华虹宏力半导体有限公司 (688347) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Grace Semiconductor Second Quarter 2026 Earnings Conference Call. Today's call is hosted by Dr. Peng Bai, Chairman and President, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please advise that your dialing are in a listen-only mode. However, at the conclusions of the management presentation, there will be a question and answer session, at which time you receive instructions on how to participate the earnings press release and second quarter 2026 summary slides are available to download at our company's website www.huahong.com without further ado i'd like to introduce you to mr daniel wang executive vice president and chief financial officer thank you good afternoon everyone thank you for joining our q2 2026 earnings conference Today, we will first have Dr. Pan Bai, our Chairman and President, provide an overview

of our second quarter performance. I'll then take you through our financial results in detail and offer guidance for the upcoming quarter. We then open the floor for a question and answer session. With that, I turn the call over to Dr. Bai.

Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. We continue to improve our operational performance in the second quarter of 2026 with profitability, strength, and further. Revenue hit a record high of US $717 million, representing a year-on-year increase of 26.8 percent. Gross margin spurred at 16.5 percent percentage points year-on-year. Both metrics and achieved sequential growth. Net profit attributable to shareholders of the current company amounted to U.S. 38.6 million, substantial growth, both year-on-year and quarter-on-quarter. Hua Hong Grace maintained a high back-utilization rate in Q2, delivered growth across all process technology platforms, especially the standalone and embedded non-volatile memory products. The improved business performance came as a result of rising volumes and prices. At the beginning of the year, the global semiconductor industry has witnessed a strong AI-driven upturn in demand, first on memory IC products, then spreading to logic and analog IC products that that are associated with AI applications, especially technology funding serving a broad marketplace. We have clearly seen an overall positive impact on our business by the AI wave. We have also seen diverging intensity and strength of market demand depending on end-user market segments. Amid the rapidly evolving industry landscape, our strategy of steady capacity expansion, ongoing specialty technology upgrades, and continuous capacity product mix optimization will allow us to capture growth opportunities to provide substantial improvement in our business results. Huahong Grace has recently obtained registration approval from the China Security Regulatory Commission for our acquisition of Huali microelectronics. Integration of the acquired assets into Huahong Grace will strengthen our technology's portfolio, increase our operational economy of scale, and improve our profitability, injecting fresh momentum into our future growth. Now, I would like to hand the call over to our CFO, Mr. Danny Wang.

