Welcome everyone to UMC's 2022 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at that time if you would like to ask the question. For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within two hours after the conference is finished. Please visit our website www.umc.com under the Investor Relations Investors Event section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin.
Thank you, and welcome to UMC's conference call for the second quarter of 2022. 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 results, followed by our president's key message to address UMC's focus on third quarter 2022 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 Investor 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 securities 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 second quarter 2022 financial results.
Thank you, Michael. I would like to go through the 2022 Q2 Investor Conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page three, the snapshot of our operating results summary. Our utilization rate in quarter two was still over 100%+. Revenue reached TWD 72 billion. I think, I believe this is a record high. The EPS is 1.74 for the second quarter, compared to 1.61 in the previous quarter and also 0.98 in the same quarter of last year. Next page, please. On a quarter-over-quarter comparison, revenue grew 13.6% to TWD 72 billion. Gross margin rate increased to 46.5% from 43.4% in the previous quarter.
Operating income is TWD 28.1 billion or 39.1 percentage point. Net non-operating income is a loss of TWD 2.58 billion, mainly due to the weakness in the capital market and UMC's investment portfolio was mark-to-market, and that's a majority of the 2.85 billion loss in the second quarter of 2022. Net income reached TWD 21.5 billion or the equivalent of EPS 1.74 in quarter two of 2022. Next page, please. For the cumulative performance for the first six months of the year, revenue reached TWD 135.4 billion, which is increase of 38.2% year-over-year, and this is in the NT dollar currency. Gross profit is TWD 60.9 billion or 45% gross margin rate.
Operating income reached over TWD 50.4 billion and operating margin of 37.3%. For the EPS of the first half of the year is TWD 3.35 compared to TWD 1.83 in the same period of 2021. Cash before our dividend payout was TWD 183.7 billion by the end of June this year. Total equity for the company is around TWD 283.2 billion. For our 13.8% revenue growth in the second quarter, three factors, both the ASP and wafer shipment as well as the NT dollar depreciation all contribute to our revenue growth in the second quarter. The factor is roughly one-third of the growth rate each.
That reflects in our ASP growth in the second quarter of 2022. In terms of revenue breakdown, the ratio remains similar between Quarter 2 and Quarter 1. IDM increased slightly in second quarter to 14%. The segment breakdown, again, remains similar to Q1. We see some minor decrease in computer, but in absolute dollar terms, all segments still grow in second quarter of 2022. We have new capacity available in 28 in the second quarter. That helps our 22/28 revenue percentage to grow to 22% in the second quarter compared to 20% in Q1 of this year. The rest of the geometry breakdown doesn't change too much.
As I mentioned, in quarter two, our Fab 12A has a more meaningful capacity growth, which is new capacity came online in the beginning of Quarter 2. For quarter three overall capacity compared to Quarter 2, there's only very minor increase in terms of our quarterly capacity. For CapEx of this year on cash basis, it remained around TWD 3.6 billion, with majority goes to capacity related expansion for 12-inch. The above is a summary of UMC's result for quarter two, 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 second quarter highlights. In Q2, we delivered the result in line with guidance. Thanks to continuous strong demand for UMC's differentiated process across our end markets. Overall, wafer shipments rose 4.3% from the previous quarter. While higher average selling price and a favorable foreign exchange rate led the second quarter gross margin to 46.5%. Revenue from our 22/28-nanometer portfolio increased 29% sequentially, driven by the additional capacity at Fab 12A P5 that came online during the second quarter. We are confident in the long-term growth prospects of our 22/28-nanometer business, which now represents 22% of UMC's overall wafer revenue and has demonstrated solid traction for OLED display drivers, image processor, Wi-Fi and automotive applications.
As structural trends drive semiconductor content increase in end devices from smartphones to automobile, it is our conviction that 28-nanometer, it is a long-lasting node that will be important for many existing and emerging applications for years to come. Going into the third quarter, we expect our business to remain firm. While cooling demand for smartphones, PCs and consumer electronics may pose some short-term fluctuations, we are actively working with customers to adjust their product mix. Coming off a super cycle over the past two years, the semiconductor industry is now in a period of inventory correction.
