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

Welcome to GlobalWafers 2Q '21 Conference Call. This is [indiscernible]. Joining us today from GlobalWafers Vice President and Spokesperson, William Chen, first will provide the business overview and followed by [Technical Difficulty] After the prepared remarks, [indiscernible] and William will provide more details on the recent [Technical Difficulty] So hi, William. Are you there?

Yes. Hello, everyone. Welcome to GlobalWafers' First Half 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 commitment for sustainability, Siltronic transaction, industry overview, first half 2021 performance update and the ESG highlights. The final Q&A session will be hosted by Doris as usual. For today's presentation material, we have uploaded on to company's 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 that some information during our discussion today will consist of forward-looking statements, which are applied throughout the call and this presentation. They are subject to significant risks and uncertainties. Actual results or trends could differ materially from our forecast. Please refer to 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. Thanks.

Thank you, William. Good day, everyone. Thank you very much for joining GlobalWafers' earnings call of the first half 2021. Please, if you have the materials on Page 2. First half 2021 is a tough 6 months for us. We had 2 big earthquakes in Japan in February. We had 1 week extreme weather in the U.S. and also we have several power outage in the U.S., the worst drought in the past half century in Taiwan in the past 6 months. And exchange rate -- TWD dollar exchange rate sharp appreciation and also COVID-19 still increase again in many countries. These are the headwinds we experienced in the first half this year. Some of them were over, some else are still not over yet. Despite of these challenges, we have been able to achieve a quite well first half results this year. So we are very happy for this result. Revenue-wise, our Q2 revenue, our June revenue reached TWD 5.4 billion. Our Q2 revenue totaled TWD 15.2 billion. Both of these 2 revenues hit the third highest in our history. The cumulative revenue in the first half hit TWD 30 billion was 10.3% Y-on-Y. In terms of profitability, our Q2 EBITDA, net income and EPS all hit a record high. Our Q2 EPS amounted to TWD 9.09. This is our best effort EPS per quarter. In the first half this year, our EBITDA in the first half accumulative EPS which amounted to TWD 15.27 per normal share per common share towards to the third highest in the history. Our accumulated cash flow from operation achieved to TWD 10.3 billion or USD 371 million. And the cash on hand including the restricted cash from the repatriated offshore funds and TWD 52 billion or USD 1.8 billion. The prepayment in -- at the end of the second quarter were TWD 19 billion or USD 682 million, reflecting our current operation strategy and also emphasizes strength of our business model and financial mode. I think there is another very important message and coming that we would like to present to the public this to-date. This is our coming efforts sustainability. This is one of the most important topics I would like to cover this year today to the public. Today GlobalWafers makes very important announcement to show our resolution of a greener future. We pledge our global operation phases to use 100% renewable energy by 2050. We understand the significance of the announcement. Semiconductor wafer manufacturing consume huge amount of electricity. The energy transition is difficult to realize. However, we also typically perceive the importance of a sustainable future. What differs us from other manufacturer is that we have 17 operational in production site in 9 countries, with the extensive global footprint we could leverage and make the best use of our economic skills. Additionally, our parent company Sino-American Silicon is a vertical integration solar business player with decades of experience in solar cell module and power plants. So these unique advantages help us to achieve the sustainability goal and address climate change and extreme weather. So we will increase the weight of green energy by implementing the profound experience of Sino-American Silicon in building solar power plants along with signing renewable energy power project