Welcome everyone to UMC's 2023 2Q 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 an hour after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations Investors Events section. I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Thank you. Welcome to UMC's conference call for the second quarter of 2023. I'm joined by Mr. Jason Wang, the President of UMC, and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the second quarter financial result, followed by our President's key message to address UMC's focus on third quarter 2023 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section. During this conference, we may make forward-looking statements based on management's current expectations and belief. 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 this risk 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. I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's 2Q 2023 financial result. Thank you, Michael. I'd like to go through the 2Q23 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page four, the second quarter of 2023, consolidated revenue was TWD 56.3 billion, with a gross margin at around 36%. The net income attributable to the stockholder of the parent was TWD 15.6 billion, and earnings per ordinary shares were TWD 1.27. In the second quarter of 2023, the utilization rate was 71%, slightly up from 70% in the previous quarter. On page five, is a quarterly sequential comparison, income statement. Revenue growth 3.8% quarter-over-quarter to TWD 56.3 billion, mainly due to better product mix lead to a higher ASP. Gross margin rate at 36% is also slightly better than that of Q1 and reached TWD 20.25 billion. We have been controlling our operating expenses amid of the current semiconductor downturn. The current operating expenses in Q2 remained vantage at TWD 5.7 billion, compared to TWD 5.78 billion in the Q1 2023. Operating income reached TWD 15.6 billion, or 27.8% gross margin, 27.8% operating profit margins. Net non-operating income in Q2 reached TWD 2.8 billion, mainly coming from expenses, interest gains, as well as some investment income from our affiliate companies. After income tax of TWD 2.588 billion, our net income attributable to the shareholder of the parent is around TWD 15.6 billion, or 27.8 percentage point. EPS was 1.27 in the second quarter. On page six, is the first six months comparison. Revenue declined 18.4% to TWD 110.5 billion, and the gross margin rate was around 35.7%, or TWD 39.4 billion. Net income in the first half of 2023 was TWD 32.2 billion, and the net income rate was 29.2%. EPS in the first half of 2023 was TWD 2.58 per share. On page seven is our balance sheet at the end of June 30th. Cash on hand is around TWD 163 billion, total equity for the company is TWD 326.9 billion. On page eight, as we mentioned, the blended ASP benefit from a better product mix. In a way, it's also a lower utilization rate in eight-inch wafer capacity. ASP in the second quarter, aged up couple percentage point compared to the previous quarter. On page nine, revenue rebounded for our Asian customers in the second quarter, now reach about 56% of the total pie, compared to 50% in the first quarter. North America declined from 31% in Q1 to 27% in Q2. On page 10, IDM declines slightly to 21%. Fabless account for 79% of the total revenue in the second quarter of 2023. On page 11, the revenue breakdown by application didn't change much. Communication remained the same. Computer remained the same. Consumer increased by 2 percentage point to 26%. On page 12, due to our newly ramp capacity becoming available in our P6 in Tainan Fab, our 22 nm, 20 nm revenue continued to rise. Now it's around 29% of the total revenue. 14 nm is about 12%, declined by 3 percentage point from the pre-previous quarter. On page 13 is our capacity, quarterly capacity breakdown. We will continue to see some minor increase coming out of our Fab 12A, our P6 expansion in Q3. The last page of my presentation is our foundry capital expenditure plan for 2023. For the time being, it still remain at $3 billion for the 2023 budget. The above is a summary of UMC results for second quarter of 2023. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang. Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's second quarter results. For the second quarter, we reported results in line with guidance, with wafer shipment remaining flat from the previous quarter and utilization rate of 71%. Second quarter revenue grew 3.8% quarter-over-quarter, mainly due to improved product mix within our 12 in portfolio. Revenue from 22 nm, 28 nm products continued to increase sequentially, representing 29% of second quarter sales, while contribution from specialty technology reached 59%. By segments, we saw shortened demand recovery in the consumer space for Wi-Fi, digital TV, and display driver ICs, while demand for computer-related products also moderately rebounded from the previous quarter. We are pleased to share that we have completed the transaction to acquire remaining shares in USC XM, our 12 in fab in Xiamen, China. As one of UMC's four 12 in fabs in geographically diverse locations, USC XM will continue to provide high-quality fabrication service to customers and increase its contribution to UMC's financial performance as a wholly-owned subsidiary now. Looking into the third quarter, wafer demand outlook is uncertain, giving prolonged inventory correction in the supply chain. While we saw spot of a limited recovery in the second quarter, overall end market sentiment remains