GlobalWafers Co., Ltd. (6488) Earnings Call Transcript & Summary

Good day, and welcome to the GlobalWafers 2020 Quarter 2 Results Call. [Operator Instructions] I would like to advise all parties that this call is recorded for replay purposes. I now hand you over to your host for today, Sunny Lin. Please proceed.

Thank you, operator. Good afternoon, and good morning, everyone. I'm Sunny Lin, semiconductor analyst at UBS. It's a great honor to host GlobalWafers management today for their second quarter 2020 earnings release. Now let me pass the call to Mr. William Chen, the spokesman of GlobalWafers for opening remarks.

Thank you, Sunny. Hello, everyone. Welcome joining GlobalWafers' 2Q '20 Earnings Call. I'm William Chen, GlobalWafers' Vice President and the company's spokesman. We also have Doris Hsu, Chairperson and the CEO of GlobalWafers, in this call. Doris will give us the executive comments first. And then I will present industry overview, 2Q '20 performance update and the company ESG highlights. The final Q&A session will be hosted by Doris as usual. For today's presentation file, as always, we have uploaded onto company website around 2 hours ago. If you do not have the file on hand, please access into our website to get the most update file. Please note, some information during our discussion today will consist of forward-looking statements, which are applied throughout the call and this presentation. These are subject to significant risks and uncertainties. Actual results or trends could differ materially from our forecast. Please refer to the safe harbor notice in our presentation, Page 2, Disclaimer. Now I'd like to hand over the call to Doris for the Page 3, Executive Comments. Doris, please. Thank you.

