Welcome to Nanya Technology's 2024 Second Quarter Earnings Conference Call. All lines are in a listen-only mode. The conference will be held only in English for investors around the world. Today's conference will be approximately 60 minutes. Nanya Technology's President, Dr. Pei-Ing Lee, will summarize our operations in the second quarter of 2024, followed by our guidance for the next quarter and key messages. Then, Nanya Technology's Vice President, Mr. Joseph Wu, and Financial Representative, Mr. Philip Yao, will join us as we open our Q&A session. Today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. As usual, we would like to remind everyone that today's discussion may contain forward-looking statements that are subject to significant risk and uncertainty, which could cause the actual results to differ materially from those contained in the forward-looking statement. Please refer to the safe harbor notice that appears in our presentation materials. Now, I would like to turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee, for the summary of operations and current quarter guidance. Dr. Lee, please begin. Ladies and gentlemen, welcome to Nanya Technology Q2-2024 Investor Conference. I'm Pei-Ing Lee. Today, I would like to report to you our Q2 revenue and result, and the CapEx and shipment, followed by market outlook, and conclude by business review and outlook. First, our Q2-2024 financial result summary. Our net sale, TWD 9.921 billion, compared to Q1 this year, is 4.4% improved. Gross profit, TWD 287 million, compared to last quarter gross loss, is an improvement of 5.8%. Operating income, loss of TWD 2.319 billion, and EBITDA, TWD 1.734 billion, with net operating income of TWD 1.047 billion. That comes to net income loss of TWD 813 million. Please pay attention to the note underneath. The second remark underneath is that we have recognized TWD 657 million in earthquake-related loss. Okay? Without the earthquake-related loss, our net income comes to loss of TWD 156 million, which is near breakeven point. And our earnings per share loss of TWD 0.26 per share, and book value comes to TWD 54.14 per share. With that, let's review the quarter result comparison. For quarter-to-quarter, revenue-wise, improved by 4.4%, and year-to-year, revenue improved by 41.2%. For shipment, Q-over-Q decreased by mid-single digit, and year-over-year improved by low 20s. For ASP, increased by low teens versus year-over-year increase by low teens as well. However, for last year, Q2, the ASP is on the way down and looks like this year, Q2, the ASP is on the way up. Okay? Exchange rate increased low single digit, and year-over-year increased by mid-single digit. For Q2 and Q1 comparison, result comparison in a little bit more detail. The net sales TWD 9.921 billion improvement, basically due to ASP increase by low teens, and shipment decreased by mid-single digit, and exchange rate favorable by low single digit. Gross profit, 287, finally getting into positive gross margin, 2.9%, versus Q1 is negative 2.9%. The gross profit increased by TWD 564 million, mainly due to ASP improvement. Also note that we had taken TWD 657 million of earthquake-related loss in Q2. For operating expense, TWD 2.6 billion, very similar to Q1, and operating income, minus TWD 2.319 billion versus minus TWD 2.918 billion. It's an improvement of TWD 599 million. Net income comes to a loss, TWD 813 million, okay? That's some improvement of TWD 395 million, and with the exchange rate, again, decreased by TWD 207 million, and also including TWD 657 million of earthquake loss. For operating expense, for SG&A expense, is TWD 608 million, very in the normal range. And R&D, TWD 1.998 billion, also in the normal range for the quarter. This number is unaudited, it will be slightly adjusted after audit. For cash flow, beginning balance, TWD 62.356 billion, and end balance is TWD 65.329 billion. The cash from operating activity is -TWD 354 million. This is due to account receivable and inventory, and capital expense, expenditure, is TWD 2.587 billion, with financial activity and others, positive TWD 5.913 billion dollars. If we look on the right-hand chart, you see that our beginning balance for beginning of this year is TWD 58.812 billion dollars. And now, at the end of Q2, June 30, the cash flow comes to TWD 65.329 billion dollars. And with the positive by cash from operating activity of TWD 2.047 billion, and capital expenditure of TWD 5.438 billion, and also financial activity is basically mostly taking some long-term and short-term loan, TWD 9.908 billion dollars. So if we can pay a little attention to the remark at the bottom, our net cash comes to TWD 46.9 billion. This is the cash on hand, minus the short-term debt and long-term debts. Okay? So comes to the next topic, CapEx and shipment. On the left-hand side, our CapEx plan for