Welcome to Nanya Technology's 2025 First 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 first quarter of 2025, followed by our guidance for the next quarter and key messages. Nanya Technology's Executive Vice President, Dr. Lin-Chin Su, Vice President, Mr. Joseph Wu, and Financial Executive, Mr. Philip Jao, 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 result to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation slide. 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 Q1 Investor Conference. I'm Pei-Ing Lee. Contents of my presentation today is first start with Q1 revenue and results, followed by CapEx and investment, then the market outlook, and conclude by business review and outlook. For the revenue result, Q1 this year, Nanya's net sale comes to TWD 7.188 billion versus Q4 last year, TWD 6.575 billion is an increase of 9.3%. Gross profit loss of TWD 1.075 billion versus loss of TWD 695 million, it's a slight worse. Operation income loss of TWD 3.155 billion versus Q4 last year of loss of TWD 2.812 billion. EBITDA for Q1, TWD 797 million, non-operating income TWD 732 million, and income tax benefit TWD 483 million. For Q1, the net income comes to loss of TWD 1.941 billion at the loss rate of margin rate of minus 27% versus last quarter, 23.9%. Earning per share loss of $0.63 per share versus loss of $0.51 per share, and book value TWD 52.89 per share. For quarterly revenue, Q2Q revenue improved by 9.3%. This is the result from increased shipment for high single digit, and ASP decreased by low single digit, with exchange rate help only low single digit. For a little bit more detailed comparison, net sale TWD 7.188 billion, Q2Q improvement of 9.3% for the reason as it's brand on the right, which is this brand in the last four year, and gross profit loss of TWD 1.075 billion versus last quarter loss of TWD 695 million. Increase of gross loss by TWD 380 million. This is mainly due to product mix, and we are in the process of going through technology transition. Basically, we are migrating from the existing technology and product into our newly self-developed 1B technology and product. During those migrations, there's an increase in the cost. Operating expense, TWD 2.081 billion, is very similar to last quarter, TWD 2.117 billion. Operating income at loss of TWD 3.155 billion versus Q4, TWD 2.812 billion loss, and the operating loss increased by TWD 343 million. This is due to the gross profit loss as printed above for the reason of product mix and the technology migration. For the net income, it comes to loss of TWD 1.941 billion versus Q4 of loss of TWD 1.57 billion. The net loss increased by nearly TWD 367 million for the same reason as printed above. For operating expense, on the left-hand side of the chart, for Q1 this year, TWD 545 million is an audited number for SG&A expense. This is pretty much in the normal range. On the right-hand side, R&D expense for Q1, TWD 1.531 billion, also normal range. For cash flow situation, beginning of Q1 this year, our beginning balance is TWD 61.903 billion, and end balance is at TWD 62.479 billion. The free cash flow is TWD -8.432 billion. The detailed reason is on the right-hand side of the chart. Basically, for Q1, cash from operating activity TWD -1.945 billion, and capital expenditure TWD -6.487 billion, with the financial activity and others, positive TWD 9.009 billion at the end balance of TWD 62.479 billion for cash situation. If you please look at the bottom note, the net cash for Nanya comes to TWD 28.2 billion. This is the result from our cash and equivalent of TWD 62.5 billion minus the short-term debt and the long-term debts. We still have a net cash of TWD 28.2 billion. For the CapEx and investment, Q1 CapEx is TWD 6.5 billion, and for this year, CapEx planned up to TWD 19.6 billion. Out of this CapEx, 30% will be in the equipment, mostly for the technology migration from current technology into our self-developed second generation 10nm generation. For investment, Q1 investment up by high single digit. For this year, the plan is to have a better improvement of investment up to 30% year-to-year. This adjusts up from previous forecast of 20% year-to-year. The major reason behind it is because the new transition of technology migration, we start to deliver our self-developed 16 Gb DDR5 into market. Also, the market demand situation has gradually improved. For market outlook, we are seeing AI drive demand for the cloud center in 2024 and most of 2025. From 2026, we are seeing that AI may gradually grow demand in the edge applications. The second point for the outlook is compact language models may expedite applications in edge devices. That means the mobile device, PC device, automotive, and robotic may also include AI applications. It will trigger customer rights DRAM specification. We are also seeing opportunity for DRAM market demand improvement in 2025 due to AI booming and inventory reduction. However, tariff conflicts may undermine global