Thank you, Dr. Bai, for your very inspiring remarks. Now, let me walk you through a summary of our financial performance for the second quarter. I then provide our revenue and the margin outlook for Q3-2026 before opening the floor for the question-and-answer session. First, let's review our financial results for the second quarter. Revenue reached an all-time high of $717.5 million, 26.8% over Q2-2025, and 80.6% above Q1-2026, primarily driven by increased rate for shipment and improved average selling price. Most margin was 16.5%, 5.6 percentage points over Q2 2025, and 3.5 percentage points above Q1 2026, primarily driven by improved average selling price and cost reduction efforts, partially offset by increased depreciation costs. Operating expenses were $109.1 million, 11.4% over Q2 2025, and 3.3% above Q1 2026, mainly due to increased labor expenses. Other income net was $2.2 million, 79.4% lower than Q2 2025, primarily due to increased finance costs and the decrease of government subsidies, partially offset by increased share of profit of associates. The other lost net was $2.4 million, mainly due to increased share of profit of associates. The income tax expenses was $7.6 million, 7.5% over Q2 2025. Profit for the period was $3.9 million compared to a loss of $32.8 million in Q2 2025 and a loss of $17.3 million in Q1 2026. Net profit attributable to shareholders of the parent company was $38.6 million dollars, 385.9% over Q2 2025, and 84.6% above Q1 2026. Basic earnings per share was 1.022, which is 2.2 cents, 340% over Q2 2025, and 83.3% above Q1 2026. Annualized ROE was 2.4%, 2 percentage points over Q2 2025, and 1.2 percentage points above Q1 2026. Now, let's take a closer look at our Q2 2026 revenue performance. From a geographical perspective, revenue from China was $563.7 million, contributing 78.6% of total revenue, and an increase of 20% over Q2 2025, minimally driven by increased demand for MCU, flash, general MOSFET, logic, and smart-car ICs. Revenue from North America was $93.8 million, an increase of 77% over Q2 2025, minimally driven by increased demand for other polymangina IC and MCU products. Revenue from Asia was $32 million, an increase of 11.6% over Q2 2025, mainly driven by increased demand for superjunction and MCU products. Revenue from Europe was $28 million, an increase of 90.1% over Q2 2025, mainly driven by increased demand for MCU and smart car ICs. With respect to technology platforms, revenue from embedded non-volatile memory was $200.1 million, an increase of 41.8% over Q2 2025, mainly driven by increased demand for MCU and smart car ICs. Revenue from standalone non-volatile memory was $68.8 million, an increase of 149.3% over Q2 2025, mainly driven by increased demand for flash products. Revenue from Power to Speed was $182.3 million, an increase of 9.4% over Q2 2025, mainly driven by increased demand for channel MOSFET products. Revenue from Logic and RF was $83.2 million, dollars, an increase of 21.3 million dollars, 21.8 percent over Q2 2025, mainly driven by increased demand for logic products. Revenue from analog and power management IC was 183.1 million dollars, an increase of 13 percent over Q2 2025, mainly driven by increased demand for other power management IC products. Now turning to our cash flow statement, net cash flows generated from operating activities was $338.1 million, 99.3% over Q2 2025 and 159.2% above Q1 2026, mainly due to increased receipts from customers. Capital expenditures were $356.6 million in Q2-2026, including $325.9 million for the 12-inch facilities and $30.7 million for the A-inch facilities. Other cash flow generated from investing activities was $25.4 million in Q2-2026, including a $7.25.4 million receipt of government grants for equipment, $8.6 million interest to income, $7.3 million dividends, and $0.2 million receipts from the disposal of equipment, partially offset by a $16.1 million investment in equity instruments. Net cash flows used in financing activities was $406 million, including $569 million of bank principal repayments, $37.6 million interest payments, and $1 million lease payments, partially offset by $201.5 million proceeds from bank borrowings, and $100,000 proceeds from share option exercise. Next, moving to the balance sheet, cash and cash equivalents was $4,530,000 on June 30, 2026, compared to $4,867.9 million on March 31, 2026. Other current assets increased from $894.6 million on March 31, 2026 to $936.2 million on June 30, 2026, mainly due to an increased value at tax credit. Property, plant, and equipment was $7,286.3 million on June 30, 2026, compared to $7,105.9 million on March 31, 2026, primarily due to capacity expansion. Interest-bearing bank borrowers from $2,897.2 million on March 31, 2026 to $3,567.5 million on June 30, 2026, primarily due to repayments of bank borrowings. Total assets increased from $14,947.3 million on March 31, 2026 to $15,225.8 million on June 30, 2026. Total liabilities decreased to $5,528.4 million on June 30, 2026, from $5,663 million on March 31, 2026. That ratio decreased to 36.3% on June 30th, 2026, and 37.9% on March 31, 2026. Well, finally, let's discuss our outlook for the third quarter of 2026. We expect revenue to be in the range of $770 million to $780 million. dollars with the projected gross margin of 16% to 18%. This concludes my financial remarks. We will now begin the Q&A session. Operator, please assist. Thank you.

We will now begin the question and answer session. If you'd like to ask questions, please press star 1 and 1 on your telephone and wait for our name to be announced. To cancel your request, you can push star, one, and one again. Our first question comes from the line of Le Ping Huang of Hua Tai. Please go ahead. Your line is open.

Thank you for taking my question. Dr. Bai, so first, congratulate for the very strong results. So my calculation shows that you'll deliver another 3% QNQ ASP goals this quarter. So could you unpack what drives this ASP growth and whether it's from pricing or some mix change? And how do you see this ASP trend in the second half and beyond? Also, we noticed the largest foundry in the world now also say they were re-emphasizing this mature and specialty node process to serve their customers. So plus also the domestic peer also want adding capacity. So how, what's our view? So on this maternal supply demand relation in next few years, or how and how can differentiate from peers and further improve the profitability ahead?

