...Welcome to Nanya Technology's 2024 Q3 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 sixty minutes. Nanya Technology's President, Dr. Pei-Ing Lee, will summarize our operations in the third quarter of 2024, followed by our guidance for the next quarter and key messages, and then Nanya Technology's Executive Vice President, Dr. Lin Chin-Chu, Vice President, Mr. Joseph Wu, and Financial Executive, Mr. Philip Tsao, 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 discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause the actual results to differ materially from those contained in the forward-looking statement. And please refer to the safe harbor notice that appears in our presentation materials. Thank you. 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 Investor Conference. I'm Pei-Ing Lee. My agenda for today is starting with Q3 revenue and result, and then followed by CapEx and shipment, market outlook, and conclude my business review and outlook. First, Q3 2024 revenue and results. Q3, our net sale comes to TWD 8.133 billion, Q to Q, of reduction of 18%, and mostly due to our shipment decline. Our gross profit comes to TWD 264 million, compared to Q2 of TWD 287 million. It's about similar. Operating income, minus TWD 2.505 billion versus Q2, minus TWD 2.319 billion. EBITDA, TWD 1.52 billion. Non-operating income, TWD 677 million, and income tax benefit, TWD 341 million. Comes to net income of TWD -1.487 billion at a margin of - 18.3%. Earnings per share comes to TWD -0.48 per share, with the book value comes to TWD 53.17 per share. This result is accounted with a recognition of TWD 475 million due to power outage in Q3. In Q2, we have an earthquake impact also. Quarterly revenue comparison Q to Q, Q3 versus Q2, our revenue down by 18.0%, and year to year plus 5.1%. Shipment declined by low twenties, and ASP increased by mid-single digit. Our exchange rate are relatively flat. A little more detailed comparison. Our net sale in Q3 comes to 8.133 billion NT dollars versus Q2 of 9.921 billion NT dollars. It's a decline of 18%. And out of that, ASP increased by mid-single digit, with the shipment declined by low twenties, and exchange rate relatively flat. And gross profit 260-264 million NT dollars, with margin of 3.2%, versus Q2 of 287 million NT dollars, margin of 2.9%. And the gross profit decreased by 23 million, and this is including the power outage. This is due to the lightning strike, Taip ower supply system. And the Taip ower supply system went down, and as a result, our company, our power has a complete outage, okay? And that had a relative loss of TWD 475 million. Operating expense, TWD 2.769 billion versus Q2 of TWD 2.606 billion. The operating expense increased slightly by TWD 163 million, and out of that, mostly come to R&D expense increased by TWD 140 million. Our operating income, TWD - 2.505 billion at - 30.8% operating margin versus TWD - 2.319 billion at - 23.4% margin. And this is due to operating loss increased by TWD 186 million. Net income comes to TWD -1.487 billion at -18.3% versus Q2 of TWD 814 million at -8.2%. Out of that, the reason is that first of all, our net loss increased by TWD 673 million, and major reason for that is exchange rate impact. This is Q-to-Q impact of TWD 324 million unfavorable, and that's because of Q2 we had exchange rate gain, and versus Q3 exchange loss, plus and minus the difference Q-to-Q is by TWD 324 million. And the second impact is income tax unfavorable by TWD 118 million. Okay. If counting all this together, exchange rate, income tax, and the marginal operating loss due to increase in R&D expense, Q-to-Q operation result is very similar. Our SG&A expense for Q3, TWD 631 million, slightly increased versus the, on the right-hand side, R&D expense comes to TWD 2.138 billion for Q3, an increase of TWD 140 million. This is due to we try to expedite our implementation of new technology and a new product in the production system. For cash flow, beginning balance for Q3 is TWD 65.41491 billion. With the cash from operating activity, TWD - 126 million, and capital expenditure, TWD - 7.333 billion, and financial activity, increase of TWD 3.035 billion. The end balance for cash is TWD 61.067 billion, with free cash flow of TWD 7.459 billion. And if you were looking on the right-hand side of the chart, our beginning balance for January this year is TWD 58.812 billion, with cash from operating activity of increase TWD 2.083 billion, and capital expenditure of TWD 12.771 billion, and financial activity of increased TWD 12.943 billion. The end balance for September thirtieth end balance is TWD 61.067 billion. Our net cash and equivalent comes to TWD 38.2 billion at the bottom of this chart. As noted, cash equivalent minus the short-term debt and the long-term debt, our