Welcome, everyone, to UMC's 2023 Fourth Quarter Earnings Conference Call. [Operator Instructions]. 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 is finished. Please visit our website, www.umc.com, under the Investor Relations, Investors Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.

Thank you, and welcome to UMC's conference call for the fourth quarter of 2023. I am 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 the first quarter of 2024 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 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. Chi-Tung Liu, to discuss UMC's fourth quarter 2023 financial results. Chi-Tung Liu: Thank you, Michael. I would like to go through the 4Q 2023 investor conference presentation material, which can be downloaded or viewed in real-time from our website. Starting on Page 4. The fourth quarter of 2023, consolidated revenue was NT54.96 billion with gross margin at 32.4%. Net income attributable to the stockholder of the parent was NT13.2 billion. Earnings ordinary shares were NT1.06 in Q4 2023. On Page 5, this is the sequential performance. Revenue declined 3.7% quarter-over-quarter to NT54.9 billion. Gross margin rate dropped roughly 3.5 percentage point to 32.4% or NT17.8 billion, with a net non-operating income of NT2.22 billion, the net income come to NT13.19 billion or EPS of NT1.06. This is compared to NT1.29 in the previous quarter of 2023. For year-over-year comparison on Page 6. Revenue declined roughly by 20% year-over-year to NT222 billion. This is largely due to the lower capacity utilization rate as our wafer shipment declined roughly 27% year-over-year from 2022 to 2023. Gross margin rate as a result declined from 45.1% in 2022 to 34.9% in 2023. Overall, net earnings in 2023 was NT50.99 or close to NT61 billion. Net income rate was 27.4%, compared to 31.3% in the year of 2022. EPS as a result is NT4.93 million in 2023, compared to NT7.09 in 2022. On Page 7. Our cash on hand is still around NT132 billion and total equity of the company has come to NT359.5 billion. Book value per share is close to NT29 per share at the end of 2023. On Page 8, starting from 2024, we have changed our ASP unit as well as capacity unit to 12 inches and 12 inches equivalent to express the ASP number as well as the capacity number. For the past five quarters, as you can see the trend chart here, the first three quarters was edging up and the last quarter was relatively firm on a 12 inches wafer equivalent ASP trend. On Page 9, for the revenue breakdown by geography, Asia is getting a little bit bigger to 62% of our total revenue, when North America is above 23% of our total revenue. For year-over-year comparison on Page 10, Asia actually declined from 51% in 2022 to 57% in 2023 and the rest of the three main regions didn't change much. On Page 11, IDM continued to increase HF to 22% and Fabless is around 78% in Q4 of 2023. On our year-over-year comparison on Page 12, the increase in IDM is more notable from 15% in 2022 to 2023 of 22%. In terms of application breakdown on Page 13, communication remained the biggest of 47% and the spread among different applications didn't change much quarter-over-quarter. As far year-over-year change, computer declined from 15% in 2022 to 11% in 2023. And we continue to see bigger exposure to other segment, which is mostly Automotive and Industrial, around 20%, compared to 14% in the previous year. For technology breakdown, we are happy to see that, revenue come from 40 nanometer and below now represent 50% of our total revenue, and this is compared to about 45% in the previous quarter. And 22 and 28 is our largest share of revenue around 36% in the Q4 of 2023. For the full-year numbers, the trend is also similar. We see the 22, 28 revenue of 31% compared to 24% in the previous year. On Page 17, as I mentioned earlier, the unit of capacity wafer also changed to 12 inches equivalent. Right now, our quarterly available capacity is a bit over NT1.2 million a quarter in terms of 12 inches equivalent capacity, and we will continue to see some minor increase out of our 12 inch capacity given our P6 expansion is continuing. On the last page of my presentation, CapEx for 2024 is currently budget at $3.3 billion with majority of that over 95% close to 12 inches capacity expansion in both Tainan and also Singapore. The above is a summary of UMC's results for Q4 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 fourth quarter results. In the fourth quarter, challenging macroeconomic conditions continue to prolong the inventory correction in the semiconductor industry, as our wafer shipment decreased 2.5% quarter-over-quarter, while overall fab utilization rate slightly fell to 66%. As our Tainan 1286 facility continues to ramp, our 22/28 nanometer represented 36% of our Q4 wafer revenue, reflecting record high in revenue as well as percentage of the wafer sales. Overall, 2023 was a year, where UMC demonstrated its financial resilience in face of challenging external environment, we were able to achieve yearly 34.9% gross margin despite the utilization rates significantly in 2023 This resilience can be attributed to our relentless pursuit of technology innovation differentiation, customer synergy and stickiness enhancement and manufacturing quality excellent and cost reductions. As a result, we have improved our product mix and customer portfolio, which led ASP by single-digit in 2023. Looking into the first quarter of 2024, we anticipate overall wafer demand will increase mildly. However, customer maintains a cautious approach in their inventory management. Moving forward, UMC will continue to navigate headwinds amid an increasing competitive landscape and swallowing geopolitical tensions. We have diversified the manufacturing base and differentiation in 12 inches specialty technologies. Our 12 nanometer FinFET collaboration is a step forward in advancing our strategy of pursuing cost-efficient capacity expansion and technology, no advancement in continuing our commitment to customers. This effort will enable our customer to smoothly migrate to this critical new note, and also benefit from a resiliency of an added Western footprint. We anticipate 12 nanometer FinTech Cooperation will broaden our addressable market and significantly accelerate our development roadmap. Now let's move on to first quarter 2024 guidance. Our wafer shipments will increase by 2% to 3%. ASP in U.S. dollars will decrease by 5%. Gross margins will be approximately 30%. Capacity utilization rate will be in the low 60% range. Our 2024 cash base CapEx will be budgeted at $3.3 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.

