here you go....
United Microelectronics Corporation, Q4 2022 Earnings Call, Jan 16, 20231/16/23
Operator
Welcome everyone to UMC's 2022 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, Investor Events session.
I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, you may begin.
Michael Lin
Thank you, and welcome to UMC's conference call for the fourth 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 fourth quarter financial results, followed by our President's key message to address UMC's focus and first quarter of 2023 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section.
During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual result to differ materially, including the risks 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 materials, 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 on 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 4, the fourth quarter of 2022. Consolidated revenue was TWD 67.84 billion, with gross margin rate at 42.9%. Net income attributable to the stockholder of the parent was TWD 19 billion and earnings per ordinary shares for TWD 1.54. Utilization rate came down to 90% in 4Q from 100% in the previous quarter.
And on Page 5, this is the quarterly results. Revenue declined by 10% sequentially to TWD 67.8 billion. Gross margin rate was 42.9% or TWD 29.1 billion. We kept the operating expenses at nearly the same level quarter-over-quarter, which is around TWD 6.79 billion, and total operating income declined by roughly 20% to TWD 23.6 billion, and net income attributable to the shareholder of the parent is $19 billion or $1.54 EPS in the 4Q of '22. Our next page is the full year result of 2022. Total revenue grew by 31% to TWD 278.7 billion. And operating income is more than doubled to TWD 104 billion, and the growth rate was 101% year-over-year. And EPS grew to TWD 7.09 in 2022 compared to TWD 4.57 in the previous year.
So on Page 7, our cash on hand currently stands at TWD 173.8 billion, with our total equity now is over USD 10 billion mark to TWD 335.4 billion. And ASP on Page 8, in Q4, continued to edge up slightly in the fourth quarter of 2022. On Page 9, for revenue breakdown, the change was most significant in the North American market, which represents about 30% of our total revenue compared to 23% in the previous quarter. Asia probably showed the 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 61% of the total pie and U.S. represent about 24% in the full year of 2022. On Page 11, the quarterly breakdown of IDM versus fabless stands at 19% IDM and 81% fabless. For full year, on the next page, remain almost unchanged with IDM represent about 15% for the full year revenue. On Page 13, communication, computer and consumer didn't change much on a quarterly sequential comparison with communication still remain the biggest of -- 45% of the total revenue. Other segments, which include auto has continued to grow at a faster pace compared to the rest of the segment is now 18% of our total revenue. For the full year, communication remain around 45% when consumer is about 26%.
On Page 15, the quarterly technologies 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 or 0.25 and above declined the most in the 4Q '22. For the full year, 22/28-nanometer represents 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 annual maintenance in Taiwan and also China for Q1 '23. 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 for our P5 and P6 in Tainan. Our next page is our current full year cash-based budget for CapEx right now is about USD 3 billion with 90% of the USD 3 billion contributed to around all the 12-inch related expansion.
So the above is a summary of UMC's results 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.
Jason Wang
Thank you, Chi-Tung Liu. 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 TWD 279 billion, while operating income exceed TWD 100 billion.
Gross margin reached 45%, driven by a more favorable foreign exchange rate, expanding 22/28-nanometer portfolio and newly added capacity. We have taken advantage of the industry upturn over the past 2 years to enhance our differentiation in specialty technology offering, improve profitability and deepen relationship with our key customers. 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 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. dollar will remain flat. Please note that we expect a 3% to 4% adverse impact on foreign change on revenue. Gross profit margin will be in the mid-30% range. Capacity utilization rate will be approximately 70%. Our 2023 cash-based CapEx will be budgeted at USD 3 billion.
That concludes my comments. Thank you all for your attention. Now we are ready for questions.
Operator
[Operator Instructions] And our first question comes from Randy Abrams with Credit Suisse.
Randy Abrams
My first question, if you could just discuss your view on the slope of this business cycle. With the high teens decline in the first quarter, do you expect it to mark the low or do you see or expect given demand and inventory, further correction into second quarter? And then if you could give a view just on the end markets, do you see any areas getting closer to stabilization or inventory levels already getting down? And then from the stronger like auto/other, are you seeing any weakness start to come in?
