Welcome to GlobalWafers First Quarter 2023 Earnings Conference Call. This is Jason Tsang from CLSA Taiwan. Today, it is our honor to have Doris Hsu, the chairman and CEO, and Ms. Leah Peng, the spokesperson here with us. They will share the operation update and outlook on the company and the industry, and then we will open the floor for Q&A section. Let me turn this call over to Leah. Leah, please go ahead. Okay. Thank you, Jason. Dear all, thank you very much for joining GlobalWafers Q1 2023 earnings call. This is Leah Peng, the spokesperson. We also have Doris Hsu, the chairperson and CEO of GlobalWafers. Doris will guide us through the executive comments. I will elaborate on the industry overview and the financial results. Doris will answer the questions we received from the investors, followed by an open Q&A section. Kindly note that the presentation has been uploaded onto our web homepage. If you do not have the file on hand, please access our website. Please understand that this earnings call contains forward-looking statements. Forward-looking terminology such as believes, expect, may, will, should, anticipate, plans, and their updates or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based, and could cause the actual results to differ materially from those anticipated by the forward-looking statements. Please refer to the safe harbor notice in our presentation. Now, I would like to hand over the call to Doris for the executive comments. Doris, please. Thank you, Leah. Good afternoon, everyone. Thank you very much for joining GlobalWafers earnings call of Q1 2023. Leah Peng, our spokesperson, will guide us through the presentation. I will answer the FAQ received recently, followed by the question raised in the meeting today. First of all, let me share some comments about financial results, update operations status, and also I'm going to make some explanation of a new deal we just announced a couple hours ago. If you have already downloaded our material, please turn to page three. I would like to highlight a little bit about our revenue and gross profit performance of Q1. Despite all the challenges and weakening macroeconomics, GlobalWafers has contributed a record-breaking revenue in March and also in the whole Q1 2023. Our Q1 2023 revenue totaling NTD 18.6 billion with 14.2% growth year-over-year. This is a sequential growth for 13 quarters starting from Q1 2020. Revenue-wise, it's really a great quarter for GlobalWafers. Gross profit-wise, our Q1 2023 gross profit margin was 14.6%, which is 2.1% lower than Q4 last year. The erosion is mainly due to two factors. Firstly, spiking power costs in several countries of our global operations and secondly, higher depreciation in Q1 2023. These two factors impact our gross profit by 1.2% and 0.5% respectively. Our Q1 2023 operation profit margin was 32.8%. Page four, please. Our net profit margin was 26.9% in Q1 2023, which is 4.6% lower than last year. EPS, our Q1 EPS was TWD 11.49 per share. This is lower than 2022 Q4, which is resulted from lower Siltronic share price and less foreign exchange gains compared to the previous quarter. Prepayment is another very important index we always monitoring very closely. As of end of Q1, our prepayment totaled TWD 38.5 billion or $1.3 billion, decreasing by 3% versus end of 2022. Per contractual obligation, customers' prepayment will be refunded if all terms are satisfied. Thus, we return partial repayment to customers in Q1. We keep signing new LTAs and receiving new prepayments with multiple customers. Yet, the amount of new prepayment is less than the amount we just refunded in Q1, contributing to less prepayment compared to end of 2022. Dividend payout. Today in GlobalWafers board, we also approved and we just announced that the cash dividend payment plan for the second half of 2022. Distributed cash dividend of NT 9.5 per share for the second half 2022's cash dividend totaled NT 4.13 billion. Throughout the whole 2022, the annual cash dividend is NT 16 per share. Page five, please. Let me share some outlook on microeconomics, macroeconomics and semiconductor industry. In January, IMF, International Monetary Fund, raised its global GDP growth forecast by 0.2%, the first time it had raised its forecast in over a year. Only 3 months later in April, the IMF global forecast was again reduced slightly, down 0.1%, citing uncertainty in the world's banking system has added a new downside risk to the global economy recovery. IMF look for a bottom in 2023 and rebound in 2024. 