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

Good day, everyone, and welcome to GlobalWafers Q3 2022 Earnings Call, hosted by Sunny Lin. My name is Zhou Tai, and I'm your event manager. [Operator Instructions] I would like to advise all parties that this conference is being recorded. And now I'd like to hand over to your host, Sunny Lin. Please proceed.

Thank you so much. 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 third quarter 2022 earnings release. Now let me hand over the call to Mr. William Chen, the spokesperson of GlobalWafers for opening remarks. Thank you, William.

Thanks, Sunny. Hello, everyone. Welcome joining GlobalWafers' Q3 2022 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; and Leah Peng, Deputy Spokesperson joining this call. Doris will give us the executive comments and the economic moat first, and then Leah will present industry overview in the Q3 2022 financial statement. Before the Q&A session, Doris will enter investor moat concerning FAQ, and I will hand over the final Q&A session. For today's presentation file, because technical issue at company website this afternoon, we had uploaded onto Taiwan Market Observation Post System around 2 hours ago. Please visit mops.twse.com.pw to get the 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. These are subject to significant risks and uncertainties. Actual results or trend 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 Page 2, Executive comments. Doris, please.

Thank you very much, William. Good afternoon, everyone. Thanks a lot for joining us today. First of all, let me share some comments of our financial results and updated operational status. If you have the material, please turn to Page 2. Both the third quarter and the cumulative first 3 quarters of this year delivered the best ever performance of GlobalWafers. Revenue-wise, both Q3 and the first 3 quarters broke our history record with double-digit Y-o-Y growth. Q3 revenue totaled TWD 18 billion, with 17.5% Y-o-Y and the cumulative 3 quarter revenue reached TWD 51.9 billion at 14.4% Y-o-Y increase. Our revenue growth momentum has been lasting for over 2.5 years, starting from Q1 2020. Regarding the gross profit, our Q3 2022 gross profit margin hit 43.7% and accumulated 3 quarter gross margin hit 43.3%. Both of these 2 are our all-time high as well. Page 3, please, our operating income. Our operating income was over 35% in Q3, which is a very good record for GlobalWafers. And EPS-wise, our EPS has been deeply co-related to the mark-to-market valuation on Siltronic shares, which has eroded our profits in previous 3 quarters this year, owing to Siltronic's low share price, even though GlobalWafers managed to contribute the best ever quarterly EPS at TWD 11.74 per share and accumulated EPS as of September 2022 climbed to TWD 0.22 per share. If excluding the valuation loss and other nonoperational factors, our 3Q -- the first 3Q 2022 EPS would have amounted to record breaking over TWD 40 per share. And prepayment wise, as of end of September 2022, our prepayment reached TWD 32.2 billion, which is the highest ever. And it's TWD 2 billion higher than end of Q2 '22. So it's a very good prepayment record and a very good protection for us. And Page 4, please. The world economy has entered a period of intense uncertainty as a capricious pandemic and the fallout from Russia-Ukraine war combined to fill rapid inflation and weigh on an already fragile global recovery. But for the semiconductor industry, I think in short-term, continually deteriorating global macroeconomic outlook with consumer confidence weighed down by inflation and energy costs in addition to ongoing COVID disruptions to the supply chain are dragging down semiconductor revenue growth forecast. The semiconductor market will likely Q-o-Q decline through first quarter 2023 and lead to a flat or low growth rate in 2023. However, the long-term market outlook remains very strong as semiconductor continue to become a very -- a larger and more important part of our digital economy. We're very confident that the long-term prospects of semi-conductor are still very bright. Page 5, I'd like to talk a little bit about compound semiconductor. I think backed by stimulus package and net 0 carbon emission, compound semiconductor will scale up -- worldwide compound semiconductor will scale up very rapidly. In addition to the silicon products, GlobalWafers also has a comprehensive compound semiconductor offering, which makes GlobalWafers well positioned for the trend. Automotive growth still exceeds market growth, and due to the increasing demand for EV and the infotainment, autonomous driving technology and so on. As for the inventory, I think for the worldwide industry inventory with soft momentum in consumer electronics, inventories are really piling up in the industry, a global semiconducting industry. Yet, the inventory level in our customers vary on applications. Demand for automotive and industrial applications remain very strong. On Page 6, I'd like to move to utilization. Our Q3 demand is still very solid. Our current demand is still very solid for 200 and 300 millimeter. While a lower traction is detected on smaller diameter, which means 150-millimeter and below, we sense very strong traction on flows on materials and SOI as well at the same time. And next, I would like to move to a very important topic, which is Renewable Energy 100. Following the self-committed