Thank you. You have a number of questions in there. We try to tease them out and answer them one at a time. So in terms of pricing, as you know, in our industry, the pricing is set by market, it's visited by the balance of the supply and demand. Since the beginning of the year, we started to see the demand going up and the balance is shifting towards tightness in terms of supply situation. So as a result, that has driven up price increases. In the MCU and memory area and pyramid area, those are the areas that are more associated with the AI applications. Also used in the consumer segment, but there are probably, man upturn is probably more significant. That's why we see the supply and balance shifting towards demand and the supply being tight. In fact, some of the products clearly cannot meet the demand. The receiving is anywhere between 1.5X to 2X of our capacity. So as a result, we are doing everything we can to basically optimize our capacity structure and try to produce more across the board, which is somewhat difficult right now because we have been pretty much 100% loaded. So it's really for some very hardworking innovation. Of course, we are fortunate to have a FAB that was still going through the capacity expansion. So that's why we can still get a good capacity increase from the FAB 98 that we have. That's still going through the capacity. In a way, if you ask me what is our advantage, the problem's advantage, I think it comes from two ways. One is our technology capability clearly is a domestic standpoint of the industry leading in many, many areas, and some of them are also on par with our international competitors. So that gives us a strong foundation to basically build our capacity and serve our customers. Another thing is since last year, although last year nobody predicted this year is going to go up, but since last year we were also quite steady, we were quite determined to continue to increase our capacity. That decision or that strategy of steadily expanding our capacity, Actually, you can say, you might say that it has a payoff somewhat as this year come in and the market is turning. In terms of future pricing prediction, it's really a function of this latest demand wave, how long is it going to last? It's a debatable point. There's a lot of discussion or debate amongst the industry people, but short term I think that for the second half of this year and as well as the 2027, that most people still believe the demand will continue to be strong. Now, I share that view and so in that sense I expect our price increases will continue throughout the second half of the year. Some of the pricing action we have taken over the last quarter, it was starting to manifest itself probably in the second half of next year. so i do think that this up upside this upturn in demand will be accompanied by our continued ability to to increase the price a little bit i don't i don't want to caution everybody that we are now like a d-run market there's a multiple increasing multiple we're talking about still percentage in percentage term but i do think it is a nice term for for the better and we should continue enjoy that for the foreseeable future at least through second half of this year and perhaps to next year thank you okay it's like so the second question uh from me is about the memory.

So the largest China-based DRAM company just listed in Asia recently, and we see very strong investor interest on China's memory industry. And at the same time, looking the global perspective that providing the logic die foundry service to memory maker has become a new trends these days. So, Dr. Baiso, can you share some, your view, how Hua Hong can benefit from this memory built out in China and globally?

And do you have any view that you plan to for example, cooperate with the China global memory makers on providing similar logic service thank you okay the memory coming different types like the one you're seeing the biggest object is the DRAM the second common land we're not directly participating in DRAM no land but we do have a substantial business in North Flash business, which we have seen demand increases this year, and they're probably going to continue for the second half of this year and next year. So we do enjoy the demand uptake there. In terms of how do we, I think the fact that the memory is going up, it's really representing the overall demand for semiconductor is increasing. So in that sense, it definitely benefits everybody. It benefits the memory more directly because it probably goes up there faster. But it doesn't want to benefit the logic foundry, or I would call us as a specialty technology foundry, which is we have a lot of product in logic, in analog, and some specialty memory, like more flash. So in a way, the fact that DRAM seeing the biggest demand increase, it truly just represents than the fact that the AI has been driving a lot of demand increases for overall in the semiconductor. So in that sense, it's definitely a good thing. So we do benefit from the overall semiconductor demand increase. Specifically to DRAM or even NAND, Because the technology direction there is a test that it tends to start to have, their product tends to try to basically, it's basically their product, they try to separate the memory elements from the perfect logic into two different die and through some kind of a 3d assembly to put them together as a product so in that sense if the memory houses want to spend more time or focus more on the pure memory elements they might basically then they might let their logic the perfect logic plastic dye to be manufactured by the larger foundries. In essence, we do see the larger houses probably with collaboration with the larger foundries for us to, so we can focus on truly what is their specialty, which is the memory, the bit, the memory part of the overall memory part. So probably in the early stages, technical transition, and by overall it is moving the direction that they might even create some new demand for logic funders, because their logic portion of their monolithic, they might get separated out in the separate and give it to logic funder to manufacture, if I explain that clearly. Thank you.

Thank you. It's very clear.

Thank you for the questions. One moment for our next questions. The next question comes from Tsuyuan Wang of CITIC Securities. Your line is open. Please go ahead.

