Welcome everyone to UMC's 2022 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 a question. For your information, this conference call is now being broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website www.umc.com under the Investor Relations, Investors Events section. I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, you may begin.

Thank you, and welcome to UMC’s conference call for the fourth quarter of 2022. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results, followed by our President’s key message to address UMC’s focus and first quarter 2023 guidance. Once our President and CFO complete their remarks, there will be a Q&A section. UMC’s quarterly financial reports are available at our website www.umc.com under the Investors Financials section. During this conference, we may make forward-looking statements based on management’s current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company’s control. For a more detailed discussion 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. Chi-Tung Liu, to discuss UMC’s fourth quarter 2022 financial results. Chi-Tung Liu: Thank you, and happy new year to everyone. Thank you for joining our call. I would like to go through the 4Q ‘22 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page four, the fourth quarter of 2022, consolidated revenue was TWD67.84 billion with gross margin rate at 42.9%. Net income attributable to the stockholder of the parent was TWD19 billion and earnings per ordinary shares were TWD1.54. Utilization rate came down to 90% in 4Q from 100% in the previous quarter. And on Page five, this is quarterly result. Revenue declined by 10% sequentially to TWD67.8 billion. Gross margin rate was 42.9% or TWD29.1 billion. We kept the operating expenses at nearly the same level quarter-over-quarter, which is around TWD6.79 billion. And total operating income declined by roughly 20% to TWD23.6 billion. And net income attributable to the shareholder of the parent is TWD19 billion or TWD1.54 EPS in the 4Q of ‘22. Our next page is the full year result of 2022. Total revenue grew by 31% to TWD278.7 billion and operating income has more than doubled to TWD104 billion and the growth rate was 101% year-over-year. And EPS grew to TWD7.09 in 2022 compared to TWD4.57 in the previous year. On Page seven, our cash on hand currently stands at TWD173.8 billion, with our total equity now is over $10 billion mark to TWD335.4 billion. ASP on Page eight, in Q4 continued to edge up slightly in the fourth quarter of 2022. On Page nine, for revenue breakdown, the change was most significant in the North American market, which represent about 30% of our total revenue compared to 23% in the previous quarter. Asian probably showed a biggest decline from 52% of revenue to 54%. On Page 10, that's the full year breakdown and the change is less significant compared to the quarterly results. Asia represents 51% of the total pie and U.S. represent about 24% in the full year of 2022. On Page 11, quarterly breakdown of IDM versus Fabless stand at 19% IDM and 81% Fabless. For full year, on the next page, it remain almost unchanged with IDM represented about 15% for the full year revenue. On Page 13, communication, computer and consumer didn't change much on quarterly sequential comparison with communication still remains the biggest of 45% of the total revenue. Other segment, which include auto has continued to grow at a faster pace compared to the rest of the segment and is now 18% of our total revenue. For the full year, communication remained around 45%, and consumer is about 26%. On Page 15, the quarterly technology breakdown. Now we can see 22/28 nanometer represent 28% of the biggest pie of the chart for the Q4 revenue. 40 nanometer is about 17%. The legacy 8-inch of 0.25 and above are declined the most in the 4Q 2022. For the full year, 20/28 nanometer represented about 24% also the biggest pie of the chart for the full year of 2022. On Page 17, the quarterly capacity breakdown. We have some new maintenance in Taiwan and also China for Q1 2023. So there's some minor decline in available capacity, which will gradually back to normal in Q2 of 2023. And there will be also some new capacity come on stream in the third quarter or our P5 and P6 in Taiwan. Our next page is our current full year cash based budget or CapEx, right now is about $3 billion with 90% of the $3 billion contribute to around all the 12-inch related expansion. So the above is a summary of UMC's result for Q4 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, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter and 2022 highlights. In the fourth quarter, due to a significant slowdown across most of our end markets and inventory correction in the semiconductor industry, our wafer shipments fell 14.8% quarter-over-quarter, while overall fab utilization rate dropped to 90%. Average selling price increased slightly during the quarter as a result of our ongoing product mix optimization efforts, moderating the decline in revenue. For the full year 2022, UMC's revenue hit the record high of TWD279 billion, while operating income exceed TWD100 billion. Gross margin reached 45%, driven by a more favorable foreign exchange rate, expanding 22/28 nanometer portfolio and nearly added capacity. We have taken advantage of the industry upturn over the past two years to enhance our differentiation in specialty technology offering, improved profitability and different relationship with our key customer. Revenue from 22/28 nanometer technology increased more than 56% year over year, driven by our industry leading 28 nanometer process for OLED display drivers and image signal processors. Our automotive segment also delivered impressive growth in 2022, increasing 82% year-over-year to account for approximately 9% of total sales. We expect this segment will continue to be a key growth catalyst in 2023 and beyond, driven by the long-term trend of vehicle electrification and automation. UMC is well positioned to serve the market with our comprehensive portfolio of auto-grade process technologies and facilities certified according to the rigorous quality standards, while we continue to build strong partnerships with world-class automotive leaders. Given the soft global economic outlook for 2023, we expect the current challenging environment to persist through the first quarter as customers’ days of inventory are still higher than normal while order visibility remains low. To manage this period of weakness, the company is implementing strict cost control measures and deferring certain capital expenditures where possible. In the longer term, we remain positive that UMC’s differentiated specialty technology leadership, geographically diversified capacity offering, and quality and operational excellence will enable the company to capture demand, fueled by continuous digital transformation across industries and be the foundry of choice for leading customers. Now let's move on to the first quarter 2023 guidance. Our wafer shipment will decline by high teens percentage range. ASP in U.S. will remain flat. Please note that we expect a 3% to 4% adverse impact on foreign exchange on revenue. Gross profit margins will be in the mid 30% range. Capacity utilization rate will be approximately 70%. Our 2023 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.