We believe UMC's comprehensive portfolio for differentiated leading specialty technologies and strong partnerships with leading customers will help us navigate the cyclical microenvironment. Now let's move on to third quarter 2022 guidance. Our wafer shipments will remain flat. ASP in US dollar will remain flat. Gross profit margin will be in the mid-40% range. Capacity utilization rate will be at 100%. Our 2022 cash-based CapEx will be budgeted at $3.6 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions.
Thank you, President Wang. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Thank you. Our first question is coming from Randy Abrams, Credit Suisse. Go ahead, please.
Okay. Yes, thank you. A good result. I wanted to ask a question just on your outlook, where you mentioned the inventory correction starting in some of the applications. Could you give a view how you're looking now on just steepness or type of correction you're seeing, if you expect a period of underutilization? TSMC was giving a framework they expect it through first half. But if there's a feel for inventory, how long it may take. Yeah, just wanted to get a perspective how you're viewing the next few quarters.
Okay. Randy, we have observed that customers are concerned in general, that we are aware that inventory levels are relatively high in certain segments. However, it will be hard to predict how long it will take to digest the semi inventory under the macroeconomic uncertainty. We will closely monitor the current situation and respond to the changes in customer forecast accordingly. While we observe the softening demand in the smartphone, notebook, and consumer sector, the other industry segment, the networking, industrial, auto, it actually has more of a stable demand. Again, there are some observations about inventory concerns, but we have perceived that our Q3 loading will be full.
For the Q3, we will continue monitoring the market outlook and probably report that in the next quarter's conference call.
Okay. Question on third quarter for the shipments flat. I know Chi-Tung mentioned not much capacity coming online. Is it that you're constrained shipping more or because of the inventory correction, it's already limiting ability to get some seasonal or some increase? Then I'm curious to your view on the ASP, the pricing environment. There's been the market talk about start of some discounts, but how you're seeing outlook for pricing.
Well, our pricing will remain firm. We believe we'll be able to maintain the healthy loading for the years, mainly because the steady demand from the auto, industrial, server and the network segment. For Q3, the stable demand in those area allow us to mostly compensate the softness of the computer and consumer segment. At this current point, our pricing remains firm. Yeah.
Okay. It sounds like you mentioned through the end of the year you expect healthy loading. I'm curious on your view on 28. Two parts to it. You talked about existing and new applications. If you could give a flavor, the new applications or next wave, and if you could also give an update on the next phase, the phase six, timing to bring that up if that's all 28. Given the environment, you still see that fully committed.
Well, first we believe that '28 and '22 will be a long-lasting node and supported by very diversified base of a product portfolio. In the next few years, we expect the '28 and '22 demand will remain robust, driven by applications like Wi-Fi 6, Wi-Fi 6E, networking in the GPON area and OLED driver applications.
Okay. Maybe an update on the next phase, timing that you would have the capacity available and how you're seeing that committed and whether the LTAs that you still have that locked up with LTAs?
Yes. I mean, we do expect the P6 ramp-up started at from June 2023, mid-next year. Right now, thanks to our fab's effort, by the way, the lead time is actually stretching out. Thanks to our fab effort to minimize the delivery impact, our current ramp remain at the June 2023, next year, June, mid-next year.
Okay.
The oldest P6 ramp is backed by the LTA arrangement. We still believe the LTA is a good mechanism because it presents the mutual commitment for both customer and UMC to secure our future growth.
Okay. Just one last, if you could give an early framework, the spending for next year, where it's probably partly that and then partly Singapore. If you, I guess, just looking at the macro uncertainty and the downturn, like how firm do you see schedules? Like would you consider push-outs or delays, if the macro looks sharper, in the slowdown?
Well, I mean, for CapEx, we maintain confidence in industry's mega trends for long-term growth. Our CapEx decision was based on market and customers' endorsement, together with a disciplined ROI-driven CapEx strategy we have adopted a few years ago and with a built-in affordability. The capacity expansion in 12A P6 and the current 12i P3 construction and our competitive differentiated special technology solution will actually help to deliver the growth for both UMC and our partners in the long run. Given the capacity expansion plan is more of a longer-term strategy, therefore near-term cyclical headwinds now will not impact our long-term plan at this moment.
Okay, great. No, that's helpful. Thanks a lot.
Yeah, sure.