Thank you, William. Good afternoon, everyone. Welcome to GlobalWafers' Second Quarter and First Half 2020 Earnings Conference. Well, macroeconomics, semiconductor wafer markets are still in tremendous flux now. Second quarter 2020 was very difficult due to coronavirus outbreak in not only China, but also many more countries in Asia, Europe and America. Fortunately, in the second quarter, except some countries with special, short term, temporary movement control order policy, basically, GWC returned our normal operation to support our customers' demand. And at the same time, we continue to ensure the health and safety of all of our employees. Our Q2 overall performance was pretty good. Quarter-over-quarter, our second quarter results represented 1.4% increase in revenue, 7% increase in gross profit, 11.2% increase in operation profit, 18% increase in net income and TWD 1.19 per normal share EPS up. That means that the whole Q2 EPS is as high as TWD 7.81 per share. Our second quarter 2020 profitability edged up and beat the last 3 quarters, reflecting our overall LTA strategy and operation strategy are effective in driving our growth through the headwind. Logistics challenges, including much longer transportation lead time and huge freight increase resulted from the COVID-19 outbreak and the subsequent restriction measures, are one of the difficulties encountered in Q2 for us. And those challenges did offset partial profit. Freight and logistics expenses start normalizing gradually from end of May. So it's much better now from logistics expenses viewpoint. Our overall utilization rate keeps improving month-by-month. Our 12-inch utilization rate is still very good, especially for those 12-inch advanced products. 8-inch utilization rate is very good, too. Small diameters below -- less than 150-millimeter is not as good as 12-inch and 8-inch. Now let me make some comments on our overall cash flow analysis. GWC cash flow from operation in the first half 2020 reached USD 208 million, and our cash as of end of June was still over USD 1 billion. These reflect our very good operation strategy and emphasize the strength of our business model and financial models. GWC cash dividend of TWD 25 per share will be distributed this Friday, or August 7. Again, this dividend payout ratio is as high as 79.7%. Total payout this time is as high as TWD 10.88 billion or USD 367 million. Our net dividend payout for the first half 2020 net income will be made in Q1 2021. As we presented last time, starting from this year, we will make 2 dividend payouts every year, so once every 6 months. And basically, it will be starting from Q1 2021. The second dividend payout for second half 2020 will be made in Q3 2021. Okay. Let me make some comments about our outlook for the second half 2020. We expect second half 2020 to further stabilize and close out second half 2020 flat or slightly up versus first half 2020. That's our view because of the unprecedented levels of government financial aid has already been pumped into economics much faster than in all the crisis before. Semiconductor industry is expected to hurt less by pandemic, much lower than the other industries. It is essential to keep the society functioning. So our view is for semiconductor industry, fundamental growth drivers was not changed by the pandemic. The pandemic itself is actually accelerating drivers related to cloud as remote work, remote study, remote education and all the remote activities become more widespread and normalized. In addition to the above-mentioned boost from work from home, education from home, 5G and AI are the drivers for long-term growth of semiconductor industry. However, automotive business is still very challenging now. As matter of fact, automotive business is the most difficult category for us in the first half of this year. However, I think it has already hit the bottom in May. We see -- we start seeing more and more growth and improvement from automotive customers. And I think that it will gradually bottom up -- bottom out from Q3. So here, I have some further updates on our ongoing production projects. The very first one ongoing production project I would like to update is for our 12-inch epi wafer expansion in Taiwan, Taisil. Taisil, we will have 12-inch advanced epi wafer expansion. You know very well that 12-inch advanced epi wafer is one of the fastest-growing market in semiconductor silicon wafer section due to the downsize -- miniaturization of the process like 7-nano, 5-nano, 3-nanometer and even further lower. And also, 12-inch advanced epi wafer is good for lightweight, low-power consumption and high-speed computing as well. So Taisil new epi expansion will start ramping up from 2022. Total capacity -- new capacity from this expansion will be around 90,000 wafers per quarter. And the second ongoing production I would like to update is for our 12-inch polished wafer expansion in Korea we call Korea Fab2. Tools moving has already been completed. The field fine-tuning is a bit delayed due to a lot of lockdown, border closure and long quarantine time required in various nations. So we aim to match production by Q4 this year. And the third section I would like to update is for silicon carbide and gallium nitride. GWC established a compound semiconductor research center with NCTU, which is one of the very best university in Taiwan, to accelerate the process development of 6-inch and 8-inch compound materials, including silicon carbide and gallium nitride on silicon carbide or gallium nitride on silicon. The benefits and synergy of this R&D center are to foster talents and scientists for this strategic product and to construct compound wafer supply chain -- also construct this compound wafer supply chain in Taiwan. So we are very confident that in the next several years, compound semiconductor business will have very good, very healthy CAGR, even higher than silicon wafers. So that's all of my summaries and quick presentation. William will present further details of our Q2 2020 and also the whole first half 2020 overall operations and performance to everyone. Thanks, again, for participating in this conference. Thank you very much. William, please.