2023 GDP growth forecast at 2.8% and 2024 at 3.3%. For semiconductor industry, in 2022, macroeconomic headwinds significantly increased as governments took action to slow down inflation. One consequence is lower consumer spending and drop in mobile and PC demand has hit memory manufacturers particularly hard. The fundamental swings are prolonged into 2023. In 2023, the emergence of market drivers, including industrial electronics and automotive, will sustain the semiconductor market revenue. We expect an improved semiconductor market in the second half 2023, propelled by data center and recovery in macroeconomics. Our review of the long-term momentum of semiconductor industry remains unchanged. Semiconductors continue to be critical components and of growing importance across economy. Inflation and various geopolitical tensions led to uncertainty and potential disruptions, the fundamentals consistently fuel the momentum for the entire semiconductor industry. The last next item I would like to share, update is this compound semiconductor. Silicon carbide is still very strong. The whole demand for silicon carbide is still very strong. The unique pro-properties of silicon carbide make it an excellent choice for, especially for automotive semiconductors. As cars continue to become more electrified, silicon carbide is expected to play an increasingly important role in powering and controlling the car's electronic systems. Automotive contributes the largest market segment for silicon carbide power components. According to our internal calculation, our revenue in 2020. The first four months, January to April, our GWC's revenue for silicon carbide has already been exceeding the whole year's revenue of 2022. That is a very positive sign to show our strong growth of silicon carbide. Page six, please. The industrial, let me show some update of automotive. With the rise of electric and autonomous vehicles, the demand for semiconductor is expected to grow exponentially. As these systems become more, all of the EV car systems become more sophisticated and complex, the need for semiconductors with higher performance and capabilities will also increase. Additionally, we are seeing structural supports fueling the rapid adoption of EVs like government policy, company pledges, and consumer behavior. This adoption will continue throughout the next decade and drive the automotive industry moving towards a more connected, electric, and autonomous future. We are very confident that automotive definitely will be a strong driver for the growth of semiconductor. Page seven, please. I would like to share another very important achievement of GlobalWafers. We just learned last week that GlobalWafers received its fifth consecutive top 5% ranking in the 2022 corporate governance evaluation in Taiwan, continuing its commitment to improving our corporate governance and fulfilling ESG responsibilities. Page 8 is a new deal. I would like to introduce the background of the new deal. Please turn to page 8. GlobalWafers' board approved to swap shares with Crystalwise today. Crystalwise is the very first manufacturer of hard and brittle material substrates in Taiwan. Their focus was sapphire. Shifted from sapphire supplier to gallium arsenide supplier and lithium tantalate, lithium niobate supplier. LT, also known as LT and LN. These are crucial material for a SAW filter. SAW filter can be used in various wireless communications, such as GPS and other navigation devices. We believe that this transaction with Crystalwise could enable GlobalWafers to encompass special wafers into its comprehensive product portfolio, step into gallium arsenide, LT, and LN wafer market, and grabs the growing 5G and satellite market. The swap ratio is every share of Crystalwise for 0.002 newly issued shares of GlobalWafers. GlobalWafers will issue 878,000 new shares. This will increase our share capital by only 0.2%. Swap record date will be November 1, 2023, tentatively, as it is pending on Crystalwise shareholder meeting, as well as the authorities approval. I will provide more background info of this material in the Q&A section later on. The above are my comments. Leah please share more on the industry outlook and financial performance to everyone. Thank you. Thank you, Doris. Let me begin with the global GDP growth forecast in page 10. According to IMF's latest forecast, global economy forecast will fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024. Tentative signs in early 2023 that the world economy could achieve a soft landing, with inflation coming down and growth steady. Upsides to this global GDP forecast come from the continued stronger contribution from China. China's relaxation of COVID policies corrected supply chain gaps and the return of service industries will fuel the global GDP growth. Based on China's National Bureau of Statistics, China economy expanded 4.5% YoY in Q1 2023, driven in large part by consumer, paving ways for 2024 rebound. It is page 11. The global semiconductor industry is poised for a decade of growth and is projected to become a trillion-dollar industry by 2030, underpinned by the automotive, particularly EV, data storage and the wireless industries, exhibiting 9% CAGR. In many ways, our world is built on semiconductors. As the impact of digital on lives and business has accelerated, mega trends like remote working, the growth of AI and EV have propelled the semiconductor market. The fundamental for long term momentums are not changed despite the current turbulence. Please allow me to further elaborate the