Thank you. Next, we'll have Brett Simpson of Arete Research for questions. Go ahead, please.
Yeah, thanks very much. Jason, I wanted to just talk a bit about CapEx. Looking at the first half of this year, you've spent a little less than $700 million, and you've maintained your spending plan this year at $3.6 billion. It implies quite a big uplift in spending in the second half. Is that still just given the environment we're in with WFE tools, having some challenges to deliver on time and also some of the macro concerns that you laid out, how do you feel about that CapEx budget actually being spent all in the second half?
I wanted to just also follow up on consumer. Your sales in the second quarter were up 14% sequentially in consumer, and I'd love to understand what's behind that increase and how you see the consumer outlook specifically for the second half of the year. Thank you.
Yeah. For CapEx spending, according to the current schedule, it will be rather second half loaded. We still keep our $3.6 billion numbers. Of course, this is a rolling basis, but I believe the end result won't be too different from the $3.6 billion dollar budget numbers. Going to your question about the current segment outlook. W e did maintain a healthy loading for both Q2, and we foresee that we will maintain healthy loading for this year, and because with the steady demand from auto, industrial, server, and networking segment I mentioned earlier. However, we do see some of the other segments as more of a weaker segment in the communication, consumer, and computer area.
While they can be offset by the stronger segments that maintain the full loading, at the same time we actually see the consumer actually still grow sequentially 12% quarter-over-quarter, mainly from the power devices, Wi-Fi, digital TV, set-top box, and LCD controller, as well as MCU. There are many applications that remain strong in the sub-segments of the consumer. Within each segment, there are stronger and there are some weaker sub-segments. At this point in the Q2, the consumer remains very healthy. We do see this, we w ill change a little bit going into the second half. For the Q3, we probably see more of a decline percentage in the consumer as well as computing, but be compensated by the auto and communication I touched earlier.
Okay. That's helpful. Maybe one last question, t here's been a lot of talk in the industry about costs going up, we see inflation in wages, we see inflation in materials. Even WFE tools are getting more expensive. I'm just looking to understand, like, how do you see this impacting your business? More specifically, can you pass on rising costs to your customers?
Do you expect to increase wafer prices further from here? How do you think about the pressures on costs relative to t ypically the industry cuts pricing when utilization comes down. How do you see that balance between cost inflation and the need to pass on that cost to customers versus falling utilization as we go through this industry correction that you laid out?
Okay. First is about the costs up, right? In light of the rising costs due to raw material, utility, and labor rate, we do observe that. The company actually will work to offset those headwinds via continuous cost reduction efforts through mix optimization, productivity improvement. We are doing our best to continue offsetting that. From the ASP standpoint, there's a couple layers of consideration. One is from the ASP positioning, the ASP usually, in our view, reflect our relevance in the supply chain. While UMC has continued to enhance our value proposition to our customer, not only based on the demand or supply dynamics, and we usually position it, that's how we view the ASP position.
In light of the higher inflationary costs throughout the supply chain, we are not immune. Therefore, we will cooperate with our customer to navigate these headwinds in conjunction with our internal cost reduction effort. Yes, we will be very transparent with our customer about the cost increase, and at the same time, we will work with them closely to address those issues.
Thank you.
Sure.
Thank you. Next question, Laura Chen, Citigroup. Go ahead, please.
Hi. Thank you for taking my question. I just wondering that, if there is any update on your FinFET process development. I recall Edmund mentioned earlier that you get the plan to further leverage your expansion in 2022, or maybe future migration, for 14. So just curious, given the expansion will continue in 2020 and 2022, but do we have any plan for any, like, a future potential migration to FinFET?
Well, our 14 FinFET entered production a few years ago.
Yes.
with some limited customer. However, our future capacity plan will still depends on the market and consumer demand outlook. The plan remains unchanged at this point, and while we actually focus on addressing the strong demand, the other nodes. S o we will continue making progress on the FinFET, but on the capacity deployment point of view, it does have a lower priority compared with the other node at this moment. Again, this has to realign back to our mega trends, and also our discipline, the CapEx strategy, and they are priority and selection considerations. W e still putting the 14 on the roadmap and but the significant the capacity deployment plan is not in the near term yet.