Thank you, Doris. Now let me share some page of industry overview first. Please turn to Page 7, world economic projection. All major countries economies are projected to contract in 2020, with the exception of China, only 1% in 2020. However, it is estimated that all major countries economy will recover in 2021. Page 8, worldwide semiconductor market forecast. Analysts expect the world semiconductor market to be up by 3.3% to USD 426 billion in 2020, escalating to 6.2% in 2021 driven by double-digit growth of memory. Page 9. Semiconductor [ fell below ] the record spending in 2021. According to SEMI report, 2021 global fab equipment spending forecast with 24% growth to a record USD 67.7 billion. That is 10% higher than the previous forecast. Page 10, global silicon wafer area shipment. Worldwide silicon wafer area shipments rose 7.9% to 3.2 billion square inches in 2Q '20 and surpassed 2Q '19 shipments by 6%. Next, from Page 11 to 15 are addressing on the compound materials. Now compound materials leverage many important advantages over traditional silicon technology. Conveniently exploited to fabricate ultra performance power devices, they will play a crucial role in the future of electronic, owing to its potential in boosting power tendering capability with better efficiency. Page 11. Power and compound fab spending rebounds in second half '20. Global fab equipment spending for power and compound devices is expected to rebound in second half '20 and jump 59% to a segment record USD 6.9 billion in 2021. Page 12, power and compound capacity and count of facilities. In 2019, there were 804 facilities with 8 million wafer per month capacity in 200-millimeter equivalent wafers. By 2024, 38 new facilities will begin operation. Capacity grows 20% to 9.7 million wafers per month. Page 13, compound semiconductor, silicon carbide and gallium nitride. In the right-hand chart, compared to traditional silicon wafers, all compound materials, silicon carbide, gallium nitride and gallium arsenide, have better operating performance in breakdown voltage, electron saturation velocity, electron mobility, [ led to ] operate higher capability of heat management and charge capability. Page 14, how silicon carbide and gallium nitride capture market shares over incumbent silicon technology. From the chart, compared to traditional silicon wafers, silicon carbide and gallium nitride materials can be operating in much higher switching power and higher frequency environment, major applications in EV, high-speed train, wind power, PV inverters in the powertrain. Page 15, silicon carbide and gallium nitride power semiconductor market forecast. Silicon carbide and gallium nitride power semiconductors is forecasted to rise to USD 854 million by the end of 2020, [ surpass ] USD 1 billion in 2021 and to increase at a double-digit annual rate to USD 5 billion by 2029. Following pages, Page 16 to Page 19, are about the 5G market status and outlook, also worldwide subscription projection. But now there are too many networks, the newest and advanced application, building on the 5G platform, such as EV, AR, IoT and so on, that will drive up the significant net demand of semiconductor devices, including silicon carbide, gallium nitride compound material as well. Therefore, it is for sure that semiconductor wafers demand will be growing up with worldwide 5G rolling out progress simultaneously. Now let's move to Page 21, 2Q '20 performance update. Page 21, 2Q '20 financial highlights about 2Q '20 financial performance. As Doris highlight right now, given the logistic challenges that resulted from COVID-19 outbreak and the subsequent restriction measures offset the partial profits, GlobalWafers still reached 2Q '20 profitability edged up and beat last 3 quarters. And net profit of 24.8% hit company record. Robust demand for work from home and medical electronics made 2Q better than 1Q. Revenue, TWD 13.7 billion with Q-o-Q 1.4%; EBITDA, TWD 5.6 billion with Q-o-Q 11.8%; EBIT, TWD 4.3 billion with Q-o-Q 13%. Good profit despite of COVID-19. Gross margin, 38.6% with Q-o-Q 2.1%; operating profit percentage, 30.9% with Q-o-Q 2.7%; net profit percentage, 24.8% with Q-o-Q 3.5% is best ever; EPS, TWD 7.81 with Q-o-Q TWD 1.19. For financial leverage, we have sufficient cash position, TWD 32.1 billion. Also prepayments, TWD 18.5 billion on hand. Page 22, Q-o-Q financial highlights, 2Q '20 versus 1Q '20. In this Q-o-Q comparison table, as previous pages stated, GlobalWafers reached all-better Q2 financial results than Q1. In revenue, plus 1.4%; EBITDA, plus 11.8%; EBIT, plus 13%; operating profit, plus 11.2%; net profit, plus 18%; EPS, plus TWD 1.19; ROE, plus 1.4%; and ROA, plus 1.2%. Page 23, Y-o-Y financial highlights, Q2 '20 versus 2Q '19. For Y-o-Y comparison, given 2Q '20 