economic recovery. This is something that needs to be closely watched out for. For supply side, we continue to see major DRAM suppliers continue to allocate capacity to HBM and DDR5. Supply for DDR3, DDR4, low-power DDR4 gradually reduced as the production and inventory reduced in this area. For demand, our server CapEx remains strong in Q2 for cloud service providers and government agencies. For mobile, China's stimulus policy helped improve local demand in short term. For the long term, edge computation may accelerate the adoption of AI smartphones. For PC, we are seeing encouraging signs of low-cost compact language models may trigger demand for AI PC and content per box. From the consumer side, in short term, the China stimulus policy helped improve DRAM demand in consumer and inventory and ASP improvement. Long term, tariff conflicts may raise global economic concerns. For business review and outlook in Q1, Nanya net loss of TWD 1.941 billion, EPS TWD -0.63. Our second generation 1B wafer input reaches 1/3 of our total input capacity in Q2 2025. We have delivered 16 Gb DDR5 at 5600 speed in Q1, and we are sampling 6400 speed as we speak. For the third and fourth generation 10nm-class, 1C and 1D generation, and customer rights, product development are on schedule. For ESG recognitions, Nanya has a number of recognitions in Q1. We were selected as the top 100 innovators by the Clarivate for the third consecutive year. We are ranked second in Taiwan for invention patent application last year. We are selected for CDP, Climate Change A List, and Water Security A List. We are also selected as S&P Sustainability Yearbook member for the sixth consecutive year. With that, conclude my presentation. Now, we may move to Q&A session. Thank you. 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 all participants an opportunity to ask questions. We'll begin taking questions from dial-ins. 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 the star key and one on your keypad if you would like to ask questions. To cancel your questions, please press the star key and two. As a reminder, it is greatly appreciated that you turn off the speaker thermal device to prevent possible echo effect. We thank you for your cooperation. Please press the star key and one if you would like to ask questions. Thank you. The first one to ask questions is Morgan Stanley. Charlie Chan from Morgan Stanley. Go ahead, please. Hello. I'm Dr. Lee, a long time no see. Thanks for taking my question. First of all, I'm wondering whether the recent tariff uncertainty changed the demand outlook versus one to two months ago. I think one to two months ago, we were expecting DRAM price to go up in 2Q and a bigger increase in the second half. Do you see any kind of change of the pricing outlook? Secondly, given the pooling before the tariff, do you see 2Q demand start to decline given the pooling is over? Thank you. Okay. Charlie, are your questions on tariff impact on DRAM? Yes. On DRAM price and also the 2Q DRAM demand. Thank you. Okay. The tariff situation, as you know, has been changed almost daily. Okay? Based on last week's tariff situation, the impact may be much more severe than today's situation after last night that there is 90 days of the basically allowance change for the tariff reduction to 10%. The tariff impact basically will be changed by tariff scale by itself to some extent. Overall impact on the DRAM demand, as I described in my talk, is that we're seeing the demand situation actually, without considering tariff impact, is actually gradually improving and is also promising due to AI booming and also due to inventory reduction. Also, due to you have a regional stimulus policy happening. However, the tariff situation is making some potential concern. Based on the current assessment, for the next three months, for instance, during this timeframe, maybe a lot of negotiation happens. During these three months, if the 10% tariff situation for most of the country, I would say the impact to DRAM demand supply situation may not be very severe. However, after three months, we still have to wait and see for the next move. For the Q2 demand, immediately for the AI-related and also in general, the stimulation package, those still in effect. The inventory reduction is also happening as expected. In general speaking, I cannot give you a very firm answer on the tariff impact, but I feel that if stay on this 90 days situation, the tariff impact to DRAM situation may be acceptable. Direct impact is acceptable. However, looking into that, you have to still look into global economic impact, how severe that development may be. Based on today's 10% assessment, the global impact may be reasonably okay too. Particularly to Nanya DRAM, though, our direct shipment to USA percentage-wise is not very high. Direct shipment is not our impact is not necessarily the direct impact, but mostly is indirect impact by the economic and by general these tariff conflicts among different