global silicon wafer shipments in page 12. Global silicon wafer shipments growth is expected to tamper in 2023 due to challenging microeconomics. It's forecast to rebound in 2024. This research from SEMI was published in November of last year, the market has additionally solved since then. The down in 2023 and recovery in 2024 is still consistent with analysts' projections. We believe the forecast still is accurate and probably not too far from what the actuals will be based on current known factors. In page 13, according to SEMI report, 300mm fab capacity will grow from 7 million wafers per month to an all-time high of 9.6 million, driven by 82 new facilities and production lines. Proof that even though the expansion pace is moderating, the industry remains squarely focused on growing capacity to meet robust secular demand for semiconductor. Page 14 is the mapping of GlobalWafers expansion and the regional market share of global 300mm fab capacity in 2026. Our expansion sites have been carefully selected to align with the major semiconductor markets around the world. The expansions are in regions that are home to some of the largest semiconductor companies. By expanding in these key locations, we are confident to be able to capitalize on the growing demand for semiconductor. For example, we are building Italy's very first 300 millimeter wafer fab. In Taiwan, we already expanded EP and the compound semiconductor wafer capacity. Large size and special wafers will increase meaningfully in GlobalWafers product portfolio, targeting the advanced process for new innovations. In short, GlobalWafers has well-positioned itself for future growth. Let's move on to page 15. The automotive semiconductor market is showing continuous growth, which is inevitable as the penetration of semiconductor-based applications such as higher levels of ADAS and electrification. The higher ADAS level is, the more semiconductor it requires. This represents semiconductor chip value of 500 USD dollar per gasoline car, growing to 2,000 USD in level 2 or 3 BEV. The semiconductor content per vehicle will spike even higher in level 4 autonomous driving. Page 16. It elaborates that by 2035, the battery electric vehicles will likely represent more than 65% of all new light vehicle sales across the global automotive market, driving innovation and sustainable growth. Additionally, edge computing, 5G, and memory in EV are adding momentum in the automotive semiconductor market. Edge computing can allow EV to process data in real time and make decisions locally. Enables EV to reduce the amount of data that needs to be transmitted to the cloud, which helps improve network efficiency and decrease data transfer costs. 5G networks provide faster and more reliable connectivity for EVs, enabling low latency communication. Memory enables EVs to store and process large amounts of data. With fast, non-volatile storage, EV can store and access data quickly, improving system response times. Overall, the combination of edge computing, 5G, and the memory technologies is turning EV into a giant computer on wheels. With these technologies, EV can process and analyze data in real time, communicate with other vehicles and devices, and operate as part of a larger connected system. We believe in the consistent growing fundamentals of automotive semiconductors. Memory is facing severe imbalance now. We strongly think it is indispensable for all tech technology innovations. In page seven, the data center is growing rapidly due to the increasing demand of digital service and data storage. The demand is driven by factors such as cloud computing, big data, and IoT digital transformation, and e-commerce. It exhibits a 5.4% CAGR through 2030. AI has the ability to analyze large amounts of data and optimize process. This has led to increased adoption in various industries. The global AI chip market size was evaluated at $17 billion in 2022, and will hit around $227 billion by 2030, expanding a CAGR of almost 30%, sustained by generative AI applications like ChatGPT. In page 18, SiC is forecast to grow with a CAGR of 31.6% in 2022-2027, and finally reach $6 billion. The EV hybrid vehicle market is truly the sweet spot for SiC power components. More than 70% of revenues, equating to $4.7 billion, is expected to come from this sector. It is our financial highlight. In page 21, these are our Q1 2023 financial results. Our Q1 revenue hit TWD 18.6 billion, with 14% YoY, the best ever, marking the 13th consecutive quarterly growth. Gross margin was 14.6%, eroded by the power cost and the depreciation. Operating profit maintained at 32.8% and net profit margin at 26.9%. Our EPS totaled 11.49% per share. Let's move on to the balance sheet in page 25, I will add more color on the key items attached. In Q1 2023, our cash is TWD 74 billion, which might seem much less compared to the TWD 80 billion at the end of 2022. If we dive into other assets, another TWD 13 billion, which was earmarked for deposits held for more than three months, and another TWD 3 billion, this is the restricted cash, which is temporarily set in bank for tax consideration, but could be used when necessary. If all these cash related assets are included, our total cash in Q1 2023 is actually TWD 90 billion. I would like to give the floor to Doris for the Q&A session. Thank you. Doris, please. Okay. Okay. Thank you, Leah. Let me start from several questions we received in the past several days. The first one is, the first question is that, please share with us GlobalWafers outlook on Q2 and second half 2023 and beyond. 