Jason Wang
Well, currently, we are still in the midst of the inventory correction, like I mentioned earlier. However, we did see strong inventory improvement in some segments such as TDDI or high-voltage devices in mobile space. And so, we are working closely with our strategic customers to proactively address those inventory burdens in addition to the TDDI, and we expect those inventory situation will improve gradually and with high visibility 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 the second half of 2023.
For the 2023 outlook, well, I mean given the cyclical nature of the semi industry, no one is immune from the end market downturns. While we were able to mitigate our loading in the second half of 2022 [indiscernible] to a downturn, thanks to the growth in our auto business, sustain our business momentum and which I also touched at about 82% year-over-year. But for the first half of 2023, we do foresee a continued softened demand in the smartphone, PC, consumer market that will continue and for the inventory digestion reason. And meanwhile, the inventory digestion will continue to be our first priority. Nevertheless, we expect the first half, if not, the Q1, will be the [indiscernible].
Randy Abrams
Okay. So it sounds like first half, if not Q1, so it's still too early to call for sure, but 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 kind of -- could continue to hold? And if you could discuss the latest on how the LTAs on the 28 new capacity are holding up?
Jason Wang
Okay. First, given the continuous 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 circumstances. And for the UMC's pricing consideration it's still based on mainly 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 we will continue to support in 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 will 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 [indiscernible] 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, and we will closely working with our customers on that.
And I think there's also a question about LTA?
Randy Abrams
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?
Jason Wang
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 the 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 occur, but the penalty is not our key objective for those LTA. And at this point, it's still insignificant as a percentage of revenue.
Randy Abrams
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 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. But just a onetime tax provision at the year-end.
Randy Abrams
Okay. And then maybe the forward look is 15% still the right number?
Chi-Tung Liu
15% still the right number.
Operator
Our next question comes from Gokul Hariharan with JPMorgan.
Gokul Hariharan
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?
Jason Wang
Sure. For the 2023 outlook, the 2023 will be a [indiscernible] year for both semi and the foundry industry due to the deterioration of the global economics, ongoing inventory correction and weaken the 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.
Jason Wang
Even slightly better than the 12-inch.
Gokul Hariharan
Yes. Okay. Understood. My second question is on the CapEx. The USD 3 billion number, given that we are running it 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 the USD 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?
Jason Wang
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 2023 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.
Gokul Hariharan
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?
Jason Wang
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. I think by Q2, is in the -- we expect inventory will improve significantly to more than normal level. So we're expecting the inventory will gradually improve. And the second half of 2023, we have a much -- we have certain confidence that will come back, yes.
Gokul Hariharan
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?
Jason Wang
Actually, multiple. One is the DOI check with the customer. And the other is the engagement 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, we just have to continue monitoring the progress of the DOI situation.
Operator
Our next question comes from Charlie Chan with Morgan Stanley.
Charlie Chan
Jason, Chi-Tung and Michael, 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 the revenue should be much lower than semi customers because there is at least 1 month or even more than 1 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?
Jason Wang
Well, I mean, it is -- like you said, we do have a methodology that 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 foundries 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 -- so -- 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.
Charlie Chan
I'm sorry about that. Yes. So just a quick follow-up, right? First of all, with the UMC addressed low market is better or worse than the industry average? And second question you said, do you consider some major foundries, the wafer price hike in your foundry industry assumption?
Jason Wang
I mean there are some, but not to the full extent. But going back to the question about the UMC addressable, no. Currently, we anticipate the decline will be in the low teens percentage range.
Charlie Chan
Low teens?
Jason Wang
Yes.
Charlie Chan
Okay. Got it. Okay. And -- you just said that 1Q could be bottom cycle. Do you mean that your second quarter foundry utilization will flat to up? Is that a right interpretation?
Jason Wang
I mean, we'll give you the guidance.
Chi-Tung Liu
Just as I was saying 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.
Charlie Chan
And let me switch gears to the pricing, right? I appreciate company strategy that has cut doesn't translate into better demand, et cetera, right? But some of your competitors are cutting plans. Would you foresee some market share lows in some mature nodes, if you want to be firm up on your pricing?
Jason Wang
I mean our objective is clear. We will support our customers and to make sure that 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 2 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 in 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.