agreements and also purchasing some RECs, renewable energy certificates. Our progressive goals are we want to reach 20% by 2030, [indiscernible] reach 35% by 2035 and 50% by 2040. And by 2050 we want to reach 100% renewable energy. This is our goal, and our -- each milestone for our renewable energy 100%. So from other ESG highlights. I would like to also update several recent efforts in ESG aspects. We joined an innovation social platform in Europe to help cooperation to plant trees via participation. GlobalWafers plants thousands of trees in Italy, Europe, Africa and many countries to -- and we support reforestation and CO2 absorption and helps the local community. And also, we apart from the environment issues, we have some big progress in Japan. We got -- we won an award named the Eruboshi, Eruboshi award in Japan. This is our Utsunomiya fab in Japan, one of our entity in Japan who has contributed a lot in advancing women in workforce. Our dedications are widely approved and recognized and we are the best of the Eruboshi award by Japanese minister of Health, Labor and Welfare. Also another important progress we've made in the past 6 months is water saving. You know very well that in Taiwan we suffered very serious drought in the past 6 months. So water saving was a very critical task for all the engineering team to continue our operation or even perform better than before. So under these kind of extreme weather events, Taiwan, I think we suffered this a lot. So -- but in the past 6 months, we achieved a very good water saving including that we decrease our water consumption and also we increased our recycled volume as well. Next, I would like to update a little bit about our planned financial measures. Let me quickly update our planned financial measures. We have an ECB, which has already been launched on June 1. The ECB conversion price was adjusted from original conversion price TWD 1,040.2 down to TWD 1,028.46 since this year, July 22, due to the cash dividend distribution we made. This is one update for our ECB. And for corporate fund for CB, regarding to the corporate bond, our total amount is TWD 22 billion, and we have already issued the first one, which is TWD 9.5 billion. We issued this one in May, and the rest are expected to be issued in 1 year schedule. Next one is the Siltronic transaction. I would like to update the status of the regulatory approval and difference in various jurisdiction. Regarding Siltronic transaction, the regulatory approval process remains on-track basically. We expect to close in the second half of 2021 unchanged. This is still the same as the original plan. So up to today, we have already received clearance from the Germany, Austrian, Korean, Taiwan, Singapore, antitrust authority. And also we received CFIUS as well. Of course, we have several more countries to clear, and we are expecting to close everything by end of the year. That's still the plan. That's still our expectation. Next I would like to share some industry and our overall outlook. According to the World Bank, we are seeing a very strong 2021, expanding by 5.6%, which is also the strongest post-recession pace in 18 years. These are underpinned by vaccination, gradual relaxation of the pandemic control measures and rising confidence. So we have seen many downstream manufacturers announce the intention to expand CapEx to meet the boosting 5G penetration and growing momentum for communication, computing and medical care and the need for wafer. The fundamental materials are expected to solve well. Semiconductor silicon wafers will have more growth in terms of both shipments and revenue in the next couple of years. We think that automotive chip shortage continues. We are seeing more and more leading automotive manufacturers replacing their policy from just in time inventory policy practice with LTA. So this is a good move from our viewpoint. In smartphone, 5G commercialization is moving at a rapid and unprecedented pace. Connectivity-related market is strong due to service providers are accelerating 5G rollout. And the robust demand for cheap smartphone further fueling 5G growth. So that is one of the key drivers for the silicon wafer demand as well. So the above are my general comments for the market. Later on, William will share more details with everyone. Thank you very much for listening. And William, please share more details. Thank you.

