Welcome to Nanya Technology's 2026 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 2026, followed by our guidance for the next quarter and key messages. Nanya Technology's Executive Vice President, Dr. Lin-Chin Su, Senior Vice President, Mr. Joseph Wu, and Financial Executive, Mr. Philip Zhao, 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 statement. 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 investor conference. I'm Pei-Ing Lee. Content of my presentation to you starts with the Q2 2026 revenue and result, followed by CapEx and shipment, then market outlook, conclude by business review and outlook. For Q2 2026, our net sale, TWD 82.549 billion, compared to Q1, TWD 49 billion or so, that is up by 68.2%. Gross profit, TWD 65.619 billion versus TWD 33.316 billion, up by 97%. Gross margin comes to around 79.5%. Operating income, TWD 60.826 billion at 73.7% versus Q1 at 61.3%. And comes to net income at the number seven, nine. Net income comes to TWD 50.192 billion at net margin of 60.8% and versus Q1 of 53.1%. Our earning per share for Q2, TWD 14.66 per share versus Q1 of TWD 8.41 per share. Book value, TWD 93.49 per share versus Q1 of TWD 62.25. Okay. That's a significant improvement from Q2 compared to Q1. Quarterly revenue result comparison. Q-to-Q, revenue up by 68.2% and compared to Q2 last year, up by 684.2%. For ASP, Q-to-Q increased by around 60% and year-to-year increased by 500%. Our shipment Q-to-Q wise is flat and year-to-year comparison increasing by high 20s. Exchange rate is flat and year-to-year wise is favorable, low single digit. For the Q2 and Q1 comparison in more detail, the net sale, TWD 82.597 billion versus TWD 49.087 billion, up by 68.2%, mostly by increasing in ASP. Okay? Our shipment Q-to-Q remain flat. For gross profit, TWD 65.619 billion, a margin of 79.5% versus Q1 of TWD 33.316 billion, a margin of 67.9%. The gross profit increased by TWD 32.3 billion, mainly due to higher ASP. Operating expense, TWD 4.793 billion versus Q1 TWD 3.205 billion. The increase in operating expense is about TWD 1.6 billion, mostly due to employee profit sharing, as well as the operating cost increasing and R&D cost increase. Operating income comes to TWD 60.826 billion, an operating margin of 73.7% versus Q1 of TWD 30.111 billion. Operating income increased by TWD 30.7 billion, mostly due to ASP increase. Net income, at the bottom line here, the net income in Q2, TWD 50.192 billion, a net margin of 60.8% compared to Q1 of TWD 26.058 billion, a net margin 53.1%. The net income increased by TWD 24.1 billion. This basically is operating income minus the income tax unfavorable by TWD 6.5 billion. For operating expense on the left-hand side of the table you see the SG&A expense at Q2 2026, it comes to TWD 1.563 billion. The key reason is due to higher employee profit sharing and expanded sale activity. The right-hand side, R&D expense, it has been increasing continuously to TWD 3.23 billion for the last quarter. The reason behind it is also again due to higher employee profit sharing and expanded R&D activities. For cash situation, beginning of the quarter, the beginning balance is TWD 86.281 billion, with the cash from operating income, TWD 55.013 billion. Then minus capital expenditure, TWD 4.046 billion. We have a significant improvement in the financial activities, income of TWD 79.509 billion. This is mostly due to private placement happened on Q2. The end balance for the quarter is TWD 216.757 billion. With the bottom line that you may see at the bottom of this chart is that the Q2, our net cash and equivalent comes to TWD 198.4 billion. This takes the cash equivalent minus the long-term debt of TWD 18.4 billion. This number compared to Q1 TWD 68.5 billion is significant improvement due to the cash from operating activity as well as the private placement injection. For Nanya, our profitability over the past 13 years is described by this chart. On the top chart is the net income. For the past 13 years, we had substantially profit for 11 and then the two years of loss. This indicated that the cyclicality has been mitigated in DRAM industry. Also for accumulated profit for the last 13.5 years for Nanya is TWD 282 billion. For net cash, it is also continually improving. For CapEx and shipment, left-hand side, the CapEx, we expect to spend TWD 52 billion for the CapEx. First half, so far is TWD 6.9 billion. Most of the CapEx for this year will be for construction with around 30% for capital equipment. Shipments on the right-hand side of the chart. This year, we expect for the whole year will be up by high teens. Q2 compared to Q1 is basically flat. At this time, we have very low inventory level. For this 2026, most of the shipment is due to the inventory consumption. For financial summary and outlook, our Q2 net profit is TWD 50.19 billion with EPS of TWD 14.66 per share. Q2 gross margin is 79.5%, net margin of 60.8%. For the first half summary, net profit of TWD 76.25 billion, with EPS of TWD 23.38 per share. For Q3, we are expecting operational results