on 100% renewable energy by 2050 in our global operation, we strengthened our green promise by formally joining RE100 organization. Semiconductor industry does consume power heavily. GlobalWafers has a very -- GlobalWafers parent company, Sino-American is one of the very best solar energy company in Taiwan with very good experience in building solar power plants. So the GlobalWafers will implement Sino-American profound experience in building solar power plants and along with purchasing renewable energy and renewable energy certificate. By the way, just a couple of weeks ago, GlobalWafers is awarded by Taiwan government, the top solar system in the world. This manifests our green advantage again. We're one of the very few silicon wafer makers that own solar power plant. And combined with our global presence that enable local supply, thus reduce our wafer transportation mileage, we are evolving towards a greener manufacturer. Page 7, please. Please allow me to further elaborate our economic moat that forge our competitive advantages. Page 8. Our first strength, our first strength is the complete product spectrum. GlobalWafers supply semiconductor wafers literally in full diameters, full specs and covering almost all applications in modern society. The diversified, yes, very comprehensive product offering insulates GlobalWafers against the downturn of particular products. And in the same time, we could seize the emerging trends. Next page is -- let me move to the financial moat, which is our very robust financial structure. The first strength -- financial strength for GlobalWafers is our ample cash. GlobalWafers has ample cash on hand. As of the end of Q3, we have over TWD 83 billion on hand. And even deducting current liabilities, GlobalWafers still holds as high as TWD 50 billion net cash as of end of Q3. With over TWD 5 billion free cash flow generated every quarter, GlobalWafers strong earning power shields us amid macroeconomic instability. And the second financial strength for GlobalWafers is our low funding cost. Policy measures to curb inflation, such as spike in interest rates in the world not only result in sluggish world GDP growth, but also poses a huge burden on corporate funding and investment. Luckily, GlobalWafers' TWD 100 billion CapEx is backed by low interest corporate bonds and ECB, which provides sufficient financial resources to support the expansion projects and cements it's future growth as the economic conditions evolve constantly and unexpectedly. GlobalWafers allocate assets with agility to achieve the best portfolio. At the end of Q3, net interest income, please note this is net interest income, not net interest expense. GlobalWafers net interest income totaled TWD 400 million. In addition, our committed loan drawdown rate is as low as 15%. The rest 85% of bank credit line could be implemented anytime whenever needed. Next, for liability breakdown. In Q3 2022, GlobalWafers debt ratio is 68%, which may seem pretty high compared to our past record. But if we break down the composition of this 68% so- called "high debt ratio", you will find the prepayment waive as high as 24% in this 68%, and ECB is 16%. Both of these prepayment and ECB are not of any interest expense at all. So only 16% among the debt ratio is accruing interest, which are local CB, which is around TWD 19 billion and other financial liabilities, which is around TWD 6 billion. So globally -- so our current ratio is way higher than 300%. Strong liquidity is crucial in the dynamic world economics, so we can convert assets into cash easily and tackle the challenges nimbly. I think that is -- the current ratio, that is very important strength for GlobalWafers as well. And next page, I would like to talk a little bit about our profitability. That is definitely a very strong moat for GlobalWafers. GlobalWafers gross profit has been growing for 6 consecutive quarters, amounting to 43.7% in Q3, offering an encouraging sign of improved efficiency. If you compare with the rivals, you will see that GlobalWafers average gross margin performance is way better than the average. If you compare a longer period of time, for example, from 2017 to 2022, I think GlobalWafers, no matter the macro economy is good or bad, GlobalWafers profitability is always very stable and very positive. And the second strength for our profitability is our EBITDA. Excluding the realized loss from Siltronic shares and other nonoperational factors, GlobalWafers EBITDA for the first 3 quarters of this year could exceed 50%, showing very good health at the core operations and robust profitability. And last but not the least is our LTA protection. One of the GlobalWafers prominent feature is our risk management. Our capacity has been locked by LTA with prepayments, and that is the best protection for us against the downward risk in the volatile market. In conclusion, apart from the strong balance sheet, which indicates our ample cash, healthy assets and probably amount of debt, that helps GlobalWafers defend the fluctuation, our solid profitability also creates a strong foundation for sustainable growth, coupled with our extensive global reach and flexible capacity allocation, the unique advantages creates our enduring moat in the keen competition and further confirm our goal of being the preferred partner of our customers. The above are my comments and Leah will share more industry outlook and financial performance. Leah, please.