this year is TWD 26 billion, and out of that will be 50% for equipment and another 50% for construction and others, okay? And the up to now, our CapEx was TWD 1.4 billion, and toward the second half of this year, CapEx will be increased a little more, okay? For shipment, our Q2 shipment decreased by mid-single digit. For the year-to-year, this year, we still expect to increase by more than 20% year-to-year. Coming to market outlook. Overall speaking, the outlook is that HBM and DDR5 momentum is expected to assist on market recovery in second half, 2024. And also with introduction of AI, okay, including into server business, AI PC, AI phone, may drive new DRAM demand. For negative side, unfavorable geopolitical issue and regional economic issue continue to influence on long HBM DRAM demand. From supply side, major supplier has focused on HBM capacity expansion, which help DRAM inventory adjustment. Also, major supplier resume full production, which might increase in 2025. From demand side, in the cloud business server side, increased CapEx from cloud provider and AI infrastructure and continue to drive demand for AI and high-end server. For mobile, we're seeing some smartphone sale improving, improving in China. This, this is the good news. In the future, AI smartphone may stimulate the demand for replacement. For PC side, the demand for traditional PC remain flat. In the future, we expect that AI PC may increase demand for edge computing and DRAM content. On the consumer side, in Q2, we're seeing slower regional economic recovery and seasonality, so the sale is flat. In Q3, we expect some improvement for harder season. Comes to business review and outlook for Nanya. Nanya Q2 2024, we have net loss of TWD 813 million, which include earthquake loss of TWD 657 million, and EPS comes to -0.26. We target to ship second generation 10nm class 8 gigabit DDR4 and 16 gigabit DDR5 in second half this year as scheduled. We have received partner certification from Alliance for Water Stewardship, AWS. We ranked top 5% in corporate governance by Taiwan Stock Exchange. We also released first TCFD, TNFD and TCFD, which is Task Force on Nature and Climate-related Financial Disclosures. With that, thank you. Now we may come to question and answer session. Yes. Thank you, Dr. Lee. Before we begin the Q&A session, I would like to remind everyone to limit your questions to two at a time, to allow all participants an opportunity to ask questions. We'll begin taking questions from dial-in, and for webcast participants, please message your questions with your name and company name to Nanya operator in the chat box. Now, for dial-in participants, please press star key and one on your telephone keypad if you would like to ask questions. To cancel your question, please press star key and two. As a reminder, it is greatly appreciated that you turn off the speakerphone of the device to prevent possible echo effect. We thank you for your cooperation. Now, for dial-in participants, please press star key and one if you would like to ask question. Thank you. The first one to ask questions, Han Yu from UBS. The line is open to you now. Okay. Yes, thank you. This is Han Yu from UBS. Thank you so much, Dr. Lee and Joseph, for taking my questions. My first question would be regarding your margins improvement expectation. Do you expect to return to profitable from the operating margin levels in 3Q? And what is your expectation for the price improvement through second half this year? Because when I try to calculate how much of the earthquake-related loss recognition impacts your business, it would be around 6% of the sales impact. So basically, if your operating margin, including that part of the loss recognition, it should have been improved to close to mid-teens or high teens loss from the operating margins level. So what's your expectation for second half this year? Do you think you can make your profit your profitability on the operating margin level back to profitable in 3Q? Thank you. Okay. Mr. Han, for operating margin back to positive in Q3 is very challenging. However, there may be a chance to have a net margin back to positive. Even that will still require a lot of effort from our team. Okay, do I answer your question? Okay. Yes, thank you. Yeah. Yes, that's very clear. Yes. So I also see you reported your ASP up in current quarter in 2Q. And could you share your expectation for second half, including 3Q and 4Q? Thank you. ASP wise, maybe different market and different product portfolio may different. Likely that, from the HBM and DDR5 point of view, ASP may improve more than the others, okay? And DDR4 wise, they still have some positive news, with the capacity focus being shipped to DDR5 and HBM. As a result, the inventory adjustment may be helpful, okay, in DDR4. Okay? So that also that may have some improvement in the