Q2 2024 investor earnings call meeting. This meeting will be hosted by me, Daniel Wang, the CFO of Alchip, and our CEO, Johnny Shen. The meeting will start, as usual, with the message Johnny wants to deliver to the investors, followed by our second quarter results, the analysis of our second quarter numbers, and, of course, the future outlook for the second half this year and 2025. After that, we will go into the Q&A session. We will control the time, so the whole meeting will probably be around one and a half hours. That's the maximum. So thank you all for joining our second quarter institutional investors meeting. Next page. Okay, again, it's the safe harbor disclaimer, as usual. Okay, this meeting will be in English, and Johnny and I are both Chinese. So if you want to ask questions in Mandarin, you can do so. We are more than happy to answer with Mandarin, and for the Q&A session, if you have questions, please use the raise hand function of the Teams. We will unmute you. For this time, probably you may notice that you cannot unmute yourself. So please use the raise hand function, and we can unmute you, and you can speak your question. Next page. Yeah, that’s to start with Johnny. All right. Good afternoon, ladies and gentlemen. I'm Johnny Shen, President and CEO for Alchip Technologies. Yeah, once again, thank you for joining our investor conference meeting. We appreciate the opportunity to share our future results and provide guidance for future business outlook. Yeah, let me quickly recap our current company status. Yeah, company is founded in 2003 and IPO in 2014. Our current market cap is approximately $7 billion. Since we founded the company, we've been successfully paid for more than 600 designs and with 60 FinFET-related applications and also more than 17 CoWoS-related papers. Last year revenue is TWD 700,978 million. Yeah, this year, I think we show obviously a very significant growth again. 90% of our revenue coming from HPC, AI HPC area. We are TSMC 3D Fabric Alliance member and also TSMC VCA, one of the VCA members. Currently, our capacity is to take about 20 to 30 a year. Our market focus is HPC, AI, networking, and also automotive. Okay, let me give everybody a quick update for Q2. For Q2, we're pleased to announce another record-breaking quarter with revenue reaching TWD 421 million, net income TWD 49.3 million, and EPS standing at TWD 20.03. Combining with the Q1 number, our EPS reached TWD 30.35. All these numbers mark a historical high for the company. However, our production revenue exceeds our plan, resulting in higher income but also causing lower percentage gross margin. The detailed breakdown and comparison will be presented by CFO Daniel in a later section. For AI market, allow me to elaborate a bit on the current AI market. Through comprehensive market analysis and endorsement from both users and suppliers, it's clear potential AI and data center-related market remains highly optimistic. TSMC's recent earnings call and technology symposium further reinforced this sentiment, with AI highlighted as a primary segment experiencing significant growth momentum. In contrast, other market segments are either flat, showing minimal growth, or even facing declines. Alchip proudly standing as a premier AI ASIC service provider with more than 17 CoWoS tape-out track record. More than 90% of our revenue is derived from AI-related business. As a leading pure-play ASIC player, we remain committed, never producing products to compete with our customers. We have a confidence in our ability to deliver more cost-effective service to major CSP and unicorn startup IC companies. As for the share performance, our share performance seen significant decline since March, dropping from over TWD 4,500 to even below TWD 2,000 at one point. Yeah, this decrease occurred despite our consistent record-breaking performance and all, and also our ability to meet the guidance we provide during the earnings call. Management has fully embraced this effect. We are working tirelessly to meet heightened expectations. The effort including diversifying our customer concentration, improving gross margin percentage, and also addressing a rumor for losing key business. Additionally, our key management staff have decided to further invest in our own company, resulting in a more than 30% increase in insider shareholding this year. For future business outlook, the demand for mass production in AI and data center segment remains robust. We anticipate substantial revenue growth for the entire year. Looking forward to next year, we have already received a significant amount of demand. We are confident in further growing our company as long as we can carefully address and resolve capacity-related challenges. In terms of a new business opportunity, we have secured several design wins from AI startup companies in the North American region, using latest technology like N5, N4, or even N3. Additionally, we have closely cooperated with major CSP companies providing custom silicon, helping them diversify their business dependency. In China, we have made good progress in CPU and automotive applications. Both the CPU and ADAS designs are successfully taken up using TSMC N5 and N5A technology. In terms of production outlook, we expect automotive applications will become one of our key revenue drivers starting from Q4 next year. Geopolitical risk management, yeah, we have successfully diversified our business concentration beyond China to other regions. In the first half, less than 11% of revenue originates from the China region. But our China business direction remains unchanged. We continuously believe in and support business in China as long as they are financially healthy and complying with all the rules and regulations. In terms of workforce, we initiated a very aggressive hiring plan for engineers in different locations