to continue to improve, and also operational results may be sustainable in the next few quarters. For operation update and outlook, for our AI infrastructure, including the server, contribute to more than 20% of our revenue. Our new fab, first fab ramp-up, is scheduled for 2028, for up to 30,000 wafers start per month. Total CapEx plan is TWD 16 billion for the full capacity of 45,000 for the new fab. That is including constructions. For our new development 1C, 1D, and 1E, EUV development is on schedule. We will continue to provide broad product portfolio, including DDR5, LPDDR5, DDR4, LPDDR4, DDR3, and LPDDR3. We will continue to support customized AI, wafer-to-wafer products, and also AI infrastructure solutions. For ESG recognitions, we were selected in the Dow Jones Sustainability World Index for the fifth consecutive year. We are also selected in S&P Global Sustainability Yearbook member for the seventh consecutive year. For market outlook, market-wise, the first point is AI-driven structural change is mitigating memory market cyclicality. AI and general purpose server continue to drive strong demand in High Bandwidth Memory and registered memory, which also constrain memory supply for smartphone, PC, automotive, and consumer electronics. The supply tightness is expected to persist over the next several quarters. Multi-year long-term agreement is aligning between supply and demand. For the supply side, the suppliers are expanding capacity as we speak, while dynamically shifting their product mix for higher margin products. The new capacity, the greenfield capacity, aligning with multi-year LTA beyond 2028. On the demand side, AI driven mostly, the evolution from GPU, CPU, TPU, and ASIC, driving robust demand in HBM, LPDDR5, and DDR5. Also AI infrastructure is accelerating adoption of higher content, higher performance DRAM in enterprise SSD, SmartNICs, and BMC. For general purpose, for those non-AI related applications are favoring high-end markets, high-end product models. Resulting in pricing adjustment across end markets. Overall speaking, the structure shift is intensifying memory shortage and fostering diverse AI innovation. For example, agentic AI, edge AI, and physical AI. With that, I will conclude my presentation to you. Now we may move to question and answer. Yes. Thank you, Dr. Lee. Ladies and gentlemen, we are now moving on to the Q&A session. We will begin taking questions from dialing first and followed by the text questions from webcast. 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 telephone 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. Limit your questions to two at a time to allow all participants an opportunity to ask questions. We thank you for your cooperation. Now, the first one to ask questions, Tiffany Yeh from Morgan Stanley. Line is open to you now. Thanks, management, for taking my question. Congratulations on the great results. My first question for management is, what's your view on the overall pricing trend for DDR4 and DDR5 into the next few quarters? I have a follow-up. Thank you. Tiffany, I did not quite catch your question. You meant the ASP or DDR4 and DDR5 ASP? Yes. The pricing trend for- Pricing trend. Okay. Yes. Thank you. In general, the pricing trend may continue to go higher, okay? That depends on each different sector of the market, depends on the short-term agreement or long-term agreement. Okay? For long-term agreement, may becoming more and more stable. For those short-term agreement, likely, the new replacement of the agreement will have some price increasing. Got it. Is it possible to share some magnitude, if possible? Magnitude? Yeah. I cannot give you a very specific magnitude, okay? In general, as I described to you, for those very long-term agreement, the price is relatively stable. For those relatively short-term, the price may continue to improve in some way. The shorter one may be improving more. Got it. My second question is, as you just indicated that the supply-demand is still quite imbalanced in the near term, but can you just share your view on the supply-demand dynamic into 2028 or 2029 after some of our competitors or peers having more new capacity coming online? Thank you. Based on what we learned from the market information, the expansion that happened, recently announced by several suppliers, looks like their expansion, if you basically calculate back to yearly capacity increasing, is still within the quite reasonable range. Okay? Based on current market demand situation, we are not expecting that the market will be turning our way in 2028. Got it. All right, sir. Thank you, Dr. Lee, for taking my question. I'll feed back to you. Okay. Thank you. Thank you, Tiffany. Next one to ask questions, Simon Wu from Bank of America. The line is open now. Okay. Yeah, great. Thank you very much, Dr. Lee. Congratulations on the great result. We think the key contributor to the very good second quarter result is the more than 60% ASP increase quarter-on-quarter, right? Your volume shipment very flat. Maybe