Okay. Thank you, Doris. Let me begin with the global GDP growth forecast in Page 13. The far-reaching impact from Russian invasion over Ukraine and the China's lockdown measures dragged downward world GDP growth to 3.2% this year and 2.7% in 2023. Energy supply problems, high inflation in Europe and 0-COVID policy as well as housing crisis in China will likely bring flat GDP growth in these regions in the coming years. In Page 14, also the global economy is loomed by uncertainties. Semiconductors continue to become ubiquitous in all applications and drive double-digit growth across all regions in 2022. Our global presence strategically located near the major semiconductor market, our proximity to withstand geographic instability and supply greener with less mileage. In Page 15, you can see that power transistor sales are on path to grow 11% this year and is expected to reach a 6th straight record high level, totaling TWD 24.5 billion in 2022 and nearly TWD 29 billion in 2026. The secular trend is propelled by increasing ASP and the hike in transistor count packed in chips. With manufacturing process improvement in shrinking transistors, it's density has been growing significantly. In 2014, there were 2 billion transistors in A8 chip used in iPhone 6. Then A14 chip has 11.8 billion transistors in iPhone 12 and advanced to 16 billion in A16 bionic for iPhone 14 Pro Max. As of 2022, the largest transistor count in a commercially available microprocessor is 114 billion transistors in Apple's own best, the [ Dual.M1 ] Ultra system, involving the increasing value and the content of semiconductors used in electronic systems. In Page 14, this is the foundry capacity utilization rate. According to Transfor, the capacity utilization rate of 8-inch may decline due to cooling demand for consumer products like TV and PC. However, this 12-inch products are more diverse and the layer protection cycle generally takes at least 1 quarter [Technical Difficulty]. Those are not affected by short-term economic fluctuations. As a result, its utilization rate can still be maintained at a high operational watermark of approximately 95%. In Page 17, government support and shifting consumer preferences add momentum to automotive growth trends, resulting in the automotive market registering the strongest CAGR at 13.4% during 2021 to 2026. Likewise, EV growth trend is urged by energy crisis and 0-carbon emission targets. BEV and HEV are expected to account for nearly 90% market share by 2035. Let's move on to Page 18. In order to further improve the power performance of electronic vehicles, major global automakers are focused on the new generation of SiC power component. It's market share will climb to U.S. nearly $4 billion by 2026 from the current $1 billion. With continuing investors in SiC material technology and the majority of chips structure and the module packaging process, the penetration rate of SiC power components will gradually expand from current high-end vehicle location to medium- and low-end vehicle. Numerous brands have successively launched a number of high-performance car models equipped with corresponding products. For example, Tesla, Lexus, Toyota, Hyundai and the Kia. Please refer to our financial results in Page 20. GlobalWafers has contributed quite a remarkable performance, but profits were eroded due to electronic evaluation and accompanying factors. Page 20 shows our Q3 quarterly performance. Our revenue hit TWD 18 billion with 70% Y-o-Y. Gross margin hit 43.7%. Both are the best ever. Operating profit margin amounted to 35.1%, the third highest in our history. Q3 net profit totaled TWD 5.1 billion with 28.3% margin, the record high, mainly attributed to the foreign exchange gains from USD appreciation. Even factoring in all the unfavorable nonoperational impacts, our EPS climbed all-time high at TWD 11.74 per share. Our Q3 ROE was 43.1%, ROA at 13%, reflecting GlobalWafers direct business model and the nimble operation. Regarding the accumulated 3 quarters as of the end of September 2022 in Page 21, GlobalWafers surpassed TWD 50 billion milestone in revenue and hit TWD 52 billion. Gross profit margin was 43.3%. Operating income margin amounted to nearly 36%. All of this hit the highest record in our history. EPS was TWD 22 per share, but would have climbed to [ TWD 14.89 ], our all-time high, if such unfavorable influences were excluded. In Page 22, this chart shows our sequential growth of revenue and gross profit. Revenue trends up since Q1 '20 and gross profit has also increased starting from Q2 '21. The momentum has been lasting for multiple years despite all the turbulences and the volatility in the global transportation, economy, geopolitics, foreign currencies and the world order. Our revenue has been growing for 11 quarters and gross profit for 6 quarters in a row, respectively. Page 23 is our EBITDA and the EPS. Our first 3 quarters EBITDA was TWD 15.6 billion, with margin at 30.1%. If excluding all impact, our EBITDA would have become nearly TWD 26 billion with 49% margin. The EPS would have been as high as TWD 14.89, our best performance ever. Please refer to other pages of our income statement and balance sheet. Now I would like to give the floor to Doris and William for the Q&A session. Thank you. Doris?