Okay. Got it. Thank you. Another question I have is about the specialty process. Can you give us more color about what are you exactly offer in the specialty process, and how big is that account for your revenue? Can it also be kind of supported for the SP, et cetera?
I mean, our specialty technology is representing about 50%-55% our revenue today. It is a direction that we continue marching, and we are making some significant progress. While we continue delivering the advanced specialty technology, for instance, in the 28-nanometer, we have delivered the first high voltage solution, and we also continue delivering the BCD technology in the 55 and our RFSOI in the 55-nanometer as well.
Those is all considered very advanced specialty technology in those mature technology nodes. However, they are considered as advanced technology offering. We are making good progress there and this is the current 50%-55% revenue contribution from the specialty is right on track while we planned it.
Okay, got it. Thank you.
Thank you. Next question, [Zhihong] of China Renaissance. Go ahead, please.
Oh, hi, gentlemen. I have two questions. The first one, regarding the long-term agreement, given the fact that there are some soft patches in the consumer electronics smartphone market, I'm not quite sure about the enforceability of the LTA on the existing capacity right now.
Your question is about how bad is the LTA right now?
Right. Would we be considering to relax some of the terms? Yeah.
First of all, LTA is a mutual commitment from our end for both customer and UMC, so we have certain obligation as well.
Yeah.
The objective is to try to secure future growth for both. Both parties right now have treated this LTA agreement very seriously. Despite the recent market downtrend, we have observed that customers are bringing in pull-in orders with us to honor their contractual commitment. Yes, we have started to recognize some of the customers' penalty due to some of the failure to meet the original terms. However, that's still a very minimal c ompared to the current size of the LTAs. Yeah.
I see. It sounds great. For the quantity guidance, we are guiding for top line to become flat. I'm not sure if we can comment a little bit on the monthly linearity or.
Yeah, we cannot comment on the monthly trend, which the uncertainty has increased. We are confident about both the capacity side, as I mentioned, only grow very marginal, almost no change. It will remain at 100% loading. Shipment-wise, should be flat. ASP-wise, all look firm, so we are also confident about our ASP. The only controllable part is the Forex. Certainly, we are building some buffer for that. That's about the fundamental assumption for our outlook.
I see. Yeah. Actually, maybe the last question from my side, regarding the other operating income line. Yeah. I think that that's referring to the technology licensing to UMC Xiamen, right? I just wonder how long it will last. Yeah. Actually, I asked this question a few quarters back, but I just want you to provide an update.
No problem.
Yeah.
No problem. That's mainly the subsidy from the subsidies from the local government. Money already in the pocket and the accounting recognition-wise as OIE is tagged along with the equipment depreciation schedule, which normally is six years. It won't go away until our depreciation expenses start to fall off. It's really the whole point for getting a subsidy for the depreciation period.
When would that end, Kevin? [crosstalk]
Sorry?
When would that end? I mean the subsidy.
I think it will be another two years.
Another two years from now?
Yeah. Yeah.
Oh, okay. All right. Okay. Thank you, Jason Wang.
Thank you. Next question, Sunny Lin, UBS. Go ahead, please.
Hi. Thank you for taking my questions. My first question is that I wanted to get your current view on the supply-demand outlook for trailing-edge foundries. Obviously, now our outlook is pretty different from the start of the year. Which part of the trailing edge may see more oversupply risk into 2023 and 2024 based on your current analysis?
Well, I mean, let's start with 2022. Despite the rising uncertainty of the macro outlook, our view of the 2022 foundry industry growth of 20% plus remains unchanged. Our target is to grow in line or higher than the foundry industry. That has no change either. For Q4 2022, we will remain a healthy loading. I reported our guidance in Q3 will be fully loaded, 100% loading. But in Q4, we will still believe that we can maintain a healthy loading while the pricing will remain firm. As a detail, we will provide an update in our next quarterly conference.
Going into 2023, even the rising macro uncertainty continues and a higher inflationary cost pressure, we foresee the foundry industry growth in 2023 will be more moderate. For UMC in 2023, without commenting other peers, we are excited about our P6 capacity, which is backed by LTA and will become available in mid-2023, and will be projected to increase our overall capacity by 5% year-over-year. Our ASP is also expected to remain firm. Based on aforementioned fundamentals, our goal is to position ourselves to hopefully deliver another good year. I think the overall capacity increase will probably be affected by some of the lead time and also the macro environment. In those capacity expansion in 2023 will probably likely slow down.