Thanks, Doris. Please turn to Page 6, commitment to 100% renewable energy. As company news that we released today, GlobalWafers commit to achieve 100% renewable energy usage over all of group global operation base by 2050, aiming reduced carbon emission by practical action, supplemented by carbon footprint, 20% by 2030, 35% by 2035 and 50% by 2040. Usage ratio of renewable energy gradually achieved the long-term goal of 100% renewable energy. [Technical Difficulty] on electricity consumption and contribute to the sustainable environment. Page 7, Treedom, Green the Plant. Treedom, founded in 2010 in Florence, Italy, is an innovative social platform that allows anyone and the cooperation to plant trees in different countries of the world. Current areas are Italy, Africa, South America and the Southeast Asia. The objective of the organization was described as the sustainable development goals on one side and the sustainable full production and income security for farmers on the other side. Treedom works in collaboration with small collective of farmers, local community and NGO across different countries. Strong participation, GlobalWafers directly finances farmers around the world, bringing environmental, social and financial benefits to their communities, supporting agroforestry projects and the CO2 absorption. Page 8, inclusive workplace. GlobalWafers is committed to supporting gender equality, advancing women in the workplace globally. Our Japan, Utsunomiya factory MJL has received the highest level Eruboshi certification from Japan government. This acquisition reflects MJL to sustain the dedication to improving female career path. The Eruboshi is based on the Act on Promotion of Women's Participation and Advancement in the Workplace by Japanese minister of Health, Labor and Welfare. Next, update the Siltronic transaction moving progress after last call in May, please refer to Page 10. Development of takeover offer for Siltronic. As described right now by Doris, up to date, GlobalWafers has received a clearance from Germany, Austria, Korea, Taiwan and Singapore antitrust authorities and the CFIUS in the U.S. The settlement schedule of the takeover offer is still no change, expected to be completed in the second half of 2021, following receipt of the required regulatory approval. Now let me share some pages of industry overview. Please turn to Page 12. Global GDP growth forecast. Caused by COVID-19 pandemic, there was minus 3.5% contraction in 2020. Global economy is set to expand 5.6% in 2021. It is the strongest post-recession pace in 18 years. This 5.6% is combined 5.4% in advanced economy with 6% in emerging markets. Page 13, worldwide semiconductor market forecast by region. Worldwide semiconductor market grows 6.8% to USD 440 billion in 2020. Also, 19.7% growth to USD 527 billion in 2021. And a further 8.8% growth to USD 573 billion in 2022. All regions are expected to show positive growth rate from 2020 to 2022. Asia-Pacific is still the most major market in the world. Page 14, worldwide semiconductor market forecasted by product. The largest growth contributors are memory with 31.7%, followed by sensors with 22.4% and analog with 21.7% in 2021. Logic and Micro are also expected to show double-digit growth rate. Optoelectronics which was 9.8% growth and the MOS with 8.1% growth. Page 15, high-volume fabs start construction to meet accelerating wide range to market demand. Semiconductor manufacturers have been start 19 new high-volume fab construction by end of 2021. And to be groundbreaking another 10 fab in 2022. Taiwan and China are the biggest 2 areas for new fab construction. Page 16. Worldwide IC market forecast to top USD 500 billion in 2021. Worldwide IC market exceeded USD 300 billion in 2017 and USD 400 billion in 2018 respectively. It is projected to have 24% growth and a breakthrough USD 500 billion in 2021, driven by the entire IC market strong demand. It is also forecast to see continued growth next year and in 2023 to exceed USD 600 billion. Page 17. Memory upswing returns new record high expected in 2022. Memory IC sales are forecast to reach USD 180 billion in 2022, renew the previous record high set in 2018. It is expected to have a further 22% growth, reaching USD 220 billion in 2022. Page 18. Global electric vehicle market contributed by growing demand for low emission commuting and the government support. The global electrical vehicle market size is projected to grow from 4.1 million units in 2021 to 34.8 million units by 2030 at 26.8% CAGR. Page 19. 5G set to penetrate every region by 2026. 