results is much better than 1Q '20, however, it is still not as good as 2Q '19 because markets continued erosion in year 2019 and the COVID-19 impacting in 2020. Page 24, financial highlights, first half '20 versus first half '19. For the half year comparison, first half '20 versus first half '19, same as last page, Y-o-Y comparison. Because markets continued erosion in year 2019 and the COVID-19 impact in 2020, first half '20 financial results is still softer than first half '19. Page 25, financial highlights, first half '20 versus second half '19. Although first half '20 result is softer than first half '19, in the last page, compared to the latest half year, second half '19, first half '20 has improved financial results, better than second half '19. That show that semiconductor industry has recovered from 2019 year-end cycle [ path ]. Page 26, revenue and gross margin. Given market is still impacted by COVID-19 and with higher logistic costs, 2Q '20 gross margin still increased 2.1% from 36.1% -- 36.5% in 1Q '20, up to 38.6% in 2Q '20. That is the best among the latest 4 quarters. This increase in second quarter gross margin is mainly attributed by, first, product mix with higher percent of figures [ are metered ], especially from 12-inch wafers. Second, better ASP. We have more shipments of advanced nodes, higher ASP products shipped in this quarter. Page 27, EBITDA and the EPS. For EBITDA, we also significantly improved from 37.1% in 1Q '20 into 40.9% in 2Q '20. The first half '20 EBITDA reached to 39%. That is the same high level as year 2019 company record. 2Q '20 EPS of TWD 7.81 is much better than 1Q '20, TWD 6.62, result. The first half '20 EPS, TWD 14.42, is also better than second half '19, TWD 14.33. Page 28, financial leverage. At first half '20, GlobalWafers continues to keep sufficient cash as high as TWD 32.1 billion on hand. In this quarter, we had reduced TWD 4.7 billion bank loan. At the same time, we have been efficiently using our restricted cash for the Taiwan advanced node product epi fab expansion to be getting more than 19,000 epi wafer per quarter within 2 years. This restricted cash portion was defined for overseas sites' on-hand cash [ 1 Half the ] Taiwan headquarter to enjoy Taiwan tax benefit. The LTA prepayment amount is TWD 18.5 billion, which is around TWD 1 billion decreasing in Q2. That is the similar amount decreasing trend comparing to Q1. Page 29, dividend payout. At earnings announcement, we had decided to keep the same high dividend payout policy, TWD 25, 59.7% payout ratio to be paid on August 7. Please also note that we have demonstrated our commitment to give back to shareholders with a payout ratio of nearly 80% for 7 consecutive years since 2013. Page 30, smoothing out the shareholders' dividend stream. As Doris mentioned right now, GWC will change dividend distribution from once per year into once every 6 months. The dividend distribution schedule will be first half '20 dividend to be paid in 1Q '21, second half '20 dividend to be distributed in 3Q '21. Page 31, income statement. In this income statement, just to recap, GlobalWafers reached all-better Q2 financial results than Q1, and the 2Q '20 net profit, 24.8%, is company record high. Page 32, balance sheet. In this balance sheet, just to highlight, the shorter loan reduced to TWD 4.7 billion. The inventory is still well-managed within TWD 7 billion. Next, Page 33 to 37 for ESG highlights. Responsible growth is our principle in business practice. GlobalWafers aims at being at the forefront of global responsibility in the aspect of environment, health and safety and corporate governance. Page 34, sustainable environment electricity. GlobalWafers optimization group-wide electricity consumption has helped us improve operating profit by 14.8% in 3 years. Page 35, improvement on electricity consumption. Although in the growing and the wafering consume a great deal of energy, GlobalWafers is dedicated in enhancing energy efficiency and achieved same revenue with less energy. That is 24% improving from 2017 to 2019. Page 36, excellent business practice. We achieved compliance with local legal requirements and international standards. We formulate the guidelines to be observed by all directors, managers and staff members. We set up grievance system to prevent dishonesty and protect whistleblowers to the fullest extent possible. We also established a risk assessment mechanism, analyzed and [ it varies ] periodically. Page 37, diversity and inclusion. GlobalWafers is committed to supporting gender equity, advancing women in the workforce globally. Women in our global workforce is 24% overall, 14% on our Board. [ That ends ] my presentation. Thank you. Next, I would like to hand over to Doris and Sunny for the Q&A session. Doris, please.