Thank you, Leah. Before we open the Q&A, I would like to answer a couple of questions which we've been asked most frequently in the past couple of weeks. And the first question is that has customers started to cut orders? We receive a lot of questions like this from many investors. The answer here is that smaller diameters, like 6-inch and below and also some -- those orders, I think we're seeing some lower demand and also customers are requesting to reschedule the shipment. But basically, all of the 200-millimeter, 300-millimeter wafers overall production plant are still doing okay. We do see some lower traction on some application targeting consumers and memory, but those are not order cutting. Those are rescheduling little bit or some flexibility like swap to some other different products. That's what we're seeing. I think our customers honor those LTAs just as what we are doing. So we will provide customers flexibility. That's our policy that we will provide flexibility of product mix change. And if needed, we can find some solution for our customer, we provide some rescheduling feasibility as well to tackle the short-term headwind. But basically, there is no cancellation and we don't have cancellation or any change on our LTA. So, so far, our customers are still -- all of our customers on the LTA. So this is the first question. And the second question is many of our investors, shareholders are asking that, how about GlobalWafers projection for the business and our utilization for different products? I think even for 2023, so far, as of today, I think the only open capacity that we are seeing in Q4 now and maybe early next year is in smaller dimeter, 150 millimeter and below. And for 200 millimeter, 300 millimeter are very full in Q4 and also even in Q1, we see that all of our production line for 200 millimeter, 300 millimeter are full. And for float zone and SOI, these 2 items are extremely full with the demand actually higher than our supply. So we have more demand from our customers than the wafer we can supply. So we are doing the expansion for both float zone and SOI right now. So that's the status of our utilization. And also another question is about CHIPS Act grant status. Actually, it's not finalized yet. So we don't have too much detail to share about CHIPS Act. So we are still working with the related government department, U.S. government department, try to finish some detailed review. So we don't have the number yet. That's why we are still working with the U.S. government positively. And the next question is about our greenfield expansion in America or named GlobalWafers America, GWA. How about GWA's target time line? What's our current time line? So basically, our expansion for -- in the U.S., our greenfield expansion basically on schedule. There will be a little bit delay, but it's not because that we want to delay. It's because we do see some long lead time parts like PVDF. That special cleanroom construction material, PVDF, that's a super long lead time right now. So we are still working on some long lead time components arrangements. So there maybe will be a little bit delayed. But basically, we keep working on our greenfield with the original timetable. And also, we work very closely with our customers, LTA customers as well. You see that in Q3, our -- at the end of Q3, we have already -- our net prepayment amount already totaled as high as TWD 38.2 billion. This is our highest ever record and all the -- most of the new LTAs are for our American operation. So that's why -- because we keep signing LTAs with our customers and our customers maybe they had a little bit concern for 2023, especially the first half 2023. But the -- all of our customers are pretty positive for the long-term semiconductor demand. So that's why we keep having finalizing LTAs with our customers for GWA capacity. So that's why we keep the schedule unchanged. And that means that GWA will start our customers sampling from October from Q4 2024. That's our schedule. And the mass production ramp will be starting from end of Q1 or early Q2 2025. That's still the plan. And of course, we will keep working very closely with our LTA customers to fine-tune the time line of our expansion. But so far, everything -- the project is on schedule. That's the point. And okay, the last question I have from the analyst/investor is about foreign exchange volatility, how does that affect our revenue or our profit? I think most of our orders, business transactions are in U.S. dollars. So 1% change in U.S. dollar will affect GlobalWafers revenue at around 0.7% because that our functional currency is NT dollars. So 1% change in U.S. dollar will affect our revenue in NT dollar at around 0.7% and gross margin at around 0.5%. That's our rough sensitivity for foreign exchange rates. And these are some frequently asked questions received in the past couple of weeks. I would like to open the Q&A and William and myself will take care of the questions.