net cash comes to TWD 38.2 billion. Our CapEx and bit shipment. For CapEx, Q3 CapEx was TWD 7.3 billion. In total, Q1 to Q3, our CapEx was TWD 12.8 billion. The CapEx for this year planned up to TWD 20 billion. It's just down from TWD 26 billion. This is due to equipment shipment and the payment term delay. The total wafer equipment CapEx is accountable for around 50% of this CapEx. For bit shipment, on the right-hand side, our Q3 bit shipment decreased by low twenties. And the bit shipment is expected for this year to increase by around 10% year to year. This is adjustment down from original forecast of 20%.... For market outlook, we are seeing that demand for AI application, particularly in the cloud, in the HBM side application, remain robust. However, demand other than AI in a general PC, in a mobile, and a consumer product, are slower than expectation. And we also see that regional economic downturn and conflicts around the world, including Middle East and Europe, have impact on DRAM demand. And from the supply side, major supplier have continued to allocate capacity for HBM and DDR5 and advanced nodes. And inventory level for standard DRAM product, that's including DDR4, Low Power DDR4, DDR3, need time to reduce. From demand side, server, AI server helps boost the demand for DDR5. This is the application that is remain robust. From the mobile side, sales for mid- and low-tier, low-tier smartphone did not improve. Okay? And high-end AI phone may increase DRAM content. For the PC side, AI PC is still in the initial stage of growth. Consumer side, the long-term, the short-term demand remain conservative, and regional economic improvement is required to demand recovery. For Nanya business review and outlook. Nanya business, for Q3, we have net loss of TWD 1.487 billion. That's including power outage loss of TWD 473.75 million. EPS is TWD -0.48 per share. Our volume production for second generation, 10nm class, 8Gb DDR4 and sixteen gigabit DDR5, is as scheduled. We are having targeting, our wafer input, exceeding 15% of total capacity by the end of this year. We plan to introduce, our second generation of 10nm class, Low Power DDR4 and Low Power DDR5, in 2025. Our third generation 10nm class product development are on track. Thank you. That concludes my presentation. Now, let's move to question and answer. Yes, thank you, Dr. Lee. Ladies and gentlemen, before we begin the Q&A session, I would like to remind everyone to limit your questions to two at a time, to allow more participants an opportunity to ask questions. We'll begin taking questions from dialing first. For webcast participants, please message your questions with your name and company name to Nanya operator in the chat box. Now, for dialing participants, please press star key and one on your keypad if you would like to ask questions. To cancel your questions, please press star key and two. As a reminder, it is greatly appreciated that you turn off the speakerphone mode of your device to prevent possible echo effect. We thank you for your cooperation. Now, please press star key and one if you would like to ask questions. Thank you. For dialing participants, please press star key and one if you would like to ask questions. Thank you. The first one to ask question, Jeff Ohlweiler from Macquarie. The line is open now. Hi, Dr. Lee. Two questions for me. Number one, how is inventory at Nanya Tech side? I guess maybe three questions. Two is, is your utilization rates back to full? And three is, how much DDR5 shipments do you think you can get out in the fourth quarter? Thank you. Okay, Jeff, our inventory level, because of shipment in Q3, is down by 20%, so inventory level was not improved. However, because we are starting to move our production into our second generation of technology, that's including DDR5 and KGD use DDR4. And that will help us improve our inventory as we speak. Okay? And our production-wise, because we are migrating the most of the production, 15% of the production, into DDR5, as a result, we don't have any utilization reduction. We are in a full production. And so the DDR5 contribution we are expecting is going to be gradually be turn increasing month by month, since starting December, and then gradually into Q1 next year. Okay, great. Maybe a couple follow-ups quickly. One is, what's the latest schedule for the Fab 3 ramp up? Fab, Fab 3, you're talking about current existing. We have the Fab 3 ramping up as we speak. We already starting wafer input for the DDR5. Okay. And then, I guess, last question, then I'll get back in line is, you know, can you talk more about it. It It seems like your ASP was up for the quarter Q2, but it seems like, you know, a lot of the news flow has been Chinese competitors, you know, flooding the market with some DDR3, DDR4, low-power