5G commercialization is moving at a rapid path. Service providers continue to invest in 5G deployment. In 2026, 5G is forecast to account 65% mobile subscription in Northeast Asia, 69% in West Europe and 84% in North America. Now let's move to Page 21, first half 2021 performance update. Page 21, first half 2021 financial highlights. About first half 2021 financial performance. As told in highlight right now, GlobalWafers first half reached both June and Q2 revenue is the third highest in the history. First half revenue exceeded TWD 30 billion with 10.3% Y-o-Y growth. Q2 EBITDA percentage reached a record high. First half EBITDA percentage was the third highest in the history. Q2 net income is a record high. Q2 EPS, TWD 9.09 reached a record high. First half EPS TWD 15.27 was the third highest in history. Page 22, Q-on-Q financial highlights. In Q-o-Q comparison table, GlobalWafers reached all better Q2 financial results than Q1, with revenue plus 2.7% increase. EBITDA percentage plus 11.4%. Operating profit percentage plus 1.3%, net profit percentage plus 7.8%; EPS was TWD 2.91, ROE plus 10.8% and ROA plus 2.7%. These outstanding results were attributed by accompanying all factory higher capacity utilization, in meeting market recovery strong demand from [ last semi ] on cycle. Page 23, Y-o-Y financial highlights. For Y-o-Y comparison table, first half operating profit percentage. Most 2Q 2021 financial results versus 2Q 2020. Page 24, financial highlights first half 2021 versus first half 2020. For this half year comparison, first half '21 versus first half '20, the first half '21 was with better revenue, EBITDA, operating profit and the net profit. This recovery results earnings demonstrated the leading industry's growing demand and work out from the COVID-19 impacting since 2020. Page 25, revenue and gross margin. Even market is still impacted by COVID-19 and a higher logistic costs, increasing material prices, unfavorable weaker U.S. dollar headwinds. GlobalWafers is still generating 7 consecutive quarterly revenue growth. 2Q '21 gross margin strongly rebounded 1.6% from 35.1% in first Q '21, up to 36.7% in second quarter '21. Page 26, EBITDA and EPS. First half '21 EBITDA revenue percentage reached to 39.9% that was continuously increasing from year 2018, 2019 and 2020. First half EPS TWD 15.27 was the third highest in the history. Page 27, income statements. In first half '21 income statement just recap. First half revenue exited at TWD 30 billion with Y-o-Y 10.3% growth. First half EBITDA percentage was the third highest in history. First half EPS TWD 15.27 was the third highest in the history. Page 28, balance sheet. In first half '21 balance sheet, just to highlight, first half cash and cash equivalents, which increasing was mainly because of ECB and the CB issuing in Q2. Same for the long-term loan increasing was driven up by ECB and the CB issue. The shareholder equity was continuously increasing to TWD 45.5 billion. Page 30 to 37 for ESG highlights. Page 30, sustainable environment waste. GlobalWafers continuously improve its waste management by advancing manufacturing process to reduce waste generated as well as recycle and reuse. More than 80% of our industrial waste could be recycled and reused. Page 31, sustainable environment water. Through effective water recycling measures, our total water recycled quantity was 5,674 k cubic meters in 2020 and gradually increased over years. Page 32, committed to green energy. During June, the cumulative solar capacity reached 17.5 megawatts, which could generate 21 million kWh electricity and equals to reducing 10,760 pounds of CO2 emissions and the planting more than 978,000 trees per year. Page 33, Ethical Business Practice. GlobalWafers is continuously running ethical business through achieving legal compliance, formulating code of ethical conduct guideline, setting up a grievance system and establishing risk assessment mechanism. Page 34, Corporate Governance. GlobalWafers is dedicated to achieving corporate governance and fulfill its social responsibility. With the determination, GlobalWafers have been awarded top 5% among all Taiwan listed company for 3 consecutive years. Page 35, Volunteering - Kindness Matters. GlobalWafers employees, also their families and friends, continuously participate in community services, not only in various charity donations, but also for environmental protection volunteer activity. Page 36, Sharing - Make a Difference. GlobalWafers encourages employees to spread the love by giving back to society, caring for disadvantaged groups to fulfill corporate social responsibility. Page 37, Caring - Employee Welfare. GlobalWafers enhance overall employee benefit through 4 aspect programs: workplace, sales, life resources and the welfare to deepen team bonding and improved team spirits. Above is my presentation. Thank you. Next I would like to hand over to Doris for Q&A session. Doris, please.