such as Japan, Taiwan, Malaysia, and Vietnam. Currently, we have more than 100 engineers working in Japan. Our Malaysia office already staffed more than 20 employees. The workforce in Southeast Asia is planned to be more than 60 people by the end of this year. Yeah, this strategy is designed to be more flexible and cost-effective to meet our customer dynamic requirements in the global market. As a conclusion, we have confidence our business is in an excellent stage. We anticipate a strong growth this year. 2024 is going to be another record-breaking year for Alchip. Thank you very much. Okay, this is the second quarter result. I believe you all well know our supply numbers. The total revenue for our second quarter is $421 million. The operating income is $51.1 million, which is a 32.8% quarter-on-quarter increase and an 18% and an 80.2% year-on-year growth. For the net income in the second quarter, the net income is $49.2 million, representing 26.3% quarter-on-quarter and 105.8% year-on-year growth. For the EPS in the second quarter, it's 20.1 NT dollars. For our breakdown in the second quarter, you can see that HPC remains the dominant sector for our revenue. 91% of our total revenue in the second quarter is posted to the HPC area, especially the AI. The rest, the three applications, account for less than 10% of our total revenue in the second quarter. From the yearly perspective, HPC is still dominant in the breakdown, with 92% contribution to our 2024 sales. Next page. And for the process, proudly speaking, I believe we are still the number one company in terms of the process exposure for the advanced technology. In the second quarter, more than 90%, I would say more than 95% of our total revenue is posted to 7 nanometer or even more advanced process, you know, like 5 nanometer, 4 nanometer, 3 nanometer. And for the year of 2024, 95% of our revenue is posted to the 7 nanometer or more advanced process. Next page. And for the regional exposure, you can see, the revenue contribution from the North American region keeps on increasing. For the second quarter, the revenue from the North American region increased to 78% from 77% in the first quarter. The 2024 for the yearly comparison, you may also see since 2022, our revenue exposure to the North American region increased from 39% in 2022 to 63% last year and 78% this year. We expect the revenue contribution from the North American region will stay in the high ground in the next several years. Next page. Okay, for the second quarter business review, I would say the highly expected revenue in the second quarter was still mainly due to the highly expected AI ASIC shipment to our number one customer. The reason why we should sell many parts to them is, first of all, our execution for the production was pretty good in the second quarter. Of course, there is reason from the demand side that the customer was pushing us to deliver more parts to them. In the second quarter, our 5 nanometer AI accelerator to the North American IDM customer started to ramp up. The exact time is near the end of the second quarter. Currently, we already have the revenue contribution from this chip to the IDM customer. Our second quarter profit is record high, but the gross margin, we are not satisfied with the gross margin improvement, although it improved mildly from the first quarter basis. The second quarter 24 gross margin was 19% improved, limited improvement from the first quarter number. I would say the slightly lower than we expected gross margin in terms of the percentage was mainly because of the high percentage of our production revenue. As you may know, that the production revenue enjoys less gross margin than the NRE revenue. So, as long as our production margin is in the high ground, the gross margin improvement will be limited. And the non-operating income, the numbers, in the second quarter for our non-operating income is relatively similar to the first quarter number. So, the composition of the non-operating income mainly comes from interest income we earned in the second quarter. Next page. And for the business outlook, as Johnny mentioned, the AI computing demand remained very strong. And we do believe that the related application and the demand will still be the long-term growth driver for Alchip. First of all, for the design demand, the AI chip design demand from the North American region remains strong from both service providers and the startup AI chip companies. I believe the market. There is a voice in the market that's saying the ASIC, the standard product, or let's say the NVIDIA chip, the hardware performance is so strong, it may slow down the pace for those cloud service providers to develop their own ASICs. In the industry, to be honest, we don't see this trend. The North American cloud service providers remain aggressively in developing their own ASIC. That's a sure thing, and I believe it will keep on going for the next couple of years. This trend won't change. We expect the trend. This trend will keep on supporting our NRE growth along with the process migration. For this year and 2025, we see the demand for the process migration from 7 to 5 to 3, and probably next year, the 2 nanometer revenue will become another relatively significant revenue composite of our total sales. For the growth outlook, for the 7 nanometer AI ASIC to the current number one customer will remain strong in the third quarter. We expect the shipment to gradually slow down in the fourth quarter as you may know that this product is entering the end of its life cycle. We see the shipment to go down starting from the fourth quarter this year. The NRE pipeline remains promising. As I mentioned, the design demand from NRE from the AI sector or from some other high-performance computing areas are still strong. For the other product, we expect the 5 nanometer AI accelerator