your cost structure not much changed, right, in second quarter? The first question, the answer is yes. Okay. Our shipment is basically flat. The cost structure, also cost reduction quarter-on-quarter, very limited, right? Cost structure is very stable, yeah. Mostly due to ASP change. Yeah. I do remember you have some customers which ask the LTA, long-term agreement, and also some customers prepayment, but just one quarter, more than 60% ASP increase. That means still most of your business based on the monthly, quarterly price and negotiations then? The long-term LTA also based on fair market price at the certain time. Okay? Basically, this is all related to market change situation. Yeah. For example, if any customer ask LTA, if the Nanya Tech agrees on this, that is mainly for the volume, right? But the price should be negotiable maybe monthly, quarterly. There are several different kind of LTA. There were. Yeah LTA that we fixed volume and fixed price. Then we renew at the end of the period of the commitment from both sides. Okay? We had. many of this LTA this way. We also. Yeah have LTA, we discuss about a committed volume, then we will determine the pricing according to the market trend. Yeah. According to the market trend, you mean the more monthly basis or quarterly basis, sir? Or half and half, or? Mostly quarterly based. Yeah. Yeah. So far, the Nanya Tech's great result based on the ASP increases. Any color for September quarter or December quarter, still you just see rising trends? Right. I think July quarter, for third quarter, as I described, our operational result is likely to continue to improve. Yeah. For Nanya's operation point of view, we think that the operating margin is already reasonably high. Okay? With the continued improvement on Q3 will be even higher. Okay? Q4 wise, it will subject to market situation change. At this moment, we don't see major opportunity of major change from Q4 versus Q3. Yeah. Far, you don't see any impact of the Chinese local DRAM makers' revenue increase, production increase, high margin. These guys also working for some local market listing process. You don't see any impact from the Chinese local DRAM makers? Not directly to Nanya. Okay? Yeah. Our business worldwide, including our business in China, has been quite stable. Still roughly DDR4, maybe 40%-50%. Sorry, DDR3 and DDR4, maybe more than 80% of the total revenue these days. DDR5, less than 20%? What's the rough idea of mix? Currently, maybe DDR4 is more percentage. DDR5 and DDR3 is about equal. Yeah. 20/ 20? You mean the DDR5 20%, DDR3 20%? Maybe 10 and 10, but also low power. You talk about DDR4, if you're including low power, then maybe it something like 70% and then 10/10, and the others are 10%. Yeah. Yeah. DDR4 and the low-power DDR4 all together more than 70% in that component- Around probably 60-some, near 70%. DDR4. 70%. Yeah. DDR4 and low-power DDR4. Yeah. Simon, this is dynamically changing a little bit according to customer requests. Yeah. Only the DDR5 is around, what, 10% range or? Yeah, 10% range. Yeah. Yeah. All clear, sir. Okay. Yeah. Sorry, one last question for some investors. You already mentioned the TWD 45 billion spending. Sorry, TWD 16 billion of spending for the 45,000, including the construction cost. Right. Any rough idea, construction cost is what? TWD 5 billion or how? At the moment, construction cost by itself, probably less than TWD 3 billion, maybe two-point-some billion. Yeah, the rest, equipment. The rest are equipment. That's including EUV as well. Yeah. The EUV starts from after 1E, so it must be 1F technology, something. We will start to implement EUV in 2028. Yeah. Up to 1E technology, 1E node. No need the E. That could be 1C, could be 1D, or could be 1E. Oh, one of these- Yeah you may use EUV. Yeah. It depends on our equipment arrangement. I see. Yeah. All clear, sir. Thank you so much. I'm sure that the other guys want to ask questions. I'm off now, but maybe I'll get back to you later. Thank you so much, sir. You're welcome, Simon. Thank you. Please press star key and one if you would like to ask questions. Thank you. Next one to ask questions, Tiffany Yeh from Morgan Stanley. Go ahead, please. Thank you, Dr. Lee, for taking my question again. I'd like to ask about your development on the customized DRAM or customized AI solution part. Do you have any plans for developing HBM-like product? Thank you. Customized DRAM, we are working with our customers. We have multiple customer working on that. Okay? Regarding to [inaudible] HBM, okay, we may be also working with the customer together on the project like that. Do you have a revenue guidance towards all these kind of customized HBM products? That very much depends on the customer's market development. Okay. I cannot give you specific guidance on that for now, depends on which customer who may be more successful or taking longer time. It's going to depend on customers' projects schedule. Okay? Again, we will do our best to help the success of our customer. That's our goal. For specific