Thank you for taking my question. This is Tsuyuan from Zhongxin, Zhenquan. My first question is could you – we see a great guidance show the solid growth in Q3. And could you break down the Q3 revenue guidance to show how much is driven by ASP increase and how much is driven by the capacity expansion? And also regarding on the expansion, approximately how much capacity will be added in Q3 and Q4? Thank you.

So let me take on the capacity expansion part, last Daniel, to talk about the guidance for Q3, how it works on between volume increase versus pricing, which I think that's what you're asking. So the capacity increase, our FAS 9A in Wuxi, it will ramp up to the peak to the over to So the total capacity by Q3, next quarter, you have all the equipment in that FAB, start to load the FAB 100% starting in Q3, but the output probably will start to show up in Q4 or next year. So I think the 2027, you should expect that a full FAB worth of output from FAB9A. As you know, we do have another fab that's under construction, March of this year, and that fab, we'll start to have equipment that we have, we've got a complete line in Q1 and we will start to have a small volume coming out. So next year, throughout 2027, we will start the capacity ramp up from the next FAP, which we call FAP 990. I will let Daniel talk about Q3 revenue breakdown, the guidance between volume and...

Thank you for the question. So we expect the revenue is going to be between 770 million dollars to 780 million dollars. That's our projection for Q3. The increase is largely coming from MCUs. MCUs, that whole sector embedment biotermemory will continue to grow strong. There will be a double-digit growth, and the standard lumen volatile memory continue to be very, very strong in Q3, and I think this trend will continue throughout the year and into 2027 as well. And apart of discrete, especially the low-voltage products, we're talking about the MOSFET business and also split split the medium voltage products they are also going strong the IGBT and Super Junction virtually flat virtually flat and then on the logic and RF side I think there's going to be pretty strong momentum from the RF as well RF as well and other than that I think we see strong momentum coming from power management IC and analog business as well even though analog is still a small segment its point but they're also growing pretty strong in Q3 so overall it is you know when you look at technology platforms these are the you know what I just discussed are the major drivers and in terms of revenue increase, when you look at ASP and volume, it is really a split. I think anywhere when we're looking to 70% increase on revenue, I think I would say, you know, 60% coming from ASP, and also another 40% were coming from increased in volume.

Thank Thank you, thank you. My second question is about the capacities transit or switch. Since our demand is strong, is it possible to flexibly switch our capacity between product? Can we shift the CIS capacity to memory products and which type of capacities allow this kind of conversion and also what impact would such conversion have onto the overall ASP in maybe next quarter or second half? Thank you.

First of all, the capacity are somewhat They are not fungible to a certain extent, they are fungible, meaning that if you build 1,000 certain technology platform, you can also, you get some, with some conversion rate, you can use the capacity to do something else. So there is some fungibility. exactly how much it depends on the technology problem you're talking about. Specifically, CSS, for example, the flow is pretty close to the logic flow, so if you try to be fungible with some technology problem that's close to logic flow, then a lot of of them can be used, so for example, we normally group larger products, CRS, the driver type of product, in one group because they are very much mutually fungible to a large degree. If you want to use CRS for BCD type of product, the fungibility, there's still some fungibility but it will be decreased. Or if you want to use for memory product, there are also some fungibility, but you will probably further decrease somewhat because some of the memory products have some unique tool that requires. So a lot of times your fungibility is limited by those unique tools, unique to each technology platform. So when we build a fad, we try to manage the fungibility. You obviously can't be 100% fungible. We try to maximize the fungibility so that we can react to market demand fluctuations among different technology platforms. So right now, we are certainly exercising that fungibility to a maximum extent. This, of course, is also limited by the fact that we still want to maintain a reasonable volume for each product because we're into a long-term business. We don't want to just look at the next quarter or even just one year. There is some level of strategic decision-making that's going on to make sure that we do have a long-term view not to be 100% driven by short-term considerations. That's one. Another one is to use pricing as a tool to kind of manage the demand, shift in demand and between the technology problems so that the demand pattern matches our capacity pattern better. So, yeah, overall, I think when the overall demand is tight, in general, we manage to block the board some more than others. Thank you.

Okay, very clear. Thank you, Dr. Bai.

One moment for our next question. The next question will come from the light of Ziyue of Guosan Securities. Your line is open. Please go ahead.