Thank you, President, Wang. [Operator Instructions]. Now the first question will be coming from Randy Abrams, UBS.

I wanted to ask the first question probably multi-part, because wanted to get a few more details on the Intel partnership, which looks like a big move in a new direction. A few -- maybe I'll run off the questions we had. First if you could discuss funding of the CapEx, and then if there's any IP or NRU [ph 0:13:59.0] proceeds that UMC would get by supplying the technology. I'll start with those. I have a few follow up.

Well, I mean for the 12 nanometer collaboration with Intel. On the funding side, the development cost for collaboration will be shared mutually, and they are some use equipment will significantly reduce the upfront investment for both parties for this cooperation. So, there's not much more to discuss in detail for the funding part. This cooperation will result positive impact to our P&L and once the volume ramps up, and the profit will be recognized at the time.

Okay. So, it sounds like no, there's no process transfer because it's a co-development. You'll co-fund it in R&D. And then as it ramps, how's the sales approach? Would it be each company respectively sells to their respective customer base that offering and would it be the same offering or you would focus on different parts of the market?

Well, I mean this -- well, the first of all, the 12 nanometer address the gap in the no portfolio for both parties. This 12 nanometer is the offering that expanding our product offering. And we will be serving our customer and this will be a vertical cooperation between us and Intel. Chi-Tung Liu: If I'm head on to that, basically, you can see this is extension of our technology offering to our existing customer and potential customers. Coming from 2022, down 14 and certainly this technology roadmap will be perceived as a continuous advancement for a lot of UMC-based customers and potential customers.

A question on the timeline, I think previously you were talking about freezing the process in early 2025 and then a year to go into volume from that initial freezing. The timeline was listed as '27. I guess, two questions. Would you still do a process in your existing Asian fabs or is this a new focus and would the timeline push out or could you try to pull that development timeline in?

I mean, from our original milestone, we targeted to have the process ready by 2025, as reported in the past. And now, while we joined developers to complete this development, we will follow that timeline from PDK readiness, on a customer engagement to the production ramp, this still going to be a year-and-a-half on that. Now we put it to expecting shipment, I mean the production will begin at 2027. In the meantime, we will align with our customer and to finalize the final ramp schedule.

Okay. Probably just sorry, so many on this one. The last one I just have on this topic, the cost of product, would it be considered as an Intel fab, so you'd be paying a foundry fee, like, they are manufacturing it on their line or would you have operators. How do you handle the transfer pricing, if the cost structure is not there or how much control do you have on the process?

I mean, there is a comprehensive collaboration details that I'm not be able to elaborate it here. As a result, like I said, the result will be a positive impact to our P&L based on collaboration agreements.