Thank you, William.

Thank you, Doris and William. Now let's begin the Q&A session.

[Operator Instructions] Now let me kick off the session with 2 questions from my side, if I may. So number one, for second half, I think you are guiding for revenue to be flat to up half-on-half. In comparison, I think some of your peers are expecting second half to come down slightly. Wonder where are you seeing upside into second half? And also, how should we think about the gross margin for second half?

We think that there are several set of variables in the first half, automotive was extremely bad, but we are seeing some improvement. From end of May or June time frame, we do see some improvement from automotive. But we believe that second half automotive demand will slightly improve -- gradually improve quarter-by-quarter. So this is the first sector, we think, will improve a little bit. And the second point is that 300-millimeter, definitely, demand will be still very strong. And a very special point of GlobalWafers for 300-millimeter is that we will have new capacity available in Korea from the second half. Our goal was to ramp up our new capacity in Korea from Q3. But due to COVID-19, the fine-tuning has been delayed a little bit. We try our best to accelerate the fine-tuning. But I think by end -- by Q4 this year, I think we should be able to run at least 3/4 of -- 75% of our full capacity in Korea in Q4. So that will be an additional capacity -- additional revenue from -- for GlobalWafers. And 8-inch, we think that 8-inch demand will be still stable, so that's our view for now. Thank you.

Got it. So my second question is regarding your Korean new fab. So you just mentioned 75% utilization rate for Q4. So that's on the full capacity of about, I think, [ 154,000 ] for Q4, for the full quarter?

Yes. Full capacity for our fab in MKC is 176,000 wafers a month. So I think we should be able to run somewhere around 75% of the full capacity. That's current plan. Of course, if COVID-19, if the situation is getting a bit worse than our expectation, maybe that will -- the percentage will be slightly lower than 75%.

Got it. And just a very quick follow-up. For this new fab, how does pricing and gross margin compare with the corporate average?

That will be -- I would say that it will be same or very close to our average 300-millimeter, ASP-wise. Gross margin-wise, maybe slightly lower than our average gross margin because of the depreciation because that's a new capacity. So depreciation will be higher than the other fabs to 300-millimeter gross margin.

Operator, would you please open the system for Q&A?

[Operator Instructions] We have a question from the audio. It comes from the line of Haas Liu from Crédit Suisse.

Doris, William, congratulations on the group results. The first question I would like to ask is on your profitability and LTA. So on the gross margin, could you discuss the factors that lifted gross margin by 2% in 2Q on similar sales scale? And do you think that will sustain into second half? And for OpEx, I think you mentioned your OpEx quite well, down 6% quarter-on-quarter, following a 13% decline in the first quarter, while your sales is pretty flat. What should we model for the OpEx in the coming quarters? And do you think your customers are negotiating the new LTA since it is very important to your margin sustainability?

Okay. Our Q2 gross margin, 2% higher than Q1, and main reason for this is -- actually, product mix plays a very important role for this ASP improvement. In general, our 6-inch or small-diameter wafers ASP is much lower -- gross margin is much lower. And starting from Q2 this year, I think product mix-wise, 300-millimeter product mix -- the weight of 300-millimeter, especially advanced 300-millimeter, is much higher than small diameter. So gross margin-wise, it means that higher gross margin product has higher weight. So that's why our gross margin in the second half -- in the second quarter was slightly higher than Q1. This is -- product mix is the first reason. And the second reason for a bit higher gross margin is because of some financial support in Taiwan due to COVID-19. In Taiwan, due to COVID-19, government deployed some financial aid for labor cost and electricity cost and some other benefits, not big, but that's part of the reason of our Q2 improvement as well. These 2 are the main reasons for our slight improvement in Q2. And what about second half? Will the gross margin remain like Q2? I think it's still a bit too early for us to say because it's pretty much product mix-related. And as I said earlier that starting from Q4, we will have more revenue and capacity from our new fab in Korea. So that means that starting from Q4, I think our depreciation will be slightly higher. That definitely will be some impact to our gross margin as well. Of course, gross margin will be stable or good, but gross margin percentage-wise may be slightly affected. It's a bit too early to talk about this, but I think -- according to our current estimation, starting in Q4, we will have more depreciation than the first half of this year. Did I miss any of your questions?

Yes, just a quick follow-up on your OpEx, because your OpEx was down 6% in 2Q and also down 13% in 1Q already. So just wondering how would you manage your OpEx going forward.