Thank you for taking my questions. This is Yezi from Guo Xin Zheng Chen. I have to first say about the demand of the consumer electronics. So the rising memory price may weigh on the demand of the consumer parts, but still we can see Hua Hong achieve a sequential growth in consumer parts. So, how do you view the growth of our consumer-related part in the second half of the year? This is the first question.

That's actually a good question. Frankly, at the beginning of the year, when everybody started to know that the AI related with the product will have high demand, another thing was discussed in the industry was the fact that when the DRAM is getting too pricing, you're probably going to depress the consumer demand, which is probably true in the end market, some of the end market segments, like a cell phone, for example, clearly is going to see a decline this year. So we were expecting, actually, maybe a demand decrease on the consumer segment. So, as I said, we're a broad funder supporting all different market segments, and I think we were a little bit surprised that we actually didn't see as much negative impact by some of the consumer and market demand decrease. It could be that because we are now, we are a founder, so our direct customers are design houses, their product, then to them, those IC products, those seem to a different segment of end market, maybe through, because we are now directly providing to the end market, So maybe our direct customers are doing a good job of managing between different end market. That's one possibility. That's why we don't see much of a negative impact from the consumer end market. Another possibility is, which is also possible, that even consumer market, any market might be having a bit of a decrease in demand. They also want, they don't want their stock level to, they don't want their, they still under some inventory level, to build some inventory that for probably inevitable upturn in the future. So those are the two possibilities. So, but the net result is that we do see strong demand with all the AI-related products. And we haven't seen that much negative impact So at the funded level, a certain possibility could be our product, our technology, as I said earlier, we are pretty strong on the technology. It could be if we're in the low end of the market, which we're not. We're mostly in the mid and high end market, maybe the lower market might see a more negative impact.

Thank you. And my next question is about the progress of the acquisition. So could you update the progress and also the technology roadmap after the acquisition? Thank you.

The progress we already updated in the statement that we got to the final approval from the exchange. So we expect the final step of this long acquisition process is going to take place probably within a month. After that, the whole thing is complete and done. The second part of your question I probably didn't quite get, We do expect this to be a very positive acquisition for our financial statement. Once the final steps get completed, the body micro results will be included in our financial results. If there's nothing, there's no surprises in Q3, Q3's statement will include the HALI Micro. Did I answer your question?

Yeah. And also, I have a quick follow-up on, so how about the technology roadmap after the acquisition? Oh, okay. So, any new, yeah, yeah.

In terms of what the product Huari Micro is doing, there's quite a synergy with what we have in Hua Hong Grace. We do achieve quite a bit of savings, quite a bit of synergy in terms of technology sharing. In other words, some of the technology development that we do in Qualcomm Grace or in Hawaii Micro previously now can be combined. So we basically, for any given R&D dollar, we get a bigger manufacturing scale. So that's good for us in terms of improved efficiency. Another thing that helped us is that now we have one more fact, so our manufacturing scale for a given technology problem that effectively are virtually bigger, so we can take on more customers who have a bigger capacity needs, and that way previously my struggle is we So we just have two separate entities, especially with Huali Micro, they are by themselves, they are now large. So that's another benefit. The third benefit is that now Huali Micro joined the Wahong Grace, the overall manufacturing system that we can optimize the capacity structure, like what kind of a technology platform place where so that give us a better ability to respond to market, changing market demand, especially right now because the insurance supply that we limited can start from the technology platform that we cannot supply in Wuxi, for example, to put it in quality micro, so overall you see really because of the bigger scale, R&D saving and overall improved efficiency because of the large scale and also the procurement also has a bigger volume, everything is basically positive. So we think this is going to be a very, very, it has been a very good test to take. Thank you.

Thank you, Dr. Bai. That's all my questions.

Questions? Please hold for our next questions. Next questions will come from the line of Ching Yuan Lin of Sanford C. Bernstein. Please go ahead.

Thank you for my question. Congratulations, Dr. Bai and Daniel for a good results for the earnings. My question comes from two angles. The first one is around the future capacity expansion. Dr. Bai, what's your view on the demand sustainability for 27-28? You mentioned it was quite clear for the second half. I was wondering, do we expect this cycle to be kind of continue to be stronger even for the next few years? And you mentioned that, you know, last year there was a good decision to continue capacity expansion. With this strong demand, Do we continue to see that we might need to further accelerate the capacity expansion even for 27 and 28? So that will kind of lead to, I guess, a question for Daniel. Do we have any plan to further ramp up our capex? That's my first question.

