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

Good day, and welcome, everyone, to the GlobalWafers Q1 2021 Results Conference Call hosted by Sunny Lin. My name is Lily, and I am the event manager. [Operator Instructions] I would like to advise all parties that this call is being recorded for replay purposes. And now I would like to hand it over to Sunny Lin, UBS analyst. Please, Sunny, take it away.

Thanks a lot. Good afternoon, and good morning, everyone. I'm Sunny Lin, associate analyst at UBS. It's a great honor to have GlobalWafers management today for their Q1 2021 earnings release. Now let me hand over the call to Mr. William Chen, the spokesman of GlobalWafers, for opening remarks. Thank you, William.

Thank you, Sunny. Hello, everyone. Welcome joining GlobalWafers' Q1 2021 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 the Siltronic transaction, planned financing measures, industry overview and the Q1 2021 performance update. The final Q&A session will be hosted by Doris as usual. For today's presentation file, as always, we had uploaded on to company website around 2 hours ago. If you do not have the file on hand, please access into our website to get the most updated filing. Please note that 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 1, Disclaimer. Now I'd like to hand over the call to Doris for the Page 2, Executive Comments. Doris, please.

Thank you, William. Good afternoon, ladies and gentlemen, for joining GlobalWafers' earnings call for the first quarter of 2021. GlobalWafers' revenue in the first quarter 2021 totaled TWD 14.8 billion, which is an increase of 4.7% compared to the fourth quarter of last year. And also, it's an increase of 9.5% in the same period in 2020, consecutively growth for 5 quarters. So that revenue-wise, this Q1 was a very good quarter for us. We are now seeing an unprecedented period of exceptional demand, not only driven by the recovery after the past year's weak demand from COVID-19 but also boosted by the launch of many new products and new applications. So in addition to revenue, GlobalWafers' overall gross margin and EPS in Q1 were slightly lower than Q4 last year because of the following reasons. So revenue-wise, we're doing okay. But gross margin and EPS in Q1 were slightly lower than Q4 last year for several reasons. The first reason is that we suffered extreme winter storms in the U.S. in February. We shut down our Texas epi fab for more than 9 days for that extremely cold weather in February. Meanwhile, almost at the same time, we lost more than 3 days' operation in our SOI factory in Missouri for the same reason. And the second reason for gross margin -- lower gross margin and EPS in Q1 is that we experienced 2 big earthquakes in Japan. And you know that we have 5 factories in Japan, 4 out of 5 factories are located in that earthquake area. So we lost several working days in our Utsunomiya 300-millimeter fab in Japan. The other fabs were okay. But that's the 300-millimeter fab. We lost several days' operation right over there. And the third reason is that, in addition to the above-mentioned disasters, we are also experiencing super expensive shipping costs caused by not only the containers in air cargo shortage but also for Suez Canal obstruction. So those were the reasons -- main reasons for super high shipping freight in the first quarter. Furthermore, in Q1, we are also suffering from the price increase of several raw materials as well. So these are the main reasons of a little bit lower gross margin and EPS in Q1. Some of the issues were one-offs. For example, like the earthquake and super cold weather in the U.S., those are one-offs. And the shipping costs and raw material high cost, these 2 are still ongoing. We are trying to manage the cost right now. I think we will have some improvement in Q2. GWC 2020 overall payout rate -- dividend payout ratio will be somewhere around 60% or TWD 18 per common share. And this is what was just approved by our Board today. We have paid TWD 8 in the first half of 2021, and we will make additional another TWD 10 per common share in the second half this year. As far as the dividend policy going forward, GWC has delivered strong total shareholder returns over the past decade, consistently maintaining a dividend payout ratio that is significantly higher than that of our peers. After a comprehensive review of our business operations and overall financing strategies to be in line with our announced financing plans and in view of the industry uptick, GWC Board has approved our decision to strategically adjust down our dividend payout ratio. We will redirect cash into the product R&D and also the other growth areas of the business in our markets, ultimately achieving an optimal capital structure. Several leading players in Taiwan in the technology sector have also recently adopted similar strategies to lower dividend payout ratio and reinvest cash for growth in light of the industry uptake. Our management's overall objective is to ensure that the investment returns from a combined redirected cash from dividend distribution into the operations and investment plus additional external financing through debt equity issuance will be higher than the company's cost of the capital. Okay, so that's our overall dividend update. And now let me move to Siltronic transaction update. Regarding the Siltronic transaction, we are very happy to share with you that we have also received Korean antitrust clearance since our last update in March. So up to date, we have received clearance from the German, Austrian and Korean antitrust authorities as well as CFIUS in the U.S. So that's the most updated status of our Siltronic project acquisition regulatory approval. And for some new financing plans, here are some updates. GWC Board has already approved and management has announced the following financing measures on April 21. You can find these details on Page 3 of our material. So we will have up to TWD 22 billion unsecured domestic corporate bond offering as mid- to long-term financing, mainly for repayment of debt. Also, we will have up to USD 1 billion unsecured overseas euro convertible bond offering for the procurement of raw materials in foreign currencies. And also, we will have up to 50 million new shares through a domestic share and/or GDR issuance to fund the various initiatives, including: M&A, strategic alliance, working capital, repayment of debt, investments and/or some capital expenditures. This new share issuance, of course, is subject to our shareholders' approval. So these are our new financing plans. Next, I would like to make some update for the industry and overall market outlook. With additional fiscal support in a few large economies and anticipated vaccine-powered recovery in the second half 2021, IMF's latest forecast for 2021 global GDP growth to be as high as 6%. So in the first quarter 2021, the semiconductor industry total wafer shipments set a new record ahead of the prior record, which was set in the third quarter 2018. So basically, shipments up across almost all diameters. 5G and automotive are -- especially the EV and 5G, these are 2 main drivers for the strong growth of various existing applications and also a lot of brand-new applications in semiconductor market. Last but not least, I would like to share another corp governance update with everyone. The result of the seventh 2020 Corporate Governance Evaluation in Taiwan were just announced. GlobalWafers was once again awarded top 5% among all listed companies in Taiwan for 3 consecutive years. This is demonstrating GlobalWafers' dedication in corporate governance and also the fulfillment in corporate social responsibility. So we are very happy to share this very latest announcement with all of you. So that's all I would like to share with everyone. And William will share more details with you. Thank you very much again for joining us. Thank you. And I'm going to hand over to William. William, please.