I think that's one of the strengths of GWC. GWC expenses control and cost control are 2 very important index of all of our operations head. So our OpEx is always very stable. And we think that the second half of this year, OpEx should be still somewhere very close to this level. This is our normalized number, so it's quite okay. And another very important -- our managed operation index is our inventory. Our -- if you check our inventory, you'll see that our inventory is very stable as well. As of end of June, our inventory was still below TWD 7 billion. That's very -- I think I'm very satisfied with this result as well during the headwind. So OpEx, I think our second half OpEx will be quite close to the first half.

Okay. Got it. And just a quick follow-up on the financial support, back on the margins. May I clarify how much the financial support from the government helped your gross margins in 2Q?

Several -- lower than TWD 100 million.

Got it. So my second question would be on your capacity expansion plan on the Taisil expansion in Taiwan. How much CapEx do you expect to invest in the 90,000 wafer per quarter epi wafer capacity? And will it be a greenfield investment, or you just need to acquire epi wafer machine and you can leverage your existing capacity in Taiwan?

We need some construction as well. We need -- we use -- it's still in our campus -- Taisil campus. We have some spare space. So we built a new building, expanded building and clean room and DI water system for our new fab. So our total CapEx for this new capacity is -- of course, we need to buy new epi reactors as well. And so the total spending is somewhere around USD 100 million.

Okay. Got it. So what's the split between the equipment versus the facility?

I don't have the detail with me, but now William can provide you a little bit more detail. If you need -- please send William an e-mail. William will give you a bit more details of this breakdown. By the way, let me highlight one thing. I forgot one very important point for the second half. That's -- it's potential -- expected potential impact to our gross margin and profitability in the second half. That's the foreign exchange rate. So far, it's still very volatile, and NT dollar is very strong. And most of our revenue is in U.S. dollars. So for example, when you see our Q2 revenue growth versus Q1 performance -- our functioning currency is in NT dollars. So based on our financial results, the growth was 1-point-something percent versus Q1. But actually, if it's in U.S. dollars, it's more than 2%. It's around 2.5% growth Q2 versus Q1 revenue-wise. So I mean the second half -- if you ask me what my major concern for the second half overall profitability, I think I would say the FX exchange rate. That is my concern. Thank you very much.

Your next question comes from the line of Sebastian Hou from CLSA.

So my first question is can you give us some update about how you see your customers' wafer inventory situation at this point?

Okay. This is a very important question. We keep asking our customers very closely, almost every month as well. First of all, it's not that easy for us to really understand what percentage of their -- we know their DOIs, but we don't really know that how much of the inventory is wafer inventory. I would say that for now, wafer inventory is still a little bit high because of their contingency plan for the COVID-19. So wafer inventory for most of our customers is still a little bit high, but it's not as crazy high as the so-called super cycle period of time that everyone was so concerned about the wafer shortage. So at that time, inventory was much higher. And if you -- I think maybe many of you remember that last year, Q2 last year, in our earnings conference, we expressed that the industry inventory will start going down -- will start coming down from Q2 last year. And actually, we did see the inventory reduction from Q2 last year. So compared with last year -- Q2 of last year, I think right now the inventory level, the DOI is still -- is a bit healthier than Q2 last year. That's our view.

Okay. So do you expect customers to lower that -- to lower the inventory back to normal level, or they will strategically still keep those high given the fear of supply chain disruption?