second half. Okay. With DDR3, is also need to be watch out the influence of geopolitical effect and the regional economic, as well as the competition for the legacy competitor. Okay? So overall speaking, we are expecting the market is moving uptrend, but the competition is still there, okay? We need to work very diligently toward moving to positive net margin. That is very helpful. My second question will be on the business trend. Could you let us know the business trend in 2Q, if we exclude the earthquake impact? And also for full year, I think you also guided on shipment to still grow above 20% year-on-year in 2024. Could you share with us your view on the seasonality in second half, and what applications will be driving the shipment growth in the second half this year? Thanks. In the Q2, and I described that Q2 may be other than DDR5 and HBM, has a pretty strong momentum. All the other market is relatively flat, or low season, okay? That's including mobile phone, including PC market, also including consumer market. And hopefully in the Q3, seasonality will help in this area. Okay. So for the shipment down quarter in Q2, does that have any impact from the earthquake? Thanks. Some, but not major impact, okay? Most of the impact still coming from the market situation. Okay, yeah. Thank you very much. I will be back in the queue. Thank you. Ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press star key and one on your keypad. Thank you. Next one to ask question, Ray Wu from Morgan Stanley. The line is open to you now. Hey, thanks, management team. Yes, can you please share about, what's your view for the third quarter, pricing trend and also on the shipment trend? Thank you. Very similar comment to the last question is that, for the third quarter, we expecting, by product portfolio, difference, we're expecting, overall speaking, the pricing still uptrend. Okay, shipment could be also still uptrend due to seasonality, okay? So as of, which sector may be stronger in DDR5, and then in DDR4, and then DDR3. Got it. Thank you. And I think that although we are trying very hard to, like, increase the pricing to turn our profitability better, but seems like that there are, in the market, there are still ample inventories out there, especially for DDR3 and DDR4. So, how will you view about the market conditions on the inventory level? And when do you think it might be, in which month do you think the overall inventory level should be, you know, healthier? Thank you. Overall speaking, inventory level in major supplier is a concern, okay? For smaller supplier, the inventory, because the market share is very small, everything is small. So an accountability for small supplier inventory issue for the whole market is not as significant, okay? However, for DDR4, we have seen major supplier inventory is improving. That's coming from not only by digesting on DDR4, but also because of the HBM whole focus, a lot of capacity production will be focused more on HBM and also on DDR5. As a result, the production output for DDR4 will be less. That help adjust the DDR4 inventory as well. And I think as the time goes on, in the second half, that will become more obvious quarter to quarter. Got it. And maybe my last question is on, like, China competition, because we learned from equipment players that actually, like the DRAM project in China, they are still going to be very aggressive, expanding capacities. Like, since like next year, the CapEx will be, like, 40% higher than this year. So, what do you view about, like, the potential competition on the, the oversupply issue? And how can we position in this kind of situation? Thank you. First of all, the Chinese supplier has aggressively increased their production capacity. That's well known, okay? And the second is the impact, okay. The impact of that capacity is overall speaking to every supplier. As a matter of fact, probably to major supplier more than to smaller supplier, for the reason that that big capacity is too big for the legacy market. It's good for the mobile market, okay? And also, the mobile phone market in China is also a major portion of the worldwide mobile market, okay? We're talking about maybe number one supplier and number two supplier add up, probably only equivalent or even smaller than all China mobile phone maker in combined. Okay, so China mobile maker consume a lot of mobile phone mobile DRAM. Okay, so the focus at this point are mostly on supplying those, mobile side, okay? And therefore, the impact to the market is to everyone, to major supplier and to a smaller supplier. At this point, still more to the major supplier because, mobile phone market available in China. And as I say, that consumer market is a little bit legacy, and it's a smaller market and not growing very fast. So that's, they're not, they are not totally didn't pay attention to this area, but their contribution to this area still small. Okay, that's very clear. Thank you. You're welcome. I go back to queue. Ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press star key and one on your keypad. Thank you. Next one to ask questions, Simon Woo from Bank of America. The line is open to you now. Okay, yeah. Thanks, Dr. Lee. Would you comment why the second quarter sales volume was so weak? It was in line or below your expectations, or it was a simple matter of an earthquake impact? Shipment, shipment, Simon, your question is on shipment, right? Yeah, big growth, yeah. Okay. Much weaker than I think the market expected. As I described just now, that on Q2, other than the HBM and DDR5, all the other market actually pretty flat. Okay? And as a matter of fact, our consumer is in low season, okay? And if we may divide the market into server, which means the cloud computation, everything, that area, was improving on Q2, okay? That accounted for more than 30% of the market, okay? The other market in mobile is actually not so good, okay? That's also account for near 30% of the market. That's not so good, okay? Even we're seeing some improvement maybe happening in China, okay? And then on PC, that's a little bit more than 10%. That is not so good. On a consumer, the race of balance, near 20%, that's also in low season. So in general, the demand for Q2 is not so good, other than HBM and DDR5. Yeah, yeah, very clear, sir. The second quarter, your revenue mix, DDR3 versus DDR4, maybe what, 40%-60%? Or what, what, what was the mix ratio? Mix ratio for us now is around, on mobile is around a little bit more than 15% mobile, low power. And then the rest is, about even, probably 30-some% is in DDR3, near 40% is in DDR4. Okay. Yeah, very clear. So you mentioned that the AI is the, yes, it will be important even for the non-server area, consumer electronics. So do you see the any meaningful content increase for the consumer electronics and auto because of AI these days, so second half or next year? That may happen gradually, but will not come suddenly for AI PC and AI mobile. So to achieve maybe a 20% big growth, more than 20% big growth this year, what could be the catalyst to just the seasonal recovery of the second half? Or, what, what could it be the key underlying assumption to achieve more than 20% volume growth if- I think- Percent limit. Yeah. I think most positive still in the server side, where AI and, our high-end server and general server, probably still have the highest momentum for big growth. And compared to, to that market, the PC may be a slight improvement due to content growth, okay? A mobile phone, still very much depends on performance, out of the China mobile maker and the regional economics. Okay? Yeah. And then, consumer likely will be slightly better, Q3 versus Q2. Yeah. So your business is pretty much consumer-centric DRAM sales. So how to achieve 20% bit growth, I mean, the Nanya Tech, you said? 20%? Consumer- 20% year-to-year bit growth is mostly because last year is too bad. Okay. It's a very low value, okay? Yeah. So that's not- So- That's not very something, some number to be very proud of. What would be the normal production volume growth, Nanya Tech? Let's Let's forget the inventory sales. sales. What's the normal level, Nanya Tech, production volume growth? And then what could be the normal trend for the, your cost reduction? For example, your production volume growth may be 5%-10% or 10% higher, and the cost reduction may be 5%, 10%. But what could be the overall the trend, sir, maybe this year, next year? Overall speaking, bit growth-wise, Nanya has been rely on our operation efficiency to improve bit growth for the last few years, okay? And that's very, very small, very minor bit growth for Nanya in production point of view. Because we did not have new technology introduction, we cannot have new fab for the last so many years, okay? As a result, our bit growth may come from our new technology generation, as I indicated just now, our second generation of 8-gigabit DDR4 and 16-gigabit DDR5, and more product to come in the future. And that growth, in a bit growth, will be also in general gentle, okay? Because we are doing those bit growth only on existing fab, okay? Our new fab won't be ready until 2026 or even 2027, ready for production, okay? So, in general speaking, we rely on operation improvement and some technology conversion coming up, okay? So the bit growth may be slightly more than previous year, okay? Only slightly, at most, up to 10% for next couple years to come. Yeah. Thank you so much. All clear. Oh, sorry, sir. So third quarter, you expect, another more than 10% ASP increase, right? For Q3. I think this will have to need to be very careful, okay? Of course, we will target to improve our ASP, okay? Because of the market looks like