Thank you. Ladies and gentlemen, we will now poll for questions. [Operator Instructions] Thank you. And our first question comes from Randy Abrams with Credit Suisse. Please go ahead, Randy. Thank you.

Okay. Yes. Thank you. Good evening. My first question, if you could just discuss your view on the scope of this business cycle. With the high teens decline in first quarter, do you expect it to mark the low? Where do you see or expect given demand in the inventory, further correction into second quarter? And then if you could give a view just on the end market. Do you see any areas getting closer to stabilization or inventory levels already getting down then from the stronger like auto/other, are you seeing any weakness start to come in?

Well, currently, we are still in the midst of the inventory correction. Like I mentioned earlier, however, we did see some inventory improvement in some segments, such as TDDI for high voltage devices in mobile space. And so, we are working closely with our strategic customer to proactively address those inventory burden in addition to the TDDI and we expect those inventory situation will improve gradually and with high visibility in second half 2023. And so we think that the inventory situation is improving. But probably not going to have -- not going to become better until second half of 2023. For the 2023 outlook. Well, I mean, given the cyclical nature of the semi industry, there is no one that’s immune from the end market downturns. While we were able to mitigate our loading in the second half of our 2022 amidst the downturn, thanks to the growth in our auto business sustain our business momentum and which I also touched and search about 82% year-over-year. But for the first half of 2023, we do foresee a continued softened demand in smartphone PC consumer market that will continue for the inventory digestion reason. Meanwhile, the inventory digestion will continue to be our first priority. Nevertheless, we expect the first half, if not, the Q1 will be the trough.

Okay. Yes. So it sounds like first half, if not, Q1. So it’s still too early to call for sure, not pretty close. It sounds like based on what you see, if that's correct. And then, I wanted to ask, your breakeven utilization is much lower now, like at 70% you have a mid-30s gross margin still. So is that influencing or if you could discuss your feel on pricing, given some cycles you might be close to loss making. But how is your view on your baseline pricing and also just pressure coming from customers needing help out? If you could discuss a view how well it could continue to hold? And if you could discuss the latest on how the LTAs on the 28 new capacity are holding up?