2023, starting with the continuation of second half 2022's problems like inventory piling and macroeconomics headwinds and lower consumer spending, the drop in mobile and PC demand. All of these issue has hit memory manufacturers, particularly hard. GWC currently has 13 consecutive quarters of sequential revenue growth dating back to Q1 2020. This stellar string of sales performance will be tested, especially in second quarter 2023. Nevertheless, protection afforded by the aforementioned LTA sales strategy should yield better performance on the relative base. The future outlook in the near term, in the near term view is somewhat cloudy for now, to be very honest. The visibility is not really very good yet. We talk with all of our key partners, key customers. We think that we are expecting that the recovery will be starting from second half 2023 or the latest is early 2024. It's more likely that starting from the second half 2023, we'll start seeing some recovery. Q2 will be tested, will be some challenging in Q2. Some of our customers and analysts still look for a start of another swing in second half 2023 towards improved semiconductor market, propelled by data center demand. Which continues strong and lifting high-end chip demand. Macroeconomic swing showing signs of recovery as well, evidenced by China's GDP growth, which grew 4.5% from January through March compared with the same months last year. From all the evidence and many information from our customers, we think that it's more likely that second half 2023, we will start seeing some recovery. Visibility is not very good yet, but we start seeing some good signs that maybe the second half this year will be recovering. That's our view for Q2 and the second half, Q3. For beyond, I think almost all analysts are indicating that are indicating a snapback in 2024 and mentioning that it is time to get ready for the 17th industry upturn, which is just around the corner. That's the very first question of our outlook. The second question is about our inventory. If you check our balance sheet, you will see that our inventory spiked from TWD 8.5 billion, which is the inventory at the end of 2022, spiked from TWD 8.5 billion to TWD 9.2 billion as of end of Q1. This is from DOI's viewpoint, day of inventory's viewpoint. Our end of 2022 DOI was 72, and end of Q1 2023, our DOI was 73, so just slightly increased. The increase mainly result from two items. One is finished goods and another one is raw material. The finished good increase a little bit is just lower than one day. It's just slightly increased. This is mainly because that we value the long-term partnership with our customers and adjust the shipment, partial shipments from end of Q1 to Q2, slightly adjust a little bit to help our customer to get through the turbulence. That's why our finished goods increased slightly. On the other hand, we see more increase of our raw material. This is to mitigate the inflation of raw material, especially polysilicon. The raw material price increased a lot in 2022 and 2023, mainly because of inflation and super high energy costs. That's why we intentionally purchased in advance to enjoy, to control the raw material costs a little bit better than the 2023's inflation and also energy costs. These two are the key reasons why our DOI increased 1 day. Next question is about our expansion. The status of our expansion projects. Are those projects on schedule or what? Most, as we reported to the public several times, that we have six expansion projects in six countries, but one delayed one-two quarters. For example, the one in Europe will delay somewhere around 1 quarter to maximum two quarters. The US expansion due so far is on schedule. That's current status. Japan expansion will delay around 1 quarter. That's current status. All the other projects basically are on schedule. Next question is about our dividend payout. GlobalWafers' 2022 payout is lower than previous years. Payout ratio is lower than previous years. Please advise your strategic thinking and how we should envision the future dividend policy. I think this, the arrangement is very clear. The logic is very reasonable. It's very clear because a number of capacity expansion plans are currently underway, and the pace of interest rate in so many currencies highs in various countries, this is accelerating. The cost is likely to increase in the future because of the high interest rate. By strategically adjusting down our dividend payout, which is still higher than the