Well, thank you very much. Now let's begin the Q&A session. Please limit your questions to 2 at a time. So I will kick off with 2 questions from my side, if I may. So number 1, well, I guess, last week, one of your Japanese peers talk about possibility of working with customers on the LTA pricing if demand continues to weaken into 2023. And I guess the sharp Japanese yen depreciation probably offers them some feasibility on the margin side. So I just wonder for GlobalWafers, how should we think about your overall pricing going to 2023 as the LTA production? That's my first question. Doris, William? [Technical Difficulty] Sorry about the technical issues just now. Doris, William, Leah, sorry about that. Are you able to hear my question just now?

Yes. Sunny, we can hear you clearly. Thank you.

So I would like to kick off the Q&A session, if I may. And then we will start to take the questions from the line. My first question is on your LTA pricing going to 2023. How should we think about the trend and the LTA production on the volume? I guess recently, one of your Japanese peers talk about potentially they would work with customers on the LTA pricing in a weaker demand environment. Any thoughts on that?

Okay. Thank you, Sunny. Regarding for the LTA trend, as Doris mentioned, actually, we are continuously working with our customers to discuss for this LTA. Actually, we have been buying more new LTA that can be seen from our accumulated prepayment. So LTA currently, they're working well, especially for our greenfield in America, okay? Many, many American customers, they are quite welcome for this new factory, which is closer to their factory. So that's for the LTA. And if you are talking about the differences for the LTA trend revenue, maybe it just takes a little bit longer discussion time with the customer because of the resent market chaos, but all things, especially for the 300-millimeter, the mid long-term demand are still quite good because it is the mainstream. So all LTA still ongoing as expectation. Thank you.

Sorry, just a quick follow-up. So when we model your blended pricing going to 2023, will it still go up or will it be more flattish given the current market environment?

Okay. Thank you. Regarding for the price, actually, we do not talk about much about LTA. But basically because of limited supply or the macro supply, so actually the LTA price actually is getting better or slightly up, especially the product mixing would be moving more forward with the advanced node, which if you are talking about the branded ASP actually is going up slightly year by year or even quarter-by-quarter. Thank you.

My second question is on gross margin. Obviously, the cost is also going up. So how should we think about your profitability going to 2023? Is there any target for 2023?

Okay. Thank you. Regarding for the gross margin, yes, you are right because of the recent market inflation in all kinds of material, actually, it's starting from early this year, the product, the material costs have been increasing up. But regarding for our most important polysilicon cost, actually, we had signed a longer time LTA with our poly suppliers, which is still is very stable, poly cost for years. So we think we can manage this poly cost quite well and stable. And regarding for the other material costs, yes, they are slightly increasing, but of course, through internal efforts such as purchasing negotiation or internal efficiency. And all of this, we still try to manage these costs with our minimum range. But of course, contributed by our increase in ASP with the higher LTA prices, that is with a higher increase in revenue, which can cover and offset such a material cost. So we can see from these recent quarters, we have the continued quarterly increase in revenue, but we do still maintain, even increase our gross margin percentage by quarterly base. So we do hope that we can manage such a trend. I mean the increase in revenue contributed by the increase in branded epi and favorable product mixing, higher price to reduce such a material cost increase. So we hope we can manage this gross margin stable.

Let me add -- this is Doris, let me add a little bit. Yes, I am 100% agree with what William just presented this one. But let me add a little bit more detail on this. First of all, next year, it's a little bit of more complicated than before because there are several concern points next year. For example, foreign exchange rate, we are doing our annual plan. It's very hard to predict that how strong, how weak the foreign exchange rate will be. So foreign exchange is some -- very difficult complicated point for us. And the second one is energy cost. So -- as far as we know, the European energy cost is extremely high, still extremely high. We are expecting some reduction. But still up to now, based on our visibility, I think energy cost will be still a significant increase in Europe and also in Japan. Our energy cost in Japan will be increased drastically as well, actually starting from this year. And next year if Germany keeps dropping -- keeps depreciating, I think energy cost will be even tougher than this year. Some best -- another very tough factor for us is depreciation because you know that we have some brownfield expansion. And those expansions, some already finished the expansion, we will start releasing more capacity starting from next year. So we will see more depreciation costs from Q1 next year. That is another concern as well. But like what William said because we will add revenue as well and also we are expecting better ASP for the product mix, the total mix ASP. So we are expecting that those impacts -- those potential impact like high energy costs and higher depreciation and maybe uncertain foreign exchange rate, I think maybe most of the impact from these factors will be offset by our higher revenue, higher capacity and a little bit higher ASP. That's what we are expecting. Some positive factor is like freight. I think freight dropped a lot. This year, freight was crazy, but I think that we are foreseeing that next year freight will be better. So that's the -- and the crazy material cost, I think it should be improving -- is getting a little bit more reasonable starting from next year if the market -- inflation market is slowing down a little bit. So that's our expectation. Thank you.