Yes. Thank you, Doris. Please turn to Page 4, GlobalWafers' Historically High Dividend Payout Ratio. From the table, Historical Dividend Payout Ratio, the dark blue bar, representing GlobalWafers' 2015 to 2019 dividend payout ratio average, is 85%. Comparing to the semiconductor wafer peers' averaging 30%, the gray blue bar, and Taiwan's semiconductor peers' averaging 56%, the light blue bar, and Taiwan Exchange-listed company averaging 64%, the orange bar, GlobalWafers is consistently maintaining a significant and higher dividend payout ratio than the peers. As Doris mentioned right now, this year, we are strategically adjusting down our above industry average dividend payout to pursue future growth by investing in process and capability improvement to feedback shareholders with business growth and sustainable dividends. Next, Let me update to the Siltronic transaction moving progress after last call in March. Please refer to Page 6, Development of Takeover Offer for Siltronic. As announced on March 4, GlobalWafers achieved a final acceptance rate of 70.27%. Since then, company is under antitrust regulatory approval process. As mentioned right now, we have got the German antitrust clearance in February, U.S. CFIUS and the Austrian clearance in March. And in April, we also got Korea clearance. Settlement of the takeover offer is expected in the second half of 2021 without any change, following receipt of required regulatory approval. Please turn to Page 8, Planned Financing Measures. As Doris mentioned right now, to overall strengthening of GlobalWafers' financing structure and improved capital allocation, we announced on April 21 for 3 financing measures: number one, up to TWD 22 billion unsecured domestic corporate bond; number two, up to USD 1 billion unsecured overseas euro convertible bonds; number three, up to 50 million new shares through a domestic share and/or GDR issuance. As now current market conditions and the financing terms are attractive, the company is taking advantage this favorable timing and considering several fundraising initiatives involving a combination of debt and equity. Basically, we will consider: number one, maintaining a balanced and optimal capital structure; number two, limited dilution impact on shareholders' equity; number three, accelerating profitable growth in light of industry uptick. The strengthened capital allocation will put the company at the best position for future growth. Now let me share some pages of industry overview. Please turn to Page 10, Global GDP Growth Forecast. From IMF, it estimates a smaller 2020 global GDP contraction of minus 3.3% and has increased its forecast to 6% global GDP growth in 2021. However, IMF also states, "The ascent out of this calamity is likely to be long, uneven and highly uncertain." Page 11, Semiconductor Unit Shipment. From IC Insights, total semiconductor unit shipments are forecast to rise 13% in 2021 to 1.135 trillion units, setting a new all-time annual record and marks the third time that over 1 trillion units in the calendar year, following in year 2018 and 2020. Page 12, Semiconductor Unit Shipments by Application. Total semiconductor shipments are expected to remain weighted towards O-S-D devices in 2021, that is optoelectronics, sensor and the discrete, accounting for 67%. Page 13, Semiconductor Wafer Shipments Forecast by Diameter. According to SEMI ORG report, shipments of all diameters are expected to increase throughout 2023. Of course, the wafer mainstream growth is still on 300-millimeter wafers with the highest growth rate; then 200-millimeter wafers; then 150-millimeter. Page 14, IC Market Growth. Based on IC Insights, it raises its 2021 IC market forecast from 12%, the blue line at the diagram, to 19% growth, the red line in the diagram. The rising market expectations are across most IC product lines, from analog to logic to DRAM. Page 15, Semiconductor Sales Growth. From VLSIresearch report, unlike the past 2 years, in 2021, all semi device type of markets are trending towards more than 10% revenue growth, such as DRAM, 21%; logic, 10%; NAND, 15%; analog and power, 12%; and auto IC, 21% in 2021 growth forecast. Page 16, Semi Fab Capacity by Region. According to SEMI ORG report, worldwide total semi fab capacity are still continuously installed in 2021. China is still the biggest increase in region. Its fab wafer capacity growth increased 14% in 2019 and 21% in 2020 and is expected to grow at least 17% this year. Of all regions, Taiwan has the second-strongest growth rate over the same period at 3% to 4%. Page 17, Automotive: Fastest Growing Memory and Storage Market. From IHS report market intelligence, automotive segment will outpace other memory segments. Most of automotive memory content today is infotainment, but autonomous driving will force most growth in memory demand. Page 18, The 5G Ecosystem is Broadening. From Ericsson Mobility Report, 5G adoption is growing in momentum. And the pace of 5G introductions is accelerating with many network developments and the support in devices. Now let's move to Page 20, Q1 2021 Performance Update. Page 20, Financial Highlights. About Q1 2021 financial performance, as Doris highlighted right now, GlobalWafers' Q1 reached revenue TWD 14.8 billion, which is around 4.7% Q-o-Q growth. Gross margin, 35.1%, and the EPS, TWD 6.18, are relatively lower because of 5 major reasons: number one, extreme winter storm in U.S.; number two, earthquakes in Japan; number three, rising shipment -- shipping costs because of the Suez Canal obstruction; number four, urgent coordination for container shortage; number five, increased prices of many raw materials. Page 21, Financial Highlight: Q1 2021 versus Q1 2020. In this Y-o-Y comparison table, as stated earlier, Q1 2021 was suffering with couple unexpected [ events ] in U.S., Japan and unstable Europe markets that caused a higher cost and then lower gross margin percentage. However, even though, company was still reached higher Y-o-Y EBITDA of 0.7% growth and better operating profit of 3.9% growth. Page 22, Revenue & Gross Margin. As described in Page 20, company achieved a better Q-o-Q revenue, 4.7%, but it was dropping gross margin percentage from 36.3% in Q4 to 35.1% in Q1. However, from recent strong market demand, all industries have been recovering. That has driven company with much longer order visibility in all diameters wafers. Page 23, EBITDA & EPS. For EBITDA and EPS, company reached TWD 5.1 billion EBITDA, which is 34.1% EBITDA percentage, and EPS, TWD 6.18, in Q1 2021. Page 24, Income Statement. In this income statement, just to recap, in Q1 2021, company achieved a Q-o-Q revenue growth of 4.7% yet with relatively lower gross margin and EPS because of 5 major reasons just mentioned at Page 20 right now. Page 25, Balance Sheet. In this balance sheet, just the highlights. The cash and cash equivalents decreasing was mainly because of takeover shares of Siltronic. This also explains the reason why significant increase in other assets. The inventory was driven down to low level of TWD 6.77 billion. The shareholder equity is continuously increasing [ and then ] 2020. For ESG highlights, we are planning to have an update every half year. And we'll have next update in Q2 2021 conference call. Above is my presentation. Thank you. And next, I would like to hand over to Doris for the Q&A session. Doris, please.