First, given the continued end demand weakness in the PC smartphone and consumer segment, we are experiencing the prolonged inventory correction cycle. And we believe the pricing adjustment at this point will still produce very limited effect in demand creation under the circumstance. And for the UMC's pricing consideration is still based on limit upon the value proposition and supply chain relevance. We expect ASP outlook to remain firm in 2023. While the ASP is not the only consideration in customer management, the yield improvement, technology offering, capacity support, also key factors to strengthen our customers' competitiveness, which will continue supporting that. Meanwhile, we will continue working with our customers to make sure they remain competitive and relevant in their respective market. So for the outlook of the ASP today, we still remain firm in 2023. Now for the 28 nanometer ASP situation, we continue with our cost reduction and productivity improvement efforts to remain competitive even in light of the higher inflationary costs throughout the entire supply chain. And we will cooperate with our customers to navigate through those headwinds in conjunction with our internal cost reduction effort. But we still feel we have pretty solid position on 28. And if there is any cost related, we will closely working with our customers on that. And I think there's also a question about LTA?

Yes, that's right. How the -- like if you had customers need to change negotiation and how well -- most of them, I think, are tied to the new capacity, how those are holding in?

Well, I mean, while the LTA is becoming more of a common practice in our -- I mean, for us in the semi industry, because the industry is starting to recognize that semiconductor is essential. To plan the future mutual growth, strategic customers are willing to sign LTA to secure additional capacity. And our strong customer engagement and product pipeline have also demonstrated to us and as well as the customers' key objectives. So right now, we think the ASP situation is less relevant in those LTA situation. And even with some of the loading consideration, maybe some penalty occurred, but the penalty is not our key objective for those LTA. And at this point, it's still insignificant as a percentage of our revenue.

Okay. And if I just fit one last one on your tax rate, maybe Chi-Tung can address. I think fourth quarter looks like it went up some, so if there was a factor. And then just netting out credits going away, but also the new program, if you could give a view on the tax into the coming year? Chi-Tung Liu: Q4 was like a -- there is a one-off, our overseas subsidiaries with annual remittance policy about the profit, where we took a provision for this potential remittance of the overseas profit. It was mostly on paper, it's not really happening yet. It’s just a onetime tax provision at the year-end.

Okay. And then maybe the forward look, is 15% still the right number? Chi-Tung Liu: 15% still the right number.

Okay, good. Okay. Thanks a lot.

Thank you. Our next question comes from Gokul Hariharan with JP Morgan. Please go ahead. Gokul. Thank you.

Yeah. Hi. Thanks. Could you talk a little bit about what is -- what you're expecting now for 2023? Any early reads in terms of the outlook? Your bigger competitor talked about foundry industry being down 3% or so this year, just wanted to hear UMC's view? And secondly, in terms of Q1, could you talk a little bit about 28-nanometer utilizations. I think overall utilization, you didn't mention it will go down to 70%. Could we talk a little bit about how 28-nanometer is holding up? Is it holding up better than the overall company utilization?

Sure. For the 2023 outlook, the 2023 will be a sound year for both semi and the foundry industry due to the deterioration of the global economics, ongoing inventory correction and weaken consumer demand. So we project the semi industry is going to forecast a decline by the low single digit and while the foundry industry to shrink by mid-single digit. And the question about the loading on the 28 nanometer in Q1. In July, in general, the 8-inch loading will be lighter than 12-inch to 30. And we expect 8-inch will operate below the corporate average, while the 12-inch will be higher than the corporate average. For the 28-nanometer -- Chi-Tung Liu: It should be slightly better than the 12-inch.

Even slightly better than the 12-inch.

Okay. Understood. My second question is on the CapEx. The $3 billion number, given that we are running into a downturn, could you talk a little bit about what is the primary -- I think it's mostly 28-nanometer and some Singapore-related expansion. But could you give us a little bit more color on what that $3 billion CapEx comprises of this year? And any qualitative thoughts on -- do you think about any adjustment in the CapEx, given we are entering the year with utilization at a lower level and the inventory correction?

Sure. The majority of the 2023 CapEx will be budgeted for new capacity expansion for the 12A P6 and 12i, the P3 facilities, which are endorsed by the customer as well deposit for that too. A portion of the 28 -- I mean, the portion of the 2023s CapEx budget are also geared toward to a product mix upgrade. And the remaining budget will be reserved for the clean room maintenance and general budget. So basic is the P6 and the P3 facility as the major portion of that. As far as the CapEx adjustments, we have a plan to dynamically adjust the CapEx spend, depends on the macro conditions and market demand. And we will -- we do have the flexibility to adjust our CapEx expansion and the general maintenance budget if it comes to a need.