Yes, let me—we—in terms of capacity expansion, we definitely want to continue the capacity the expansion at a steady pace, so that we can manage the cashback's expenditure while still we maintain possibility that we have come a long way to establish at this point. I do think, as I said earlier, the second half of the year, everybody, the short-term market demand is strong. In 2027, the consensus is also going to be strong. 2028 is where people started to have some debate, so it's probably a little bit too early to tell in 2028, but I do think overall the secular trend is I do see a secular growth in place that we participate, which is the specialty technology. In that sense, that's the reason that gives us confidence that we will continue to expand capacity. So this overall demand increases based on new application of the semiconductor, and also based on the fact that some of the industry players may start to close down some of the 8-inch labs. As you know, we do have a benefit from some of the industry capacity going offline. 12-inch is a different story, but a lot of the growth is mostly on 12-inch in terms of the demand side. So I think in terms of the supply side, 8-inch, nobody is spending 8-inch capacity, but the supply side might get decreased. but the demand side is probably going to continue to go up. So it's really based on our strategy of expanding our capacity. It's based on our confidence that the market, even with some fluctuation, overall direction is still going up. Another, our confidence is also based on the second factor, which is we believe our technology capability, relative to our competitors in the industry, is also going to strengthen. At the scale, we have the people, we have the track record, we have the position in China as well as even worldwide now that we think our capability will increase. So we're not afraid of even the downturn comes. It's even growing more capacity.

Thank you. Daniel, any comment on the guidance or kind of projection for the next two years?

I would say, you know, we are, we start to construct the third 12-inch fab early this year, and this fab will start to ramp over the next three years to 55,000 wafer capacity. So, it's going to be, it's about, overall, it's about possibly $6 billion capex spending. So, I would say roughly $2 billion a year for the next three years. But other than that, you know, unless we have other new fabs that we plan to build, this is what we – this is going to be the major CapEx spending.

There's just one uncommon, that $60 billion, not all the CapEx, so it's probably less than $2 billion per year, 1.5 years, three years. Only three years, yeah.

Got it. Very clear. AND MY SECOND QUESTION IS AROUND IN THE EARNINGS, IN THE EARNINGS WE DO CALL OUT SPECIFICALLY THAT WE HAVE ABOUT 25 MILLIONS OF RECEIVEDS FOR THE GOVERNMENT GRANTS FOR EQUIPMENT. MAY I HAVE KIND OF A BIT MORE DETAILS BEHIND THAT AND LAST TIME WHEN WE CALLED THAT OUT WAS FOURTH QUARTER 25 IS ABOUT 37 BILLION AND THIS IS KIND OF RELATED TO MY QUESTION AROUND THE PLAN FOR THE 9B. WHAT'S THE SHARE OF LOCAL EQUIPMENT DO WE PLAN THAT TO GO UP AND WHAT KIND OF LEVEL we should expect. Thank you.

Well that was actually some subsidies grant we got not in Wuxi, but it was really for Shanghai. Okay, that's the grant we received in Q2 from local government here. The Wuxi part where most likely would be paid I think in Q4 time, in Q4, in Q4 2046.

The second part of your question about the domestic equipment, I think the domestic equipment sector in China has been getting strong year over year. We do express as a general trend, the newer fabs will have higher percentage of the domestic equipment.

Very clear. Thank you so much.

Thank you for the questions. Our next question comes from from Daiwa Securities. Your line is open. Please go ahead.

Hey, thanks for taking my question, and congrats on the great executions. Can I ask your current lead time for products across different technology platforms, and which segment is expanding and which segment is decreasing?

Sorry, lead time is manufacturing lead time. So, how long it takes to manage to get the wafer from start to finish?

Exactly. To deliver to your client.