weak, and we expect customers to continue stringent inventory management in the near term. Despite a weaker than expected environment going into the second half, we believe our 22 nm, 28 nm business will remain resilient due to our strong position in leading-edge specialty technologies, such as embedded high voltage. In addition, we are gearing up to offer a necessary silicon interposer technology and capacity to fulfill emerging AI market demand from customers. Now, let's move on to third quarter 2023 guidance. Our wafer shipments will decline by approximately 3%-4%. ASP in US dollars will increase by 2%. Rising costs will erode gross margin by low single digit percentage point. Capacity utilization rate will be in the mid-60% range. Our 2023 cash-based CapEx will be budgeted at $3 billion. That conclude my comments. Thank you all for your attention, and now we are ready for question. 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 star 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, now please press star two to cancel the question. Thank you. Please press star one to ask the question. Thank you. Our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please. Yes, thank you. Yeah, I wanted to ask my first question about the shipment outlook, and want to see if you expect at this stage for the decline to persist throughout second half? If you could split down by application, how you're seeing the auto industrial, and then for the areas that started to pick up, Wi-Fi, TV, driver IC and PC, how do you see that pickup sustaining, or do you see those starting to correct now? Well, I mean, Randy, on a higher level, given the overall software and market demand, while the post-lockdown, the recovery in China has been slower than expected, and weaker macro conditions, where our customer are cautiously managing their inventory, and we expect the situation will likely lingering into Q4. Mainly is inventory concerns. About inventory, while the end market demand has worsened compared to a quarter ago, across a segment in smartphones, PC and server, the inventory will be slower, slowly work off now. The pace of digestion is slower than we previously expected. However, at the auto and industrial segment, the demand of a year-over-year projection, at this time, our projection shows remains unchanged from the previous quarter. However, the inventory level has picked up in Q2 for those two segment now. Therefore, we kind of cautiously observe the demand and supply situation now, and to determine when the semi cycle will start to come, improve or come back. Yeah. Yeah, no, that's helpful. To clarify, it sounds like you said the pace of inventory digestion because of weaker demand in smartphone, PC and server. That's, I just want to clarify, that's what you were trying to say? Like, weaker demand, that's keeping the inventory correction longer. That's right. In the segment of a smartphone, PC and server space, yes. For 28 nm, I think that node has been a bright spot, and the ASP guidance seems to imply that's continuing. Could you update on your plan or your goal, I think, to get utilization back up to 90%-95%, if that's still tracking? Do you see the P6 continuing to get filled up as it comes in? Well, first of all, the for the P6 expansion, we expect our 28 rim trajectory still on track at this point. We remain confident about the our 22 nm and 28 nm as it will be a low and lasting node or driving by many application across the 5G, automotive and IoT. We have been focused on 22, 28 offering, including many of the leading specialty and larger technologies, along with our manufacturing quality and capacity offering now. I think the 28 and the 22 right now remains resilient. Okay. It's our projection now, the 28 nm loading will remain at a relatively healthy level. Mainly supported by the OLED driver, like I mentioned, for the specialty technology and other larger technology like ISP, Wi-Fi and SOI processors. For the expansion on track, I think the plan was 12K end of this year, and then the rest of the 27.5K, what is the timing? Would that be available through next year or any slowdown to move in that capacity? No, for the P6, the trajectory is still on track, so there is no slowdown. They are mainly mutually committed by both the customer and us. Given the current projection, you know, our focus shows the 28 loading will remain at a healthy level. The implication, if you could blend, you have that capacity with LTA on top, I guess, supporting ASP, how do you net out, the utilization looks like now back to mid-60s. With the excess capacity, how do you net pricing environment, mature node versus the new capacity coming on? If the trend for you to manage to stable or do you expect a bit more price pressure just with the prolonged inventory correction? Well, we definitely see the pricing pressures. The blended ASP actually is more of a reflect of our loading between the 12 in and 8 in as well. If we start off this, your question with the ASP, it's our belief when the end demand remains weak, the pricing does not help to stimulate the demand. We are respecting the, we are respect the overall foundry market dynamics and the pricing pressure. While UMC will remain our pricing strategy, of maintaining our pricing strategy. We do work with our customer during the good time and the bad time to uphold their competitiveness and relevance in their respective market to secure their market share. In addition, our value-added technology and manufacturing quality and capacity alignment will