Got it. Just wanted to follow up on the first half bottoming. As things stand right now, do you feel the inventory in the supply chain will reach a normal or a low enough level by end of Q1? Or you think that there are several areas where it still needs another quarter of inventory clearance to kind of get over that?

I think, like I said earlier, some areas are improved and some are still high. I think by the end of the Q1, I think will be better than the Q4. And I think by Q2, I think the -- we expect inventory will improve significantly to more than normal level. So we're expecting that inventory will gradually improve. And the second half of 2023, we have a much -- we have certain confidence that will come back, yes.

Is that confidence driven by any specific projects that you have or you are basically thinking about overall inventory restocking in the industry happening in second half?

Actually, multiples. One is the DOI check with the customer. And the other is the engaged projects and also the end market outlook, the alignment that we have with the customers. So there are multiple factors. And however, we are cautiously optimistic about second half and we just have to continue monitoring the progress of the DOI situation.

Understood. Yes. Thank you very much. I’ll go back to the queue. Thank you.

Thank you.

Thank you. And our next question comes from Charlie Chan with Morgan Stanley. Please go ahead, Charlie. Thank you.

Hi, Jason, Chi-Tung and Michael. And first of all congratulations to a very strong first quarter result and a happy Chinese New Year ahead. So Jason, my first question is really about your industry assumption. I think you shared with us and also investors about your methodology, right, to forecast the industry revenue. So when I think about the foundry industry, I feel like that revenue should be much lower than semi customers because there is at least one month or even more than one month's chip inventory at the customer side. So that means the foundry revenue should be at least at 5% or even 10% lower than your customers in 2023 because customers need to pay off those inventory before they reorder. So can you explain why your industry assumption is that semi now high single digit, but foundry will be down only mid-single digit? Can you start with that question? Thank you.

Well, I mean, it is -- like you said, we do have a methodology of calculating that. It is maybe a really complicated answer. [indiscernible] The semi is better right now, it's low single digit, but we are -- the foundry is about mid-single digit. But even within the foundry, there are different technology nodes and some nodes are better than the others. So -- and then, for instance, even we report that the foundry industry will shrink by mid-single digits, but UMC addressable may be a little bit different. And then if you look at the end market exposure and every foundry will probably be different. But -- and so we do look at the multilayers of the data. And at this point, we think the foundry will be about mid-single-digit decline, yes. Chi-Tung Liu: Low single-digit decline.

I'm sorry about that. Yes. So just a quick follow-up, right? First of all, with the UMC addressed low market does better or worse than the industry average? And second question, you said that you consider some major foundries, the wafer price hike in your foundry industry assumption? Thank you.

I mean there are some, but not to the full extent. But going back to the question about the UMC addressable note. Currently, we anticipate the decline will be in the low teens percentage range.

Low teens?

Yes.

Okay. Got it. Okay. And -- you just said that 1Q could be better than the cycle. Do you mean that your second quarter foundry utilization will flat to up? Is that a right interpretation?

I mean, we'll give you the guidance. Chi-Tung Liu: Just I’ll say, in the first half will be trough, it's not Q1. So some time in first quarter, we hope to be the trough. Hopefully, this change to be Q1.

I see. Now I get it. Thanks, Chi-Tung. And let me switch gears to the pricing, right? I appreciate company strategy that cost cut doesn't translate into better demand, et cetera, right? But some of your competitors are cutting price. Would you foresee some market share lows in some mature nodes, if you want to be firm up on your pricing? Thank you.

I mean, our objective is clear. We will support our customers and to make sure they remain competitive and also with their respective market shares. Now the -- for UMC consider the AC business loading trade-off, the way we see it is there is a considerable progress was made in pricing reposition for UMC. And the cost reduction -- the productivity improvement in the past two years actually help us with that. We intend to preserve the win-win structure profitability between the foundry and customers. And under the recent market condition and our product portfolio, we believe the trade-off between the loading and the price will end up with limited benefit in demand creation, because the weakness of the PC and the smartphone and consumer sales group. However, we will continue to work with our customers to make sure they secure their market share in their respective markets.

