UMC begins Singapore silicon photonics output as Citi sees stronger second half

United Microelectronics Corp. has begun mass production of silicon photonics wafers at its Singapore facility, adding capacity for a technology used in high-speed data transmission for artificial intelligence and large data-center networks. Citi analysts separately said they expect the Taiwanese contract chipmaker’s outlook to improve in the second half of 2026, including a 13% quarter-on-quarter sales increase in the second quarter and a recovery in gross margin.

UMC, described by CNBC as Taiwan’s second-largest contract chipmaker, said Tuesday that the Singapore output marks its first mass-produced silicon photonics wafers from the site. The company said the wafers are aimed at demand for optical interconnects, which move data using light and are used to support faster communication inside AI and hyperscale computing infrastructure.

The project was developed with SILITH Technology, a Singapore-based fabless chip design company. According to UMC, the joint team moved the silicon photonics platform from development to production readiness in 18 months.

Silicon photonics integrates optical functions with semiconductor manufacturing techniques. In data-center networks, the technology is used to transmit and process data at high speed, reducing reliance on conventional electrical signaling for some connections. Demand has increased as AI workloads require more rapid movement of data between chips, servers and networking equipment.

UMC said it also plans to make its own 12-inch silicon photonics platform available for customer product development by 2027. A 12-inch, or 300-millimeter, wafer platform is a standard manufacturing format in advanced semiconductor production, allowing many chips or components to be fabricated on each wafer before they are cut and packaged.

The production announcement came alongside a more favorable view from Citi. The bank’s analysts forecast stronger sales momentum for UMC in the second half of the year and said they expect gross margin to recover, according to CNBC.

Recent sales data also pointed to firmer demand. UMC reported June revenue of NT$23.12 billion, or $719.21 million, up 22.85% from a year earlier, according to figures cited by CNBC from a company sales report. First-half cumulative sales rose 11.28%.

Investors did not mark the shares higher on the day of the announcement. UMC’s stock fell nearly 5% in Taiwan trading before cutting its decline to about 1.6%, CNBC reported.

The Singapore expansion places UMC within a wider movement by Taiwanese technology groups to increase manufacturing operations in the city-state. CNBC identified King Yuan Electronics Corp. and Vanguard International Semiconductor Corp., which is backed by Taiwan Semiconductor Manufacturing Co., as part of that broader buildout.

Vanguard recently joined Netherlands-based NXP Semiconductors on a $7.8 billion manufacturing plant in Singapore, according to CNBC. The city-state has sought to strengthen its role in the global semiconductor supply chain by attracting investment across manufacturing, testing and related chip services.

Polaris Market Research estimated the global silicon photonics market at $3.71 billion in 2026, according to data cited by CNBC. The research firm linked growth in the market to rising data traffic and demand for faster optical communication.

This story draws on original reporting from CNBC.