Okay. It looks like an asset light way to do it versus at least building, I think the original plan, if you would build a line to do FinFET in one of the other fabs, if this is the approach.

Right. This is truly just a commercial cooperation. The party will be able to share the cost, while leveraging the expertise. We believe this will be a good way to leverage the synergy on both party tend to accelerate to this market.

Okay. I know it was a multi part. I will just ask one other question. If you could talk about, just on the pricing with the first quarter, it was a 5% ASP decline. Could you talk how much is a mix, like, the tech migration is moving very aggressively to 28. Is there a shift in mix involved or how much is like-for-like pricing? Just after that, because there are more concerns about the mature node, the 8 inches ongoing pressure, should we view it as a one-time reset on pricing or do you expect we may start getting into as long as the fabs aren't full and there is competition, mild price erosion? Like, how do you see it, from I think first the mix versus pricing and then from the first quarter level, how you see pricing environment?

Maybe I'll start off. First of all, there is no change in our pricing strategy, which is respect to the foundry market, the Q1 ASP guidance included annual one-off pricing adjustment of 2024 as well as the change in product mix. Nevertheless, I mean, UMC is being fully aware of the market dynamics and the competition situation. And we will support our customer and we will closely be monitoring the market, align with them, and on appropriate pricing position to safeguard and protect UMC towards our customers rather than market share. We will only support our customer in order to maintain or increase their market share in selected market segment. We have no intention to fall into a price war, often reflected in a commodity market. From a mixed standpoint, although the annual one-off pricing adjustments, this will lead to a slightly lower blend ASP for Q1, and we expect this ASP will remain firm beyond Q1 ‘24 for the rest of the year 2024, which already factor in including the product mix, LTA terms for example.

Okay. No, just to clarify, in first quarter, is mix like how is 28 nanometer doing versus the mature note? Are they coming back a little bit with shipment rebound or is it relatively stable mix across?

Well, I mean the overall, the Q1 28 nanometer loading is slightly lighter than Q4 ‘23, mainly due to the seasonality effect and some urging order in Q4 ‘23, and our overall 22 and 28 loading continue to be resilient amid the market fluctuation. And we will also continue to grow our 22 and 28 business with our customer for the application of Olay driver, ISP, WiFi, SOC processes, while the further expansion of technology offering in the advanced NCU product and automotive industrial application. Q1 will experiencing a slightly lighter of loading for 28.

Next one, Nicholas Barrett, Macquarie. Go ahead please.

Do you hear me okay or not?

Yes, I think we can.

Okay, thank you. Sorry. Last quarter, I think you mentioned some weaker end demand in automobile and industrial. Is it still the case and does that contribute to lower loading, lower ASP in 1Q ‘24?

Yes, for the Q1 for the -- on the segment side, we expect that automotive industrial end market will continue to experiencing the inventory correction. Hence, the wafer domain, automotive and industrial seven will remain solved. The communication, computer and consuming segment have stabilized for now and the contribution will remain flattish quarter-over-quarter.

So, you mentioned $3.3 billion CapEx in 2024, 95% in 12 inch, right? I think that's correct. Has this entirely include -- is it entirely 28, 22 earning per capacity increase? Or is there something else?

Well, for our 2024 cash-based CapEx our budget is $3.3 billion. Out of that, the 20% of CapEx was a budget total to 22 and 28 expansion in our -- the remaining expansion in P6 and the 12X, which was a pushed out during the 2022 and 2023 time. This reflects our effort to managing our CapEx. Around 60% of the 2024 CapEx will be spent on the 12i P3 infrastructure as well as a minimum two end equipment’s. We will expect the ramp rent of the 12i P3 will start at April 2025. So, the infrastructure is ongoing. And we project the CapEx will peak out this year and will not impact company's cash dividend policy. As we have stated in the past, our CapEx strategy will continue to remain a disciplined ROI-driven phase and our affordability as well, where we invest toward future growth back with a customer commitment. If the market do not rebound as expected in 2025, we will further adjust our CapEx accordingly.

Understood. Is there a change in the planned capacity of P3 in Singapore?

I mean, the 12i Singapore P3, the infrastructure as a planet is a pursuit of the plan for the infrastructure means the overall structure of the building and the facilities, but now only with a very minimum two of equipment.

