Charlie Chan: Okay. Yes, I mean, we ask less of this. But is it to me? I mean, gross margin sustainability is most important, if you compromise a little bit about your quantity, right, your stabilization can go up that could be okay for margin. So very, very last one to Chi-Tung. I think company has been holding margin very, very well. at mid-30% gross margin. Do you think that is a sustainable trend into second half?
Chi-Tung Liu: I cannot comment on that, but we do everything we can to bring down the breakeven point and also a very disciplined CapEx. All the effort is really to have Brazilian structure profitability. So I think we are seeing some of the results we work over the past few years. Of course, semiconductor is extremely cyclical. So we have our effort put in, but there’s also the whole big cycle, cyclical impact. So all I can say is if this is a trough profitability, certainly, we have seen the improvement already, and we will continue to work on that. As for the number, the range, I cannot really give you a number, as I just mentioned, the cyclical impact is this hard weighting sometimes our effort. But overall, I mean, it’s already an improvement from the previous down cycle.
Jason Wang: If I may, I think that Chi-Tung has well set. But in addition, we do actually foresee challenge in the business condition, like you said. And not only that, in addition, they are rising costs and unfavorable ForEx consideration as well. So we — like Chi-Tung said, we will strive to offset those headwinds as best we can with our effort on the product mix optimization, cost reduction activity and streamlining our process flow. So we will do everything we could to continue this yes.
Operator: Next question, Gokul Hariharan, JPMorgan.
Gokul Hariharan: First of all, maybe I focus on 28-nanometer capacity expansion your larger peers kind of step back on some of their 28-nanometer capacity expansion recently, and the UMC currently has demand for the 12A P6 expansion. But any thoughts on how you think about 28-nanometer expansion over the medium term, especially as we think about the expansion in Singapore any change in terms of plans, in terms of 28-nanometer demand supply that you see at this point in time?
Jason Wang: First of all, with our CapEx strategy, we try to be as disciplined as possible with the follow our ROI guidelines. And as far as for the 28 business, we remain confident of our 28 and 22 business, mainly from our differentiated and customized technologies. In addition, our 22 and 28 manufacturing capabilities such as EO, cycle time quality provides a compelling value for our customers. together, like I mentioned earlier, with the geographical diversified capacity offering now that we can offer them in Singapore or Taiwan and the customer and the customer’s alignment. And this actually will support our long-term mutual commitments and for all across diversified market segments. And last is not least the 28 and 22 is a sweet spot for many applications where the demand will continue to grow with our strong product pipeline, the overall demand and supply dynamics will not change our long-term relevance in 22 and 28.
Gokul Hariharan: Okay. Got it. So in terms of the CapEx of TWD 3 billion, and it looks like you’ve already spent about 33% or 30% of that in Q1. Could we get a little bit more granularity in terms of the TWD 3 billion CapEx spend, especially for the 12-inch portion? Is it mostly going to be for P6? Or is there also some spend for Singapore coming in this year?
Chi-Tung Liu: All included in our calculation and assumption, of course, we dynamically adjust our CapEx need and sometimes we reprioritize the different projects. But for the time being, as I mentioned, it’s going to be first half heavy in terms of our quarterly CapEx spending. So it will be locking up in the second half of this year. So TWD 3 billion is our current projection. .
Gokul Hariharan: Okay. And what is the composition? Is it mostly for 12A P6? Or is there some Singapore-related spending also built into that TWD 3 billion budget?
Jason Wang: Largely reflect the 12A P6 expansion in 2024 and some portion to 12I P3 investments.
Gokul Hariharan: Got it. And maybe if I move to automotive, Jason, could you give us a little bit more detail in terms of your automotive exposure today? I think 17% of revenue is probably one of the highest among the foundry space. Is it mostly — like by node, is it mostly 90 and 65 and by product, is it mainly MCU? Or is it a little bit more broad-based into some of the and power applications? Could you give us a little bit more detail in terms of what your automotive comprises of today?
Jason Wang: It’s a combination of 8-inch and 12-inch and the — there’s not much of IGBT, mainly is on the BCD and the MCU space.
Gokul Hariharan: Got it. And on the near term in automotive, so I think you did say that Q1 is likely to peak in terms of inventory replenishment. Are you seeing customers tuning down the auto expectations now? Or is it just that there will be change in plans, but the momentum is just kind of peaking out in Q1?
Jason Wang: Well, I mean, we start seeing the momentum from automotive space and second half last year. And so they start picking up a pat the Q1. So it’s been 3 quarters now, and we see some of the product they already get situated at a healthy inventory level. And so that’s why we see some of the slowdown on that momentum. But from year-over-year, point of view, but we still see a significant growth on the automotive space. And the automotive space will remain to be one of the growth driver for us from a year-over-year standpoint.
Gokul Hariharan: Got it. That’s very clear. Maybe one last question on depreciation, Chi-Tung. How should we think about depreciation through this year? I think your guidance was for slightly down this year? But when do we start to see some of the new CapEx hitting the depreciation? Is it more in second half this year? Or we should expect more in 2024 rather?
Chi-Tung Liu: In this year, we still expect to see a low single-digit decline compared to that of last year. And quarterly probably Q1 will — or Q2 will be the lowest point. And — but the difference is very minimal. So it’s going to be quite flat for the quarterly distribution.
Operator: Next question, Szeho Ng of China Renaissance.
Szeho Ng: I have a quick question on your 22 and 28 nano portfolio. Roughly speaking, what’s the split between the 2 now from the revenue contribution standpoint as from now and also 3, 5 years start open have the peak sales and also the Singapore fab expansion completed?
Jason Wang: Well, we start seeing the initial ramp of 22 this year. So they’re still representing a smaller portion of the 22 and 28 business. But we do see the 22 will be — right now, that grows very quickly starting from 2024 and so — but in terms of the ratio of the 2, it was subject to a different product mix. So — but I do think the 22 will also be a minimal run rate for us.
Szeho Ng: I see. Got you. To assume that you will be more than half, right, where we have order capacity ramp up?
Jason Wang: Well, I mean, our capacity can support both. So in terms of the ratio that was subject to the end markets. So from a capability standpoint, yes.
Szeho Ng: I see. All right. And next question maybe for Chi-Tung. What should we expect for the dividend policy going forward? Should we assume it based on the payout ratio perspective or from an absolute dollar perspective?
Chi-Tung Liu: So I’m more likely to be a hybrid consideration. And we did mention that it has to be over 50% of our earnings will need to be paid out in cash. That’s in our stated dividend policy. But in absolute dollar terms, we will also consider that as well. So it’s more like a hybrid and consistency and stable dividend payout will be our summary for dividend policy.
Szeho Ng: Okay. All right. Fair enough.