I think, if your question is about beyond 2023, will be probably too far out at this point. Yeah.
Got it. The 5% capacity increase in 2023, how does that imply for your capacity increase from P6 by end of next year?
The 5% is mainly driven by P6. Most of the 5% come from P6.
Got it. Thank you. I have a second question. For your 20-nanometer, I understand you may have quite a bit of order backlogs from last few quarters. At this point, have you started to see the backlogs coming down given the consumer electronics weakness? If the end market continues to slow down, would you consider maybe slowing down the expansion to some extent?
Well, first of all, we have observed some inventory correction while we maintain healthy utilization rate. For some segment, we are experiencing a decrease in the unfulfilled demand as well as the order adjustment, but not to the level that we need to reconsider the CapEx. For the CapEx adjustments, we still remain confident in this long-term mega trend. Like I stated earlier, given the capacity expansion plan is more long-term strategy, therefore, the near-term cyclical headwinds will not impact our long-term plan at this moment.
Got it. Thank you. That's pretty helpful. Thank you.
Thank you. Next question, Charlie Chan of Morgan Stanley. Go ahead, please.
Thanks, gentlemen, and congratulations for great results. I have a couple follow-up questions. First of all, on the cycle debates, I understand that company has a great specialty technology and maybe 70% is covered by LTA, et cetera. Still, right, there is still 20%, 30% of business are exposed to the commodity markets. Let's use LCD driver IC as a case study. Jason, do you see any of your customers invalidate the LTA or try to push out? And are you seeing your competitors are giving rebates, even cutting the price, for some commodity product like LCD driver IC? Then I will have some follow-up questions. Thank you.
Sure. We touched the LTA earlier. Like I said both our customer and us treat this LTA very seriously. I think we're working very closely to navigate through this contractual obligations. At this moment, I think we've honored this commitment for now. Despite there are some market noise and turbulence, but LTA is still intact. If it does come to a time that we need to revisit, and we definitely work closely with our customer.
As a background, our LTA discussion traction actually is continuing because there is conversation and discussion in our P3 conversation. It's in our projection, our LTA number actually is going upward, not downward, even with some of the recent headwinds from some of the segments, like you mentioned. Going back to the ASP pressures. First of all, we usually don't comment about our peers' pricing strategy. Our ASP reflect our value proposition and our relevance in the supply chain, like I said.
While our pricing remains firm in Q3, and we are able to navigate the market volatility via product mix adjustment and customer portfolio diversification without resorting to other measures. We are guiding the Q3 with a firm ASP projection as well as the full loading result projection. We have to counter what the market is, but not at this current point, our ASP will remain firm.
Thanks for the explanation. I guess my problem is that I understand you try to sell the value, right? If you look at again, the LCD driver IC, your customers margin keep going down. Next year, probably their margin will fall to like a pre-COVID level, right? Maybe 20%-30%. Obviously that is not a value, right? F rom your customers margin, their margin are shrinking. If that's the case, I really concerned that customers may need to choose lower cost foundry capacity.
It's not just limited to LCD driver IC, but also PMIC or other commodity sectors. What would be your reaction? I know this year could be fine, but next year, if there's a commodity capacity, your industry peer prices on average 10%, 20% below yours, what would be your strategy?
I mean, maybe we should take a look at this issue from a different perspective. Over the past few years, we have been continuously taking steps to significantly enhance our customer stickiness through highly differentiated and customized process solution, referring to your specialty technology, for instance. Along with our manufacturing capability to enlarge our preferred source with a global leading customer, along with the LTA for our long-term mutual commitment across very diversified market segment. During this downturn, the cyclical downturn, we will be able to minimize the business impact through one adjustment to various market segment.
If there are some weaker segments, we'll hopefully be able to compensate it through a stronger segment. Some of the single source or the product, we actually work with customers through a pull-in modulation. In some of the multiple sourcing, we do gain foundry share as well. While we're executing those, we can help our loading navigate through this cyclical period, and hopefully we can continue maintaining a very healthy loading. We have to address this fundamentally, w ith the diversification of the customer portfolio and aligning to a mega trend, usually can help us to mitigate that to a certain extent.