Okay. So could you be nimble on pricing if customers come back to say, hey, is demand if you cut price. I'm just wondering how firm are you on the pricing?

I mean we [indiscernible] in terms of our guidance right now for 2023 and we also -- I mean, it's our intent to preserve that structure of the profitability and protecting the pricing position in terms of AC management, and we'll continue to manage that with our customer closely.

Okay. And my last question is probably for Chi-Tung. So based on above discussion, assumptions, et cetera, can you give us a kind of full year gross margin guidance? And do you have like a minimal gross margin target based on your depreciation assumption, pricing assumption, et cetera? Thank you. Chi-Tung Liu: Yes. We don't give out the full year gross margin outlook. We do have the depreciation assumption for 2023, which right now after the cut in CapEx will be a low single-digit decline compared to year 2022.

So does that mean -- okay, okay. So does that mean that first half is also the bottom of the gross margin? Chi-Tung Liu: Overall, as Jason just mentioned, from a business standpoint of view, we hope the trough will be first half, sometime first half of this year, it's not first quarter. So margin should reflect to the business momentum, but maybe one or two quarter differences, there could be some time lag on how you reflect the cost versus the revenue improvement. But overall, we certainly hope the trough will be some time in first half.

I see, I see. So Jason, I come up with one question. I think some investors are concerned about your -- one of your IDM customers, because they also have some challenges about their own fab utilization, right? So they may receive back some 40-nanometer or 17-nanometer or 22-nanometer project back to their own fab in 2024. How do you address that -- their concern? I think the end market should be -- end products should be like a smartphone ISP or AMOLED driver IC. Thank you.

Well, I mean, there's always a cyclical nature of this industry, right? So we are no stranger to that. So we have to just deal with all business circumstance. The way we see it is we believe the product mix optimization is to continue to pursue for UMC to enhance the long-term fundamentals. And we'll continue our business development out of the mega trends, not just limited at one customer, but there is diversified market focus as well as the customer base and continue to strengthen our specialty technology offering, quality operations. So then we can continue to be the best foundry and for those products to be produced in UMC. And now, we do have -- we do believe and we have a strong engagement product pipeline to support that long-term fundamentals. So any short-term volatility, we will continue to work with the customer to make sure that we both remain very competitive and relevant to this market.

But you should have to make a decision about your 17-nanometer capacity, right? So do you have any visibility right now for 17-nanometer capacity expansion?

Yes. I mean the -- that's more of a question about the technology migration, right? So in our view, the technology migration will continue. And once we are aligned with our customers, then we will also put adequate capacity to support that migration. And at this point, we -- I mean, I'm not commenting about the customer specific or product detail, but the question is about 17-nanometer for the driver and the ISP, we expect the next mainstream note for that is after 28-nanometer will be 22 nanometer. The 22-nanometer is a mature technology and with the manufacturing feasibility is already proven. And we believe the 22/28 is a long-lasting node, the 17-nanometer solution could be a sub-segment of the total OLED driver and ISP solution. And before 2024, the volume production for 17-nanometer will be very minimum. And right now, we're seeing the 28-nanometer still the most competitive offering in the marketplace. And when considering the overall factors, performance, cost, capacity availability and the system acceptance, our outcome in the 22-nanometer solution have already been adopted, okay, by the leading partners with their design. And so, therefore, we our confidence with the 22-nanometer will continue to have a business sustainability well into the next wave. And from a technology migration point of view, we are also working with our customer and partners to find the future roadmap, and we will not be absent on that market anyway.

Okay. Thanks for your patience and for your insights gentlemen. Thank you.

Happy new year to you too.

Thank you. Thanks, Jason.

Thank you. And our next question comes from Szeho Ng with China Renaissance. Please go ahead, Szeho. Thank you.