Oh, okay. That, obviously, depends on the technology problem. Some process flow longer, some are short. Like the power, the discrete power devices, that doesn't have too many steps. So you can get it in a couple of weeks if we accelerate it. Then some of the MCU products have 50, 60, or 30, 40 mass layers. That will take two months if we accelerate it. And the speed of the wafer moving through a fab It's also a function of loading. If you have a very heavily loaded fab, they basically have a longer queue time in front of the equipment, so they tend to go, so the average speed will be slower. But we can, we also, usually in the fab, the way we manage it is that we have a different tier of the speed. For some of the things, like NTO, the first time you have a new product, we try to give a high priority, they can adjust to the fat very fast. But for the volume production, which you are not, we tend to maximize the output versus speed. So we let that to, that still doesn't, nothing takes more than a quarter. Once can be a month, two months, really depend on the type of products you have.

Is there any, you know, changes in e-time in terms of when we receive the order until we deliver the product? Is there any changes in e-time? So I'm trying to understand, is there any...

No significant changes. When the demand gets high, when demand is high and the supply gets high, one of the impact, one of the effects is to tend to make the delivery time a little bit longer. But this is something we work out with our customers. We will basically, when they place the order, we usually have a commitment to say, this will come out in certain this time if uh if a customer uh agrees and works to their satisfaction then we will just proceed so that's how that works but if there's something they need the urgent today we can also support that not 100 of the time but a certain percentage of the wafer can come out really fast if we need to.

Understood. That's very clear. Thank you. My next question is about our investment plans. I think I mentioned 1.5 billion USD per year. So what kind of technology platform will we focus more coming in two to three years? Thank you.

Let's get back to our focus. Our business focus is specialty technology. So if you look at specialty technology, they are very much application-driven, so we go where the market is, so to speak. So we look at the reason we have those four or five large technology platforms is because there's a large demand, market demand for those, like BCD for PIMIC, power management and power devices for all things electric and a lot of power related. MCU microcontroller nowadays, a lot of AI-related applications require microcontroller or even auto, the new EVs, which has a lot of microcontrollers in them. CIS has been there since the cell phone become a large application that drives a lot of CIS sensor. Now CIS is also driven by some security needs, and even the auto, the new EV, the autonomous driving car, or robots, for that matter, some emerging applications or drive a lot of that. So, I mean, there's no short answer to your question, but overall, we look at all the specialty technology we participate in. We see, we look at where the demand is high, and combined with where we have our strengths, like MCU, we're very strong in MCU, historically. That's also a growth area, so we're going to put a lot of, for example, we're going to put a lot of capacity there, and BCD is another area. So in general, if you look at our financial results over the last couple of quarters, the highest growth is really in the MCU. On the CIS logic, it is also an area that is very much interest to us, although the growth rate hasn't been as high as the other two technology platforms or other three, but we also try to drive up, try to get a bigger share there. So for us, it might become a growth problem. So those are the areas. It's really the capacity we're putting in where the current technology problems are. And each technology problem also, over time, the technology also evolves. It goes, MCU probably is going to go from 55 nanometer to 40 nanometer. follow, we will watch for in the market and try to build our technology rollmaps to go where the market is and also to go where we think we have a competitive advantage. So that's the complex answer I give to you. It's a bit of a complexity because by nature it's complex.

That's a lot of, we spend a lot of time on those things so that we'll make sure we we get it right so that we can have a that's great thank you so much thank you for the questions in the interest of time we will now take the last two questions kindly keep your question brief so we can take all the questions the next question comes from Tracy Choi of CLSA your lines open please go ahead thank you Dr. Bai Danny and the Cine Management for giving me this opportunity.

So my question is regarding the depreciations. That might be a ramp up and also new that coming. Wondering how much may be the depreciation in second half and also in next year.

Good question, Tracy. So look at the second half. Overall, the age business would be around $55 million. dollars okay and I understand you probably could be useful for your model and before the first 12 inch fab it is going to be around twenty fifty million dollars depreciation expense for the second half of 2026 and if a second top it is going to be at the 210 roughly two hundred ten million dollars the second half these are the forecast numbers and for the third five we're Just starting, virtually there's not going to be any. If there's anything, it will be minimal for this year. And then for microelectronics, okay, we're projecting about $30 million for the second half. Okay, for that fact, the depreciation expense is pretty much behind them. We're looking at around $50 to $6 million a year, and it's going to start to decline even further down in the next few years.

Got it. Thanks, Daniel. And my next question is regarding the new business. I think last Ernie's call you talked about expanding to interconnect solutions such as silicon photonics, Interpolsa. So I'm wondering if any quick update progress in any of those business, any specific area that you see stronger growth potential.