shipment to ramp up quickly in the second half. We do see this product will become the number one sales contributor in 2025. With really, really good revenue contribution and the shipments. Yes, I guess that's it for the company's presentation for our second quarter. I would like to go into the Q&A session. Let's start with Has from UBS. Okay, Has, you are muted. Can you hear me now? Can you hear me now? Yes. Yes. Okay. I would like to just ask a couple of questions for the outlook. What is your view on the core? Has, your voice is breaking up. Can you close to the microphone or something? Because we cannot understand you. We cannot recognize your voice. Okay. Can you hear me better now? Yes, yes. So I would like to first ask on the questions on your cloud ASIC project. Start from Amazon Business Outlook. What is your view on the current seven nanometer project, expectation for 2025? And looking beyond the current project phase out, what is the latest update on the progress for the new generation project of three nanometer and even beyond? Thank you. Okay, Has, because your voice is up and down quite significantly. So I try to understand your question. And I have to say, please don't mention the names of the potential customers. Okay, for our biggest customer, I would say, the current project, we do see the shipment to go down, as I just said, starting in the fourth quarter. In 2025, I would say if we do the year-on-year comparison, the revenue or let's say the shipment drop will be significant. That's based on our experience. But how many parts we can ship in 2025 still depends on the customer's demand and the 5 nanometer chip, the status for the 5 nanometer chip ramping up by the others. So I can give you a firm number for that, but for sure, in 2025, this 7 nanometer AI chip will not be the top contributor to our total revenue, for sure, and for the future projects in earnings call, I can only say we will work closely with our current number one customer for the generation-by-generation projects. Besides that, I'm sorry that I cannot give you additional information about it. Okay, yes, so just two quick follow-ups. I hope you can hear me better now. I think, for the contribution for next year, is it still going to be like over 10% from this customer, on 7 nanometer? And, for the next generation chipsets or the follow-on projects you are working with your customers, for the contribution in the future, what is your current expectation on the cadence? Yes. There will be contribution, but I want to be responsible for what I'm saying. So I really don't know what will be the percentage of the contribution from the 7 nanometer, AI chip shipment to the current biggest customer. As I mentioned, it will not be very significant to our total revenue based on our experience. Okay, yes. And then switching gear to the GPU project, you are ramping for your U.S. IDM customer. What is the latest expectation on the ramp in second half and also contribution in 2025? And, if possible, could you let us know how the project profitability relative to the current cloud ASIC? Thank you. I would say in this year, in 2025, the 5 nanometer AI accelerator, we currently are trying our best to ramp it up because the demand, the forecast number for the future demand is quite significant. We are, trust me, we are trying every bit. We are working very hard to push it, the shipment. I expect, for this project, 5 nanometer AI accelerator, the contribution this year will account for, I would say, still single digit, but on the higher end of the single digit to our total revenue. Okay, that's it. That's this year, right? How about next year? Is it going to be pretty similar to your largest customer this year from the sales contribution percentage perspective? Mm-hmm. I would say next year will be very, very significant, but there are still some, there are two upsides from the current forecast. First of all, for the overall numbers, I will say probably based on the current capacity support by our suppliers, the total revenue contribution may not match to the contribution for our current number one product in 2024. Okay, let me add some color to this. The demand, the order we receive from this particular customer actually is very high, and we still have some capacity-related challenge for CoWoS-S. Just saying that if we can solve the CoWoS capacity-related issue and the total revenue we expect from this account is no less than the number one customer contributed by this year, and even with the upside. Okay, so the current status, just let me clarify it. The current status is that, based on the CoWoS supply you can secure now, that the contribution from this customer is going to be no less than the top customer's contribution this year. Is that the correct understanding? That is correct. Okay. Okay, yes. Thank you. And a quick follow-up on this, IDM, US IDM customer, would be related to the project sustainability. If the customer does not have a follow-on project beyond the project you are going to ramp on 5 nanometer, will you have any opportunity to work with its parent company? How should we think about the business model, beyond this project? Thank you. Okay. Yeah. Yeah, to be honest, we all know this customer encounters certain challenge, yeah, from internal, from external. Yeah, I can tell, based on my understanding, the current, the next generation will be slowed down a bit. But so far, I heard the view of the progress they make, working with the other supplier. They already designed the package solution. They were continuously using CoWoS, CoWoS-S. Yeah. And as long as they are using TSMC CoWoS solution, we consider we have a much higher chance to get involved for this business. Yeah. As you know, there's a certain competition, yeah, between the package solution on these two companies. Based on our supplier's preference, yeah, as