DDR4, all the supplier is improving on DDR4 pricing, okay? And DDR3 pricing still a lot of challenge, okay? So we still need to be very careful in improving our pricing. Yeah. Great. Thank you so much, Dr. Lee, and we appreciate your great leadership and the work. Thank you, sir. Thank you, Simon, for your kind comment. Yet, we still not making positive yet, okay? So we will be working hard for that, okay? Make improvement. Yeah, great. Thank you very much, sir. Next one to ask question, Jay Kwon from JP Morgan. The line is open now. Thank you, Dr. Lee. Thanks for your time in taking my questions. I have two. First is the, I remember from your last call mentioning you still target double-digit% of your total wafer shipment based on DDR5 during some point of fourth quarter, so we took it as probably in certain months. Are you still keeping this plan as your base case when you gave us a more than 20% bit shipment plan for the year? Then I'll have one more question. Thank you. Yeah. Yeah, as I explained to Simon just now, for this year to have 20% more shipment is quite possible, okay? Because last year, the shipment is very low, okay? And low baseline, therefore, this year to have year-to-year 20% more shipment is likely to happen, okay? And so DDR5 contribution for the whole year will be small, but toward the end of year, we hope that we can somehow ship more DDR5, maybe even at the end of the month, end of the year, if we can do it up to 10%, will be a great achievement, okay? But one month, 10% is divided by 12 months, is only very minimum for the year. Yeah, that's right. Thank you for your answer. And presumably, this is 16 gigabit, the DDR5 tape out is after the PC customers. When you speak to your major customers, are you sensing incrementally a stronger demand or new material changes lately, just heading into the, that later part of this year? And also, if you could, I know it's a bit far away, but if you could extend into early 2025, say Q1 2026, are you still seeing more demand improvement on the wafer tape-in for your 16 gigabit DDR5? Or how are you seeing the demand changes lately during the second quarter? I'm still seeing positive trend for DDR5, okay? Will be continuing. Okay, as of the market customer response to DDR5, and we do have quite a bit of customer asking for our DDR5 supply, okay? We are working hard to meet their demand, okay? And hopefully we will started to some shipment on second half this year. And actually, we are I should say that we are quite confident that will happen, okay, toward second half this year, to have DDR5 shipment. And that trend for DDR5 likely to continue toward 2025, replacing DDR4 in the cloud computation as well as the PC side. In the long term, it's also going to get involved into the consumer side for, on the DDR5 business as well. Thank you very much. Ladies and gentlemen, gentlemen, we are still in Q&A session. If you would like to ask questions, please press star key and number one, if you would like to ask questions. Thank you. As a reminder, if you would like to ask questions, please press star key and one on your keypad. Thank you. There are currently no questions from the... No further questions from dialing, so we are going to move on to the webcast Q&A session. Dr. Lee, please proceed. Okay, we have the first question coming up from Richard from Fubon. The question is, Nanya capacity for 30-nanometer and 20-nanometer, and 1B, by the end of 2025, this is next, the end of next year, okay? Yeah, we planning that, the 1B capacity will come to more than 20K per month, and the 20-nanometer will come down from 50K down to around 36K per month. And the second question from Richard is that, DDR3, DDR4, and DDR5 output proportion for 2024 and 2025. Yeah. And as I said, that, DDR5 contribution to 2024 will be relatively small. Hopefully, next year, DDR5, we will target for 10% or more, to start with, for 2025. And then we have another portion for low power. We're looking for around, at least 20% of our shipment will be low power. So if minus DDR5 and DDR, and low power, and the mobile, on the race, we may be doing 50/50 of DDR4 and low power and DDR3. Depends on the market situation, okay? And the DDR3 market, in general speaking, is getting smaller and smaller. So is DDR4, but the, the DDR3 is more shrinking than DDR4. So the next question, also from Richard, is stacking packaging for DDR5, portion of Flip Chip and stacking for DDR5. Yeah, we, I cannot tell you the portion, okay? But in general, DDR5, for the single die, will come with a Flip Chip, or Window BGA, and a stacking with a TSV. That will depends on the high-end market that we develop, for the next year, potentially 2025. So the next question come from Yuanta Securities, from Michael. Michael's question is, NTC's shipment multiplied by ASP in Q2, should lead to revenue increase of 