanks. Sure. Thank you. Next question, Laura Chen of Citigroup. Go ahead, please. Yes. Hi. Hi, good afternoon. Thank you for taking my question. My question is about the recent intensified geopolitical risk. I'm just wondering what's the implication to UMC. Do you potentially see more opportunity to further gain shares at the expense of your Chinese peers, or you are actually seeing more intensified competition in your Chinese domestic market? That's my first question. Sure. Well, with the recent U.S. export control and regulation, the setting this month and the impact on UMC has been limited as the restriction mainly targets more advanced nodes that are not part of UMC's addressable market. We are in close communication with the suppliers, you know, and customers as they navigate the new rules announced earlier this month. Our current focus is on the compliance, as we believe that compliance is one of our key business principles, and we will continue to monitor the development of the U.S. export control policies closely and take risk management measures as necessary or even evaluate if there's any opportunity. At this time, I think it's too premature, and we're closely monitoring the progress. Okay, thank you. You haven't really seen any movement in terms of their clients' order flow because of this event? Well, I mean, there certainly are talks, but I don't think there's at a stage of a movement yet. No. Okay, great. Thank you. Also my second question is about the IDM outsourcing trends, as you also mentioned that the auto and demand is still quite strong at least for this quarter. But we know that, like Texas Instruments just report this morning, they also see some weakness happening aside from the auto application. Since those IDMs that they also build up their own capacity. I'm just wondering, what's your view on those IDM outsourcing trend? Is that sustainable, in particular, we see a lot of uncertainties ahead into next year. Well, first of all, the keyword is adjust. You mentioned that the U.S. customer has just announced that their view in terms of the market. You know, obviously it's just happening. In our view, the auto and industrial segment remains stable for now. That reflect in our Q3s because they'd be able to offset some of the weakness in other segments. While we're going into the end of the year as well as Q1, we remain cautious and we will definitely working closely with our customer in terms of the output. Meanwhile, for the auto and industrial, it's a long-term perspective and our target segment and the focus. We will continue expanding our auto business from both IDM customer and the Fabless customer through both technology, innovation and capacity expansion alignments. Because IDM customers tend to have their own capacity plan, so it's important that we put in the capacity expansion alignment as a part of our ongoing discussion with them. Okay, great. Thank you. That's very clear. Thank you. Next question is Tony Lin of UBS. Go ahead, please. Hi. Thank you for taking my questions. My first question is on 20-nm. I understand your expansions are all based on the steady long-term demand outlook. I wonder what kind of factors could potentially trigger you to reconsider the expansion timing and scale. Perhaps because of LTAs, do you still have some flexibilities in terms of the adjustments? Thank you. Well, I mean, like I said, for the longer term outlook, we do believe this 28 -nm or 22-nm, and 22-nm will be a long-lasting node. We actually feel comfortable with our perspective on this. The recent market dynamics does not change our long-term view and, as well, our long-term relevance with the customers. We will continue to pursue this as we believe this is sweet spot for many applications. This demand will continue to grow. We are confident with our solution offering and our 28 business can be maintained at a healthy level in 2023 and beyond. For the LTA, I kinda touched that earlier already for the P6, but maybe I can give a bit of our view on the LTA in general. The LTA may not be able to mitigate all shortfalls because the market volatility. With LTA, the customer will typically reprioritize their product mix, even reallocating their multiple-sourcing products to UMC to fulfill their obligations. We, you know, actually do believe this LTA helps. At this current downturn cycle, we not just looking at the P6 or 28-nm LTA, we're actually taking this opportunity to reexamine our LTA selection criteria to make sure that we align with the mega trend and other growing market, as we believe the LTA contract could help to mitigate downturn cycle and demonstrate the mutual commitment from both customer and UMC. That's kind of a, I'd like to share that with you instead going to so-called P6 LTA situation. Yeah. Got it. Thank you. That's very helpful. A quick follow-up on your P6 expansion. I think in July you expected 2023 capacity increase for the total company could be about 5%. That was lower CapEx for this year. Wonder what your latest guidance for next year's capacity increase? At this