long as this business sticks with the CoWoS solution, and Alchip's involvement will be the preferred model. But in the other world, if this project sees some delay, I'm thinking about the positive side for longer lifetime cycle for the current project. Yeah. So to answer your question, is there going to be the next generation or not? We don't know, but definitely the schedule will be longer than we originally expected. Okay. So if they are going to continue to use the CoWoS-S or CoWoS-related technologies, that would mean that the front-end manufacturing will still be outsourced. Is that the correct understanding? That's why I understand. Yes. Okay. Yes. That's very helpful. My second question would be related to the production business outlook in 2025. With the ups and downs you just mentioned for the projects you are helping your customers, could you let us know what the total front-end manufacturing wafer and also CoWoS capacity you are preparing for your customers next year on a relatively basis, on a relative basis? Should we expect more wafer and also CoWoS consumption from your customers in aggregate based on the current demand forecast from your customers, or will it be relatively stable in 2025? Thank you. Yes, but you should know that we cannot disclose this type of information to you. Okay. But I mean, just from a year-on-year comparison, what is your expectation on the current supply you can get from your foundry partners or your supply chain partners? Yeah. On a relative basis, on a year-on-year comparison versus this year. I don't consider it is a good comparison because they use the different process technology and the CoWoS is, the CoWoS are also different. So I can only answer you that the TSMC is supporting this project, but the allocation, the capacity allocation to us. We are not satisfied with the capacity allocation. So we will still work with TSMC in order to get more. I would say that's what I said. There are two upsides for this budget. First of all, we can get more CoWoS allocation from TSMC in the future days. Secondly, we are also prepared to, if TSMC agrees and the customer agrees, the packaging. We are thinking to have third party to involve for the supply. So that's the current plan. Has, please disclose to the others. Oh, yeah, yeah. I mean, yes, just, just squeezing one more question. Yeah. I mean, for 2025, on your AGM, you mentioned that you target to grow pretty nicely, in 2025, even if there's a business transition. So I was just wondering, what is the realistic target that you would, share with us that, for our base case scenario or even the worst case scenario that if everything is, or, or things just get worse than, your original expectation? That's number one. And the second quick follow-up, if I can squeeze in, is probably just on the, production capacity because foundries have been announcing that they are going to, more than double their CoWoS capacity. And as you just mentioned, that the third-party OSATs are also expanding their capacity as well. So I was just wondering, from a total amount perspective, for all of your projects, are you just getting more CoWoS supply from your partners, or will it be relatively flat, for next year? Thank you. I mean, that's your last question. Okay. Okay. Yeah, sure. For your question, I would say our view does not change. We are still very confident that we can grow our total revenue in 2025. And how much we can grow is still depends. Like I said, there are still some dynamics to swing our revenue next year. For example, the upside we can get for the CoWoS or for the supply capacity support. And secondly, for our autonomous driving chip shipment, if we can do everything very well, the revenue contribution from this project could exceed our previous expectation in 2025. So, again, I want to say that the view has not changed. We will deliver revenue growth in 2025. And in, again, in usual years, we target 20% plus every year. That's our revenue target. That's the target we ask our sales, our engineering to deliver every year. So we are still shooting for more than 20% revenue growth every year. Okay. Yes. That's super helpful. Thank you so much. Thank you, Has. And, Robert, please. Robert from JPMorgan. Hey, Robert, please. Yeah. So, So, Johnny. Hey, Daniel. Hey, Johnny. Okay. Oh, yes. Yeah. I just have two quick questions. First, on your U.S. CSP AI ASIC project, I think during the opening remarks, you kind of talked about there's some market rumors. So can you help us dispel some of these market rumors by probably sharing what's your design progress so far, when you expect the chip to tape out, when within the mass production, and as a result, how should we think about revenue opportunities into 2026 for this project? O kay. Again, in earnings call, our guidance will be for the project, first of all, we will keep on working with our current number one customer for the future generation project. And we are spending a lot of engineering resource on a project right now. And I want to remind the investors that if you look into the AI sector, especially the accelerator ASIC sector, until today only two major suppliers. The number one is Broadcom. The number two is Alchip. I would say the fact speaks for itself that we are a true competitor within this sector. I know that there are many rumors, probably from our US competitors or from our Asian competitors. But I would say we try to focus. We try to deliver our engineering value to our customers. And because of this, we are very, very confident that 2026 will be a very promising year for us because there will be accelerator projects into production. And the shipment volume will be very significant. there are many rumors, probably from our US competitors or from our Asian competitors. But I would say we try to focus. We try to deliver our engineering value to