For 2024, yes. Okay. Thank you very much.

Thank you, Nico. Next one, Gokul Hariharan, JPMorgan. Go ahead please.

Hi. Thanks for taking my question. My first question just to follow-up on the Intel collaboration. Would you be also using the same node in some of your future fabs, the 12 nanometer node or like, let's say, your lateral phase of expansion in Singapore or is that going to be all the 12 nanometer capacity will be only in the U.S. Fabs of your partner?

I mean, not at this point and we will focus on to ramp this, the Western footprint first and if it comes to the market demands and/or the customer commitment that we are looking to the other option as well, but not at this point, no.

Okay, understood. Jason, maybe a little bit more on the pricing front. Could you talk a little bit about what you are seeing in various parts of your portfolio, 8 inch, 28 nanometer and metro 12 inch? Are you seeing any very different kind pricing and given your firm pricing strategy, how is your market share holding up with your key customers? Are you seeing any market share losses, given all these concerns about capacity expansion in China?

I mean, in the foundry landscape, some markets are more likely to become commoditized. However, our strategy has always focused on technology differentiation that will drive our long-term growth and ship away from a commoditized market with a low entry barrier. Right now, there is still a mix of a product within our portfolio and we are gradually moving away from that. We have proactively increased our effort in technology advancement, including 12 nanometer, like we talked about it and 22, 28. For example, we expect to see higher revenue contribution from a technology node such as 22, 28 EHIV [ph 0:27:27.9] 55 nanometer RFSOI in 2024. Beyond 2024, our broader technology offering along with the geographically diverse and manufacturing location and the customer stickiness will elevate our overall competitive, so we expect this action will reduce our exposure by habit in the next couple of years, inherent for our current commoditized product by half in the next few years.

Thank you. So, I think, a couple of years back, you had given us some numbers on specialty product mix. I think it was about 30%, 35%, if I remember two, three years back. Is there any update in terms of how much of your product mix is now specialty, and how much of it is single sourced in terms of the total business that you have?

There's for the specialty right now is in Q1 is in a high 50 range -- high 50% range. So, the single source product is actually quite high. It's higher than that. However, it is the -- we also have to look in the end market competition. So, some of those product also considered as a commoditized area, and we are gradually moving out from that space.

Understood. Thank you. Last question on -- how do you think about overall order visibility into the next few months? Are you starting to see customers come back or you think the customer stance is still a little bit more cautious given some of your other competitors have been starting to talk about utilization, bottoming out and growth kind of resuming? Any thoughts about how you expect growth to look like for the foundry industry this year and also for UMC?

Sure. I mean, we start off on the maybe industry. We do expect the 2024, the semi-industry will grow, probably to a mid-single digit year-over-year. But for foundry, we project that it will grow in a high single digit range, and for the UMC, we will strive to grow in line with the foundry industry. Despite that our addressable market will probably remain flattish. As far as the demand outlook of course we start off with the inventory situation. And although we have observed healthier inventory level in PC and smartphone market segment in Q4 ‘23, the customer remain cautious after the Q1 ‘24 restocking of the mobile applications. For the alto and industrial segment, they will likely require more time to digest the inventory and return back to normal in the second half of the 2023. So overall, the visibility of 2024 is relative limited due to macro uncertainties. And while there is a lingering inventory issue in auto and industrial segment, we are cautiously optimistic about the market demand, given the PC and mobile inventory have returned to a bit healthier level in Q4 ‘23 already. I think customer is behaving little bit cautious after the Q1 restocking, and then we will continue monitoring the market dynamics.

Next one, Bruce Lu of Goldman Sachs. Go ahead, please.

Hello, can you hear me?

Yes.

Okay. So first of all, I want to double check about the foundry growth. You just mentioned that, you talk about like the foundry is going to grow about like 10%, and your addressable market is going to be flattish. I think this is meaningfully lower than what your peers were talking about like 20%, can you tell us where is the discrepancy? Why you are so much more conservative than your peers?