Okay. Thank you, William. Okay. Same as last time, I think, before we open the Q&A session, I would like to answer some questions to which we have been asked multiple times from -- by multiple parties prior to the conference -- the earnings call today.

So I categorize those questions into 4 categories. The first category is regulatory approval-related. And the second category is financing-related. The third one is operation and corporate-related. And the last one is funding-related. So we have 4 categories of questions. And let me start from regulatory approval or Siltronic-related questions. The first question is that have there been any updates or change to the expected timing to close for your acquisition of Siltronic? Our answer is that there has not been any change to the expected timing to close. The regulatory approval process remains on track. And we continue to expect the transaction to close in the second half 2021 as previously communicated. And the second question is that what is the status of the regulatory approval in China? Even there have been several blocking cases between China and Europe, for example, applied materials and LPE transaction and so on. And our answer for this question is that the regulatory approval in China remains on track, and we continue to expect the transaction to close in second half this year. Our transaction will be assessed on its own merits. So we do not consider other transactions relevant. This is the second question we received. So these are the key questions we received for the regulatory approval of Siltronic-related. And now let me move to the second category, which is financing-related. What is the funding size and expected schedule? The funding size and schedule of the corporate bond and convertible agreement, to determined subject to relevant approvals and market conditions. The GDR offering is mainly for standby purpose for -- with 1-year validity until our next AGM to give us greater flexibility in optimizing our capital structure. Next question is that what is the total outstanding consideration to be settled upon closing of the Siltronic transaction? And our answer to this question is that the total outstanding consideration to be settled upon closing is EUR 2.46 billion based on the offer price of EUR 145 per share in the final acceptance rate of 70.27%, net of the 13.67% stake we accumulated through our market purchases. So this is our answer for this question. And the next question is that -- next question is that will GlobalWafers have a syndicated loan in place for the settlement? And our question for this is that we are taking advantage of the current very attractive market conditions and financing terms across a number of financing capital markets to best position the combined company to be ready for greater growth once the deal is closed. So no firm decision yet for any new plans. And next question is that what will happen to the existing bridge loan facility for the acquisition of Siltronic? Our question is -- our answer is that the existing bridge loan facility will remain in place until the settlement of the transaction as agreed upon in the transaction. However, we are taking advantage of the current very attractive market conditions and explore various financing options, such as the corporate bonds, convertible bonds and some new domestic share issuance and/or GDR issuance. Okay. And next question is that what will be the dilution impact? What will the dilution impact be of -- what will the dilution impact be from the series of fundraising activities? Our answer to this dilution question is that the company -- our company aims to optimize our debt and equity balance through our fundraising activities. And based on our current performance mix of financing activities, we believe that the dilution impact will be minimized. Okay. And next question we received is that are the fundraising plans for the acquisition of -- what will be the use of proceeds if the transaction fails to close? Our answer for this one is that the use of proceeds for the fundraising for the funding activities are mainly to strengthen our working capital purposes. We are fully confident that the Siltronic tender offer will receive all the required regulatory approvals needed to close. The financing required to settle the transaction has been well prepared with the combination of equity and debt. We are looking at the funding -- the fundraising from a financing package perspective as we are fully confident that the Siltronic transaction will be successfully completed. So we are taking advantage of the current financing market conditions in order to prepare for our plans to accelerate the growth of the combined business upon closing. Okay. Next sensitive question is that have there been any roadblocks or issues so far in relation to the fundraising? So far, we do not anticipate any roadblocks or issues in relation to our planned fundraising as market conditions are currently favorable. However, some of the planned measures are subject to market conditions and approved by our -- by Taiwan regulatory authorities and -- okay. And