Hi, gentlemen. I have two questions on 28 nano. Given the fact that we are still building up 28 nanometer capacity in multiple locations in Taiwan, China and maybe later on in Singapore, right? So will we be offering a comprehensive portfolio of technologies in each of the fab locations or will we be more selective in offering the technology platforms?

Well, I mean, the product mix on different sites is very dynamic. We are aligning to the outlook and the idea is, we want to be creating as much as the flexibility, but without the sacrificing the scale. So many of that is ongoing discussion. So I don't have a specific or fixed mix for you as a reference. But the message is -- I mean, the update is that, we have an option to dynamically adjust that, subject to the outlook and alignment with the customer. Chi-Tung Liu: Yes. More importantly, if I may, we actually offer more choices for customers in terms of the production sites. So if customer place 22/28 nanometers orders to UMC, they have an option to be produced either in Taiwan, China, Singapore. So we are one of the very few foundries that can offer multiple site choices amid the current geopolitical attention.

Okay. Sounds great. And the second one on the 28 nano. How easy would be upgrading the capacity to the next-generation 40-nanometer FinFET?

I mean there is an option to do so and nothing is easy. The next major wave, it will probably be upgrading from migrating the 28-nanometer to 22-nanometer. And after that, there will be a 14. So there will probably be a couple of layers before -- another set before we get into the FinFET. But there are good percentage of the two that actually can convert between those node. So I think we are in a good position to cover all the way to 14 given the two mix.

I see. All right. Okay. Thank you very much. Happy New Year.

Happy New Year to you too.

Thank you. And our next question comes from Sunny Lin with UBS. Please go ahead, Sunny. Thank you.

First, thank you for taking my questions. So my first question is on geopolitical development. So I wonder if in recent quarters have you started to see some new order opportunities from clients evaluating the supply chain diversification? And if yes, what kind of products do you see more imminent upside? That's my first question. Thank you.

Well, I mean, we do see trends like that, and we believe we are in position to be benefited from that trend. However, given the current inventory correction, we expect the progress in engagement and the [indiscernible] will be more obvious beyond 2023. We will not comment on specific product or customer on this, but we are aware of this geopolitical supply chain concerns for many of the customers and the potential implication on our global customers. So -- and some of it is already in discussion with us to fulfill their sourcing plan. And probably not a good idea at this point giving anything specific, yes.

No problem. Just to quickly follow-up. I understand some of the engagements are still in early stage, but any way we could try to quantify the upside for the coming years?

Quantify, that is -- it's still too early right now, because given the current inventory correction, I think many of this is under the discussion in terms of volume and the product and also the process. And so, I think it's still kind of early again. I think the -- many of this will probably take a year to see them realize it. So I assume we can probably another -- once we have a clear visibility, we'll be able to update you on that.

Got it. Thank you. My second question is real quick on capacity increase. So based on your current CapEx target, what kind of capacity increase you target to increase for this year? And specifically on P6 for 28-nanometer, so your Singapore expansion for 28, are you still targeting for late 2024? Thank you.

For 2023, capacity will increase by 4.9% year-over-year and mainly for the 12A P6 profile. The 12A P6 will start on by mid-2023, and it will reach about 12,000 a month by Q4 '23. The P3, the Singapore P3 is targeted to the first half of 2025.

Got it. Thank you so much.

Thank you.

Thank you. And our next question comes from Laura Chen with Citigroup. Please go ahead, Laura. Thank you.

Hello. Hi. Thank you. Good afternoon. Happy New Year. Thank you for taking my question. My question is also on the 28-nanometer. While we see the demand is still quite resilient, even we see a lot of inventory correction, but we know that many of them still are PC or smartphone related. So just wondering, do you think that the resilience will continue even during the first half inventory correction at the client side? In that case, how would that impact the overall gross margin as we know that 28-nanometer probably also one of the key catalysts to drive better pricing and also better product mix? That's my first question. Thank you.