support our customers, their competitiveness as well in their market position. In the pricing space, we are respect the market dynamics and the pressure, but, and we work closely working with our customer on that. In terms the blended ASP, they are LTA for the P6 on the 28. You know, and there is non-LTA protected 28, and they're also 8 in outlooks. If we blend it together right now in Q3, the ASP is, you know, projected, it's gonna be about low single-digit increase. In the forward looking, we have to give a quarter at a time, because that was subject to a different product mix. Great. Thanks a lot, Jason. Sure. Thank you. Next question is from Brett Simpson from Arete. Go ahead, please. Yes, thanks very much. I wanted to just come back to LTAs. Maybe if you can discuss whether customers are generally sticking to these LTAs. If not, can you maybe just talk about how you're resolving contracts with customers? Are you collecting penalty payments in recent quarters? Could you maybe quantify that? Any thoughts in terms of how you're managing through these LTAs, given it's a sizable amount and your utilization's obviously, you know, coming down quite significantly from where it was a year ago or so. Any update there would be very helpful. Thank you. Sure. I mean, LTA is a mechanism to support both customer and us for longer term perspective, because we wanna make sure the, you know, the customer wanna make sure their supply resilience, and we wanna make sure our investments are also somewhat protected, which is such a commitment. LTA is a mechanism of that relationship. During the downturn cycle, you know, we both have to look at this, revisit the situation, and but under the framework of, you know, we still have strong confidence in our long-term projections. There are some modulation or adjustments to be made during, you know, giving the LTA relationship, so they are resolving in some of the resolution of current LTA agreement. That result in some of the, the, you know, financial in, you know, penalty related matter. At this point, it's still in a smaller fashion. You know, I think we both, you know, customer and us, still have confidence in what have we like aligned to do in terms of longer term. We, you know, we respect the market dynamics, and we will work with our customer, in terms dealing with those challenges. Again, the LTA is something that we both respect and seriously commit to it. Okay. Maybe just switching gears a little bit on the gross margin situation. It, the guide, obviously, gross margin's coming off a little bit from what was a resilient level in Q2. Where do you see the trough in gross margins for UMC, as we go through this downturn? Do you think it will be gross margins are troughing in Q3? Do you think it might, the weakness in gross margin might extend into maybe early next year? Any thoughts in terms of depreciation as well, because it seems to be creeping up a little bit. Thank you. Well, I mean, that's a multiple level of the consideration. One is the current market pricing pressure, the other is the recent rising costs. For Q3, the rising cost in electricity hike, raw material, labor, will impact our profitability, and we will continue to focus on, you know, our action to mitigate those rising cost headwinds. We have implemented aggressive cost reduction activity to control the power consumption, productivity, manage, you know, productivity, manage the material cost and usage, and streamline our process flow and labor management via the smart manufacturing measures. We'll also focus on technology improvements, such as continuous improvement process, CIP, optimize our fab productivity and quality to help mitigate those headwinds. You know, the, you know, we will try to maintain our structural profitability level at a healthy level. Given the market current dynamic, you know, we will probably be more appropriate or prudent to giving this margin guidance one quarter at a time. Once we're over the down cycle, and then we probably can share a bit of a longer time, perspective. Yeah. The depreciation numbers for 2023, we're still looking for a little bit over 5% year-over-year decline. For 2024, the increase will be more meaningful. We again, we'll offer the numbers when we approach to the year end. Great. Thanks very much. Thank you. Next question, Charlie Chan of Morgan Stanley. Go ahead, please. Hi, good evening, Jason and Chi-Tung. Thanks for the updates. My first question is actually about your 14 nm strategy or progress. Because one of your defensors partner just mentioned that there will be 14 nm AI ASIC demand, and production could be in two years. I'm just wondering that whether coming is already prepared for the 14 nm demand, and any more details about the capacity expansion, production timing, et cetera, would be much appreciated. Thanks. Sure. It's our goal is always to fully exploit the DUV capability. As we know, the DUV capability can sustain to the FinFET technology. Having successfully entering the mass production of our 22 nm business now, and while we witnessing the steady rise in revenue contribution, we are actively progressing with development of the 12 FinFET and specialty FinFET based on the existing 14 nm technology now. From the technology development, we are actively progressing. Mm. However, on the capacity side, we still need to align with our customer for the capacity expansion and subject to our ROI justification principle, and which we have adopt for years now. Once that's more clear, and we will update accordingly. Just