countries. Great. Thanks, Dr. Lee. That's very clear. My next question is about your AI opportunity. I think people are developing wafer on wafer design. I'm not sure for Nanya Tech and its strategic partners, do you have any plan for the memory for wafer on wafer edge AI design? When would that start to contribute company strategy? Secondly, regarding your DDR5 products, how much of those are used for the AI servers? The last question first. So far, our DDR5 basically mostly in the PC and the server side will be mostly in low-density server side at this moment. Maybe a direct shipment into key AI-related is not yet happened. Your first question is about the AI DRAM, mostly customer rights, your DRAM specification. Excuse me. Charlie, let me continue to my comment on that. For AI application, mostly you need very high-speed and high-density DRAM associated with the GPU, NPU, or CPU. Okay? By that, it means high-density such as HBM. HBM basically using integrated few 16 Gb DDR5 together to make it an HBM stack with the high-bandwidth DRAM design. Okay? You need high-density DRAM as a first requirement condition because AI requires a lot of data flow, a lot of very high computation power with data flow. Okay? That is the first step for Nanya that we are able to engage application on that. AI also includes 3D integration, as you indicated, like TSV 3D integration, and could be HBM-like bonding, could be wafer-to-wafer bonding. Those activities, Nanya is in the process of engaging as well. That comes to the next requirement is that AI application like HBM require a logic base type. Okay? This is the point where Nanya will need to work with our customer, where our customer, they do not have DRAM, and Nanya have DRAM, but Nanya do not have logic. We can cooperate to make this AI application possible. On top of that is that customer typically require non-JEDEC, non-standard DRAM design. That also comes to a very interesting point that we can work with customer with personalized DRAM for specific customer requires specification. Those projects are ongoing. I can comment on that is that currently, they are very promising that several customers, many customers have approached us for such application. We are working on it. Yeah, that's great to hear. Yeah. Looking forward to those new applications. Last one, very quick one if I may. Based on your full year outlook, 30% shipment growth, pricing expectations, your full year depreciation growth, what quarter do you think Nanya Technology can reach a break even at the operating level? Thank you. For the technology migration, as I commented in the beginning, we are going through this technology migration in the existing factory. Knowing the existing factory means that we have to reduce certain production for the existing technology, migrating the equipment set to the new technology, etc. There is some work, some costs need to be induced. That happened with the higher cost for the short term. That also comes with the transition into more output and a cost reduction for the future. That may gradually happen, hopefully, by the end of second quarter or beginning of third quarter, that may happen. You mentioned that depreciation-wise, we will be seeing depreciation situation gradually improve for Nanya starting on Q4 this year. We will likely see our operation improving, have a good opportunity of improvement Q3 and Q4. With that, we're looking, of course, for break even as soon as we can. Knowing that without the tariff situation and the uncertainty, there's a very high potential that we can break even sooner. With the tariff, they bring some uncertainty also. The pricing situation, at this point, I'm looking for the pricing situation may continue to improve even with the tariff situation. The impact could be big or small, depends on the outcome of the tariff negotiation. Thank you. Thank you. That's super helpful. Yeah. We will be back to the queue. Thank you. Ladies and gentlemen, we are still in Q&A session. If you would like to ask questions, please press star key and one on your keypad. Thank you. For dial-in participants, please press star key and one if you would like to ask questions. Thank you. Next one to ask questions, Simon Woo from Bank of America. The line is open to you now. Hi, Dr. Lee. Thank you very much for today's call presentation. Number one question is, do you expect sort of a rush orders, I mean, the DRAM chip order from the OEM? Because for the next 90 days, should there be a good chance for your OEM customers to ship their product to the US ahead of the order tariff implementation? Thank you. That's the only question. That's easy for me. A few more. Simon, as far as a rush order-wise, it's sort of, at this moment, a little bit difficult to determine it's a rush order or it's a general order. Okay? Nanya just barely beginning to ship our DDR5. Okay? From the DDR5 point of view, we've seen that the market acceptance for our DDR5 is 5600, and we are gradually moving to 