point the number is slightly below five, so it's still very close to five. The initial ramp was kind of still started from mid-2023, but it will reach to 12,000 a month by end of 2023. The ramp profile got changed a little bit. Got it. 12,000 per month by end of 2023, and maybe approaching full scale by late 2024? Well, I mean for 2024, that's still in progress right now. We react to the current market downturn and start adjusting our 2022 spending, which reflects the 2023 ramp. At the same time we were looking to 2023 CapEx as well. At this point it's kinda too early to report the 2023 CapEx as well as the end profile. Yeah. Got it. Thank you, Jason. My second question is to follow up on LTAs. One part is that if a customer has LTA at both existing capacities and also your new capacities, would there be a case that they trim the production at existing capacities but remain committed to the new supply? In that case, how would you mitigate the impact on your existing capacities? I mean, our commitment to the LTA customer is intact. Despite the ramp profile change on the new capacity, but our commitment to it is still there. We have to manage the base capacity to support them, just make sure that we fulfill our obligations. At the same time, we are continuing to align with all customers with their outlook to make sure that we don't cause any surprises for both the LTA customer as well as the non-LTA customer. I see. Also there's pricing differences between the existing capacity and newly built capacity, even though they're both LTA or that the pricing are different. That's right. The other part of my LTA question is that I think in recent weeks some foundries start to talk about allowing customers to extend the duration of the LTAs. Would that be a practice that you also consider? Thank you very much. Well, I mean, we always entertain customers' requests but, you know, in principle we have to treat those LTA contracts seriously and, you know. We will provide certain flexibility but not to the extent you mentioned about it. At this point, as I mentioned, the customer is still supporting us with trying to reprioritize their product mix, reallocating some of their multi-source product to UMC, if they unable to fulfill the 100% their obligation, and then we will comply to the LTA terms. Got it. Thank you so much. Thank you. Next question, Bruce Lu of Goldman Sachs. Go ahead, please. Hi, Jason. Thank you for taking my question. I think you just mentioned that your pricing remains firm, and you do the exercise to examine the utilization and ASPs or erosion. Which means that given the current 90% utilization rate, you have no plan to change your pricing. Or, in for the first quarter next year, most likely it's going further south, and you have no plan to change your pricing assumption as well. Can you tell us what is the threshold or help us to go through the exercise you did and make sure we have the right understanding if we are more negative or more positive for the outlook for 2023? I mean, right now, if from the end market standpoint, our view on 2023 is the market will decline. It will be a challenging year. From a ASP standpoint, I think there's a limited trade-off between the loading and pricing. Mainly because the weakness in the sell-through the end markets. If there's no elasticity of the ASP and with the volume, the benefit is hard to capture. That's why we think the first criteria is we have to understand the end market's momentums. Then we will talk about the market share consideration, so on and so forth. There are different conditions and criteria to examine. At this point, we're finding difficulty even we passed the first layers because we haven't seen any benefit out of that. We do believe our pricing reflects our relevance with the entire supply chain. We just have to continue to look at the long-term perspective and make sure that we position ourselves to capture the opportunity, not just looking at the short-term tactics. If the short-term tactic doesn't help, I mean, it's an option we can take, but not at this current point. Can we assume that even the capacity is going down to 80% or even 75%, the pricing strategy will remain unchanged? Well, I mean, I think it's not gauged by the utilization. It's gauged by if the pricing will trigger the higher utilization result. I see. Understand. Okay. The second thing is that I think that for your 20 -nm, the revenue is much more resilient than your other node. Well, given your product and customers choice or new strategies or better execution. However, your driver IC revenue exposure is still high. Your consumer product exposure is still high, which could create a lot of fluctuation for your business. What's your plan and strategy to change that? You know, how or when we can see some improvement like, you know, your other node can be as resilient as 28-nm. Well, I mean, it's our goal to continue with the customer and product portfolio enhancement activities. We still in the middle of the process that. You know, this one is we have to continue deliver our