target date, I don't have a specific date for you. Got it. This includes the wafer-to-wafer project for products that you previously showed, right? Tiffany, your voice is a little echo for me. I cannot hear you well. Could you repeat? Sorry about that. Is it clear enough? Oh, it's better. Yeah. Sorry about that. Does this customized AI product include all those wafer-to-wafer projects that you mentioned in previous earnings call? Yeah. Wafer-to-wafer bonding. Yes. That's included, all included. Right. Yeah. All right. Okay. My second question would be, what's your observation and monitor on the non-AI related products, and then into second half and also into 2027? Oh, non-AI, right now, as I said just now, is the high-end model, high-end product may be doing better than the low-end product. Okay? The old ecosystem will go through some self-adjustment over this time. Got it. One last follow-on from me would be, what's your view on the PC and smartphone shipment, in 2027? Do you expect a flat year-over-year or continue to decrease on a year-over-year basis? Tiffany, I'm sorry that I didn't quite get your question. Okay? First of all, for your non-AI situation, non-AI question just now, I would say that Nanya will continue to support non-AI customer, through our product portfolio I described just now, including DDR3, low-power DDR3, DDR4, low-power DDR4. Even some low-power DDR2, we're still supporting. Also upcoming DDR5 and low-power DDR5 as well for the non-AI application. Got it. Thank you. Ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press the star key and one on your telephone keypad. Please limit yourself to two questions at a time in order for more participants to ask questions. We thank you. Next one to ask question, Simon Wu from Bank of America. Line is open to you now. Oh, thank you very much, Dr. Lee, again. Let me double-check long-term trend because most of the PC, smartphone, even server, need DDR5 or low-power DDR5, but your point is, according to the second quarter results, DDR5 remained only the 10% range of the total revenue. That means DDR3, DDR4 demand remains quite good. Would you recap why your customers- Right now- Yeah. Simon, right now is that our customer demand on DDR4, low-power DDR4, or even DDR3 and DDR5 is very strong. Okay? Right now, the reason why we're not doing more DDR5, mostly because we don't have sufficient capacity to do more. Okay? On the other hand, in the market, customer can get DDR5 supply from more supplier. DDR4 and LPDDR4 is more restricted. They are not able to get sufficient supply from different supplier. That's the reason why we spend more capacity in this area. Would you remind us which applications you are focusing? Still consumer more than 50% your revenue still? Consumer applications? In general speaking, our definition of consumer is very wide. Okay? That's everything other than cloud, other than mobile phone, mobile. We all put it into consumer range, that's including automotive, industrial, the Some communication is in the consumer, but high-end communication is in AI infrastructure. Yeah. These things all together still more than 60%, right? Yeah. The rest, again, the PC server, some mobile. Right. Sort of range. Yeah. All right, sir. Almost to the financial questions, sir. You have a lot of cash. Great. Congrats. Any rough idea how you're going to return such big amount of cash for shareholders or even, why not, your lovely colleagues, employees, or any idea? You mean dividend? Dividend and then some year-end special bonus, like Korean [memory] makers or- As I described, we already planning on that and start already the reserve some cash for employee bonus sharing, as I described to you in our numbers. Okay? That's for the employee area. For the dividend area, we will be paying attention to distribute some dividend, considering our need for future growth in equipment and CapEx. In general speaking, we will also pay back to our investor for the dividends. Any color payout ratio, 30%, 40%, 20% or? Maybe 40% ± range, okay? I cannot give you specific number at this moment. Yeah. You mean the 40% ±- Yeah as an example, out of the net profit, right? Yes. This net profit, again, from second quarter, special bonus or employee incentives already expensed, already included. Some of the expense is included in the. Mm-hmm. Second quarter. Yes, second quarter. Also first quarter too. First quarter, too. Yeah. Yes. We'll continue to reserve cash each quarter for employee bonus. Yeah. Your target spending this year, like TWD 50 billion, TWD 70 something, TWD 52 billion, Q1, Q2, only the TWD 7 billion. How are you going to spend almost more than TWD 40 billion in full CapEx? So far, very minimal spending. your spending? The spending is based on our payment. Okay. When we do construction, we do have a schedule of review and also acceptance of those engineering work. Only when there are certain point, we start to pay. Okay. The construction continue to move on as scheduled. Okay. The payment point is not there yet. Okay. Only