our customers. And because of this, we are very, very confident that 2026 will be a very promising year for us because there will be accelerator projects into production. And the shipment volume will be very significant. there are many rumors, probably from our US competitors or from our Asian competitors. But I would say we try to focus. We try to deliver our engineering value to our customers. And because of this, we are very, very confident that 2026 will be a very promising year for us because there will be accelerator projects into production. And the shipment volume will be very significant. there are many rumors, probably from our US competitors or from our Asian competitors. But I would say we try to focus. We try to deliver our engineering value to our customers. And because of this, we are very, very confident that 2026 will be a very promising year for us because there will be accelerator projects into production. And the shipment volume will be very significant. there are many rumors, probably from our US competitors or from our Asian competitors. But I would say we try to focus. We try to deliver our engineering value to our customers. And because of this, we are very, very confident that 2026 will be a very promising year for us because there will be accelerator projects into production. And the shipment volume will be very significant. Okay. Yeah. My second question will be on the IDM customer. I think you previously talked about your CoWoS supporting rate was 50%-55%-ish over the past three, four months. But today, I think you seem to be securing more CoWoS capacity at this point in time. So how should we think about the supporting rate right now? I would say still in a relatively range, but obviously we do feel there will be room for improvement. Even with this supporting rate, the revenue contribution is significant. Our guidance for this product's contribution is based on the current capacity allocation, not the optimistic version. Got it. Okay. My last question will be on more of a long-term picture. Could you talk a little bit about what are the projects that are in your bidding pipeline, say, AI accelerator versus the server CPU? Which area do you think that you're likely to win the next CSP projects, say, in the next six to 12 months? Okay. Oh, let me try to take this. Yeah. As I mentioned before, winning a CSP project needs a lot of cooperation. Yeah. I can, I can tell you right now, we are working closely, yeah, to almost each of the CSP, yeah, on their next generation. Yeah. Starting from N2 or N16, design will become very complicated. Either minima will be CoWoS-L type of chiplet or even the 3D. So, we need to do a lot of cooperation, including test chip, in order to demonstrate our solution. Yeah. Just for your information, we are going to tape out N2 test chip next year. And for this chip, we are, we started working with some target customer, pull some of their IP inside and to test the performance. It's pretty much the first GAA FET we are doing. It's beyond FinFET now. So again, there's a certain progress, but it's a little bit too early to tell to confirm winning. But we are. I can tell you that it's, we have a very tight, close relationship working with a key IP partner, working with each of the CSP very closely. But at this moment, no confirmed winning from an y of their AI design yet. Okay. Thank you, Johnny. Thank you, Daniel. Okay. And, Charlie, please. Hello. Hey, Johnny, Daniel, again, congratulations for good results. I think people can understand that, the EPS upside as well as some of the gross margin dilution. So, great execution. So I have several follow-up questions. Maybe start with the 2-nanometer. So, I'm wondering because your industry peers also talking about they want to do a 2-nanometer test chip. So number one is that, whether customers are paying for those test chip. And secondly, for the customers you are working closely, do they also use other design series to do similar kind of practice, right? Meaning, 2-nanometer test chip with your competitors. Okay. Yeah. So the test chip we are doing is try to catch TSMC's shuttle. TSMC has a 2-nanometer shuttle maybe twice a year. The next one will be September timeframe. We are working with close IP partner and customer, NPU customer, try to put some of their IP inside and also put our design-related the stuff, try to do the comparison with N2 and N3. So, NRE is not contributed by customer, but they know they are taking some credit from us. Yeah. We are working with the TSMC. TSMC is quite supportive. Yeah. And we can tell there will be insignificant costs for us in terms of material. Yeah. We continuously get good support from TSMC. We solicit shuttle, and we have a good position to put the potential customer and also IP vendor together. We've been doing this for years, including N3 and N2, and also N5. So I would assume customers also trying out other design service or IP providers for 2-nanometer. So not just you, right? Maybe. That one, we don't know. Okay. Thanks. Speaking about TSMC, I'm wondering whether you sense that TSMC may raise their wafer price to all the customers and what would that mean to your margin or revenue in 2025? I would say we haven't received the official notice yet. But in the industry, it seems everybody is thinking TSMC is going to raise the price. But for TSMC, for the pricing, it is complicated. It is not okay, we raise every quote by 10%. It is a really complicated mechanism for the pricing of TSMC. So we are just waiting for the notice. And to be honest, we don't consider it will be an impact if the TSMC changes pricing, because for the majority of our revenue, for the production, we are running the cost-plus margin, as we mentioned many times. So we can pass through the increased cost from TSMC to the customer for sure. Mm-hmm. Okay. Yes. I think Daniel is