Thank you, William. Yes, next is the Q&A section. I think in order to answer as many questions as possible, so I -- we collect all the questions we received in the past 1 week up to today, and we answer the most frequently repeated asked questions. And I will answer those questions first. And after I finish this summary Q&A, then I will open up for further Q&A. So let me start from the Siltronic expansion announcement that we receive a lot of questions about this one. Okay. So the first question is about Siltronic greenfield fab expansion announcements. Please give us some comments about this announcement. Our answer is that we cannot comment on Siltronic's business decision. It is our policy to not comment on investment decisions or any business decisions made by others. So the policy doesn't change with our tender offer as we remain separate and independent companies until the close. So we remain still very excited by the combination with Siltronic, and we continue to see significant synergies that will [indiscernible] to the combined company, our customers and shareholders. So this is our answer to this question. And the second question for Siltronic expansion is that we were asked that is this greenfield expansion the core decision from this -- from you 2 companies? Our answer is, no, it's not. We remain separate and independent companies until the close of our tender offer. So this is Siltronic decision. This is not a co-decision from 2 companies. Next question is that will GlobalWafers capacity expansion plan be impacted by Siltronic's announcement? Our answer is that no, we have our own policy and expansion strategy. Siltronic expansion announcement will not be -- will not affect our own expansion policy or decision. So these are the questions about Siltronic's expansion announcement. And next are some regulatory approvals related questions. The first question is about regulatory approval is that have there been any update or change to the expected timing to close for your acquisition of Siltronic? The answer is that there have 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 of this year, as previously communicated. And another question we received is that what is the status of the regulatory approval in China, given there have been several blocking cases between China and Europe, for example, apply material LPE transaction. So there are several cases blocked in China. So we were asked that what's the status of the regulatory approval in China? Our answer is that the regulatory approval in China remains on-track, and we continue to expect that the transaction to close in the second half this year. Our transaction will be assessed on its own merits. So we do not consider that other transactions were relevant. We also -- of course, we see some news in Taiwan talking about some rumors, but just want to officially want to reply that this is -- so far, everything is on-track, including China. And next is some financial-related questions. The question we are asked is that the debt ratio in GlobalWafers half year report has come to 65% as of end of June. So why is this so much higher than end of Q1, which was 54% in Q1? Here is our answer. We issued TWD 6.5 billion corporate bonds, and we also issued USD 1 billion in ECB in the second quarter. So these 2 fundraising activities resulting in an increase in our long-term debt by TWD 32.579 billion from the previous quarter. So although the cash portion also increased by TWD 34.068 billion, at the same time, the debt ratio increased due to the amplification effect of the calculation formula. So this is our explanation why the debt ratio as of end of June is so much higher than end of March in this year. And next question is that, so far, GlobalWafers has already issued TWD 6.5 billion corporate bond out of total approved amount of TWD 22 billion. Will GlobalWafers consider to issue more and when will the issuance be completed? Our answer for this one is that depending on the market conditions and the company's funding needs, GlobalWafers can choose to issue more tranches within 1 year in accordance with the original schedule. So this is our plan and our answer. Okay. And next is some business -- next one -- next is some business-related questions. The first question is for -- from our sales revenue with sales -- GlobalWafers sales revenue Q-o-Q and Y-o-Y improvement, that is very clear. We see the improvement in the second half this -- second quarter this year. So the question is that could you discuss in detail which are the factors driving the growth of the silicon of the business? Is it led by shipment increase, product mix improvement or spot price upward trend? Our answer is that connectivity, smartphone, automotive, power devices, these are the key drivers for the growth of our business. Our revenue growth in the first half 2021 was mainly led by shipment increase and product mix. Our next expansion -- our new expansion in Korea was completed, finished last year, the second half last year. And now that new fab in Korea has already started ramping up from Q4 last year. And this new factory is now fully loaded. Output quantity from this new factory in Korea has already exceeded its original design capacity. So that is one of the key contributor for our revenue increase in the first half of this year. And next question is about our outlook of the second half. What's your expectation of -- for the raw material shipments and pricing trend in Q3 this year with tech and market remaining solid? Our answer is that all of our production lines will remain fully loaded in the third quarter this year, like the past 2 quarters. So we -- for pricing, our company policy is not to comment on pricing. So we will not comment on the pricing, but loading for the third quarter this year will be same as the past 2 quarters, meaning that it will be fully loaded. That's what we have already seen from the firm orders and OTA. So it seems that most of our customers demand in the second half '21 and even 2022 will remain very strong. Visibility is still very high, and we have finalized quite a lot of LTAs in the past few months. Some more LTAs are still under discussion with our strategic partners now. So we are pretty confident that the third quarter this year or even the fourth quarter this year, loading will be okay, business and demand will be pretty healthy. Next question is about 6-inch, 8-inch and 12-inch demand. The question is that could you rank the relative strength and weakness of the raw material -- raw wafer demand by wafer size and applications in the near term? Do you see there's any structural change for 6-inch and below business to sustain the current strength into 2022? Our answer is that the demand for 300-millimeter epi, 300-millimeter polish and 200-millimeter SOI is the strongest one among all of our other production lines, product lines. So those 3, 300 epi, 300 polish and 200 SOI, those 3 are the strongest among all of our product lines. 