next question is that what would our post-fundraising leverage look like? And how is that relate to our ideal long-term capital structure? GlobalWafers, our management team, we've always been very conservative with our leverage levels. And these current contemplated fundraising activities will not be different. Net leverage is expected to be very easily manageable and which can be paid down rapidly based on the strong cash flow generation by our own operation. And we also have the option to explore a number of financing alternatives, which can further accelerate deleveraging or to target our optimal long-term capital structure, should we choose to do so. Okay. These are the financing-related. And next, I'm going to answer some questions for our overall operation and corporate-related matters. The first question is that -- the first question we received is about our dividend policy. So the question is that please elaborate your dividend policy. GlobalWafers has delivered very strong total shareholder returns over the past decade. And our dividend per share grew from TWD 5 per share distributed in 2016 to TWD 25 per share distributed in 2020. So it grows a lot. In view of the industry uptick, we have considered to strategically adjust the dividend payout ratio and reinvest the money into the growth of the business and achieve optimal capital structure. That's our new dividend policy. And next question for the operation is that -- a question for LTA. The question is that will GlobalWafers continue to sign LTAs in the next few quarters? And will you require prepayment for such new LTAs? And this is a very important question for us. And our answer for this question is that, yes, we are signing more LTAs now with our customers. And we expect to receive prepayment for such LTAs, like what we have been doing in the past so many years. And next question is that if project Siltronic is successful, will GWC have plans for further expansion? So this is a very important question. And I would like to make it very clear here that one of the key deal objectives and plans after closing of the transaction of Siltronic is to leverage the greater scale of the combined business to accelerate our growth. So after combination of Siltronic, we, as GlobalWafers, we still have our plans for further expansion. So that's our question for this very important -- that's our answer for this important question. And next question is that Siltronic has revised its management forecast to reflect the overall industry uptick. They just made an ad hoc announcement a couple of weeks ago. So we received a question that will GlobalWafers plan to also revise your forecast? And our answer here is that we are aware and appreciative of the recovery in the broader industry, the mega trends such as 5G, AI, EV cars, digitalizations are the growth drivers for the semiconductor industry, which all point to a positive environment this year. As such, we do expect to see improvement in our overall financial performance in 2021 relative to last year. But we are not going to going to disclose too much further details for the outlook, same as always, same as what we always do. Okay. So these are the question about the company operation and corporate-related questions. And next, I'm going to -- this is the last, final segment of the questions. We were asked about the funding-related issue. The first question about funding is that what will be the expected size and tranche of the corporate bond? The answer for this one is that we have obtained Board approval for a maximum up to TWD 22 billion. The actual issuance -- the actual issue size is subject to investor feedback. So we may issue in multiple tranches at different timings, subject to the overall market condition and company plans. And the next question is that why do GlobalWafers raise equities when you have so much cash sitting on the balance sheet? I think I would like to take this opportunity to answer this question. Well, that GlobalWafers is leveraging the favorable capital market environment to prepare for our future strategic investment and growth. So that's the main reason why we are still organizing and making -- planning some fundraising even we still have quite a lot of cash sitting on our balance sheet. Okay. And the final question in this funding-related question category is that what is the timeline for approval toward GDR? So we received quite some question about GDR. But again, I would like to highlight again that GDR is subject to our shareholder approval. So let me -- if you let me answer this question that the funding size and schedule for all those -- for GDR is subject to our shareholder approval. So GDR often is mainly for the standby approval with 1-year validity until next AGM to enable our company flexibility to optimize our capital structure. So there is no firm point or firm timing for GDR plan yet. So that's the -- these are the questions -- some of the key questions we have received from multiple analysts or multiple investors in the past couple days. So I answered all of those questions first. And now I'm ready to take open questions.