absolutely right. TSMC has increased the price before. But after we do some analysis, I think every time TSMC does some pricing adjustment, that will be beneficial to us. But to be straight, I don't think TSMC will raise the wafer price for every single application. Maybe AI HPC, I think related definitely, for N3, N2, is the target to raise the price. But for consumer or auto, maybe remain the same because I don't worry about our CSP customer. But for consumer or auto customer, if the pricing increases, that will be they will be facing a certain challenge. For CSP, I think, to be honest, they would totally welcome TSMC to adjust the price. I see. Thanks. And lastly, I mean, there was an announcement about one of your key customers doing their private placement with Amazon. So it was after your last earnings call, right? So even today, some overseas investors are wondering, you know, why want to take these investments? Is it so small and probably will create some potential interest conflicts, right? Because you're also engaging with other CSP customers. So can you elaborate your rationale publicly on this, taking the private placement from Amazon? Thanks. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Okay. Basically, there were agreements between both parties that we cannot say too much about the reasons behind the private placement. And of course, it is hard to believe that Amazon wants to make some money from the private placement. It is not true because of the amount. And I would say, for the company's position, we consider it is an encouragement by our customer. So beyond that, yeah, I would say we cannot talk too much about this private placement. Mm-hmm. Yeah. It's Charlie, sorry. It's very sensitive. I think we can only tell. Obviously, our relationship will sustain. So that's why they are continuously investing us. Okay. Yeah. I guess we just want to make sure there will be no impact to your engagement with other customers. I guess that's. Oh, we wanted to. Yeah. Very little investment. I think it's insignificant. Yeah. If other company want to invest a little, it's also welcome. Okay. Okay. That's all from me. Thank you. Thanks, gentlemen. Okay. And Laura from Citibank, please. Laura? Yes. Hi, can you hear me? Yes. Yes. Thank you. Thank you for taking my question. My question is actually about your technology migration and how would that impact your revenue and also the gross margin outlook. We know that up to now the majority of your revenue coming from the 7-nanometers project. Into next year, it seems like the N5 will be the majority. So, but the wafer pricing for N5 is significantly higher than N7. So, even though management didn't really provide the concrete guidance for next year, but, based on the ASP premium, that already be quite significant. So I'm just wondering that when we move into maybe 2026, assuming that N3 will also ramping up. So can you give us a more picture about the, like, wafer process nodes migration of your major revenue? And also, how would that impact your gross margin as well? Okay. First of all, I would say, probably maybe the next earnings call, I will separate. I will do the change for the categorization of the process, you know, breakdown, to separate the 7-nanometer, 5-nanometer, and more advanced the process, you know. For this year, 2024, the 7-nanometer remains the main contributor. In 2025, the 5-nanometer product will become the major contributor. For sure, 2026, the 3-nanometer project will become the main contributor. For the blended gross margin, I would say the breakdown between production and the NRE revenue is the key deciding factor to our blended gross margin, not to the process, you know. Of course, when the process, you know, is moving, we may grow our NRE revenue more effectively. I would say for the next year, we expect the NRE growth will surpass the production growth. For next year, supposedly, the blended gross margin yearly will improve from this year's basis. But for 2026, based on the information we received from customer, we, I would say the production revenue percentage could be very, very high because the volume is expected to vary a bit. So the blended gross margin probably will be dragged down, because of that. So that's the direction for our blended gross margin. So for the process, you know, moving, I think it has higher correlation with the NRE revenue growth instead of the blended gross margin. Okay. Thank you. That's clear. And also, can you share with us that, oh, it says, like, Johnny already talk about you are working on N3 and also N2 wafer shuttle as well. Can you give me more color about what type of the projects you are working on for N3 and also N2? Mostly, you can say almost 100% HPC. And majority of them is the AI-related project because you may know that, for now, AI application is the application usually applies the most leading-edge process, you know, because it requires very high-speed computing and interface communication. So usually when you hear about the most leading-edge process, you know, the 2.5D 3D packaging, or even the newer technologies such as the CPO, the SoIC, the 3DIC, I would say those are related to the AI applications. Mm-hmm. Okay. Let me just add some color to that. For this year and also the year before, we consider N7 is our typical application. We treat N5 as advanced. We treat N16 as a mainstream. But starting from next year, N5 will become our typical process. There will be many N3 technology as advanced technology. But of course, there will be a certain N7 as well. In terms of N2, I don't think any design will be in production next year. The best case will be in design stage. Yeah. And starting from next year, we can say the production will be N5 as a primary. The design start will be most of the leading edge, most of the lead customer will target N3. Okay. That's very