to add on to that, we do have 14 capacity already for years. We have been producing some 14 nm crypto coin related product a few years back. I think what Jason was referring to is more massive capacity expansion going forward. Currently, we already have some 14 nm capacity already. Okay. Thanks for that. Yeah, my next question is about your gross margin erosion in third quarter. I know that mentioned about the cost increase from electricity or raw material. I'm wondering, maybe this question is to Chi-Tung. Do you consider the TWD depreciation? I think I would think there's a kind of tailwind to your gross margin third quarter. Also, I wanted to know what was the kind of impact on the pricing erosion. Can you give us some more details about, number one, is the currency depreciation, and secondly, the pricing pressure? Yeah, for our guidance, we didn't factor in the currency fluctuation as a factor. there won't be included in the couple percentage erosions in our third quarter margin guidance, which is not included. Okay. As for ASP, our blended ASP, guidance is, up by 2 percentage point. Of course, like to like, it may vary according to different note. We also got, some kind of mathematical help due to the, lower 8 in wafer capacity utilization rate. Again, it's already reflected into our gross margin guidance. Okay. Chi-Tung, can you remind us, for every 1% difference of the TWD depreciation, what does it mean to your gross margin benefit? It's about 0.4% at this point. Okay. Thanks. Next is more focused on this pricing flexibility. I think your peers more or less, they already mentioned some heavy pricing pressure in inch that I can understand, and I think you should be appreciated by customers that you want to support them to maintain their market position. My concern is more about the 20 nm your pricing strategy, because I mentioned that your 20 nm utilization is still healthy. You still have those AMOLED ISP demand. I'm wondering for 20 nm, are you also being flexible about the pricing? Because we keep hearing some of your customers talking about 20 nm, you may have some compromise as well. Well, I mean, our pricing position are the same to all nodes. Although the different node has a different circumstance or situation. Mm-hmm. Our position remains the same. We're maintaining our pricing strategy, but we do work with our customer, whether on a note to note basis or at the holistic level. You know, giving a good time or bad time. I mean, the end goal is try to help them and support them to be competitive and secure their market share. It does not separate it by different technology notes. Okay. Okay. It is not just limited to the inch. Is that right? No. I mean, it is in, it's a general principle, our pricing position and strategy, yes. Okay. Thanks, Jason. In that case, can you give us a sense, you know, how much of your business is taking this kind of a flexible pricing? Do you think more than half of your nodes, your business being flexible about the pricing in second half? I mean, it's hard to quantify that and, but given the weaker end demands, you know, I don't think any pricing those changes will actually stimulate the end demand. It's mainly about the within the pie modulation between different players. We definitely look at that clear, you know, closely and working with our customer closely as well, and to support and make sure that we secure the share for both of us. So it's from the percentage or quantitative point of view, it's hard to giving out at this point. Okay. Thanks. Lastly, maybe, following up Brett's question about the charge of gross margin. I am wondering your view about the bottom of the fab utilization. Third quarter, you see a sequential decline of UTR, right? Do you think that is the problem of the utilization for this cycle? I mean- It's difficult to predict and we want to predict that. All we can say is the current weakness, the inventory digestion, the slow pace, is going to linger into Q4. I think that's all we can say for now, and we're certainly happy to give the gross margin guidance for the next quarter at the end of July. Okay. Yeah. Definitely we want to listen to your opinion, but my observation is that your customers, although their demand is slow, but they are outgrowing foundry factors, right? I do think the same inventory will come down. Also, don't forget that the channel inventory or downstream inventory is present, so I am optimistic. Anyway, we look forward to your next update. Thank you. Well, great to hear that. Yeah, we count on that. Yeah, thanks. Okay, thanks. Thank you. Next one, Bruce Lu of Goldman Sachs. Go ahead, please. Thank you for taking my question. I think, to be honest, we are still surprised about the CapEx remain unchanged, and your ramp-up schedule for the P6 remain unchanged. I mean, Jason seems to be, you know, you mentioned, like, confidence about, like, your customers. You know, I think that's the fit between investor and the management. Can you help us, like, you know, what gives you the confidence when you have a lingering fourth quarter, and your customer cancel the order all the time, and you believe that you can maintain very high attachment rate for 28 nm for 2.4 to support the CapEx? I mean, first of all, the 28 nm serving some of the important applications. For the OLED driver, they, you know, the current penetration in OLED end market and the volume remain healthy. In the ISP and the Wi-Fi space, we see new application continue coming into the space. For the 28, given the broader