Sure. And first, happy New Year to you, too. And for the 28-nanometer loading, I mean, we remain confident with our 28 and 22 nanometer business. Given that it's a long lasting node driven by many applications, such like ISP, WiFi6, OLED driver. So we expect this 28, 22 nanometer will be partially impacted by -- partially impacted by the inventory correction in communications segment during the first half of 2023, and we do anticipate a full rebound in our 28 and 22 nanometer business starting from second half 2023. So given the current visibility, we have some confidence that they will come back in the second half of '23. For the ASP, we're going to do our part. I mean, we will continue to do our cost reduction, productivity improvement effort to make sure that our customer can remain competitive. And we will cooperate with our customers indicate headwind -- the market headwinds, the cost headwind in conjunction with our cost efforts, and we want to make sure that they will stay competitive with respective to their market share position as well.

Okay. Thank you. That's very clear. And also on the IDM business, you note that throughout the last year the growth are quite solid and quite substantial. I'm just wondering that on what nodes we see the most growth and also, what kind of application? And given, again, the cyclical downturn across the board, do you think that the IDM outsourcing will continue, particularly in some like MCU or automotive related?

Well, I mean the -- yes, I mean, particularly for the 12-inch and across all different technology node from 28, 22 to extent of the 55 and the 40 automotive space, we do see there is a continuous opportunity for us to engage. It's also aligned to our megatrend and that we have been talking about it. We believe our addressable model will continue to grow, okay? And given our upcoming capacity planning, the 28 and 22 will actually continue enhancing our position in that context. And we are excited to many of the new opportunity that brings to us to increase our relevance to those bundles application. We touched that already, the ISP, the WiFi, OLED as well as automotive. And we -- because not just IDM which is what we focus to align with the industry megatrends.

Okay. Great. Because for one of the IDM customers probably also see some weakness on the automotive or the industrial. So I'm just wondering since some of the IDM also ramping up their own 12-inch capacity. So whether that will be slightly impact our short-term business, like the megatrend in the longer term is still quite solid. So just wondering, will you also see that kind of MCU automotive business to come down after maybe later in second half or -- later in the first half into second half?

Not really. I mean we -- it's not -- well, I mean, given the alignment that we have with our customer and we're closely working with them, the capacity growth even within the IDM is actually incorporated to our sourcing strategy with us. So we are part of their sourcing strategy. And so, I do not -- we do not expect the IDMs -- the in-house capacity expansion will become a threat to us. And I think given our long-term alignment with the customer and while the customer also recognized the semiconductor supply chain is essential now and I think they've been sharing the data with us in a much better way, and it's more transparent, high-visibility, so -- no, I mean, at this point, we don't anticipate any impact on that.

Okay. Great. Really appreciate. Thank you and have a nice Chinese New Year ahead. Thank you.

Thank you.

Thank you. Our next question comes from Bruce Lu with Goldman Sachs. Please go ahead. Thank you.

Hello. This is Bruce. Can you hear me?

Yes. hi, Bruce.

Okay. Happy New Year.

Happy New Year to you.

I think I still need to go back to the pricing. I mean I'm surprised to talk about our full year pricing will be firm. I want to know the basic assumption for this pricing. This is assuming like healthy recovery in the second half. Does that take into consideration that your new fab will be LTA protected, will be like price premium versus marketplace or you're talking about like-to-like basis, the pricing remain firm for the full year?

Well, I mean the pricing has a mix, right? I mean, the way I have to look at it is, there's a mix of pricing and our ASP basically reflects the product mix as well as the pricing adjustment, okay? And so, for the blended ASP guidance that we're taking into account, there's a short-term variation of 12-inch product mix and also the adjustment and also the new P6 ramp. So they are multiple facets that we have blended together so that what we provided to you is more of a blended ASP guidance. So you're right. So this is not like-to-like, yes.

Okay. So what about the like-to-like base pricing for the -- well, let's say, for the second half of this year? If you take all the -- Chi-Tung Liu: Yes, we won't be able to comment on that, as this kind of information, first of all, it's very difficult to predict. Secondly, we can only give you a blended ASP guidance as we always have. So the like-to-like overall conceptually, we can talk about it on a quarterly basis.