clear. Thank you. My final question is on the Arm-based CPU. We know that a lot of your peers also discussed about the Arm-based CPU. But you know, we know that probably is not really your first priority at the moment. But just wondering what's your plans on that type of business opportunity? Okay. For, I would say, our top priority for sure is the accelerator because, as I mentioned, the accelerator, the accelerator usually have to apply for the most leading-edge process, you know. The design will be relative, not relatively, much more complicated than the CPU, Arm-based CPU. Accelerator type of project is our top priority. Mm-hmm. For the Arm CPU, we consider it as a way of penetrating into new customers. But to be honest, because the design's not complicated and usually those projects don't apply complicated packaging and the testing technologies. You may understand that many of the project is what we call PD3 or TK3, whatever you call it, the production-only project. Yeah. For the production-only project, you may know that in the past, we try not to take the production-only project because we think we cannot deliver our value to the customers. So for this type of low-value added projects, we will try to compete if the project comes from the cloud service providers in North America. However, we have our minimum requirement for the value, which also means the profit margin. Mm-hmm. Okay. Let me add some color to that as well. Yeah. For Arm-based CPU to replace the x86 in the server side, I think our major customer doing a great job. I think a lot of service providers try to follow this trend. Yeah. But in terms of design, CPU design is much. GPU is much, much more complicated than CPU, yeah, for current generation. As you know, CPU does not require HBM, does not require the CoWoS. And they are pretty much the current generation, no matter if it's N5 or N3, will be homogeneous kind of approach. But we're thinking about the next generation will become our opportunity. Yeah. As you know, the CPU need to use a lot of SRAM, much, much more than the GPU. But SRAM scaling, in fact, is saturated. So in order to make the chip more cost-effective, SRAM will no longer go to the most leading-edge technology. They will all stay at N3. And compute die will continue to go for the N2. So they have to use a hybrid bond to connect everything together. That'll be chiplet-related approach. So those kinds of designs become very complicated. Yeah. We're thinking about it. It may be level be our opportunity to penetrate on the next generation because the design entry barrier will be much higher. The customer may no longer only need 2.5D or 3D kind of approach. But right now, I think the market's too flooded. Yeah. If it's only in production, production-only kind of a business. Okay. Thank you. That's very clear. Thank you very much. Yeah. Thank you very much for your question. Thank you. Thank you. Thank you, Laura. Okay. Alison Shack, please. Hello. Can you hear me now? Yeah. Yes. Hi, Johnny, Daniel. Thanks for taking my question. I just have a quick follow-up. How should we think about the future non-ops income or interest income given we now have a very excessive cash on hand? And, when do we expect the cash level to decline again in the future? Probably in the next generation turnkey NRE or consignment for wafer HBM for customer. I want to know your thoughts. Thanks. Yes. We do have a good cash position. However, we expect, even with such cash position, 2026 will be quite challenging. As we mentioned, based on the information currently we received, the production scale for the 3-nanometer project will be very, very significant. It may need plenty of cash to support the project. So that's the current situation. Okay. Understood. Yeah. That's my only question. Thank you. Thank you, Alison. Okay. Robert? Robert, good morning. Yeah. Thanks, Danny. I just have a few follow-ups on the US CSP projects. How should we think about the gross, the production gross margins compared to your N7 project? Because when I look at the HBM contents, I think it should be much higher. And also you also got the competition heating up for this one. So how should we think about the gross margin? You are saying the project to the IDM customer? Oh, no. The US CSP N3. N3. US CSP N3 project. N3 project. Okay. Yeah. Let me try to take this question. Yeah. The, how to improve the gross margin? I think two, obviously, there'll be two ways. First of all, customer consider your contribution, appreciate your capability, are willing to pay more. The other one is, working with the supplier. Yeah. Our current supplier, I think we can tell is fair to a certain degree. Once your volume increase, you will get the related support. So obviously, for the past year, we are growing quite significant. We continue to get some support, significant support from major supplier, including foundry, packaging, and testing. It's impossible when your revenue at TWD 500 and grow to TWD 1.5 billion, you're still paying the same price. So that's why, for the future, we have a much higher confidence to improve our gross margin. Right now, for the design already done or design facing EOL, it's very difficult to get additional support. But for the new business, there's a lot of room for us to negotiate with the supplier. Okay. My second follow-up will be the 2025 numbers. So, I think we talked about that the IDM customer N5 project seems to have some upside if we can get more supply. But is there any likelihood that we could see earlier contribution for this N3 projects with the U.S. CSP? Of course, we want it. The customer want it. Everybody wants the project to go into production quicker. However, there are still engineering things need to be done. So, we try. We will try. But I will say the chance is not that high. Okay. Thanks. My final question will be on the capital