I understand that there're gonna be challenges for some segments, but hopefully, if we think our own capability will support us to our max, but at the same time, our original plan is to align to the megatrend with a very diversified customer portfolio and to mitigate that approach. It definitely is not our goal to continue on that path. S o we are executing our plan set out a few years ago. While this downturn come, and we will examine this result. Maybe if there's more development, we will update you in the next quarter.
I see. Thanks. Just some quick yes or no question. I appreciate your previous answers. First of all, CapEx next year, do you think it will be flat or coming down?
We don't have the exact number yet. You recall there was a question about even this year's CapEx number. It's very difficult to give you a clear pinpoint answer yet. We do have this P6 project coming along, which total cost is about TWD 5 billion-TWD 6 billion. For Singapore, the P3 is also another TWD 5 billion also. These two projects alone is around TWD 10 billion, and it's going to spread out in this year and the following three years, something like that.
I see. Thanks, Chi-Tung. Server chip, what kind of server chips are you making? May I know some prototype?
Again, I didn't quite get that question.
Oh, server. Yeah, because Jason, you mentioned that the server networking are kind of a strong segment that can offset the consumer weakness. I'm just curious about server chips, because I think they include DRAM, CPU, some high networking. But I just don't realize you have a exposure to server segment as well.
It was the companion chips within the server segment. It's more a sub-segment of that. Yeah.
Lastly Laura asked about the 40-nanometer FinFET. That is also one of the key feedback I'm getting from the U.S. investors. They are concerned about your long-term developments. They are very happy with your execution, your strategy on the CapEx discipline. Talking about the future, do you think your 40-nanometer FinFET structurally is competitive from a technology perspective? Because 20-nanometer UMC is very famous in poly/SiON, right, very competitive. FinFET, do you think that is going to be competitive as well? We're not talking about demand, but just purely from a technology perspective. Thank you.
Well, it is our belief that our solution will be very robust and competitive. In 28, it's actually not just poly/SiON, it's actually both poly/SiON and high-k, as well as the 22 nanometers, the derivative. For the 14nm FinFET, we also believe that we can deliver that. We just have to align with the suitable market and the customer and for the CapEx deployment. Again, I stated earlier, it is within our focus, but it is in sequence of priorities.
Okay. Thanks. Again, very good execution. Thanks for your patience and answers. Thank you.
Sure.
Thank you.
Next question, Gokul Hariharan, J.P. Morgan. Go ahead, please.
Yeah, hi. Thanks for taking my question. First of all, Jason, since you were kind enough to talk a little bit about next year's outlook, are you working with the assumption right now that foundry industry will still be growing next year? Or you think that we will potentially have a decline like we have had in the past down cycles when semiconductor industries go through a down cycle, foundry industry also declines. Do you think it's gonna be different this time and the foundry industry will still be growing next year? That's my first question. Could you give a bit more color on that?
Well, I mean, we do. After two very strong years in the semi market, we call it super cycle. Given the recent turbulence and disruption from the market, and after this rising macro uncertainties, higher inflationary cost issue, we still foresee the foundry industry growth in 2023 will be more moderate, but it is going to be another growth year, but it's going to be very minimal, and it's going to be a more moderate.
Got it. Thank you very much. How do you think about, I think, different people have asked about pricing, but, do you think there is something that has fundamentally changed? Because historically, pricing goes down in a downturn. We have seen that several times. What is giving you that confidence? Is it confidence in UMC specifically, or do you think that something has changed in the industry itself that gives you the confidence? Because it seems like you're suggesting that pricing is likely to largely be stable in a downturn and potentially upward biased in a normal to upturn kind of scenario. Just want to understand your process on pricing generally as we get into the downturn.
Well, I mean, I can't comment about the industry. For UMC, our ASP position, we value long-term partnership over the near-term cycle growth. Usually it's not about the demand and supply situation. Within the baseline of the ASP reflects what we can provide in terms of value proposition. How can we demonstrate that value proposition is through a differentiated technology offering and your manufacturing capability and your confidence and you building the confidence and trust with your partners that you are a reliable source. They leverage you more, or they use you or engage you as a preferred foundry source. We have learned our lesson in the past.