I think -- so far, we think that they will keep the inventory high for 2 reasons. One is the fear of the second wave COVID-19 or how many more months the pandemic will be lasting. This is the first reason that they will keep the inventory high. And the second reason, I think, that they will keep -- they will not easily lower the inventory was because everyone, all of our customers, are expecting a rebound, business recovery from next year. So the -- if you check the wafer shipment in Q2, actually, wafer shipment volume for 12-inch has already returned to 6.5 million wafers a month. That's pretty much the peak of the shipment of the industry for 12-inch wafers. So many of our customers, the -- many of our customers are expecting to see the recovery, market rebound, GDP rebound next year. So that means that more wafers will be needed. But a matter of fact, this year, not so many companies have any capacity expansion. So I think that's why we think that they will keep the wafer level like where they are today. I don't think that they will very drastically have any inventory correction for now. But of course, there is some -- I hope that, that won't happen, but -- and some possible situation that they will correct the inventory is that if COVID-19, if the situation is really very bad, that means that they don't -- wave 2 or more lockdown again, re-lockdown again, if that situation happen, then maybe some of our customers will consider that maybe the whole GDP rebound -- the whole global macroeconomic recovery will not happen very soon, so that maybe they will reevaluate if the DOI level is appropriate. So, so far, we are quite comfortable that -- we are quite confident that most of our customers will keep the inventory level like this, like now.

Got it. So that lead to my second question. So if a customer is worried -- wasn't worried about the supply chain disruption, on the other hand, worried about what to prepare, get prepared for [ their ] rebound potentially into 2021. So in your recent discussion with the customers, do you think they are worried about the potential runway for supply shortage into next year? And how does that imply on the pricing outgoing second half this year in 2021?

Yes. That's a very important question. We do see some request from our customers to commit our supply -- or our capacity allocation for 2021. But those concerns -- or those concerned of the future supply is mainly for advanced device, or if I make it more clear, it's mainly for 300-millimeter epi. So that is the tightest category. The other area like 8-inch and 6-inch node, so far, we haven't seen any customers worrying about the supply shortage.

Your next question comes from the line of Maurice Chow.

This is Maurice Chow from Pinpoint Asset Management. I'd like to understand for your Korea fab in 2021, what do you expect for the full year depreciation?

The depreciation amount, I need to check just a second. We will check -- depreciation -- could you please send William an e-mail? We will reply to you by e-mail. We don't have specific MKC Fab2 depreciation.

Is that around $50 million-ish a year? Is that sort of the ballpark number, you think?

No. I'm sorry. I don't have the number with me.

Okay. That's fine. Yes, the other thing I'd like to understand is -- I understand the gross margin would be affected by depreciation. So if you were to look at EBITDA margin, do you expect that the impact would be accretive to your margin? Or how does it trend, because it's all high end? Is it accretive to your EBITDA margin?

Yes. I think our EBITDA margin will increase definitely because of the revenue increase. And right now, basically, we will be fully loaded. The only reason we are not fully loading our line in Korea is because of the fine-tuning. So I think our gross margin percent maybe will be a little bit lower, but our gross margin and EBITDA will both increase.

Yes. Got it. Can you maybe give us a little bit more color in terms of NAND flash and DRAM just from the polished wafer angle? What are you seeing right now?

Yes. Well, first of all, I think that from the market prices viewpoint, it seems that the memory price -- I mean, the end product price is weak now. But from customers' demands viewpoint, so far, it's still quite stable from our viewpoint. I think -- so one of the reasons for this is that all of our capacity -- all of our memory-related business are basically -- most of them are in our -- under our LTA protection. So that's why for us, we don't really see too much fluctuation on the demand from memory. But I know that customers are -- I mean, the end product price is softening now.

Right. And most of this LTA, that type of number will last for how long?

For the new fab, those LTA contracts are over 5 years -- 5 more years.

Your next question comes from the line of Thurston Lee from Goldman Sachs.

Congrats on the great results. I think just one thing, follow-up on one of the discussion in this earlier question. Could we just talk about the LTA structure and utilizations for our -- by 8-inch and 12 inch?

Yes. Our LTA structure, first of all, our LTA structure is fixed price, fixed volume for the whole -- for a fixed period of time, but flexible on the part. So for example, we have fixed price on each part, but every quarter, they can choose that, "I want to buy this part. My product mix is a little bit different." So -- but the total volume, the price and revenue of the LTA, all those details are fixed. That's our basic structure of our LTA. And another factor very important for our LTA is prepayment we held. All of our LTAs are with a meaningful prepayment. That's our structure. And most of the LTAs are 2 to 3 years, except the new capacity -- newly built -- new capacity. New capacity means that the capacity, like our Korea capacity, those new capacity -- for those new capacities, we always request LTAs for more than 5 years. Please note that I'm not talking about 5 years. I'm talking about more than 5 years. So that's our structure.