allocation. I think, when the projects, the N3 project enters production in 2026, it seems to have a need to have fund, or source more funding, to, I mean, to amplify your cash position. Will you do that through additional share issuance again, or you'll seek other ways to fund the working capital? We don't have that plan so far. As mentioned, we have good cash position. We will try to handle the cash flow and the working capital issue internally first. First of all, we will try to get better terms with our customer. Secondly, we'll talk with the suppliers in order to get more credit. Mm-hmm. And better terms with suppliers. Mm-hmm. For now, we don't have a plan. Right. Robert, I think it's a very good question. It's too early to make a decision because there are so many dependencies: the credit line from the major supplier, interest rate, and also our share price. Everything is, we need to put into consideration. Up to that stage, we'll try to get the best solution for the company. Okay. Thank you. Mm-hmm. Okay. I don't see more hand raising from oh Mike BOA Mike yeah please. I'll say because the meeting has been long, so it will be the last question set for you. Mike please. Mike you can unmute. Mike you can unmute yourself. Bank of America. Mike are you there? Okay. There could be some problem. And we have okay. Then there is a question message board. Hi Johnny, Daniel. Based on your current CoWoS allocation, what's your fulfillment rate for the two for the second half 2024? And for the 7-nanometer project shipments decline next year, is that due to demand performance reasons or customer move in move in-house competition? Please share the gross profit margin trend for projects that you see. And if there is a minimum threshold for LJ project mar project margin, thank you. Okay. Let me give you the answer question by question. Based on the concurrent CoWoS allocation, what's your fulfillment rate for the second half? I will say for the second half, we are actually. It's a ramping up phase. The production and the shipment scale is ramping up in the second half. So for this phase, there is no so-called fulfillment rate. Actually, we can get the full support from the suppliers. For the 7-nanometer project shipment decline next year, is that due to demand performance reasons? No. Actually, this 7-nanometer chip has a very long life cycle. Maybe you can remember the shipment started in 2021. So it's a natural. It's like the project is entering the end of the life cycle, and there will be new chips to replace the 7-nanometer one. The third question is on the competition phase. Please share the gross margin trend. I would say, the NRE and the production is quite separated. For NRE, usually, we can still get reasonable, I would say, 40% plus gross margin depends on the project, depends on the process node, and it depends on the scale of the design. So it varies a lot. And for the production side, usually, for the smaller production scale, we can get 15%-20% or even higher from the US customers. And from China customers, we can usually get even higher. But for some projects with very large production scale, the gross margin could still range from 10%-15%. So, I would say currently, the rules, the practice in the industry, we still follow through. No particular change or special cases for our business. Okay. Mike Yang, from BOA, probably they have some malfunction for the equipment, so he write down his questions. For the next generation product by US IDM customer, if it's only involved in the packaging design, then should we expect a lower gross margin versus the current generation? Mike, I don't really understand the meaning of the next generation. I assume you are saying the project beyond the 5-nanometer one. I would say the Johnny is saying because based on our knowledge, the project will be still in TSMC, no matter the wafer or the packaging. So we have pretty good chance to still offer our services, of course, including the turnkey services to this project. Mm-hmm. Yeah. Mike, this design is, will be delayed. It's not closer to tape-out yet. So whether our involvement right now, I think we cannot disclose at this moment. It'll be too sensitive. But we are continuously working with this particular customer. And we on the previous N3 test chip, we are already three-party working together, including this customer supply, TSMC and us. And whether we have a chance to get involved for the design, we don't know yet. Because that company is in the transition period. We expect they may need more support from us because of the, again, that particular customer facing a certain challenge at this moment. Okay. There's another question from Mike. And I will say it's the last question for this earnings call. And this question is, we have witnessed a very quick response by Alchip in the previous incident of sanction on Phytium and the other major China customers. So the question is, if there is no design win, finally, for the advanced node projects you are working on with CSPs, can you also react quickly in response accordingly? Or should this based on the premise of very good design demand activity? Mike, your, your question is a little bit weird. We are working as a design service provider, and we are very confident that we have the world-class engineering and the technology to serve the potential customers. So, of course, we want to win projects for other CSPs in North America. So it's really hypothetical that you assume it is an incident for us not winning other CSP projects. We will keep on trying. We will keep on trying for every good opportunity in North American markets. That's our answer. Okay. Okay. I guess that concludes our second quarter earnings call. And thank you for your participation today. And have a nice day. Thank you. Thank you very much. Thank you for supporting us. Thank you. Thank you.