customer base and diverse the product line and the product pipeline, that gave us the confidence because the outlook remains healthy. And our. That also equipped with our specialty technology leadership position as well. I think that differentiating us with other 28 nanometer capacity out there. Right now, given the market outlook, we have been very cautiously look at it because the across the all segment, the sentiment is weak. What we have received and what we have validated, and what we have delivered right now, that has demonstrate the current broader customer base and the product pipeline, does give us that confidence that this will probably stay in a healthy level for some time. can we do something like, you know, Your 40 nm revenue dropped a lot. Like, can we convert some of the 40 to 28 or, you know, to save some CapEx or, you know, or what's the schedule for the Singapore new fab, you know? Can we slow down a bit for that, even though it might not impact the CapEx for this year, but we can have a more conservative CapEx outlook for next year? I mean, we definitely look at this. Right now, for the P3, we expect it will go into volume production by mid-2025 as planned. There's still kind of two years out. We will monitoring the overall market and align with our customer for the P3 ramp. Once we have a further update, we will advise accordingly. Since most of the CapEx increase, now the P6 is pretty much done, and it's more associated with the P3, and I think it's less, less of a less will affect our 2023 number. There is a possibility that for 2024 number, we will continue assess and update. I see. Okay. Another thing I want to switch gears to, you mentioned that you would do some interposer business. Can you help us understand your strategy for the, this interposer business? What kind of capital intensity, you know, what kind of return is gonna be, you know, it's gonna, do we need to expand the capacity for that? It's gonna be the bottleneck to impact your other business. Can we have more color on that? Sure. For the interposer as a part of our advanced packaging space, we have been providing interposer and wafer to wafer oxide bond, oxide bonding technology for years. It's not something new. As the increased demand for higher bandwidth and the reduce of smaller form factor requirements, we have invested in the space, and we will not be absent from this, from those emerging markets. At the same time, it's our strategy for this space to work with the OSAT partner and to enable an open ecosystem. Sort of a, we are only providing the interposer within the supply chain, and we're working with OSAT for the back-end process. That's kind of how we position ourselves within this advanced packaging space. The interposer I mentioned earlier, accelerating, is really giving the recent AI coverage. We are just gearing up to offer additional capacity as a necessary to support the customers, the needs. That capacity is associated with the silicon interposer along. The current capacity size is about 3,000, and, you know, it's our goal to double that capacity by mid next year. Okay, just to be clear, that you have no plan to invest in chip-on-wafer or other package method, only for the interposer for this, is that correct? Right. chip-on-wafer means we are providing wafer, the W. Yes. Yeah, yeah. No, no, you are not going to provide any like bonding or chip on you know, bonding, debonding, you know, put on substrate, that kind of packaging method. No, just for the silicon interposer. Is that right? Yes, we do wafer-to-wafer bonding, hybrid bonding. Yes. Yeah. I see. Our approach. Is that? Yeah, it's a open ecosystem, so we want to leverage our partners for the downstream, and it will be a total solution, but a joint effort by all the ecosystem players. What kind of profitability and return profile for this business? Rather, I mean, currently, given the size of this capacity and the space, the revenue contribution is still relatively small. How about the profitability? is aligned with our current corporate average. Yeah. Okay, you saw it's in line with the current corporate average in third quarter, because your corporate average went down a lot. No, our corporate average in quarter two was 36% gross margin, slightly better than Q1. I see. I see. Okay. Basically, the interposer business is around that mid-30% gross margin. It will not dilute our current corporate average, no. I see. Understand. Thank you. Thank you. Next question, Szeho Ng of China Renaissance. Go ahead, please. Hello, gentlemen. I have two questions. Number one, regarding the Xiamen fab. Right now, it's 100% owned by the group. Would there be any strategy change in our China operation or in our dealing with local customers there? I'm sorry, again, the question? China strategy. Oh, the Xiamen. Right. Well, I mean-. Right now, the Xiamen fab is fully owned by us. Right. Yeah. Prior to the buyback, it's actually already. Yeah ... or controlled by UMC anyway. Of course, right now it's 100% owned, so there will be no minority interest. ... once Xiamen continue to make profit. It's also our goal to see if there's any synergy we can generate between our two operations, HeJian in Suzhou and UMC in Xiamen, to see any more synergy and also competitiveness by these two joining efforts. I think right now, the domestic demand occupy even more percentage of the overall revenues. I see. I I see. All right. And- Yeah. Sorry. Oh, I'm sorry. I will add. Please go ahead. Yes. Whether it's a Xiamen facility or our Japan facility, they