industry average, and investing in capacity expansion, I think GlobalWafers is empowered to pursue long-term competitiveness and to feed better shareholders with fruitful operational results, with business growth and sustainable dividends. That's why we think we chose to lower our dividend payout a little bit this year, but still higher than the market average. Next question is about our American expansion, the greenfield expansion in Texas, Sherman. The question is that, "What is GWA's current status, and what's the progress on CHIPS Act?" First of all, let me talk a little bit about the status of the CHIPS Act. We are silicon wafer projects for GlobalWafers. We are in the second round of application. We're Group two people. Group one is fabs foundries. is for fabs, and group two is for material. We are a silicon wafer is material, so we are in the second round of applications. Those regulations are still outstanding with an anticipated release at around end of June 2023. We are preparing the needed material and trying to figure out all the regulations with the related government departments right now. That's the status of our CHIPS Act. The status of our American GWA Texas, Sherman, Texas, construction. Everything is in line with the original timeline. We had some difficulties on the construction material, but it's getting better now. So far, everything's in line with the original timeline. Our initial mass production for GWA, our Sherman operation, will be starting in Q1 2025. I think that should be a very good timing within the next semiconductor upturn. That's our status of our Sherman, Texas, operation expansion project. Next question is also for some government support. The question is that, "Please advise how many incentives from European Chips Act, Novara expansion will be granted." Novara is our operation in Italy, which is working on the 300mm expansion right now. Our European team are working very closely with and, of course, negotiating with very closely with European government and following up all the procedures now. We have positive feedback from related government department, but so far, we are still waiting for the final, the formal documents now. We don't have the number to share today, but so far, everything went pretty well. We have good communication with European government. That's the status of our European government support for our expansion in Italy. Next question is that, "How is your current utilization rate for 12 in and 6 in?" Let me update a little bit that, Basically, for 6 in, it's not full. Starting from Q4 last year, 6 in is not full. It's still the situation for small diameter is still, like the same. The past two quarters, it's not full. It's around 70%, roughly, up and down month-by-month. It's roughly, it's about 70% for small diameter or 6 in. For 8 in and 12 in in Q1, both 12 in and 8 in were still 100% loaded. Starting from Q2, we are seeing some weakness from our customers. Some of our customers are asking for more adjustment or a little bit more push out of the shipment for 8 in and 12 in. So far in Q2 it's not full, but for Q2, 8 in and 12 in are still way higher than 90%. The utilization rate is still higher than 90%. That's our current status. Next question is about our silicon carbide status. Compound semiconductor for us is rather small, revenue-wise, it's rather small, but it is our major expansion target. We. That's one of our most important expansion project now. I think we expect that this project will make very rapid progression over a short period of time. Just as what I explained when I made the executive summary, our silicon carbide revenue from January to April have already exceeded our total revenue of 2022. That's a very good performance for silicon carbide revenue growth. Next question is that, "How's our view of the raw wafer market in 2023? It seems like that all the raw material, raw wafer suppliers are expanding capacity, but foundries utilization is dropping. Is there any concern for oversupply?" That's the question. Which is definitely a very good question. Our view is that, I think, in early 2000, it was around 20, 2010. After painful lesson we learned in early 2000, semiconductor wafer makers are now more cautious than before, especially more cautious in capacity expansion than before, as this involves enormous investment. Thus, expansion projects are disciplined, more disciplined now, rather than irrational. Take GlobalWafers, for instance. Our greenfield is only kick off after 80% of capacity is secured by LTA. Without securing over 80%, we would not, kick off our any expansion at all. Just like what we indicated in the presentation, the entire world is built on semiconductor and will reach $1 trillion in 2030 with 7%-8% CAGR every year. The turbulence we are seeing now is a short-term issue. We are seeing foundries, utilization rate is low now, which is true, but it's for short-term. When the market is back to the track, the wafer supply will be still in a very reasonable level. All the low utilization rate