[Operator Instructions] Now I would like to start with two questions if I may. So number one, now it looks like wafer supply appears to tighten, have customers started to engage with you on the potential greenfield expansion? And to justify a greenfield CapEx, what kind of price increase from current level would you be considering?

Yes. Thank you, Sunny. Yes, we have received a lot of requests from many strategic customers talking about greenfield expansion. And we are working -- we are discussing with our customers now. So for greenfield expansion, we need several factors -- several very important factors to trigger a greenfield expansion. The first one is that we need a longer-term commitment. So it's not a 1-year PO or 2-year, 3-year LTA, we need longer-term commitment to initiate a greenfield expansion. This is the first condition. And the second condition is that because greenfield expansion means a lot of investment and a lot of CapEx, which will be much higher than what we are producing today. So therefore, the price/cost structure for the greenfield production will be different from what we are producing by our current operation. So the overall price has to be reviewed. And it's too sensitive and confidential that I apologize I cannot disclose that what will be the percentage that has to be increased to trigger a greenfield expansion. So the second condition is price discussion. And the third condition is prepayment. Especially for this kind of greenfield expansion, we will need quite a lot of CapEx. So capital is critical. So the reason we need the prepayment is not for -- to ensure that the LTAs, the commitments, will be honored, but also that we need the prepayment to fund the project. We -- of course, we will fund the project from our own cash flow from our balance sheet and from our set of financing tools. But in addition to this, we need our customers' prepayment to fund this project as well. So to summarize that we need to have all these 3 conditions met to trigger our greenfield expansion. One is a much longer-term commitment. The second is price review. And the third is prepayment, significant prepayment. When I said a prepayment, I'm not talking about 3%, 5%, that kind of prepayment. We need a lot of higher than ordinary prepayment.