are one of our 4 12 in fab under the UMC Group's global capacity scale. With each one of their unique manufacturing location, China, Japan, that will actually position us to support our broader worldwide customer base, and with UMC's overall comprehensive technology offering. At the same time, the UMC's worldwide customer can also access to those local manufacturing sites to serve the local supply chain. We think the geographical locator on those fab actually gave us that benefit and as well as our customers to access to the local market. I see. I see. I see. 100% acquire or before that, it was the same position that supporting our worldwide customer. Okay, fair enough. My second question on the gross margin. Right now, we are guiding gross margin back to maybe mid-30s level. How easy for us, for some of the company to see the gross margin back to the mid-to-high 40s last year? I mean, I think we kind of touched this similar question, on a few different way. Mm-hmm. I mean, this current gross margin guidance is, was given based on the current outlook, our product mix and the loading, the utilization projection and the ASP assumptions. Given the rising costs, there are lots of factors that will affect the long-term gross margin projections. One way to look at this is, if we look back, you know, I think compared to the UMC in the past, you know, if we look at a similar loading situation as well as the cost structure, I think we are much more resilient now in terms of. Mm-hmm. -financial gross margin level. Going forward remains the same. We're gonna take the same approach and continue focus on the cost control, cost-down paths, you know, productivity improvement, all the necessary measures against this pressure headwind. Hopefully, we can deliver a much healthier, stronger balance sheet for the company. Since we're going through this down cycle now, you know, it's more appropriate and prudent that we don't give out any long-term projection at this time. But once- Mm-hmm. It's more ready, then we'll definitely will share that with you. I see. Okay. All right, last one. Any chance to update the industry outlook for the year for the addressable market that we are serving? Sure. well, the semi outlook, we expect the 2023 semiconductor market, exclude the memory, will decline by mid-single digit year-over-year. Mm-hmm. For the foundry, we now expect the industry will decline by mid-teens year-over-year. We see a weaker macro condition. We'll need to be very conservative as our customers continue to manage their business and inventory now. For our addressable market, I think will be higher than the mid-teens. Yes. I see. The decline will be higher. I see. Yes. All right. Okay, fair enough. Okay, thank you, gentlemen. That's very useful. Thank you. Next one, Gokul Hariharan of JP Morgan. Go ahead, please. Yeah, hi. Thanks for taking my questions. My first question, I just wanted to ask a little bit more on the pricing strategy and what you're seeing from price pressure. Are we starting to see more price pressure coming through for your China facilities, given we hear about a lot of foundry price pressure in China? Given that UMC has significant capacity in Xiamen and HeJian, is there a bigger price pressure that you're seeing for your Chinese capacity, or is it a price pressure that you're seeing across the board for the company itself? It's across the board. is the given the current market condition and the. I think we're seeing a pricing pressure across the board, not only from China factory, no. Got it. We do hear that many of your existing clients are considering using some of the Chinese foundries, at least for a portion of their future products. How do you see the China capacity build? Because that seems to be the one area where there doesn't seem to be any pause in capacity build-out. Still seems to be pretty aggressive among all the Chinese foundries for primarily mature 12 in, given they cannot really build leading edge. Jason, how do you expect this to kind of interact with the, like, price discipline that has existed in the non-China part of the market, including you guys and some of your peers over the next couple of years? Sure. Well, I mean, first of all, I mean, without commenting about the peers, for UMC to stay competitive and remain relevant in our industry, we have established several advantage in our view for many years. One, is the comprehensive specialty technology offering. Two, the competitive work of manufacturing quality and our geographically diversified manufacturing site. In addition, our strong commitment, bringing this company to, you know, to improve our customer relationship and ESG commitment, we believe will further enhance our position as more of a trusted foundry partner. That's more on a higher level, and on a tactical level, we look at the major overlap area in the 8 in. We have been improving our 8 in customer stickiness by aligning with our customers on their product specs, differentiate via specialty technology, including process customization, JDP, the Joint Development Program, for products such as analog, power management IC, MCU, and discrete devices. We are confident to navigate through this current market condition as well as the competition landscapes. I think there's many areas that we need to do, but we do believe that we have several advantage in many areas, and we definitely have deployed those initiatives, and hopefully we can navigate through this. Thanks, Jason. Maybe one other question. I think you have consistently