200-millimeter and the 150 demand is also very solid. So far, based on what we heard from our customers, the business will sustain current strength into 2022 or even 2023. So so far, we -- for us, we don't -- we are quite confident that the demand will remain pretty healthy. But if you compare with the strength of each diameter, I would like to say that those 3 items are strongest. The other one, 8-inch is very strong as well. But of course, 8-inch is not a crazy type as 12-inch epi. And 6-inch is not as strong as 12-inch and 8-inch. That's our current status. Next question which we have been asked by so many investors and media is that what about GlobalWafers' greenfield project, what's our plan? So the question is that your peers have been discussing the potential investment on the new fabs due to the limited room for further debottlenecking. However, they will require the longer duration contract with price premium to consider new fab. Could you let us know that if you have such plan in discussion with your customers? And what will be your criteria for the greenfield investment? Let me answer the question here. This is a very important question as well. Our answer is that we do -- of course, we do have mapped out a plan for a greenfield expansion, but we will not launch this plan now. We have the plan ready there, but that's not what we are going to launch for now. Our priority now is our brownfield project, in Japan, our SOI expansion in the U.S., our epi expansion in Taiwan and Korea. So all of these expansions are for 300-millimeter. So these brownfield expansions are our first priority in the next 18 to 20 months. New capacity from this brownfield expansion will be available from mid-2023. So these are the most important priority for us right now. So we will finish our debottlenecking and brownfield, as I explained first, and then we will move to greenfield. So no greenfield for now, we will do our brownfield first. Regarding to our criteria, when we need to move to greenfield, what would be our criteria for a greenfield investment? I think as I explained several -- in the past several earnings call, there are 3 conditions which have to be met before we kick off our greenfield. One is that it has to be right price. And the second one is that we hope that at least 80% of our greenfield capacity has to be covered by LTA. The third one is the LTAs have to be with a prepayment. So all of these 3 items have to be met before we can kick or trigger our greenfield expansion. One point I would like to highlight here is that when we say LTAs for greenfield long-term agreement, when we say long-term agreement, it's definitely 1 year, 2 years, it's not a long-term agreement. So for greenfield, the duration of the LTAs have to be longer than our ordinary LTAs. Next question is about our future funding requirements. The question is that based on the funding plans, GlobalWafers Board has already approved and our cash on hand, do you think that the potential greenfield investment will require additional funding? Our answer here is that, again, we are not going to launch our greenfield expansion now. But when we do our greenfield project, the sources of the needed capital will be mainly from the following. The first one is that from customers' prepayments and the cash generated from our operation, and if needed, we will have some more loans from banks. So that is our answer for this question. Next question is about our capacity and supply-demand outlook in 2022. The question is, the raw wafer supply growth should be quite limited following the expansion in the past 3 years, while demand seems to stay solid with supply constraint now across foundry, memories, makers and IDMs. Do you see wafer demand probably catching up with -- catching up with the -- with supply in the first half '21? And the spot pricing is improving from the second half '21. What is your initial view for the industry outlook in 2022? Here is our answer. Our view is that the wafer supply in 2022 will be still pretty tight, especially for 300-millimeter. The product mix in 2022 will be slightly different from 2021. In 2022, the ratio of 300-millimeter will keep increasing rapidly. 300-millimeter wafer shipment keeps growing much faster than any other diameter. So if the demand of 300-millimeter -- special 300-millimeter epi will remain very strong, not only the second half this year, but also you will be -- remain very strong in 2022 and even longer. So that's our view for the demand and capacity availability for silicon wafers in the next 2 years. Next question is about LTA. The question is, your total prepayment has stabilized from 2021 and recently announced the supply contract with global foundries. Could you discuss the progress on the new contracts and the existing LTA renewals? Are the customers in general more willing to negotiate the contract with better pricing and longer duration? That's a very important question for us as well. And here is our answer. We are working on the LTA negotiation with many of our customers right now. As always, our LTAs are with prepayments. Right now, a very important difference is that right now, the shortest duration of our LTA is 3 years, not the longest, the shortest is 3 years. Basically, we don't sign any 1-year or 2-year LTA. The shortest duration is 3 years. Our customers, in general, our customers is willing to have the contract with longer duration right now. From our viewpoint, that's definitely win-win for both our customers and we as a supplier. So the trend is -- for LTA is having longer duration and pricing-wise also will be improved because the cost is increasing a lot as well. And also when you do expansion or whether it's brownfield expansion or greenfield expansion, all expansions, depreciation increased, COGS increased a lot as well. So that's why for further expansion, I think silicon wafer cost will increase, price will increase as well. And the last question is about our dividend policy. I think we have received dozens of calls for the dividend policy. The question is that you lowered the dividend payout for 2021 as you would like to reserve more cash for the acquisition and capacity expansion. Can we expect your payout policy will resume back to 75%, 80% of payout in 2022? I think that our answer is that we slightly lowered our dividend payout this year for 2020's performance. I think it's very likely that our dividend payout will remain at a little bit lower level next year because of the business combination, we're still [indiscernible] and also for the high CapEx demand from -- for our brownfield expansion in the coming 2 years and 2.5 years. So the answer is that next year I think it's more likely that the dividend payout ratio will remain same as this year. That means a little bit lower than our ordinary payout rate. So these are the questions we received in the past several -- the past 1 week till now. Thank you very much for listening to the Q&A. So any open question. Any questions, any further questions, please?