6400 speed. Those acceptances are reasonably well, okay, in the market. Okay? I don't know how to define that as a rush order or not. We are barely making the first step. Okay? For the general product like DDR3, DDR4, low-power DDR4, we have seen that, in general, the overall low-power demand is reasonably well. The DDR3, DDR4 also have been helped by the China stimulus policy. I don't think that's specifically a rush order situation, though. Yeah. Yeah. Because 90 days could delay just announced last night. Hopefully, you will get more chip orders. Very quickly, sir, do you expect that DDR5 can account for more than 50% or 60% by the end of this year? You mean for Nanya or for the market? No, Nanya Technology, your sales volume or production volume of the DDR5 out of the total DRAM, when the ratio can show the crossover of more than 50%. That would depend on DDR5 market demand and also the value that we can, the return that we can bring back to the company. That could be adjustable. I cannot tell you one specific number. Our goal, of course, if the market is promising, we would like to ship more. Yeah. Your annual guidance is still 30% of the total DRAM for 2025. 30% more total DRAM for 2025, yes. That goal likely to be achievable. We are working on that. Out of the total sales volume or production basis? No, that's year-to-year shipment difference, 30% more. Oh. No, I mean, 30% means 30% of your DRAM. Oh, Simon, there are two 30%, okay? One is our 1B input capacity is 1/3 of our input capacity. That's almost 30%. The other 30% is for the big shipment year-to-year. We are looking for 30% more. Just 30% big growth rather than 30% penetration ratio. 30% big shipment. Big shipment growth or, sorry, out of the total shipment? This year's big shipment total, we are expecting to be 30% more than last year's big shipment. Do I answer your question? Oh, yeah, yeah. 30% big growth target, I got it. But my question is the percentage of DDR5 out of the total DRAM sales volume, and the 30% as well. Potentially, that's possible. I don't specifically have the number because that would depend also on the DDR5 demand and the value we can bring into the company compared to other products as well. Okay. Yeah. In Q1, I remember the DDR5 contribution to your total shipment is still low single digit or mid-single digit. Yeah, very small. Q1, we are beginning to ship Q1. Q2 likely to be more significant. Yeah. One last question. I know it's a little bit challenging question, but sorry to ask this, but in OP margin, Q1 was minus 44%. How to make this one maybe 0% or some positive number? Do you think ASP increase will come soon? Or maybe cost reduction could be better? They have to come both. Simon, it's a tough question, but I thank you for asking. It's a very important question that for management team had to address. Okay? Basically, it will have to come from the cost reduction. Okay? And And cost reduction will come from both operation efficiency. Okay? I just mentioned that we are going through this technology migration. Basically, some of the equipment that are currently running our previous technology, the product had to be transferred into the new technology. Okay? That requires a lot of qualification, setup of the equipment. We are going through that already. The impact on that is that your production efficiency will not be as good. Also, in the beginning of technology ramping, you also had to be very careful about your quality and specification. Likely, we put in a lot of gap end to that. The yield point of view would be more challenging. With that, we need to continue to improve our yield as well. Okay? On top of that, the cost also comes from the depreciation. Okay? At this point, because of introducing new equipment as well, we are at the peak of the depreciation. That peak depreciation will gradually start to reduce, okay, or significantly start to reduce by Q4 this year. Okay? We have been using many existing equipment to run both existing technology and new technology. A lot of those equipment are coming to be depreciated. Okay? We will be seeing depreciation start to have significant improvement on Q4 this year. That will continue to improve beyond this year for the existing fab before we are introducing any equipment into new fab. Cost-wise, we will be seeing improvement. I indicated that there's a good opportunity that the price situation will be bottoming up, as we speak now. Likely, we are already seeing signs that because of the AI booming, because of inventory reduction, we're seeing the general DRAM, the non-AI DRAM, also improving in ASP as well. I totally appreciate. Very quickly, sir, do you believe the price recovery is soon? Because the spot market price recently recovered well. I think the overall, your competitors are cutting the legacy DRAM production. Do you expect the price recovery soon? Thank you. As I say, we are already seeing the sign happening. The recovery actually is, without considering tariff