I mean, I can't really comment our peers, because I don't know what data they are using on, but I'm sure, all of us are collecting the data from both the market and our customer in different market segment. Our data shows that, the 2024 on the foundry side, I mean, foundry market will probably grow to high single-digit and close to 10%. While the foundries, as it is within our addressable, will probably stay flattish, that's what our data shows. Since I don't have the our peers' information, I can't really comment about the discrepancy.

I see. I understand. The second thing is that regarding to the again, for the Intel collaborations. Can you provide us couple of milestone that we can check or follow-up, because I think the key for this strategy is all about the executions, right? I mean, how can we track the execution from both parties? For example, what timeframe you can complete your process development? What kind of timeframe you can develop for PayPal? What kind of timeframe customer can get by -- we can recognize some revenue or profit? Can we have some timeframe for that? And also, is the collaboration only limited to 12 nanometers? What about like 10 nanometer or 7 nanometers or any other parts of development?

First of all, this cooperation is focused on the 12 nanometer process. We look at these 12 nanometers, it represents a long-term commitment and the opportunity for both party. As far as the future opportunity, we hope there will be, but it probably going to be in the future. Once there is anything, we are glad to report that. For the milestone, you are right, there is a very comprehensive project milestones, under this joint development program. The major milestone is, we like to freeze our process in 2025 and get everything ready for customer engagement after that and hopefully the pilot at '26 and the production in '27, which is aligned to what we have reported, is production in '27. We hope that we see a meaningful revenue contribution started from the year of 2027. That's probably in a very high level of a milestone. There are many, many details that we understand that, we are fully aware of it. We just have to executing it and we are putting a great attention to it. We believe this collaboration actually already been mitigated by leveraging the existing manufacturing footprint, without going through the complicated setup of a greenfield facility. We have mitigated some of the risk in terms of execution and we have seen the rest of it. We just have to execute and report it accordingly. Chi-Tung Liu: Yes. And also, for both Intel and UMC are public-listed companies. Of course, this collaboration is more material, given our size relatively to Intel. Certainly, we will report the progress on a quarterly basis to our stakeholder. And as Jason mentioned, once we freeze the PDK and with customer engagement, hopefully, we will have some kind of customer announcement in between.

Next one, Charlie Chan from Morgan Stanley. Go ahead, please.

Hi, Jason and Chi-Tang. First of all, happy New Year and also truly congratulations for your partnership with Intel. I think, it should be a win-win situation. But maybe we kind of come back with some details. First of all is the long-term profitability with this Intel partnership. So maybe Chi-Tang or Jason. So, what was the kind of a estimated kind of gross margin or IRR, ROE compared to your own investments? Or to be your fully owned investment? What would be the difference in terms of gross margin and ROE? Chi-Tung Liu: We agreed, I mean, both sides not to touch upon these numbers, because probably three years away and again, the material impact for both companies are relatively different. But what we can say is all the question you ask, we have internal performance or simulate numbers support our decision to go into this collaboration. And we do believe 12 nanometer is a multi-billion dollars market. And currently, is dominant by a few players with the collaboration and the setup of the contribution from both sides, we think we can offer a very competitive technology 12 nanometer solutions at the Western footprint to our existing customers as well as our potential customers. So, we do have high hope for this collaboration, including the P&L impact to our UMC.

Yes, and Charlie, and first of all, thank you for having New Year to year two. I also like to add, the background of this 12 nanometer cooperation is very much aligned to our growth strategy that we have set up to do five year or five or six years ago, our growth strategy has always been to pursue a cost effect capacity expansion, and technology not advancement to continue our commitment to our customers, while enlarging our addressable market and increase our market relevance. And so, as such, we have always been exploring potential cooperation, this aligned with our strategic objectives. So, this actually fits that very well. Like she don't say there's many benefit about this 12 nanometer cooperation and we set up our goal and we'll execute this, and we think at the end of the day, this will be a win, win, win scenario for our customer, intel, as well as ourselves.

Yes. Thanks, Jason and Chi-Tung. So, a follow up to that question. So, I think, you seems to imply the business is not just exceeding customers migration? It should be also some share again in this 12-nanometer foundry business. So, since you mentioned about a win, win, win for the customers use your industry peer? They would you be able to provide some T like process? The reason I'm asking is that, if you add the second source foundry, you probably need to spend some upfront cost for the mask et cetera. How do you justify that customers to use your 12 nanometer as a second source?