DDR4, and prices down, but you at least you're seeing your ASP up. Can you talk a little bit about pricing trends in third quarter and also into fourth quarter? Thank you. Fourth quarter-wise, it looks like, from a DDR5 point of view, still have a good chance of continuing to make improvement. And for the rest of the product portfolio, including DDR4, low-power DDR4 and DDR3, will very much depends on a couple of the topic. The first topic is the inventory digestion from the big three supplier. As far as we understood that, the big three inventory level in DDR4 and low-power DDR4 is still relatively high at the point and still digesting. Okay? But as they migrate more of their capacity into HBM and DDR5, likely that will make improvement too. Okay? That's one topic. Okay. And the second topic is the regional economic improvement. And there are some stimulus policy being introduced recently. However, the result will still need to be observed for the next couple of months, see how it goes. Great. Thank you very much. Next one to ask question, Simon Woo from Bank of America. Your line is open now. Yeah. Thank you. Good afternoon, Dr. Lee. Thank you very much for taking my question. Number one, you are feeling that the December quarter ASP for Nanya Tech still showing the quarter on quarter increasing trend, you are saying? From an ASP point of view, our DDR5 contribution percentage for Q4 still not sufficient. Okay? We're looking for Q1 next year for, as, more significant contribution from DDR5, okay? And with the DDR5 price advantage versus DDR4, and low-power DDR4, likely the major contribution may gradually starting to happen on Q1 next year, instead of Q4 this year. So DDR4, so Q4 this year, December quarter, still challenging from an ASP point of view. How about DDR3, sir? DDR3 remain the same. It's very similar to DDR4 and low-power DDR4. So you mean the DDR4, low-power DDR4, and then DDR3, they are showing similar pricing, you know, trend? Pricing, pricing trend, yes. Yes. Yeah, but you think not easy to see the price upside the border for December quarter- I- - legacy. I think it's challenging, but this is going to be month by month. We have to see how the inventory digestion from the major supplier, and how the economic situation being improved from regional economic situation come countries. Yeah. Yeah. However, once the Nanya Technology sends more expensive DDR5 versus the DDR4, the blended ASP upside, we can talk mixed improvement the ASP upside. We expect that to happen on Q1, instead of- Yeah. Q4 this year. Yeah. Yeah, yeah. And then eventually the legacy DRAM, DDR3, DDR4, will be more balanced, the ones, the big three guys, big three chip makers, DRAM makers reduce their production volume or inventory of these legacy products. Yes. That's what we expect to be happening in the next few quarters. Next few quarters, and not immediately for now, right? Probably not, not going to be in Q4 this year, because look at the current market situation, regional economic situation, and inventory level overall in the market. Likely this may not be happening instantly in Q4, especially in beginning of Q4. ... Yeah. Then the question is, CXMT or Chinese DRAM maker. Lots of investors asking the impact of the China local DRAM production volume increase. But what's your view, sir? I think the-- I don't see the DDR5 product from the China local DRAM maker, but yes, I do see DDR4, but not sure whether their volume is really big to threaten Nanya. Because Nanya still there is at least 20% of your DRAM revenue is for the China local smartphone or PC or consumer makers, right? So the investors' question these days, China local memory makers, DDR4 production volume growing, capacity getting bigger, that may affect Nanya Tech, maybe Q4, and then 2025 will recover. These are the key question. What's your view on this, sir? CXMT, I shouldn't be mentioning so much as, you know, on the company name, but the maker in China, they do make some impact because of the huge capacity they had achieved, okay? But the major impact so far is still in the mobile phone. And as you know that the mobile phone maker and the consumption of mobile phone DRAM in by the largest Chinese mobile phone maker contributed to almost 50% or even more in the overall DRAM consumption, okay, in the mobile sector. Okay? And so therefore, because Nanya is not a major player in that area, so the impact to Nanya in that area actually is relatively smaller than the impact to the big three supplier. However, the other sector of consumer DRAM, Nanya, is one of the major player in the consumer DRAM. This is also impact in China in the regional economic situation. However, this is the economic impact instead of competition from the other supplier. so overall speaking, the Chinese