technology innovation and in order to with the target market, and so we can improve the portfolios. We will diversify our customer and the market segments. So this effort is continuous. We have been doing that for past few years, couple years, and we see some fruit of that. But we're not there yet. I think we're still in the process of continue with the product and the portfolio enhancement. And we will continue to do that. By doing that, we believe we will continue to help with that. I mean, at the end of the day, it's hard to immune from the entire market downturn. With a better product mix and with a, you know, more compelling solution to our customer, we do think we can be resilient or even better than the industry's performance. Well, can you elaborate a bit more because for 28-nm it somehow has a bit more differentiated stuff for like, you know, iPhone or other stuff or OLED. But it's not easy for investors to visualize the like 8-inch, what can you do to differentiate the 8-inch business or what can you do for your 65-nm or 90 -nm. Can you elaborate a little bit more? For 8-inch, for instance, on the 8-inch, there are structural demands coming from EVs power management, even for the migration of a DDR5 power management, and joint development program with IDM to support their growth in their respective market segment. There are still some structural demand in some of the areas, and we're gonna continue to pursue those targeted market space. For the mature or legacy 12-inch, for instance, 55, 40, the MCU, the non-volatile memory just come into a 40 now and with the automotive markets. By expanding our capacity into the non-volatile memory, we think that will actually help the resiliency as well. There are certain market segments that we believe that has a structural demand going forward. We define that as so-called a targeted market. The goal is you have to deliver your solution, compelling solution, you know, and meeting the customer demand as well as the capacity support, and hopefully you can be, you know, less vulnerable. Yeah, I don't know if we are resilient enough, but I think our goal is try to be less vulnerable. Yes. I see. Thank you. Yeah. Thank you. Next question, Zhi Hong, China Renaissance. Go ahead, please. Hello, gentlemen. Two questions from my side. First one regarding the revenue breakdown, right. I believe for the artist category, 14% in Q3, I think majority is related to automotive. Is it a fair assumption? It is. That's correct assumption, yes. Oh, okay. All right. Maybe down to, let's say 3-5 years from now, is it fair to assume that percentage would double? Is it a realistic assumption? Well, I mean, with like, the Bruce just asked earlier, it's our target to reaching greater than 40% by 2025 with that revenue can come from the mega trend. That includes the automotive. Yes. I see. All right. Okay. Second one maybe for Chitung Liu. Regarding the recent approval for us to buy back the remaining 30% of UMC Xiamen. When would that transaction be closed and would there be any, how should we think about the P&L implications on the company? Yeah. United Semi or the UMC Xiamen is already making profits. As you can tell from our financial report, there's a minority interest of positive profit, actually that's for the 30% outside shareholder of United Semi. Once we complete 100%, then we will be able to save per se for this minority interest. Our goal, the mandate is to allow UMC to complete the transaction. We see a window of three years, but we certainly intend to do so in a faster expedited manner. Oh, okay. That means within three years, but you haven't decided exact timing, right? Yeah. Three years is the window of the timing, but we won't wait for three years. Oh, I see. Would that happen next year, realistically? There's still some technical issues, and we won't be able to tell you the exact date yet, but our intention is to work hard on the execution of this buyback. I see. Got you. Once the transaction is completed, would there be one-off P&L impact? No, there won't be any one-off impact. Oh, okay. It's just, we don't need to post this minority interest to the outside shareholders. Yeah. Oh, I see. Anyway, a small number, right, another minority interest to the group. Okay. All right. Okay. Thank you, gentlemen. Thank you. Thank you. Next question, Charlie Chan of Morgan Stanley. Go ahead, please. Hi, gentlemen. Thanks for taking my question and still very good results amid the challenging market. My first question is about your 14-nm. Jason, maybe kind of a long-term question about how much of the 20-nm demand today or will start to come, you know, transfer to 14-nm demand coming 3-5 years. I think, as I asked before, whether UMC has any advantage for the 14-nm FinFET. That's my first question. Thank you. The question is about 14-nm, right? Yep. Yeah. Yeah, 14-nm. So- Yep. Well, we currently are investing in growing our 28-nm, 22-nm technologies, like you said. Mm-hmm. Along with the capacity expansion, because we believe we expect the increase of market potential and with