mentioned over the last few quarters that cutting price or offering price discount in a downturn doesn't really work. Now, as we think about potentially going into next year, emerging from the downturn, do you think that's when we start to see a little bit more price aggression, given a lot of your peers as well as you would be running at lower utilization? Is that when we should start to expect a little bit more price aggression in this industry? I mean, obviously, we all know, right? I mean, the price pressure is there. You know, our comment is really about the pricing doesn't help to stimulate the end demand. When the end market is shrinking, the overall tense shrinking, the pricing is, you know, mainly for the tactical level of approach, and which we will use. We will not ignore that, and we are, you know, like I said, we respect the overall foundry market dynamics and those pricing pressures. We will work with our customer, you know, for those, to help, you know, uphold their competitiveness and secure their market share. From the pricing strategy level, we remain clear about how to manage those, you know, in a several level of, you know, whether it's a strategic level or tactical level, or the short term or longer term structure. We, those strategies remains no change, but we will definitely use those, you know, if it comes to more of a, for a tactical purpose. We're not ignoring that. We would just want to managing the pricing prudently. Yeah. Understood. Maybe one question on 8 in. It's been, kind of seeing very low utilization across the industry. Do you feel that's going to turn around sometime soon, or, there is a situation in the market where more and more 8 in product is getting converted into 12 in, and as a result, this, overcapacity situation could last for a very long period of time? I mean, for the long run, we foresee some 8 in demand will recover post inventory correction. They will have some. There are also new applications from megatrends such as EV, plus increasing IDM and outsourcing business, which will help lift the 8 in loading. Like you said, we do anticipate continuous pressure from some of the 12 in mature nodes that has impacted the 8 in supply chain. They will have some recovery and the from the overall market once the post inventory correction and as well as the new application ramp. I think what you mentioned about, it also happened there, they will have some impact as well. Okay. Thank you very much. Yeah, thanks. Next one, Sunny Lin of UBS. Go ahead, please. Hi, good afternoon. Thank you for taking my questions. My number 1 question is on pricing for your long-term agreement, especially for 20 nm. As you said, given the ongoing demand uncertainties, I wonder for your LTAs for P6 and the future Singapore expansion, are you seeing any pressure from clients to re-negotiate on the contract pricing? The second part of that question is for your Singapore fab. If you look at the cost, how much higher is it versus P6 expansion in Taiwan? Will that be reflecting to your pricing for the contract as well? For, for the LTA, I answered earlier that we, our customers and us, we view that seriously. At this point, the changing on those LTAs, very minimal, is relatively small. And we, between us and the customers, we do look at that is for more of a long-term perspective, not a short-term tactical mechanism. We still feel confident about those LTAs going forward. They are pricing discussed, but not associated with the LTA. Even with some of the LTA, revision, that will be very, in a very small portion, relatively small. The cost increase in Singapore is definitely much higher, not just because the geographical reason, and also because of the continuous inflationary cost increase. We, you know, and that, at this point, we don't foresee that will stop anytime soon. We have to mitigate those headwinds and continue working with our customers, to mitigate those, and the same time be transparent about the cost increase and to deal with that issue together. The same time, we have to be realistic about the market price. It is a balanced act, and we'll continue manage that throughout this whole process. Got it. Just to make sure that interpret correctly, given the cost difference, will it be fair to assume that you could be pricing differently for your 20 nm capacity in Taiwan versus Singapore? For the market price, they will not price differently. The market price reflects the current market situation, and it's usually not a cost-based topic. If this is more of a joint investor program, and the cost is more of the factor. If you're talking about the market price, that's not based on the cost basis. Yeah. Got it. Thank you. That's very helpful. My second question, is about the structural supply versus demand, for a turning at foundry. If we look at your historical utilization rate through cycle, that will be between, I think, 85%-90%, through cycle. Apparently, in the last two years, the industry capacity had increased quite a bit. Just want to get your thoughts on, how we should think about the, through cycle utilization rate for you, maybe, for next, two to three years? Well, I mean, the from a business, you know, management point of view, we also want to help increase our utilization and help load our fabs. I mean, the from the financial model standpoint and the company's balance sheet healthiness level and the resilience, we will probably have to plan out different scenario. As a business manager, I probably won't instruct our team to shoot for 80% or 