maker in DRAM do impact on the market, impact on every supplier, okay? As a matter of fact, it's it impact all supplier, okay? and maybe even more to the big supplier than to the smaller supplier. But, do you think their quality is good enough? I think the DDR4 is okay, but they never proved DDR5, LPDDR5 for the mobile phone. So do you think that their quality is good enough for the (inaudible)? Simon, I shouldn't be commenting on the other company's quality. Instead, I would say they have some domestic supply and demand policy as the government policy. So, they will take care of that throughout all those policy. Yeah, yeah. So overall, no impact on Nanya, because you focus on the consumer DRAM. It does impact Nanya on the consumer, because the regional economic is not very promising in that region. As a result, it's actually impact on consumer side as well, okay? That's including communication, including TV, general consumer product, and those will be impacted in the region as well. Because of the demand, not the- Yes, because overall demand reduction. Yes. Yeah. Very clear, sir. Thank you so much. Appreciate it. Thank you. You're welcome. 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. The line is open now to Jay Kwon from JP Morgan. Thank you for taking my question, Dr. Lee. I have a two question. First, allow me to ask more details about your third quarter bit shipment. How much of the third quarter shipment, that 20% decline, was impacted by the one-off factors versus organic demand decline from customers? And you also mentioned, 15% of your wafers are now being migrated. Is it the major reasons? Could you just help us a little bit more details to understand the 20% bit decline, as it sounds quite high. And just extension to this, were there any wafer scrappage in the third quarter? And then I have one more follow-up. Thank you. Okay. The shipment impact on Nanya 20% down, mostly due to regional economic downturn and the demand issue. Okay? And if I may, regional-wise, do a general put a general comment on that, is that we are seeing like in USA and Japan the market is not great, but the market is reasonably okay USA and Japan. Okay? However, say in China, in Europe. Okay, the market is pretty bad, pretty low. Okay? Demand is pretty low. Okay. And for Taiwan is mostly influenced by China demand as well. Okay? So I would say the impact-wise most significant is the situation like that. Okay? So we are seeing that, in general speaking, is the economic downturn impact and the demand downturn impact, that 20% decline coming from. May I just reconfirm that there was no wafer scrap from this at all in the third quarter? Wafer scrap? Scrap. We had power outage, okay, happened due to Taip ower Company, the supply system to our company, they get a lightning strike, and the complete power outage. As a result, there are some wafer scrap due to that reason, because the equipment completely losing power for a period of time, as a result that, some wafer being scrapped. So it had a profit impact, as you explained during the early beginning of presentation, but the impact to the wafer production was minimal. There are some impact to wafer production due to that incident. In addition to the power, the wafer scrap, because the equipment was down heavily, we took some time for us to restart the equipment, re-qualify everything, making sure that the quality meeting our quality standard before we resume the complete fully production. So there were few days of production loss due to that. Understood. Thank you. My next question is related to DDR5. When you negotiate with your key customers, how much price premium is Nanya Tech team generally expecting to command over DDR4, such as for the PC applications? There are a market price quote that we can also refer to, such as like 30%-40% premium some people talk about. But, do you think this is roughly the reasonable range that we could use to assume when you actually roll out more DDR5, bit shipment is starting Q1 next year? Or do you think the range could be higher? If you could give us any reasonable range or thoughts, that'd be really helpful. Thank you. That's about the percentage we are expecting to happen. Okay, of course, this market is also dynamically changing and could be even more or even slight, even less, depends on the dynamic change in market situation. But in general speaking, DDR5 has that kind of margin over DDR4. The margin, percentage-wise, very similar to what you just described. Thank you very much. You're welcome. Next one to ask questions: Charles Shum from Bloomberg Intelligence. Hello, Dr. Lee, can you hear me? Yes, please. Hello. Hi, thanks for taking my question, Dr. Lee. I just have two questions. I just want to follow up on the sales mix of the DDR5, because previously, you