increase in customer adoption. The 14-nm FinFET from technology standpoint, we have entered a few years ago. On a capacity expansion plan, our current approach is still aligned to the existing 20-nm customer with their product transition. We'll probably gradually address that, but at this time we still focus on the 28-nm and 22's -nm expansion. Got it. Yeah. Because it is also linked to that geopolitical risk issue, right? Because now, China's Fabrication for 14-nm FinFET is restricted, right? You know, as a company CEO, do you think you know, you should accelerate a little bit your 14-nm in preparation for potential demand from China customers if they need a 14-nm FinFET foundry service 3-5 years later? No. Believe me, the 14-nm is on very top of the list. We do pay attention to the 14-nm, and it's important topic for us. We're not gonna abandon the 14-nm. We are examining a few things. One is from the priority standpoint and the timing of that. Mm-hmm. Right now, from the you know, we are bound by several boundaries. For instance, on these ROI-driven policies, we wanna make sure that when we extend the opportunity for us to invest and where we'll invest first. At this point. Mm-hmm. We're putting the 28-nm ahead of the 14-nm, but doesn't mean that will change. I mean, that doesn't change. If it does come about because the market dynamic changes, 14-nm becomes much more attractive than 28-nm, yes, the priority will shift. Yeah. Okay. That makes sense. Last couple very quick questions. Do you see similar trend that TSMC is saying that your customers' inventory are declining this quarter? Or you think the inventory continue to go up at your customers? Well, from the PC and the smartphone space, like we report earlier, we see the digestion actually is slower than we expected from last previous estimated. We don't see that pile up, but we see a very slow digestion, because the.. Mm-hmm. Mm-hmm. Yeah. Because the inventory buildup can be controlled by new wave of starts. Mm. You know, for the ease of the inventory to be deplete, that requires a sell-through. I think the challenge that we have seen is the end market sell-through situation. We just have to closely watch that. If the sell-through government.. I see. I think that the timing of that will probably accelerate. That remains to be seen at this point. Yeah. Okay. The overall macroeconomic environments, yeah. Okay. Thanks, Jason. Let's switch gears to some financial question to Chitung Liu. The first question is your CapEx cuts. May I know which nodes you're cutting the expansion and you know anything related to your Singapore new Fab projects? No, mainly what Jason just mentioned, there are two reasons. First of all is the P6 equipment delivery. The total delivery lead time got prolonged, so it's a delay for our P6 Taiwan ramp-up profile. We are honoring our commitment to our own LTA P6 customers. For the current cycle, of course, we are getting more nimble and cautious, and we reprioritize several projects, and that's part of the contribution to this $3 billion cut, I mean $3.6 billion to $3 billion CapEx revision. Yeah. May I know any specific nodes that you kind of trim the CapEx spending? P6 is primarily 20 -nm, so the ramp profile got prolonged, so the impact will be mainly on 20 -nm. Okay. That's fine. Chitung Liu, may I also ask about some key assumption for gross margin? For this year, I think we're... You already provide the first quarter guidance, right? I think, at least you can comment on the full year base. On a full year base, in terms of the gross margin impact, how much of that comes from the so-called cost inflation, and how much of benefit coming from the NT dollar depreciation, and also your kind of equipment depreciation trend. Thank you. Every 1% of NT dollar depreciation may contribute about 0.4% of... Mm. absolute gross margin point. Mm-hmm. For Q4, we are guiding for low 40% gross margins. That would be- Mm-hmm. mainly coming from a 10% lower gross margin. Mm-hmm. In terms of depreciation, for 2023, we are seeing about 5%-6% increase for overall depreciation. Excuse me. You mean 2022 or 2023? 2023, about 5% increase for absolute depreciation number. Okay. For 2022. I- We are talking about minus, a decline of 5%-6% of depreciation expenses. I see. Yeah. Actually, there's a kind of a basis for next year assumption. For next year, do you see any kind of inflation cost besides the equipment depreciation? Because your industry peers seems to suggest that there are kind of inflationary costs, the major chemicals, wages. I'm wondering how that is going to impact your next year gross margin. Thank you. Yeah. If we set aside the utilities, which we pay higher summer utility price, which is about to be over in October. The general inflation-led cost increase, we are probably talking about low single-digit, maybe 1% or 2%. But it varies, depends on which component you are talking about. We are working with our customer closely, try to cope with this issue. To summarize next year in terms of cost of goods sold, I guess there's still some