conflicts, actually, recovery confidence levels are quite high. However, with this tariff conflict, and that tariff conflict could be gentle, could be severe. That tariff conflict impact is yet to be assessed. Based on my assessment for today, if the tariff remains at 10% as the 31st 90 day, likely the global economic impact will be reasonable. Okay? However, if tariffs become worse or much worse, then we have to be very concerned on global economic and also, as a result, in general, DRAM demand, as well as not just DRAM, everything else. Everything else will be in concern as well. Yeah. All clear. Thank you very much, Dr. Lee. I appreciate it. Thank you. You're welcome, Simon. Thank you for your questions. We'll now move on to the webcast questions. Dr. Lee, please begin. Okay. We had the first question. Oh, we have six questions from Michael, Yuanta Securities. What is the reason for lifting the 2025 big shipment guidance? Okay. I answered that in my presentation. Basically, this is because we have a new technology. We have a shipment of our DDR5 into the market. Okay? Also, we're seeing the overall inventory reduction in the market. Your second question, current DDR4, DDR3 inventory allocation. Inventory has been improving, as I indicated, in general. That's because shipment is increasing, as indicated already, and also because production is reduced from the general supplier. Okay? The inventory is gradually being improved. Question three is ASP shipment outlook versus Q1. Q2, ASP and shipment outlook. ASP, as I say, is in the process of bottoming up, recovering. Okay? The shipment outlook likely to be encouraging for Q2 versus Q1. I also have to indicate that the tariff situation, if it's very severe, then it could impact. However, based on the 90-day grace period that Mr. Trump announced, if this continues for 90 days, what I say about Q2 shipment and ASP likely to continue to be improved. Question four, have management seen early pooling demand for client due to USD tariff? That question has been answered, has been asked by Simon just now, and I already commented just now. Question five, any older ship increase from clients due to political issue? This is very similar to tariff, and the political issue, that's including BIS or etc. We do not see specifically very significant situation happening there. Not very noticeable at this point. How much is the idle cost and the inventory write-down, write-off cost in Q1? Will this cost be lower Q2? Yeah. We have some idle costs. That is not very big. Maybe a few million dollars. Would that be better in Q2? Yes, that would be better in Q2. Now we have the next question coming from Kevin, Grand Fortune. Your question is, what is the current capacity utilization rate for DDR3, DDR4, and DDR5? Our current capacity from Q1 is running around 90, and this is likely to be going to be better in Q2. Is the ASP of—I'm sorry. This is two questions coming from Richard, Fubon Securities. Your first question is, is the ASP of DDR4 the same for 1B and 20nm nodes? It depends. DDR4 can be shipped to various products and also at various quality levels. Also, maybe different specifications as well. Okay? The pricing for ASP does not depend on which technology it's coming from. Mostly, I should say, less depend on technology, but mostly depends on their application, shipment, and customer base. Yeah. Yes, for 1B, you have a smaller die. You may have certain specific applications that allow you to get better value. Your question two is, how much higher is the profit margin for 1B DDR4 compared to 20nm DDR4? I just mostly answered that question. Depends on their specification, their application. There are some differences. 1B may give you more market application in certain specific areas. As of how much profit margin, that will also depend on how tough is the specification and the market demand situation as well. We have a question coming from Stanley, SinoPac Securities. You have two questions. Question one, what percentage of your current revenue comes from server application? Our percentage for server application now is in single digit. We are yet to make much improvement. Hopefully, that will come better toward the beginning of next year. The second question is, for AI customer DRAM product, will the company be handling 3D integration part as well? The answer is yes. Or will it only provide DRAM die and leave TSV and integration to other OSAT provider? This will depend on customer requirement. Mostly, we will be interested in doing TSV in-house. Our equipment set is already installed in-house. This is the end of the question. That is all the questions for today. Thank you for joining us. Thank you, Dr. Lee. Thank you, ladies and 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 website at www.nanya.com. We hope you will join us again next quarter. Thank you for your participation and have a wonderful day. You may disconnect your line now. Thank you. Thank you. Bye. Thank you. Bye-bye. you. Bye-bye.