always looks like that, kind of like oversupply concept that's for short-term. For long-term, it's still very healthy, very well-disciplined. Okay, next, what's the new growth driver for coming years? What's our view of the new growth drivers for coming years? We think that the market drivers, key market driver for the coming years are, of course, definitely, EV cars, automotive, that's number one. Industrial electronics, that's number two. Data center and servers, these are very important as well. AI and high-performance computing. These are the most important drivers for the semiconductor industry in the next several years. That's our view. The last item is some quick update. I want to share a little bit more details of the new deal we just announced a couple hours ago. Our stock swap with Crystalwise in Taiwan. As I said, at the very beginning, that Crystalwise is a the very first sapphire wafer company in Taiwan. Sapphire is very hard but very brittle, so how to process that kind of material is you need a lot of technology. CWT has this technology. Several years ago, because sapphire business is very, the situation is very tough, CWT, Crystalwise, have already come, switched to gallium arsenide and lithium tantalate and lithium niobate, those products. Now three key products for Crystalwise is gallium arsenide, lithium niobate, and lithium tantalate. That's the key product. What's the main applications for those materials? Let me very briefly explain the application, so it will be very easy for everyone to understand why it's important. The main application for LT and LN are for SAW filters. SAW filter means surface acoustic wave filters. LT is for standard SAW, and LN is for temperature compensated SAW. Both LT and LN are can be used for thin film, for Piezo-On-Insulator, POI, piezoelectric-on-insulator. That is these applications is of good potential, especially for wireless connection, wireless communication applications. Gallium arsenide is for another field of application. Gallium arsenide basically can be used for three different categories. One is for RFs, the second one is for laser diode, LD. The third one is LED. For these three key applications. For gallium arsenide RF, if your gallium arsenide substrate quality is good enough, that means that the density, defect density is very low, like HFP density lower 500, then you can. The wafer is good for RF application or laser diode. If it's the area density is higher, HFP density is higher than it can be used for red LED or micro-LED. That's the application. The reason for GlobalWafers to swap shares or that means that acquires, merge CWT is because that, you know, GlobalWafers is a total solution provider. We provide not only silicon wafer to our customer, but also some different compound materials, including silicon carbide some other compound materials. If we have not only silicon carbide and gallium nitride, but also gallium arsenide and LT/LN and I think that's good from an overall product lineup standpoint, and that's good for our customers as well. That's why we think that it makes sense for us to add this material by swapping the shares with Crystalwise. Of course, Crystalwise itself still need a lot of support from GlobalWafers to improve their overall operation performance and also to improve the sales network. Without GlobalWafers' operations support and worldwide sales network support, it's very challenging, very difficult for Crystalwise to run the business on their own. That's our view. That's why we think that it's good for our operation, and we should be able to improve overall CWT's performance. That's why I want to share this information with everyone. That's all I want to share. Thank you very much. I'm open to have any question from anyone. Thank you very much. Thank you, Doris, Elliot. We will now open the line for questions. For online investor, if you want to ask questions, please kindly raise your hand, and I will admit you to start questions. Thank you. We have the first questions in terms of Crystalwise, can you give us more details in terms of its market size or the current product mix of the Crystalwise and how fast do we expect to turn the business around? Thank you. Okay. The market size of LTO and it used to be good because, as I said, that SAW filter is very important device for 5G cell phone or wireless devices. You know that starting from 2022, cell phone, worldwide cell phone business extremely bad in the world. The whole market is very bad right now, including for LTO and it will be back. It will be back when the cell phone business is good and 5G or 6G and satellite and other wireless application increase. I think it will be a good business. If we check the CAGR from 2020 to 2028, SAW filters market CAGR is around 2.7%. That's the market. It's still pretty small. It's just in 2020, the global SAW filter market is just around $7 billion. In 2028, the forecast worldwide SAW filter market will be around $9 billion. That's the market size. For LTO and the CAGR may be a little bit bigger, but