when we finish all the engineering inspection and review, and then acceptance criteria is met, and then we pay. TWD 52 billion CapEx is commitment basis rather than actual payment basis, right? Not yet payment. Right now is only TWD 6.9 billion has been paid, this number will increasing a lot more in the upcoming quarters. Yeah. All right, sir. All clear. Thank you so much, sir. Thank you. You're quite welcome, Simon. It appears there are no more questions from dial-in, we are going to move on to the webcast questions. Dr. Lee, please begin. Okay. Our first question is from Michael Cheung, KGI Securities. Question one is, "DRAM is no longer just a commodity. It's becoming a strategic national asset. Government in U.S. and South Korea and China are using national resources to support their domestic memory company. Do you think our government recognize this? If not, do you have a strategic to demonstrate our value and secure stronger government support?" That's very good question. Yes. Our government now has been recognizing the logic side development, particularly from TSMC. They've been recognized very well, the memory side is an area that would require more support. That's very true. The government structure is quite complicated. From central government to local government and individual department, et cetera. It's quite complicated. I would say there are some units, some government units Has been very helpful for DRAM industry. Very helpful. In some units, it's not so helpful. That's quite true. We will have to continue to work with government in different unit, try to get their appreciation on the DRAM industry. At this moment, DRAM industry is lagging behind logic industry, for sure. Especially for some government, we like to see if they can come out with special office and special support, unified support, instead of we have to go through one department after another department, have to go through 10 department to get one thing done. That's going to be needed for future growth in DRAM industry, and we will continue to work on that. Your second question is whether in standard HBM, in wafer-to-wafer, the role of logic-based AI is becoming increasingly important. Yes, that's very true. Given that Leading Foundry is also a Taiwanese company, could you share how this help strengthen the competitiveness of your wafer-to-wafer products? Yeah, it really helps to streamline our customized project. We have several of those projects going on, and that helps. The next question coming from Capital Securities, from [Di-Yen Chan]. Mr. Chan's first question is, "To prevent LTA defaults during downturn, would you consider signing LTAs with stricter terms, such as take or pay, such as price floor and ceiling, and/or cash prepayment?" Yes, that's a very good suggestion, and we will consider that. The next question from E.Sun Investment Consulting, by Yi-Shen Su, Mr. Su's first question is, "Recently, GigaDevice cautioned that memory industry is cyclical in nature. How does the company assess the current industry outlook and this potential risk?" Yes, I think DRAM industry is cyclical, especially in those low-ticket items, as I mentioned. At this moment, mostly it's non-AI related low-ticket items. That's very true, and the ecosystem is tougher now for now, and may need some help. Overall speaking, the market situation remains in supply shortage. Currently, even with that small-ticket item ecosystem problem and tougher business for them, it's still not impacting the overall market shortage situation. Question two is that there has been market report indicating that Nanya LPDDR product supported by TSMC technology, has successfully been designed into memory supply chain of NVIDIA's next generation AI platform, Vera Rubin. Could management provide any additional comment or update regarding to this report? I must say that this related to our customer's confidentiality, Nanya has to respect our customer's trade secret and confidentiality. I cannot go through too much detail on that. Next question come from Hua Nan Securities by Yi-Hua Lu. Mr. Lu had two questions. His first question is, "What will recent wafer price hike impact your gross margin?" For Q2, ASP hike is the most recent our gross margin been improved, and likely, this improvement may also help in Q3. Second question is, "Are you seeing better pull-in momentum after earlier consumer price resistance?" This, in general, is supply remain tighter and is very difficult to support double booking requirement from customer. Yes, all the customers would like to have more support, but at this moment, the supply shortage is there. It's difficult to support pull-in momentum. This is the end question from the internet. 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 three hours from now, which will be available through the Nanya Technology's website at www.nanya.com. We hope you would join us again next quarter. Thank you for your participation. Have a wonderful day. You may disconnect your lines now. Thank you. Goodbye. Thank you. Bye-bye.