Okay. Thank you for the question. I have to be careful what I say here. We are the probably largest specialty founder in China. You are the second largest founder in China, but in the specialty technology, as I said earlier, in answering earlier questions, we work over where the market goes. So in that regard, of course, that is one factor. Another factor is that we also go where we think we have strengths or have advantage. So combining those two, that's the determine where we go. The part you mentioned, we looked at the AI is definitely a growth driver. Therefore, anything that's related with the AI application that happens to be in the specialty technology area, we want to, we look at very carefully and decide whether, then if we are now already there. We're already in a lot of those areas, the PMIC, MCU I mentioned, the power devices, all those things are in. And there's a few, like, of the electronics, silicon photonics, for example. We actually, in a way, we are already in there that some of the MCU do go into the module that makes the final silicon photonics. We like to expand the footprint there to probably get into more type of silicon-based devices. So it's going to be, because that's where we will have expertise. So, yes, we are going to basically look at the application there, look at some of the chips inside the silicon photography module to see. We already participated in some of those chips in there. We want to expand a couple more in terms of the IC, silicon-based IC. That's still the plan. We have seen the earliest learning that. The power devices, that's another area that is probably going through some technological of market transition that after this point it's mostly silicon-based and by now the silicon carbide for example, these devices are also become part of a powered device offering. Again, there the product is if you look at a module where it tends to contain silicon-based devices and increasingly silicon carbide so this is something if we want to continue in the power device area we will have to look at we have no choice but look at see whether we have a more complete offering so we are definitely doing a planning and a lot of the planning we do it a few things together before we say that we are in there and but we're not slowing down well going forward thank you got it that's

very clear thank you dr. by and daniel that's all for me and i will go back to the queue thank you thank you for the questions with that i'll now take the last question from kui jian of oran securities your line is open please go ahead uh hi this uh this is kui jian from Thank you, Dr. Bai and Daniel.

My first question is about our revenue from North America and Europe grew very strongly.

So could you give us more color about these two regions? Maybe it's from like the server PMIC or maybe MCU or this kind of product. That's my first question.

The revenue from North America, a large part of it is in the GCD PIMIC area, and a lot of the product there happens to be related to AI server boxes. That's the reason you see huge increases, because that's directly going to AI. For Europe, it's really, the large European company has this China for China, China for China strategy. Their product is mostly in MSS Smart Press and some power devices as well. I think as they prosecute their China for China strategy if we are their partner of choice in China that's the reason we see growth we expect to continue to see more growth from Europe as well thank you Dr. Bai my second question is about is about the equipment and material people are always talking about the the equipment supply are very tight and materials are the price for materials are increasing all these kind of things so from our point how do we see the the supply of equipment and materials a good question the the Equipment supply is getting tighter because the overall, all over the world, the semiconductor houses are increasing their capacity. So this is true for our overseas suppliers as well as the domestic suppliers. So the one manifestation is the lead time has been increasing. But it's still manageable, it's still manageable level and we, since we, for us, we started this capacity expansion last year, so a lot of the equipment we already booked last year, so we haven't seen huge increase, huge impact, but there are definitely getting tighter, We are tightly managing with our suppliers. We are our partners, suppliers, supplier partners to get the equipment lead time to a point that doesn't affect our overall capacity both increased schedule. And so far I think that we by and large can do that. For material, there's some isolated, there's a few examples because of the, for example, because of the wall in Middle East or some other regions that we do see tightness and even price increases on some of the, for example, helium gases because of the wall there. It had a temporary spike, but now it has managed to calm down. And overall, we don't see a—there are some metals, also metal prices, because of general inflation or because of the supply situation. So we do see some increases in some isolated area. But overall, it hasn't been a significant impact. We still managed to basically keep the price flat or down. And because the overall marketplace in terms of our supplier market is still reasonably healthy for us.

Thank you, Dr. Bai. It's very clear. That's all my questions.

Thank you, ladies and gentlemen. That's all the time we have for questions. I'll now hand back to Mr. Daniel Wang for closing remarks.

This concludes our today's call. Once again, thank you all for joining us today and for your valuable questions and input. It has been an exciting quarter. We look forward to see you again in the next earnings call. Thank you. Thank you.

Ladies and gentlemen, thank you for your attendance. All now disconnect.