Got it. That's very helpful. My second question, if we assume that there is another up-cycle from second half of the year, wonder what will be your strategy in balancing the exposure between LTA and spot. Because theoretically, spot could provide higher pricing upside if the cycle is to turn.

Yes. I think that GWC's strategy is always that we try to -- we are -- we like LTA more than spot. So our strategy is that because we care partnership a lot, so we -- especially we care a lot about longstanding partnerships, so our strategy and our company policy is always to talk with our longstanding strategic partners first and try to check that if they are willing to give us some longer-term commitment. So as long as the customers are willing to sign LTA with us, make a longer commitment with us, then we will follow our strategic partners' preference. So -- but of course, if our customers are not interested in LTA, then we will have no choice but to reserve our capacity for spot. But basically, we prefer partnership, and we prefer a long-term commitment. When I say long-term commitment, I mean mutual commitment. It's not only our customers' commitment to us but also our commitment to our customers. So we like this kind of longer-term mutual commitment with our partners. So we will never -- we don't have any numbers to say that, "Okay, 50% for LTA, 50% for spot." No. Our way is, as long as our partners want to make a long-term commitment with us with a very reasonable, fair condition, then we will just follow our customers' view to sign long-term agreement first. But of course, if customers cannot commit longer term or cannot commit -- cannot accept a reasonable price, then if we cannot work out a mutually agreed commitment, then we will have part of the capacity open to spot. That's our company strategy. This is our strategy, not only for this cycle also for last, last super cycle, which was 2016 as well.

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

[Operator Instructions] And we already received three questions. Would you like to receive them?

Yes, please.

The first one is coming from the line of Donnie Teng.

So my first question is regarding to gross margin and depreciation cost. So wondering if you could finally update the Korea fab asset here and ramp-up stage and how it would have impact to our depreciation cost this year. And you also mentioned about the gross margin in the first quarter got negative impacted by multiple factors. Just wondering if you could quantify the percentage point impact from different factors. This is my first question.

Okay. Thank you, Donnie. Our overall depreciation this year -- starting from 2021, our depreciation is higher than previous years because of some expansion, especially Korean fab expansion. That is very true. But actually, as I said that our Korean fab right now is -- the shipment quantity, we have already reached 100% output now. So starting from Q1, our total shipment from our new facility in Korea has reached the design capacity. So gross margin is quite -- is lower than the other existing capacity, which is definitely true, but not much -- the difference is quite -- it's small, it's pretty manageable. So because the other operations that you have the revenue, but maybe the depreciation is just about 50% lower, 50% of MKC -- and our Korean fab is 100% brand-new. So of course, even the price is higher. With the depreciation, it's fully operating. But the depreciation, because 100% of the tools are brand-new, so of course, the depreciation will be a little bit heavier, so -- but because of very good output efficiency, production efficiency, that our operation gross margin was lower than other operations and not very -- the gap is very manageable, it's small. And also, for those impacts, especially for those earthquakes, I think I will put this number for your reference. For the earthquake and cold weather and for that -- for the -- [indiscernible], those major disaster impact is somewhere close to 1%, those 2 items close to -- slightly lower than 1% impact. And for the others, chemical and transportation costs that -- and others, somewhere around 0.5% gross margin impact. So that's some rough numbers for your reference.

My second question is regarding to 8-inch wafers. So are you seeing order allocation evenly between CMOS wafers and power discrete wafers right now? And how would this have impact to global 8-inch semi wafer supply demand situation? And in this case, how GlobalWafers to adjust the capacity allocation accordingly to drive the maximum profit?