basically it's close to around 2%-3%. That's the status. Of course, if you see that the 5G subscription, that increased a lot as well. For 5G, you will need more LTO, that's for LTO. For gallium arsenide, because you can use for LED, LD and RF materials, gallium arsenide will keep increasing a lot. Like even you know that for power amplifier, you use gallium arsenide as well. Depends on how good the quality is. We think that the market is okay, but it will take us, I think it will take us a couple of years to turn around Crystalwise. Some R&D resource will be needed, some operation management, the operation efficiency improvement. A lot of actions will be needed. What's more important is that we have to be able to approach more tier 1 customers to introduce the LTO and then gallium arsenide products to our customers. I think it will take a couple of years to really turn around the company. Okay. Thank you. Next question, please. Thank you, Doris. Now we have a question comes from Bruce Lu. Bruce, please go ahead. Hi, Doris. Can you hear me? Yes. Hello, Bruce. I can hear you. This is Doris. Go ahead, Bruce. Okay. I got a question about your longer-term margin. I remember that you did mention that in your own assessment that for the three years, the gross margin should be within a comfort zone at this moment given the new LTA you signed. We do foresee a higher inflation cost from you guys. I mean, for the polysilicon, for the electricity cost or the labor cost. Are we still comfortable about our margin trend onwards? I mean, to factor in all those costs or can we pass that kind of incremental cost to your customer for the newly LTA you signed recently? For new LTAs, maybe we'll be able to... I think let me put it this way. First of all, electricity cost increase expected. Last year, you know, energy costs increased by around 1%. I still remember that in our earnings call, I said that was manageable. You know what? This year it increased further. For example, Japan, electricity cost this year was even higher than last year. Italy, our energy cost in Italy is over 30% high, 300% higher than last year. Starting from 2023, it's still higher than 2022. That was totally beyond our expectation. Taiwan also, our electricity costs increased starting from April. This electricity cost increase, the impact from electricity cost in electricity cost increase is around 1.2%. We have some depreciation cost increases. A depreciation increase that hurt our gross margin around 0.5%. I don't think that for now, I don't think that we will be able to, because right now the demand is still somewhat slow. When we, it's not easy to pass on this additional cost to our customer for now. When we negotiate the new LTA with customers, we definitely will include new inflation costs and all the new costs. For new LTAs we will definitely include all those factors into considerations. At the same time, we are taking a lot of action, taking a lot of measures, try to reduce our power consumption per wafer. That's what we are doing, and we review this every month to see how much we are improving. Matter of fact, we are really improving a lot. We have already worked out some special action to improve our power consumption. That's our current status. I think we'll be still pretty stable. Our gross margin will be, so far looks like that will be, still doing quite okay. Okay. See, the low 40s should be a comfort zone for you guys. Yes. Is that the reasonable assumption? Okay, good. The second thing is that, You just mentioned that you've got some delay for some, for the capacity expansion. Can you give us an update about what kind of capacity you will expand in the coming, you know, two, three years after all this, factoring all the recent delay? We have never disclosed what's the specific numbers. For example, 300 meter, how many wafers you increase. That's company, that's our, company internal policy that we don't disclose specific numbers, how many wafers increase. is increasing. The reason that, I think it's very hard to explain that how many wafers we increase is because that, you know, if you produce the wafers for most advanced products and the output volume can be even same capacity, the output volume can be 30% lower. It's very hard for us to put it that way. I just wanna say that all of our expansion project, everything on schedule. So far, timeline delay is just about one-two quarters in some area. Some sites already completed or some area, we basically, we're still in line with the original time schedule. Thank you, Bruce. Okay. Thank you. Thank you, Bruce. Thank you. We have a question from Donnie. Donnie, please go ahead. Hello, Donnie. I cannot hear you. I'm sorry, Chair Lady, can you hear me now? Yes. Hello, Donnie. You are now. Thank you. Thank you, Chair Lady. I have two questions. First one is, due to TSMC or other, you know, customers have mentioned about the inventory correction time period will be pushed out a little bit more, maybe by one-two quarters. Just wondering if you have any idea on how