Got it. Operator, would you mind opening the system to take questions?

[Operator Instructions] And we already have our first question. And the first question is coming from Donnie Teng from Nomura.

My first question is regarding to SUMCO's announcement on this acquisition on polysilicon play in Japan. So just wondering what's your view there? Does that mean the polysilicon price will continue trending up? So to acquire a polysilicon supplier would be a better play into the coming years? Or is there any view from your perspective? In the past few years, I think the industry trend is more like to divest. Polysilicon players divest the semi wafer entity, but now it looks like the vertical integration is coming back. So wondering if there is any meaning behind that action?

Okay. Yes, for polysilicon, right? Donnie, is that your question, polysilicon, right?

Yes.

Polysilicon, I think polysilicon price is very high now. And main reason, there are 2 reasons for this. One is because of the super strong demand for solar. And so the polysilicon for solar -- solar grade polysilicon is much lower than semiconductor grade. That means the production cost is lower but their market price is higher, driven by the strong demand for renewable energy. And this is the first reason. And the second reason for the sky-high polysilicon price is because of the high energy cost. Because for Siemens, Siemens polysilicon production methods, if you use Siemens -- and actually right now, almost 100% of this polysilicon factory in the world using Siemens way. So if you use Siemens method to grow polysilicon, then the bond cost #1 item you see, that's electricity cost. So where the electricity cost is high, like in Japan or Europe, actually, it's very -- definitely that will drive to polysilicon cost very high. So that means that there are 2 drivers to drive the polysilicon price high. One is strong demand from solar, and solar market capacity is much bigger than semiconductor polysilicon. And the second driving power is the electricity cost, super high electricity costs. So we are seeing super strong polysilicon price increase right now. And even for some new purchase order with polysilicon method, when they make the offer, make the quotation, they always put an assumption or a condition that when the electricity costs increase to a certain level that this price will be adjusted again. So for 2023, polysilicon pricing is definitely one of the key burdens for semiconductor industry. But for GlobalWafers, luckily with some LTAs on hand, so that offset a little bit of our pressure from polysilicon, but we don't have enough LTA to cover 100% of our demand. So we do have quite a lot of polysilicon from new orders, new annual orders or new LTA. So that those new orders price are much -- the LTA which we have already [Technical Difficulty] years ago. So that's the current standard of polysilicon, worldwide polysilicon is at.

Understood. So SUMCO's acquisition on Mitsubishi Materials, do you think there's any impact to the current supply situation of the polysilicon? I'm not sure whether it will further tighten the polysilicon supply in the future.

I guess it will. But so far, we have no evidence to show this. With any acquisition, that definitely will make some impact. But so far, we haven't seen it yet.

Understood. But I guess, Mitsubishi Materials probably account for smaller market share globally, right? I'm not pretty sure because big players may be like Tokuyama or Wacker, et cetera?

That's right. Fortunately, it's not the major one. Yes, it's smaller than the others. So market share wise, that's okay. And so far, we haven't seen any impact from this to GlobalWafers, yes.

My second question is regarding to SOI wafer, because I think in early days, the demand from RF-SOI was pretty strong because of the 5G adoption. But in the history, SOI wafers normally correlated along with the overall semi wafer market. So -- but you mentioned about the demand looks like to be still very strong, along with the float zone wafers. I can understand float zone demand is very strong, maybe driven by high-power applications. But as far as wafers, wondering if you could elaborate more, if there is any more progress on, for example, like FD-SOI? Is there any more applications being -- can use FD-SOI these days to drive a very strong demand?

Yes. I think it's mainly for 5G application, the RF-related. And in addition to that, we see some sensor related and some other applications like photonics or silicon photonics that will be case as well. But I think maybe another reason that our SOI capacity is not picking up, we are not the #1 in the world. So we are still [Technical Difficulty] so that's one of the reason why we have very strong demand, stronger than our higher -- the demand is higher than RF-SOI, right? But we do see [Technical Difficulty] as well. [Technical Difficulty] as well.