mentioned that you are looking at 10% sales contribution by the end of this year. So is there any update on that front? And also, what is your expectation for the sales mix for the next year? So you are saying that you are actually putting 15% of your capacity in DDR5 now. So is that the percentage we should expect in the first quarter in terms of the sales mix? Uh- And the second question I would... Yes, please go ahead. Please. Okay. We are starting to do wafer input as we speak. As a matter of fact, we already started to wafer input since September, and it requires some time to ramp up, okay? And small volume has been inputted in September, and that volume will be increased month by month. And as I described just now, we are expecting to be by year-end, December this year, we can have 15% of wafer input moving to our second generation process technology, include mostly DDR5. Okay? One additional comment on top of that. I'm sorry for interrupting. One additional comment on top of that is that because of the process technology for our second generation has a more bit output, say, per wafer-wise, it could have 70%-85% bit more bit output because of technology migration, okay? So therefore, 15% of the input capacity is equivalent to bitwise is around 25% of the contribution. Likely as we input, say, up to 30% of our input capacity, the contribution is almost near 50% of the bit output, okay? So that there also a technology improvement on that, on top of the product margin improvement. Is there any target for your company on the sales contribution on the DDR5 in the first quarter next year? Yeah, we are expecting 15% input capacity, and that input capacity likely will gradually contribute in Q1 the situation. And then, as we may increase the input capacity month by month, okay, so that contribution will be gradually improving month by month, okay? But we are expecting that going to also make contribution significantly starting Q1 next year. In Q4 this year, because of cycle time, likely the contribution will be minor. Okay, got it. My second question actually is related to the power. You mentioned that it seems that the power outages have a big impact on your operation. We also noticed that actually, Taiwan is also, Taipower is going to raise the power tariff again, in later this month. So what's your estimation on that about 40% which power tariff increase on your company? Yeah, that's becoming a very significant impact to our operation. Okay. First, the power outage, this is due to lightning strike, but it's also indicating the lightning protection for Taipower facility, and their power supply system is not sufficient, okay? Therefore, we have make a very strong request to Taipower, and we also make requests to their managing organization, which is MOEA. We also directly talk to MOEA to request they make some improvement. So they do starting to make improvement on that across major facility, including our facility as well as the science park, okay? They already kick off that project. So that's power stability issue, and the second issue is the pricing. Yes, the price has been increased substantially, okay? Since they have make a price increase, April last year, and, for the first time, and then this time, it's actually the third time they increased the- Yes. - the price, okay? So overall speaking, the power, the cost for the power increased by near 50%. That's actually becoming a major concern to us. On top of that, recently, because of clean energy, there's going to be a clean energy tax as well, okay? And that's also another impact to the cost in the power area in Taiwan in general. But that's the impact to every company, okay? Nanya is not alone, okay? And, we're going to have to making sure that we can be competitive in our business, okay, and also in the future, how to reduce our power consumption as well. Okay, got it. Thank you very much. And hopefully, that's all on my company. Ladies and gentlemen, if you would like to ask questions, please press star key and number one on your keypad. Thank you. Next up to ask questions, Michael Hsu from Yuanta. Go ahead, please. Hi, Jeff Ohlweiler. Thanks for taking my question. I want to know about how company's visibility about- ... next quarter at 2025, do we have any colors on, you know, whether it's pricing or our margin or even operating margin? If the market point of view, likely the trend going to be continue for DDR5 and AI demand, okay? Likely going to be continuing to 2025. Okay, that's encouraging. However, the other market, okay, other than the AI and cloud computation, the market still need to be very dependent on regional economic. That's yet to be observed, see is there any improvement due to stimulation or regional conflict being improved, okay? So that's general market