the semi-wafer inventory level in the supply chain would be. When exactly the inventory will pick up if considering all your customers' latest outlook. Okay. inventory most of our customers' inventory is improving. That means slowing. you know, it's very hard to say that it's already to the healthy level. That is, that's not the case. the inventory is reabsorbing, so it's coming down. It's slower than our expectation, but the inventory is slowing down. For now, inventory is not a key concern for us, except memory. For memory, inventory is still a very important concept, but for the other cases, it's more a demand status and visibility. These two are the issue. For some of our customer, their inventory is basically okay, acceptable. But the problem is. See a strong demand recovery yet. Haven't seen that yet. That's. Demand is an issue. Is more an issue than inventory level for quite some of our customer. The second one is visibility is still not very good for now. Inventory-wise, and also, for your question that how about silicon wafer inventory at our customer side. Usually, because our customer, they don't really break down the inventory level to what is the raw material or a silicon wafer and how much is finished good. We don't really know that how much is. Especially that, for most of the customer, we don't really know how many inventory wafers they have. By their financial report, we, it's not very clear for us. Of course, when we visit them, we know. We visit each customer and try to figure out how much inventory they have. Yeah, it's improving now. Understood. A follow-up. Do you have any view on the third quarter sales trend would be if customers' inventory digestion, as you said, may be better into the second half or early next year? I'm not sure whether our sales correction will be prolonged into the third quarter according to the occurrences of it. I think it's very likely that our Q3 revenue will be higher than Q2. Q2 is challenging for now. We're still working with customers now. We're not 100% loaded. We're not fully loaded now. We think that Q3, second half should be better than Q2. Q1, our Q1 was already announced, was a good quarter. Q2 a bit lower than Q1. We think that Q3, Q4 should be improving, should be better than Q2. The problem is that how much better? We don't know how much better. Maybe slightly better, maybe Q4 will be recovering, picking up better than much better than Q2. We don't know the percentage yet. We think that the trend is that second half should be better than Q2. That's our... Understood. My second question is regarding to maybe some potential export controls in the future. You know, material now seems like not yet the center of the overall sanctions by different government. Recently, there was a news mentioned about German government is considering to add more export restriction to China regarding to materials. Wondering if you could kindly give us some color on how is your view on the potential sanction risk for the semi-wafer industry in the future. Due to semi-wafer has been already on like Wassenaar Agreement before. I'm not sure how... What type of semi-wafers have been already under this kind of restriction to for the export to China at this time point, and how the things will go into the future? Thank you. First of all, to answer your question that Germany, I think that we've noticed that German government, they're considering some actions. So far, we don't have the details. They talk, but without too much detailed information, so we don't. It's hard for us to judge that how much that will affect. For silicon wafer. Based on current practice right now, for silicon wafer, I think a verified list, UVL, the unverified list, that special customer account, that one affects us more than the product range. Of course, we have to follow two things. One is the what specific products we're not allowed to ship to. That definitely we will follow, such as that, if it's much more advanced products than or much more advanced process for memory, then we will not supply wafers to those customers. That's one rule. Another one is UVL. We have to follow that those customers, we cannot ship wafer to those customers. For now, UVL, that impact to us is more than more than the application, the process constraint. So far we. Fortunately, we are not supplying a lot to those customers. We work very closely on this. For example, for UVL, YMTC is one of the company newly listed on the UVL, but we don't have much business with that specific company. So far our impact is still okay. We monitor this very closely. We don't know how German government is going to set the constraint yet, so it's hard to comment for now. Thank you. Sure. Thank you very much, Donnie. Okay. Thank you, Doris. It's look like we have run out of time. This concludes our Q&A section. Thank you very much for your time and the participation on this call. Thank you, Doris and Leon. We'll see you next time. Thank you. Thank you very much. Thank you, everyone. Thank you. Have a good day. Thank you.