United Microelectronics Corp. (NYSE:UMC) had a bit of a split personality on Wednesday. The Taiwan-based semiconductor foundry reported third-quarter 2026 results that missed Wall Street expectations on both the top and bottom lines, and the stock slipped in premarket trading. But dig into the release and you'll find record wafer shipments, improving margins, and a management team that sounds pretty confident about 2027.

Let's start with the numbers that made headlines. Quarterly revenue rose 25.6% year over year to 74.24 billion New Taiwan dollars ($2.32 billion), which came in below the analyst consensus estimate of $2.35 billion. Revenue was up 8% from the previous quarter. Earnings came in at 21 cents per American depositary share, missing analysts' expectations of 23 cents.

So yes, a miss. But the underlying business looks healthier than those headline figures suggest.

Margins and Utilization Tell a Better Story

Gross margin expanded to 34% from 29.8% a year earlier, while operating margin increased to 25.1% from 18.8%. That's a meaningful improvement in profitability, even if revenue didn't quite clear the bar.

Capacity utilization rose to 92%, compared with 85% in the previous quarter and 78% a year earlier. In other words, UMC's factories are running fuller than they have in a while.

The company's 22- and 28-nanometer process technologies accounted for 35% of wafer revenue, down from 37% in the second quarter but unchanged from a year earlier. The 40-nanometer segment contributed 16% of wafer revenue, up from 15% in the previous quarter but down from 17% a year earlier. Capital expenditures totaled $373 million during the quarter.

CEO Jason Wang said broad-based customer demand, higher factory utilization, and continued strength in advanced specialty technologies supported the company's third-quarter performance.

Record Wafer Shipments and a 22-Nanometer Record

Wang said healthy demand across all market segments lifted wafer shipments 7.3% to a company record of more than 1.2 million 12-inch-equivalent wafers. Overall factory utilization reached 92%, with several 12-inch facilities operating at full capacity and 8-inch operations showing a strong recovery.

The 22- and 28-nanometer business also delivered another record quarter. Revenue from 22-nanometer products reached 18.3% of wafer sales, supported by new customer products including display drivers, automotive radar, and Wi-Fi chips.

Looking ahead, UMC expects to enter 2027 with high factory utilization, improving pricing prospects, and growing demand for artificial intelligence-related specialty technologies. But capacity constraints and rising costs remain challenges as the company expands production.

Wang identified AI as a key growth driver across power management, field-programmable gate arrays, and connectivity applications. He also highlighted silicon photonics and advanced packaging as emerging growth opportunities as AI infrastructure requires faster optical connections, improved power delivery, and greater memory bandwidth.

Beyond AI, UMC expects market share gains among customers in premium smartphones, automotive, industrial, and other specialty applications to support growth.

But there's a soft spot: Wang warned that the outlook for mid- and low-end smartphones is weaker than for other markets. However, he said UMC has relatively limited exposure to the budget smartphone segment, helping shield the chipmaker from softer demand in that category.

2027 Growth to Come From Pricing, Not Just Volume

Wang expects UMC's growth in 2027 to shift from primarily higher shipment volumes and factory utilization toward increased revenue per wafer and a richer technology mix.

The company expects its blended average selling price to increase at least 10% year over year in 2027, supported by tighter capacity, pricing improvements, and a higher-value product mix. Management said customers recognize the tightening supply environment and rising input costs, supporting ongoing pricing negotiations.

That's a notable shift. For years, foundries have grown by shipping more wafers. Now UMC is saying the next leg of growth will come from getting more money for each wafer it ships.

UMC Accelerates Capacity Expansion

UMC's board approved an additional $3.2 billion in capital expenditures to accelerate expansion in Singapore and Tainan as customer programs move from development to production faster than expected.

Wang said planned capacity includes approximately 18,000 wafers per month for silicon photonics, 22,000 for DTC and silicon capacitors, and 20,000 for modulators. The next phase of expansion is expected to begin in late 2028, with production capacity increasing through 2030.

UMC also highlighted its collaboration with Hyperlight, an early adopter of its modulator technology, and said interest has expanded to additional customers.

Capacity Constraints and Rising Costs Pose Challenges

Management said demand for certain AI-related technologies already exceeds available production capacity, potentially limiting unit growth in 2027. UMC is working to remove production bottlenecks and convert existing facilities to support higher-value products.

Wang also warned of rising raw material costs and increased depreciation expenses associated with the company's capital investments. Although improved pricing and factory utilization are expected to support profitability, those cost pressures could prevent gross margins from returning to previous peaks.

So the story is: strong demand, record shipments, improving margins, but also rising costs and some capacity limits. It's a good problem to have, but a problem nonetheless.

Fourth-Quarter Outlook

For the fourth quarter, UMC expects wafer shipments to increase by a low-single-digit percentage from the previous quarter, while average selling prices in U.S. dollars are expected to remain stable. The company expects gross margin to remain comparable to the third quarter, with capacity utilization holding in the low-90% range. UMC also reiterated its 2026 capital expenditure forecast of $2 billion.

UMC Price Action: United Microelectronics shares were down 0.51% at $19.35 during premarket trading on Wednesday, according to market data.