I see. I understand that. I understand that. So the second thing -- I got a quick question for the R&D expenses for the whole year. Your competitor was talking about like a big jump in terms of R&D for 2023. What about operating expenses for UMC for the whole year? Chi-Tung Liu: Yes, we intend to somehow keep the absolute numbers in terms of operating expenses. Of course, the employee-related compensation will be affected by the full year profit sharing program. And other than that, such as R&D and some other projects, the expenses will be somewhat flattish. On top of that, because of the short-term volatility, we are implementing a pretty stringent cost control for other areas, but not on the R&D program.

Okay. Lastly is, you have a lot of fab in different regions. Do you consider to like price in the different -- with a different pricing with different geographical location? TSMC was talking about like flexibility in terms of different multiple locations has a value, which means they want to sell those kind of -- do you consider to do that kind of pricing strategy as well?

Well, I mean, like you said earlier, the P6 and P3, the 12A and the 12i, definitely have a different pricing scheme. And because the production ramp for the P6 and P3 will indeed incur some of the higher depreciation costs for us. So for us, the new build capacity is under the LTA base and with the building the wafer price. Given that our customers do recognize our value as well as believe our total solution is competitive for both of us to capture the market growth and they agreed to that. So those fab investments are also based on such alignment and to drive our CapEx and ROI decision. And so, yes, from those new field capacity, there are different pricing scheme but not for the rest of them.

So only for the newly added capacity other than Taiwan, with a different pricing strategy? Okay.

Even in Taiwan because P6 is in Tainan and –

Okay. That’s all from me. Thank you.

Thank you, Bruce.

Thank you. And our last question today comes from Gokul Hariharan of JP Morgan. Please go ahead, Gokul. Thank you.

Yeah. Thanks for taking my follow-up question. First of all, could you talk a little bit about time line for your 17-nanometer FinFET? And what kind of demand you're getting from customers? Is this happening in the next couple of years itself or is it something that will happen beyond the next couple of years, you focus on 22-nanometer migration? And lastly, also, I wanted to check whether the 17-nanometer is something that you have committed to customers as part of some of your LTA arrangements, whether it is for fab 12A P6 or for the Singapore new fab that is coming up?

I mean, first of all, it's our understanding that before 2024 the volume production for 17-nanometer will be very minimum, if any, because the 17-nanometer production is still under the exploratory stage. And the current discussion that we have is many [indiscernible] the trade-off between the power consumption, transistor performance cost and the capacity plan. So it's still in a very early stage even to predict when we'll start the production, yes.

Okay. And is it covered in any of your LTAs or that will be separate agreements that you sign, if and when you decide to go ahead with it?

No. It's not covered on this current NDA -- the LTA, no.

Okay. Understood. Just one quick question, Jason, on your overall view on 28-nanometer industry demand, because we are now hearing TSMC also building a lot of 28-nanometer capacity in Japan, Nanjing, as well as potentially considering Europe. You guys are considering Taiwan as well as Singapore. There's a lot of announcements from some of your competitors as well. When we look at all this together, it looks like 28-nanometer capacity will be 50% to 60% higher than any of the prior nodes in terms of installed capacity. Do you agree with that? And do you think that the demand is that big that we can kind of fulfill all this capacity, especially as we are also heading into a bit of a downturn?

Yes. Well, I mean, we definitely don't look at this from the [indiscernible] point of view. We look at from a long-term standpoint, we remain very confident in the 28 and 22. And I can't really comment -- I won't be able to comment on our competitors' situation, but we are confident with our own business, mainly from our highly differentiated and customized technology solution. And together with what Chi-Tung mentioned earlier, we have a geographical diversified capacity offering. And we -- with the current customer alignment and mutually committed to the -- some of the new capacity build that we see in the 28 and 22 is a sweet spot for many of our customer and their applications, which we believe those demands continue to grow. With the strong product pipeline in 28, the short-term market turbulence will not change our long-term view and the relevance on the 28 and 22 based on the alignment we have with our customer.

Okay. That’s very clear. Thank you and Happy Chinese New Year as well.

Yeah. Same to you. Thank you.

Thank you. That concludes today's Q&A session. I will turn thanks over to UMC, Head of Relations 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 us ir@umc.com. Have a good day. Thank you.

Thank you. Ladies and gentlemen, that concludes our conference for fourth quarter '22. 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 session. You may now disconnect. Goodbye.