8%-10%, including favorable exchange rate, but actual number is 4.4%. So this is cannot be directly multiplied, because they have quite a bit of product portfolio, okay? Product portfolio, including, you have, from, say, 1 gigabit, 2 gigabit, or 4 gigabit, 8 gigabit, 16 gigabit, even up to 32 multiple die, shipment. So it's not direct multiply, okay? So that's a little bit difference. Some percent, small percentage difference that you may see. The next question also from Michael. Geopolitical issue might cause order reduction. What that impact NTC on second half of 2024 and 2025 revenue? I think the geopolitical issue also has to consider together with the regional economic impact. For instance, in Europe, the demand is quite low. That's because of the you can see that geopolitical issue and also the regional economic issue come together. Okay, what is the impact to NTC? That is something we have to assess time to time, okay? We don't we're still not quite sure how geopolitical issue and regional economic will improve to what extent, okay? So, please, let us give us some time, and then, as we know more, we will report to you. The next question also coming from Michael. DDR3, DDR4 shortage might appear in fourth quarter, 2024. I would say, DDR4 may have an opportunity, may have a chance. DDR3, because the market is shrinking, is more challenging, okay? The DDR4 may have a chance. And that's my personal assessment, okay? It may depends on who you talk to. So, let me go to the next question coming from SinoPac Securities, by Stanley. Stanley's question is, DDR5, 16 gigabit, target to ship second half, 2024. Means entering mass production or ship for qualification? Basically, for product qualification is already ongoing. That means that we ship for production. CapEx in first half is TWD 5.4 billion, whole year is TWD 26 billion, means CapEx grow pretty much in second half. How will investment be used? As I reported in my report, the CapEx, TWD 26 billion, approximately 50% will be wafer equipment. The other 50% is more in construction and others. What that impact, the depreciation for the whole year? The depreciation for Nanya now from now on will continue to improve, reduce, okay? We are now at pretty much the highest point of depreciation for the current fab. Even we add in more CapEx, TWD 26 billion or upcoming next year, CapEx may be needed. Our depreciation will continue to improve year by year from this year on, okay? As a matter of fact, next year, by the end of next year, we'll be seeing some significant, very significant depreciation decrease because some portion of our equipment already fully depreciated. And that situation will continue to improve for 2026 and 2027. On the next question coming from Farglory. Farglory, Ray. Ray's question is: Q3 2024 ASP increase will be higher than Q2 2024 or not? And that question is that, as I say, this is I cannot tell you exactly. This is going to have to be day by day and month by month. Also, all the market demand situation and every PO negotiation, also product portfolio adjustment, everything, all come together. So please bear with me, I cannot tell you exact number, but I hope the ASP will continue to increase in Q3, and there's a good chance it will be continuing to increase. And 1C progress, future plan for EUV. Yes, we are making some progress on 1C development. We have some early early yielding from our test product, and we also have some EUV development activity happening. So that still going on well, okay? And that will be prepared for our future fab, okay? And that that's going on well, okay. Okay, and the next question is from Jih Sun Investment by Mr. Kuo. Mr. Kuo's question is, probe card company FormFactor and MJC will start to make HBM probe card and utilize HBM probe card, I'm sorry, and utilize almost full lead time for probe card is extended to 20 weeks and longer. Will that impact future shipment for DDR3 and DDR4? For DDR3 and DDR4, the impact for Nanya requirement in that area is already there, okay? We should not expect a major impact to us, okay? Maybe on the low power side, we are continuing to develop new product. However, with this, we will have a well plan on that. Does NTC have other probe card partner doing qualification? Yes, we do have a couple more probe card provider doing qualification. So, that's the end of the question for today. And thank you all for your attention. Thank you for joining us. Yes. Thank you, Dr. Lee. Ladies and gentlemen, that concludes our conference call today. Please be advised that the replay of the conference will be accessible within 3 hours from now, which will be available through Nanya Technology's website at www.nanya.com. We hope you will join us again next quarter. We thank you for your participation, and have a wonderful day. You may disconnect now. Thank you, and goodbye. Thank you!