90% utilization as our goal. Is it from a financial simulation purpose, we have a different layer of the utilization rate assumption and to exam our financial resilience. In terms the business objective, is our goal to fully loading our fab. I see. I guess earlier, several analysts had asked, the demand questions from different angle, but just want to try one more watch here. I understand, we are still through the cycle trough, visibility is still not high. As Charlie pointed out, the industry inventory continued to drop. Will there be good possibility that we could potentially see a more meaningful recovery, from first half of next year? I mean, I certainly hope so. I will also expect that, if that's the case. I was glad to hear what Charlie mentioned, and we will closely monitor the market dynamics. Right now, we do see the inventory correction were lingering into Q4. We haven't seen any meaningful demand recovery yet. The hopefully, you know, a quarter older, and we will have a better view and better comments. At this point, we do think this inventory situation will lingering into the Q4. Got it. Thank you very much. Thank you. Next one is from Brad Lin, Bank of America. Go ahead, please. Thank you for taking my question. I have two questions. First one is pretty short. It's on 65 nm. We saw, actually, the mix increase from 19% in 1Q to 23% in 2Q. What was the driver behind, and should the strength continue into second half? That's the first question. Thank you. Well, I mean, our 12 in loading in is still above our cover average, and we don't commenting about the loading by note. But I can share with you the 65 loading in Q2 is increases mainly coming out from the automotive segment. Got it. Thank you very much. My second question is on the advanced packaging. We would like to learn UMC's strategy and development in advanced packaging. We have learned from Faraday's earnings call yesterday, its collaboration with UMC on advanced packaging on multiple angles, and we also understand interposer and wafer-to-wafer bonding on the current focus of the firm. How fast do you expect it to grow, and do we have any incremental CapEx plan on it? What are the upcoming offers on top of those that can help UMC capture the upside from the advanced packaging? Thank you. Well, I do think the because the higher bandwidth and reduce the form factor, that two major driver for this advanced packaging needs. But they're for different applications. Usually the higher bandwidth is more for the AI processors, and the form factor is for some of the integration, wafer-to-wafer integration level to help in the form factor. There's a different applications. It's important that UMC is not absent from those applications. We do see the market demands increasing, and we've seen there's going to be multiple application coming in. We wanna make sure that we have the technology to serving those markets. That's why we have been developed this and providing this interposer and wafer-to-wafer bonding technology for years now. The strategy also about the ecosystem. We're working, closely working with OSAT partners for the back-end process, and we also working with a design service company, and about the integration, the wafer level design. They are considered as a part of the ecosystem. Right now, we think this is in the early stage of the production ramp. Technology's been there for years, but the volume production is really just happened with the recent, you know, AI momentums. That's more on the AI, the data side, the high bandwidth data side. For the form factor side, I think there's other pipeline coming in in next year or so. We haven't really seen a meaningful or high volume production yet. The CapEx spending on those space is already planned in our, in our budget. That's not changing our overall CapEx number, it's embedded in that, in the number already. We think it's not to the level that we need to revise our CapEx to support this. Yeah. Got it. Thank you very much. Just one very, quick follow-up is on the, so-called, open ecosystem, and then obviously, we are seeing a closed system which currently dominates the market. Could you please, provide some insights, into the optimal collaboration model? Additionally, what may be the preferences of the clients in this regard? Thank you. I think the concept is it's important to provide what you are relevant with. Advanced packaging, you know, in our view, is considered a silicon, a wafer level integration technology, and that's where we're gonna be focused on. For the back end, because the back end substrates, there will be a partner in that ecosystem providing that. The back end packaging technology also have a partner provide that service. We don't have much of a value there, so that's why we stick with the, you know, wafer level and silicon level integration focus. That's how we position ourself and ensure that we will be an indispensable position because the wafer level integration has to be done in a wafer fabrication fab. Others, you don't have to. That's why we actually, you know, pick the space that we are more relevant. Got it. Thank you very much for the color. Sure. Thank you. Ladies and gentlemen, thank you for all your questions. That concludes today's Q&A session, I'll turn it over to UMC Head of IR for closing remarks. Thank you. Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir.umc.com. Have a good day. Thank you. Ladies and gentlemen, that concludes our conference for 2Q 2023. 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.