Great. Yes. And then just on the second half of this year, I think we're having that sort of drop-off with the first batches of LTA. Can we just talk about how that -- I think that's trending backwards -- starting to trend backwards starting fourth quarter perhaps? Obviously, 300-millimeter and you've got the Korean fab.

Our 300-millimeter, I think -- yes, I think for 300 -- I think, first of all, I missed one of your questions earlier. You were asking about our utilization...

Yes, utilization.

Yes. On 12-inch, all of our 12-inch lines are fully loaded, except some very unique process, which is a very small part of our process. So except that very unique process, basically, the whole 12-inch lines are running 24/7. So it's very, very full. And we expect that the second half of this year, 300-millimeter site will be still very, very full. In 200-millimeter lines, most of our 200-millimeter lines are full, except some epi capacity because our epi capacity is huge. So our epi capacity is not fully loaded, slightly lower than 90%, epi only. But the other 200-millimeter -- most of our 200-millimeter lines are full -- very, very full. We run 24/7 as well. For small diameter, it's much worse than the others. It's somewhere around 70% in Q4, but Q3 is very poor as well. Q4 is still -- visibility is not very good yet for 6-inch wafer. But for Q3 it's still quite okay. So that's the answer to your question. And could you please repeat the last question you asked about Q4 LTAs? You were asking about LTA or...

Yes. Yes, it's okay. Don't worry about that. I think just my last question, I think -- I know it's early. We're only halfway through 2020. But is it possible to give us a rough view on what you're looking in terms of the industry's pulls and demand -- pulls and pushes in next year? And what do you think -- how do we think about that, potentially, the demand coming back up and the wafer industry getting back potentially into the fully loaded or even shortage area? Can we comment -- can we just get a little more color on that?

Yes. I think for 2021, the industry -- semiconductor industry will be very good, unless COVID-19 is still so much worse than we are expecting now. If everything is under control, then we think 2021, the best pull is 5G and new phones, new mobile phones. Those 2 will be very strong drivers for the growth for 2021. So automotive this year is very, very bad. So we start seeing some rebound, recovery gradually from the second half of this year. So we believe that next year, automotive will be much better than this year. And also, we think that the third item, which I think will be very strong, is power device. Power device, especially high-power, high-frequency, those applications from compound will be much stronger than this year. So in general, our view is that 2021 should be strong, should be very good for semiconductor. But our concerns, we have 3 concerns for 2021, the potential worries for 2021. One is that the pandemic, how many more quarters it will be lasting and will there be any re-lockdown or any bad situation like this? And the second one is geopolitical issue. We really don't know that those special trade wars, how bad, how serious the situation will be developing. So that's our second concern. And the third concern, actually, I mentioned about that earlier as well, that FX volatility, it's very hard for us to evaluate. And also it's very hard for us, very difficult for us to hedge -- to fully hedge our FX. So these 3 are our concerns. I hope that answers your question.

Yes. And sorry, just to follow up on how the demand reflects versus the supply for next year, whether we see that gap sort of even closing therein or potentially even jumping over the industry level.

For silicon wafer section -- for this silicon wafer section, I think the supply/demand will be very close to 2019, the first half of 2019. That's our view. And first half 2019 for GWC, that was our very -- one of our very good half year. It's slightly lower than 2018, but 2019 first half is still very strong. So we think that next year's supply/demand for silicon wafer, in 2021, will be very good -- very healthy. That's our view.

So I think it's about time and let's wrap up here. So thank you all for joining the call, and thanks again to Doris and William today. This marks the end of the call. Thank you very much.

Thank you all. Thank you very much. Have a good day.

Thank you to all speakers. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.