Yes. First of all, our 8-inch production lines are -- all of our 8-inch production lines are fully loaded. And most of our capacity is for power. But it's not -- for today, it's -- we've been invested -- we've been focusing on the power applications. So most of our capacity, most of our revenue is for power-related. So what we are doing now is that we add several more tools to increase our flexibility. For example, we add quite a lot of backside treatment, some special tools for backside treatment or we add more LTO tools or some other tools. Anyway, we add a lot of tools to make sure that we have more flexibility to assess all kind of products. And furnace-wise, we have very good furnace, some dedicated for [ ultra-low rate sensitivity ] power-related applications. And we also have some dedicated tools for [ ultra-high rate sensitivity ] applications. So we have added quite a lot of hardware and some dedicated tools to make our 8-inch production lines more flexible to provide needed wafers to our customers. So, so far, we feel that we're doing quite okay. And anyway, it's fully loaded.

The next question is coming from the line of Haas Liu.

Congratulations on the good results. So my first question is to clarify on the cost structure. You mentioned depreciation should grow year-on-year from 2021. But in the first quarter, your depreciation seems to decline by 25% quarter-on-quarter while non-variable cost -- while variable costs increased by 5%. What is triggering the depreciation drop in first quarter? And what should we think about the full year depreciation and also CapEx outlook?

Yes. Actually, our depreciation, our Q1 depreciation is higher.

Okay. Because if I look at your presentation on Page -- on Slide 25, I used EBITDA and also operating profit to get the depreciation, which is around TWD 1.1 billion, so -- which is much lower compared with the run rate of TWD 1.4 billion in the past few quarters. So I was wondering if there's any issue or if you reclassified the depreciation.

Let me check and get back to you, the depreciation. Please -- you have William's e-mail address, right? So please send your question to William again, and we will check and revert to you.

Perfect. So if you could provide any guidance for the full year depreciation and also CapEx for this year.

Yes. This year's depreciation should be somewhere around, I think, around 10% higher than last year because of the new fab. So our depreciation will be higher, total depreciation.

Okay. If you could provide any guidance on CapEx.

CapEx. Our CapEx will be higher than last year.

Okay. That's very clear.

We don't disclose our CapEx numbers, but we will have higher CapEx because we add quite a lot of expansion this year. But those are additional expansion -- additional CapEx. It's additional [indiscernible] budget -- the budget -- the plan we had at the end of last year. So this year, we will have quite a lot of additional CapEx. So we will be expecting it to be higher than last year as well.

Sure. That is very clear. And my second question is about the wafer pricing trend. Will you be able to raise price to pass on some of the higher raw material costs and also the freight cost and also to reflect that tighter wafer supply now? And a quick follow-up on this question is that -- on the LTA. In the past 2 years, you have been providing the detail of the long-term agreement amount every quarter. So could you provide any update on the LTA dollar exiting first quarter? And for the new LTA you are negotiating with your customers, will the price be at least be the same with the ones you've signed 2, 3 years ago?

New LTA prices are definitely different from old LTAs. But I cannot comment that it's higher or lower because it's very hard apples-to-apples because the spreads are different and -- but in general, our new LTA is definitely -- the price of our new LTAs reflect to the cost and reflect the tightness of the supply. So that's our new LTA. And our current prepayment balance...

Is that the number? [Foreign Language]

USD 16.6 million?

TWD 16.6 billion.

TWD 16.6 billion.

Okay. So you mentioned that you will reflect higher price to reflect the higher raw material cost and also the freight costs in the current quarter.

Yes. We tried -- I think that, for example, in Q1, we have high material costs and we have high transportation costs. But it's impossible to raise the price in Q1. So definitely, when we talk about Q2 price, we'll try to raise the price to cover part of the cost. But for semiconductor, it's not like that, okay, you get the higher cost, so it means you raised the price. Because some of the orders have -- some of the prices have already been finalized several months ago. So -- but we definitely will factor those -- factor in those cost increase to the following price negotiation. That's definitely for sure. I think what's more important is the tightening of the supply. So we try -- when we talk with our customer, we always cover several factors. One is the unexpected cost increase. And the second is currency FX impact. And the third one is the supply, the tightness of the supply. So these are the factors we definitely have to factor in when we make next quotation to our customers.

In the interest of time, we need to wrap up the call. Thank you all for joining the call, and thanks again to Doris and William today. This marks the end of the call. Thank you.

Thank you.

Thank you, everyone. That concludes the call for today. You may now disconnect. Thank you all for joining, and please enjoy the rest of your day.