inflation in terms of variable cost, and your equipment depreciation will go up by 5%-6%. But on the currency side, on a year-on-year basis, I guess probably at least a 6% NT dollar depreciation year-on-year. That's going to offset those cost increase. Is that how you budget for next year cost of goods sold? Yeah. We don't do it that way. We do it from a bottom-up way. But I think that your your model build up. I think the most of the parameter I already shared with you. Okay. Thank you. Thanks, gentlemen. Thank you. Next question, Gokul Hariharan, JP Morgan, go ahead, please. Yeah. Hi, I had a quick follow-up. Given that we still have a Singapore Fab coming up, how should we think about CapEx direction next year? I know it's too early to give an absolute guidance, but are we still thinking in the same range of TWD 3 billion kind of spending or do we see that the spending could come down next year given a bit of a downturn? Well, yeah, first of all, you're right. It is too early to disclose the 2023's CapEx number. The full year 2023 CapEx, the cash-based CapEx budget will be. We will update to you in January. It very subject to the market outlooks. We're closely monitoring it, and then we'll report that next time. Yeah. Okay. Any directional comments? Is it gonna be flat, down, up? It's really difficult right now. We are keeping our commitment to our LTA customers for P6 as well as P3 in Singapore. The ballpark schedule won't change, but the equipment tool delay is something out of our control. We are working closely with our customer in order to keep our commitment. Got it. One small follow-up on 14-nm FinFET. Do any of your LTA commitments for the future Fabs include 14-nm capacity as well that you need to ramp up, or there is nothing that covers 14-nm in your future LTAs? The current LTA covers the node technology, no migration options. With the current visibility, that migration is from 28-nm to 22-nm. The option is embedded with the LTA program. Yes. Okay. Thank you very much. Thanks. Thank you. Ladies and gentlemen, we're taking the last question, and the last question is from Randy Abrams, Credit Suisse. Go ahead, please. Okay. Yeah. Thank you. Just a couple clarifications. One for the fourth quarter, following up on Charlie's question, the low 40s%. If you net the utilization decline with the currency benefit, it seems to get only a couple points, like about a 2-point sequential. Are there other swing factors, like the utilization falling further into first quarter or is it just a bit of conservatism baked in? I'm just trying to understand the moving parts. Yeah. I think low 40s% are still within a range, and we are 47% in third quarter, fueled by the magnitude of NT dollar depreciation. It also depends on how you assume the currency movement in Q4 versus U.S. dollars. You mentioned the Q1 loading is certainly another factor as well. Is a factor. Okay. Hey, which currency are you assuming right now for the one, for the- We don't assume. We're taking the numbers off the Bloomberg. Okay. I understand. Okay. Hey, a follow-up on this payout with the high earnings this year but heading into slowdown. What's the way to think about you had 30% last year, but earnings went up a lot, or 30% paid this year. How should we think about the payout level or payout ratio in 2H of this year's earnings? Yeah. We certainly commit to pay at least 50% of our earnings in cash to our shareholders. We also want to have a steady and hopefully a high level of dividend. I think that's where the basic assumptions for our cash dividend payout. The final question I have is just two parts. I just wanted to clarify the pushout was tool related, where you only have about 12,000 end of year. Is that pushout any bit demand related or it's completely a tool pushout? The second part for Singapore where you're keeping it on track, factoring the geopolitical, are you seeing rising customer interest for the non-Taiwan site or to actually move ahead with Singapore a bit more aggressively? Well, for the first question, the larger portion of that pushout is because the equipment vendor delayed. There are some associated with the demand reason, but larger portion is because the tool delayed. The Singapore's interest, yes, they are interested in Singapore's various customers. You know, there are certain benefits to it, in addition to the geographic, you know, the regional risk, because there are other factors in there in play. I won't say that's 100% because the geographical reason, geopolitical reason, but we definitely see some of the interests are rising, yes. Right. That capacity is 2025 is when we'd see that capacity? Yeah. Late 2024, but mostly because of the tool delay, now it's about early 2025. Okay, great. Okay. No, thanks a lot. That's my questions. 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 everyone 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 IR at umc.com. Have a good day. Thank you. Ladies and gentlemen, that concludes our conference for third quarter 2022. 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.