Charlie Chan
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?
Jason Wang
I mean we [indiscernible] in terms of our guidance right now for 2023 and we also in -- I mean, it's our intent to preserve that structured vehicle structure the profitability and protecting the pricing position in terms of AC management, and we'll continue to manage that with our customer closely.
Charlie Chan
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?
Chi-Tung Liu
Yes. We don't give out the full year gross margin outlook. But we do have the depreciation assumption for 2023, which right now after the cost in CapEx will be a low single-digit decline compared to year 2022.
Charlie Chan
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 1 or 2 quarter differences, there could be some time lag how you reflect the cost versus the revenue improvement. But overall, we certainly hope the trough will be some time in first half.
Charlie Chan
I see, I see. So Jason, I come up with 1 question. I think some investors are concerned about your -- 1 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 70-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.
Jason Wang
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 us to enhance the long-term fundamentals. And we'll continue our business development out of the mega trends, not just limited 1 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.
Charlie Chan
But you should have to make a decision about your 70-nanometer capacity, right? So do you have any visibility right now for 70-nanometer capacity expansion?
Jason Wang
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 70-nanometer 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 70-nanometer solution will be a subsegment of the total OLED driver and ISP solution. And before 2024, the volume production for 70-nanometer will be bare 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, so our outcome in the 22-nanometer solution have already been adopted, okay, by the leading partners with their design. And so, therefore, 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 from that market anyway.
Operator
And our next question comes from Szeho Ng with China Renaissance.
Szeho Ng
I have 2 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 we will be more selective in offering the technology platforms?
Jason Wang
Well, I mean, the product mix on different sides 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 sacrifice to scale. So many of that is ongoing discussions. 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 placed 22/28 nanometers orders to UMC, they have 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.
Szeho Ng
Okay. Sounds great. And the second one on the 28 nano. How do you see upgrading the capacity to the next-generation [indiscernible] 40-nano [indiscernible]
Jason Wang
I mean there is an option to do so and nothing's 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 we get into the [indiscernible] But they are a good percentage of the 2 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 2 mix.
Operator
And our next question comes from Sunny Lin with UBS.
Sunny Lin
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.
Jason Wang
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 the 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 to be giving anything specific, yes.
Sunny Lin
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?
Jason Wang
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.
Sunny Lin
Got it. 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, and so your Singapore expansion for 28, are you still targeting for late 2024?
Jason Wang
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.
Operator
And our next question comes from Laura Chen with Citigroup.
Chia Yi Chen
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.
Jason Wang
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.
Chia Yi Chen
Okay. 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?
Jason Wang
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.
Chia Yi Chen
Okay. Great. Because for 1 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?
Jason Wang
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 -- 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.
Operator
Our next question comes from Bruce Lu with Goldman Sachs.
Zheng Lu
This is Bruce. Can you hear me?
Jason Wang
Yes.
Zheng Lu
Okay. I think I still need to go back to the pricing. I mean I'm surprised that 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?
Jason Wang
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.
Zheng Lu
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
Well 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.
Zheng Lu
I see. I understand that. I understand that. So the second thing -- 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, 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.
Zheng Lu
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 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?
Jason Wang
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. 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, they are different pricing scheme but not for the rest of us.
Zheng Lu
So only for the newly added capacity in -- other than Taiwan, with a different pricing strategy?
Jason Wang
Even in Taiwan because P6 is in Tainan and...
Operator
And our last question today comes from Gokul Hariharan of JPMorgan.
Gokul Hariharan
First of all, could you talk a little bit about time line for your 70-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 70-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?
Jason Wang
I mean, first of all, it's our understanding that before 2024, the volume production for 70-nanometer will be very minimum, if any, because the 70-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.
Gokul Hariharan
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?
Jason Wang
No. It's not covered on the current NDA -- the LTA now.
Gokul Hariharan
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?
Jason Wang
Yes. Well, I mean, we definitely don't look at this from the utility 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.
Operator
That concludes today's Q&A session. I will turn thanks over to UMC Head of Relations for closing remarks.
Michael Lin
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.
Operator
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 2 hours. Please visit www.umc.com, under the Investors Events session. You may now disconnect. Goodbye. |