[Operator Instructions] In the meantime, maybe I could start with a few questions. So Doris, I think my first question is [indiscernible] investors just mentioned, you said you are going to expand capacity in your facilities in Japan and Taiwan and also in the U.S. Could you discuss how much capacity you expect to grow in the next few years? And also your view on the CapEx required to do the brownfield investments in next couple of years?

Haas, thank you very much for the question. I think that we will add the capacity in this area. So a very important thing is that all of these expansions are for 300-millimeter. And this capacity, total capacity -- of course, product, the new capacity will be a little bit -- the promise is a little bit different because we will have a little bit more 300-millimeter epi and also, we will have our 300-millimeter SOI. So altogether, our capacity will be around 10% to 15% higher than where we are today for 300-millimeter. This is the first answer. And the second answer is that for the total CapEx, I think we will pretty much need somewhere around USD 800 million for this CapEx in the next 2 years to 2.5 years for this debottlenecking and brownfield, around USD 800 million to USD 900 million for the CapEx in the next 2.5 years.

Just a quick follow-up on this one. Could you provide your CapEx guidance for this year?

This year, we -- basically, we have already made the announcement, but this year, it's not really that high. The real payout will be the next 2 years. So this year will be normal similar to what we announced earlier this year. So no big change. But the PO will be released and the key payout will be the next 2 years.

And my second question is about the [indiscernible] in the second quarter. Did you recognize the investment income from Siltronic during the quarter? And if so how much did they contribute in the second quarter?

Siltronic -- are you asking for Siltronic, but we don't – sorry, but that was the question you are asking is Siltronic what profit...

Investment.

Investments. Yes, we don't have any details about their investments.

So I mean, your investment income from Siltronic during second quarter, did you recognize any of that because I see your non-op gained quite a lot?

Yes, yes, yes. Okay. The dividend, yes, we have received the dividend in Q2, and that is a part of our other income or -- yes, that's in our P&L.