I mean, first of all, in our view, the 12 nanometer, it is a competitive solution. And not only that, from a market standpoint, it's a long-life node that address many of the high growth market, such as the mobile communication, infrastructure and networking. Now many of product actually just come to the 12, so they are not necessary to be a second source product. Many of the product pipeline actually arrived at this time. We are aligning our milestone with the end market demand. Now from a competitive standpoint, this 12 nanometer process will be a comparable industrial standard node and we utilize our executive process experience and the foundry know how and as well as the Intel, the FinTech transistor foundation. I think we will provide a very compelling and competitive solution to the customer.

I see. Thank you. And then also another question on this one. Yes, I'm wondering, if before 2027, there is some causes demand. Would you use your current 14 nanometer capacity in Taiwan for converts on the 28 nanometer to fulfill the demand before 2027?

No. I mean, right now, we have evaluated all options. We believe this is the best option for us. Our primary reuse is this increment for the 12 nanometer production and we expect you will have required some of the conversion kits and limited new tools, which is going to be more efficient than we are producing in our facility. Overall, leveraging the existing equipment will tremendously reduce the upfront investment for this project.

Okay, thank you. And lastly, just on this Intel partnership, just two kind of logistic question. First of all, who will be in charge of the fab operation? I saw the news today, you suggest you will run the fab, but I feel like, it could be pretty challenging, right? I'm not sure, who is going to be in charge of the operation. Can you answer this one?

No. I mean, we will have people that assist for the joint development on the proper development side. From the operation, Intel will operate that for sure.

And would that require additional government approval for this collaboration?

We'll file all the filings for any regulatory requirement and we will comply to that.

Okay. Thank you. And switch gear to near-term, I mean, the long-term dream is great, but back to near-term. Jason, do you think the fab utilization will have a second leg down this year? I noticed some of your customers' inventory days is strong in pretty low, right? Can you give us some kind of observation about the cycle recovery for this year? Just a like query payment?

Yes, like I kind of stated earlier, we cautiously optimistic about it, the 2024. However, the visibility of 2024 is still relative limited due to the macro uncertainties, the consumer spending, higher interest rate and inflationary pressure. So, our customers, is remain very cautious even after the Q1 restocking that we have observed. We will hand in hand with our customer going through this turbulence. And meanwhile, our primary focus on ‘24 is we will continue to enhance the company's resilience and to weather through this market turbulence, and then embrace the market upturn. So, I am cautiously optimistic about the upturn, but meanwhile, we'll continue to focus on the company's resilience.

I see. So last question is financial question to Chi-Tung. So now you have the 2024 CapEx guidance. You have the full year revenue forecast. Can you give us some update about your full year depreciation growth, and also your full year gross margin guidance? Chi-Tung Liu: Well, the depreciation estimates for 2024, it's about 20% higher than that of 2023. As I mentioned, 2023 was really a trough for a recent depreciation curve. So, the 2024 was 20% increase is probably back to the 2021 level. For margins…

Well, I mean, for the margin, we understand there's a software market demand. Like I said, our focus is with a relentless effort and in the past year, as well in 2024 will continue to improve our structural profitability. And so, our margins highly depends on the capacity utilization like we expect will get market share in second half, which will live our utilization rate. Some of the new product will start ramping in the second half. However, we expect the depreciation expense like Chi-Tang said, will increase 20% year-over-year in 2024. Chi-Tung Liu: So, we don't really give the full year guidance in terms of margins. Of course, we have a goal for a very longer-term structured trend for gross margin, but not the 2024 margin -- gross margin guidance.

Okay. So, use the first quarter 30% as a benchmark, do you think full year can keep at a similar level? Chi-Tung Liu: Again, we don't come on the full year margin. I think, we have a long-term goal.

Maybe I can share this with you, we hope to stay around the mid-point of 2022 and 2023 gross margin number, while continue to add resilience to our profit margin. I guess. Chi-Tung Liu: The structure gross margin target not for 2024?

Okay. I'll need to go back to check my model. But anyway, thanks for the tips. Good luck gentlemen. Thanks for your, your answers.

Next one, the home China Renaissance.

I have a question on R&D. In Q4, the number edged up quite a bit. Is it due to the fact that, we are starting to do the 12 nano R&D activities?