point of view. From Nanya point of view, we need to move ahead with our new generation of technology, which will have more bit output, as I described, 70%-80% more output from per wafer point of view, and also move into more of the DDR5 and LPDDR business, okay? That likely will start to make contribution in Q1 next year, and only marginal contribution in Q4 this year. Okay. Thanks. And also, I have a follow-up question about so maybe you will imply our ASP in the Q1. You may have a slightly weaker or a flat or it could improve compared to the first quarter of this year. As I just comment just now, Q4 this year, ASP is very challenging, without DDR5 major contribution, okay? And likely, Q1 next year will be improvement, compared to Q4 this year. Okay. Thanks. It's very helpful. And sorry, my follow-up is about the utilization rates and how is our viewpoint on the first quarters with the utilization, which include, and maybe we will transfer some current capacity into DDR5. Yeah. As we move more capacity into DDR5, we need the capacity for the new generation of the product and process technology. So our utilization rate remained near 100%. Okay. Okay, thanks. Ladies and gentlemen, if you would like to ask questions, please press star key and one on your keypad. Thank you. If you would like to ask questions, please press star key and one. Thank you. There are no further questions at this moment, so we are going to move on to the webcast questions. Dr. Lee, please begin. Okay. Our first question is from Richard Fu. Okay. The question is, 1B and 20nm capacity ratio by the end of 2025. Okay. Input capacity-wise, 1B may contribute to near 30%, and output, in bit-wise, likely to be near 50%, as I just described. Okay? And then the next question is, will Nanya cut production in next three months or to improve high inventory? As I just commented, that as we migrate some capacity into DDR5 and new generation of process technology, we don't have too much output on our current product portfolio, that's DDR4, Low Power DDR4 and DDR3. That capacity already automatically reduced due to migration. Okay, so we don't have plan to cut production for now. Based on the current spot price, will Nanya recognize inventory write down in the near term? So far, as I explained just now, we are making the adjustment on the production portfolio into more DDR5, and based on the inventory in May, starting to make improvement, month by month. We don't expect inventory write down, okay, in the near term. Okay? Progress of DDR5 output ratio in 2025, ratio of Nanya's D5 application on PC and server. Okay, in the beginning, more of DDR5, more into PC, and then gradually more into server and consumer as well. In terms of ratio wise, I still don't have the specific number to supply to you, and this will depend on our qualification process, but it's upcoming, as we speak. Expect R&D expense in Q4 2024, every quarter in 2025. Our R&D expense likely remain in a very similar number, okay, as we reported, maybe plus, minus, a couple of hundreds of million TWD, but it will not be per quarter. That will not be a major change from the current around TWD 2 billion or so per quarter. The next question is from Stanley SinoPac. Question is, "How much revenue percentage come from China in first half 2024 and Q3 2024?" Excuse me. The revenue from China region has been coming down since Q1 this year to Q3 this year, okay? And it came down from twenty-something percent down to now, probably a little bit more than 10%. The next question is IBF Securities from Stanley. Stanley's question. The question is, monthly capacity in Q3 this year versus Q4 this year. As I reported, our total input capacity will remain very similar month to month, okay? And with the DDR5 migration, maybe marginally increasing. The next question is from Joyce, Yuanta Securities. The question is: Will expansion of DDR5 capacity generate depreciation-related expense? The answer is no. Our depreciation is now at around the highest point that we expected for the current fact, okay? And are we expecting our depreciation will start to gradually reduce. By the end of 2025, based on current capacity point of view, we are expecting the depreciation month by month may be decreasing by near 30% by the end of next year. But again, that's a linear, that's almost starting to reduce starting at Q3 and Q4 next year. Okay, that's all the question for today. Thank you. Yes. Thank you, Dr. Lee. And ladies and gentlemen, gentlemen, that concludes our conference call today. Please be advised that the replay of the conference will be accessible within three 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, and thank you for your participation, and have a wonderful day. You may disconnect your line now. Thank you and goodbye. Thank you.