Okay. Could you let us know how much is that during the quarter?

That's TWD 200 million, let me check the number. TWD 279 million.

Congratulations on the result again.

The dividend...

Okay. And due to -- so maybe we can open the Q&A session. [indiscernible], please go ahead.

Your next question comes from Donnie Teng from Nomura.

I only have one follow-up question on Has' question. So because first quarter we recognized some profit, nonoperating profit loss from Siltronic, lowering stock price, right? So I think in second quarter, we should recognize some positive reverse of the -- some price variation from Siltronic in second quarter, right? So could you kindly help us to break down maybe how much EPS in first quarter and second quarter was impacted by Siltronic's stock price volatility so that we can have better view on our core business' EPS in first quarter and second quarter?

I think roughly in Q1, it was about TWD 1.4, TWD 1.5 down, EPS-wise and from Siltronic-related. In the second quarter it is somewhere around TWD 1.5, TWD 1.6 up, EPS.

Oh, I see. So roughly the same? Because I previously thought that second quarter was the strong stock price performed relatively well. So maybe we can recognize more EPS from Siltronic's variation. But anyway, it looks like to be flat.

Right.

So that decrease speaking -- so our core business -- in that case, our core business is like EPS is like roughly flat in the first quarter and second quarter, is that correct?

Second quarter is still better than first quarter. Gross margin-wise also, yes, I think operating income, even we removed all the Siltronic-related issues. Second quarter is better than Q1.

I think due to the time constraint, we will open for the last question. [indiscernible], please go ahead.

Your last question comes from Bruce Lu from Goldman Sachs.

So the question is about your depreciation amortization in second quarter. The gross margin only increased slightly in the second quarter, but EBITDA margin improved by 12% quarter-on-quarter. So which means that the non-depreciation cost per wafer went down a lot in second quarter. So what happened over there? And what should we expect over there?

No, I think our revenue is higher as well.

Yes, but gross margin.

And they are -- yes, gross margin, a lot of impact from gross margin. Q1 was extremely bad for us because of a lot of disaster, including the earthquake issue. So a lot of -- those are our costs, those are our COGS in Q1 as well.

So what is the depreciation in second quarter versus first quarter?

Depreciation, very close. The total depreciation cost, total depreciation cost was close, but depreciation per wafer is lower in second quarter. The depreciation cost is very close, which is around 1.5, very close to TWD 1.5 billion.

But how do you explain that EBITDA margin improved by 12%, but gross margin only improved by 1%?

EBITDA I think we have already explained that we have a lot of other income and other income. That's one part of the reason as well. And as I explained part of the other income in Q1 -- in Q1 our other income or our EPS was hit by Siltronic-related adjustment. And Q2 was just a reverse.

Okay. But I still cannot figure that why from my model, but I will follow up with -- after the meeting.

Yes. If needed, you can follow up with our team. I think we have very -- number. But some of the number -- sorry, that we don't disclose so much detail. We will use our -- based on our public information to share with you. We -- internally, we have every detail. I know every detail of that, and it's very clear. A simple way is that we have more shipment and gross margin increase. So if you see the gross margin increase, only 1 point something percent, but actually, total revenue increased. So even 1 point something percent gross margin increase, actually, the value -- the value of gross amount is much higher than last quarter. And also OpEx is very -- everything under control, and we have more reversed from Siltronic. So in Q1 was not -- was an abnormal quarter. So yes, if you need to know more detail, you can talk with our team. It's very -- so we know very well that our Q2 performance is much better than Q1, not only for the other income, but also even the operation, production, everything under control.

Yes. I am not surprised about the gross margin improvement. I just don't know the differences between the EBITDA margin and the gross margin improvement. So anyway, I will follow up with that.

Okay. Thanks, Doris and William, for the update. And thanks for everyone's participation. If you have any questions, please reach out to the company and also Credit Suisse. Thank you, and goodbye.

Thank you. Thank you. Have a good day. Bye.