Yes, of course. 12 nanometer is one of the key focus for R&D activities, but there is also some year-end adjustment for R&D efforts. I would say, the overall R&D budget will continue to increase, but we will try to manage as a fixed number in terms of percentage of revenue.

Can you share with us, what would be the R&D run rate going into, let's say, '24 and '25?

Sorry, say that again, please.

R&D run rate into 2024 and 2025, can you share with us, let's say, as a percentage?

I think the run rate will be similar to 2023.

And second question regarding the cash dividend policy. Would that still be based on the payout?

As Jason mentioned, even though we may see a peak CapEx in 2024, that will not affect our dividend policy. We still intend to balance the payout ratio as well as the absolute dollar trend in terms of cash dividends.

I see. Fair enough. And then last question regarding the partnership with Intel. Are the fab be targeting those customers order serving the European and also the U.S. markets primarily? Chi-Tung Liu: I mean, the solution will be serving customer globally. It's not limited to any market segment.

It is Western footprint for the first time for UMC's perspective.

But would that be biased or focused more on the overseas market than the Asia side of the market?

No. It will be serving the customer more.

Next question, Brett Simpson from Arete. Go ahead please.

Yes, thanks very much. Most of my questions have been answered, but I had a follow-up on the FinFET partnership with Intel. I mean, I guess the three Intel fabs in question equates to about 60,000 wafers a month capacity. Is that the rough plan we are talking about as part of this partnership? And can you just help us with the math around the CapEx assumption to convert these fabs to your process? Thank you.

First of all, the capacity planning, it has a subject to the customer engagement. So, while we are referring where the project, the 12 nanometer will be developed in that location, but doesn't mean that the capacity numbers. They will align with the customer and finalize the capacity size, but the site is actually available for us to plan that accordingly. For the CapEx, like I also mentioned earlier, primarily, we will reuse the existing equipment that will be very limited, the new tools and also from the conversion kits and required CapEx, but the CapEx number is relatively small, yes.

And is Intel taking any of the capacity for internal means as part of this agreement. And then is there any CHIP act funding qualification? Do you -- can this -- does this qualify for any CHIP Act funding going forward? Thank you. Chi-Tung Liu: We cannot speak for Intel. I think they will make their own decisions, as for us, we won't do that.

Next question is from Gokul Hariharan, JP Morgan.

I just had one question. So, given, Chi-Tung you mentioned, the CapEx will probably peak out this year. How should we think about depreciation going forward? I think you have this 20% bump in depreciation this year. Should we expect depreciation to continue to keep growing at this kind of pace into the next couple of years as well? Or is it kind of largely kind of -- this is like the big jump in deposition that we're going to see in 2024? Chi-Tung Liu: Yes, we see a little bit delay impact from the peak of CapEx to depreciation. We will probably see a peak of depreciation in year 2026, two years after that, two years after 2024.

Thank you. Ladies and gentlemen, we are running out time, so we are taking the last one. The last question, Laura Chen from Citi. Go ahead, please.

Hi, thank you for taking my question. Just to follow up on the Intel's cooperation as well. I'm just wondering that based on your agreement with Intel, is there any like license fee or IP transaction of the cooperation?

No, there's not.

Okay. And also, I know there's a lot of different kind of time and demands could adapt the 12 nanometers, but just wondering, do you have any priorities or like your first generation of the FinTech ramp, your scheduling will put into your first consideration right now?

Well, I mean, they are least the customer that we are engaging with. We will first finalize our discussion with the customer, and then try to align with our development milestone and then hopefully we can confirm the engagement. We are very early stage of this joint development. And while we just announced it, we already have a customer discussion, but we have not finalized it yet.

Okay. Thank you very much, and Happy New Year.

Thank you. Happy New Year to you too.

Thank you. Ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session, and I'll turn things over to UMC, Head of IR for closing remarks.

Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow up questions, please feel free to contact UMC at irumc.com. Have a good day.

Thank you. Ladies and gentlemen, that concludes our conference for 4Q ‘23. Thank you for your participation in UMCs conference. There will be a webcast replay within two hours. Please visit www.umc.com under the investors event section. You may now disconnect. Thank you and goodbye.