When you are multiple sourcing, it's nice to have a position and you lost your ASP position. We want to be relevant and we are continuing to increase our relevance in the industry along with our customer and along with our capacity value to provide long-term growth to them. We hope they do see that value in us in exchange for our ASP position. It's a bit of a contractual, but however, that is the direction that we're marching to.
Got it. Maybe one more question on that front. I think you are definitely telling us that you're going to be a lot more disciplined this time around than the past. Obviously, we can't expect that from every company. Let's say the downturn is a little bit more intense than what we expect today. Pricing starts to come under pressure for certain nodes. Would UMC stay away from pricing reaction, and you're willing to take some utilization slack? Is that how you think about planning for this down cycle or, that's still up for debate?
Well, I mean, the market is dynamic, and our operation will have a principle, but we will. We're not gonna be naive. A s a management, we will stay paranoid about the market uncertainty. We will react to the market changes. We will continue monitoring the market situation and respond to it and giving the market dynamic. We will definitely do that accordingly. We kinda touch about the resilience about how can we help to continue maintaining high, healthy loading. At the same time, we do look at this CapEx adjustment issue and, if it's needed.
At this point, we maintain our comfort as in the mega trend long-term growth, since this is a long-term strategy, and at this moment, there's no adjustment has not impact our long-term plan, so there's no adjustment at this moment. If you're referring to other cost control efforts, I can assure you, we have been relentlessly pursuing a cost reduction activity and elevating our line productivity and production efficiency. Again, all this measure will be in place. We will continue monitoring the current market situation in response to that diligently and accordingly. Yeah.
Okay. That's very clear. Thank you very much, Jason.
Sure. Thanks.
Thank you. Next question, Frank Lee of HSBC. Go ahead, please. Frank, we can't hear you.
Sorry. Can you guys hear me? Sorry.
Yes. Thank you.
Okay. Sorry. Yeah, just wanted to clarify my first question on your overall utilization, because you just guided, I think, for utilization to remain full through 3Q at 100%. I guess when we look at some of your competitors who have a very high exposure to the eight-inch foundry, their utilization rates have started to come off mainly because of driver IC being weaker. I think UMC still has about 40% of your capacity tied to eight-inch. A re we still seeing 100% utilization even on eight-inch as well? And if so, can you give us a bit of color, like what applications or products that you've been able to fill that with?
Sure. Our eight-inch loading remains at 100% in Q3. After we swap in some of the allocation from notebook, TV, smartphone, to auto and IoT space. Some of our eight-inch fab utilization in Q4 may be impacted by the change in customer product mix, given the available capacity, capability that we have. Nonetheless, we do expect eight-inch loading will be maintained at a healthy level.
Okay, great. I guess my second question is, autos, industrials, especially autos, has been talked about as a major demand driver for foundry going forward, which wasn't so obvious in past cycles. As we look into the auto space, as you look at fast expansion in the industry, is auto the main driver that we should be looking at, especially on the mature side? If we see any slowdown or potential weakness in autos, is that a trigger that could lead to maybe a more cautious view on CapEx spend going forward?
Well, any dynamic from the marketplace, we'll be alert and aware and act accordingly. I mean, it's not limited with auto, but like you said, if auto is the segment that actually help compensating some of the weaker segment today, obviously we pay more attention to it. Auto is not only the strong segment that we're seeing right now for us. We're also seeing some of the industrial and IoT space that help us mostly compensate for our Q3 loading. We're working with customers closely monitoring their inventory level, as well as the micro and macro environment for the outlook, at this moment, the Q3 will remain healthy, I mean, fully loaded.
For Q4, we project we will have a healthy loading, while the pricing will remain firm for Q4. But we will provide an update for the Q4 in the next quarter conference, because at this point, some of the turbulence and disruption is continued, right? We just have to be cautious about it.
Okay. Great. Thank you so much.
Thank you. Ladies and gentlemen, we thank you very much for all your questions. That concludes today's Q&A session. I'll turn things over to UMC head of IR for closing remarks.
Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir@umc.com. Have a good day. Thank you.
Thank you, Michael Lin. Ladies and gentlemen, that concludes our conference for second quarter 2022. Thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the Investors Events section. You may now disconnect. Goodbye.