The next question is coming from Jimmy Yang from JPM.

So thanks for sharing your progress in compound semi materials. May we ask how much annual revenue we can recognize from compound semi, mainly from silicon carbide at this moment? And what's your target for the next 3 to 5 years?

Okay. Thanks, Jimmy. Regarding for the compound materials, even carbide, again, yes, currently if comparing to our company total revenue is still very low -- very low single digit. That is because, as you know, silicon base revenue quite as big. And our compound material, both silicon carbide and gallium nitride, they are just starting up the net production, generating revenue. So considering the percentage-wise, no. But if comparing -- is considering the growth rate, that's pretty high, the double digit, even higher. So currently, we are in the good shape by shipping out such a product to our customers and even more customer on the production at the final stage. So we are making the pretty good projection quarter-by-quarter, year-by-year. So we will have a pretty high growth rate for next year. Thank you.

Let me add a little bit more detail. I 100% agree with what William just explained. Let me add a little detail. Our goal is to double our silicon carbide output volume every year, double every year in the next 4 years. That's our goal, every year, in the next 4 years, double, double, double, double, 4x. So that's our goal. I'm talking about the volume, but not necessary to the revenue. Because product mix change as well, and we will -- we're actually migrating part of our demand to [ ASICs ] as well. So average price maybe will be -- but long-term wise, freight wise our goal is to double output in the next 4 years. Thank you.

And my second question is about Siltronic just disclosed for the first time that it has secured 80% LTA for its greenfield expansion in Singapore. So we are also wondering about our U.S. greenfield LTA collection progress and challenges. Do we need to wait until next semiconductor upcycle to get more progress? Or we also have get 80% at this moment?

Okay. Thanks, Jimmy. Okay. Regarding for our greenfield, as Doris mentioned earlier, actually, our Asia, our greenfield Asia, in U.S. will be still in trend, given just a little bit delay because of the part long lead time. But so far, we are on the track to be starting the mass production in Q1 end or Q2 beginning in 2025. And the company's long-term strategy for our greenfield to kickoff, we have been -- until we're collecting very high percentage of committed order, LTA prepayment, then we work it all. So it means that for our greenfield in U.S., we had reached a certain high percentage of committed order with prepayments. That's why we are currently keeping such a greenfield project on Asia. Thank you. Just adding again, our U.S. factory is the most, the biggest 12-inch wafer supplier in space. So it's close to the biggest U.S. factory customers there. So we will become the most preferred supplier in U.S. by the local suppliers. Thank you.

The next question is coming from Bruce Lu from GS.

My first question is I think the customer investors are very concerned for the geopolitical reach at this moment. We understand that your capacity in China is very small. But can you tell us what's your revenue contribution coming from China and how much of your LTA is coming from the Chinese customers?

Okay. Yes, we do have a factory in China, but that is mainly producing the small diameter of 6-inch wafer and below. And just a very few, very few 8-inch wafer manufacturing. So considering our total revenue from the small diameter is the high single-digit revenue. And it would be becoming even smaller when our brownfield and greenfield expansion completed in 8-inch and the 12-inch. So that's for a small diameter percentage in terms of our revenue. But our small diameter not only producing from China factory but also from Taiwan and KL Malaysia. So in sum up of total revenue percentage from our China factory is still around just the middle single-digit percentage. So that is the China manufacturing. And regarding for the customers -- regarding for the revenue distribution by geography, I mean, that is the end product consuming location, including the Chinese customer and also the foreign-based customers like the Taiwanese company or Korea companies, they are all grouped into our China revenue, okay? About the China revenue is just a low double-digit percentage. About our revenue distribution, actually, GlobalWafers revenue are quite diversified in each major region like Taiwan, Japan, Korea, North America, Europe and China. All of these major areas are quite -- not anything called -- market dominance is very high percentage. So concluding your question for customers' revenue from China, that is just low double digit and that is both -- there are from both Chinese customer and foreign-based customer in China operations. Thank you, Bruce.

So my next question is again for the acquisition because GlobalWafers is known for the MMA during the down cycle. And the Siltronic share price is already half of what you were willing to pay for it when you tried to propose the deal, right? So I'm not asking that whether you want to do it again or not. But what I'm trying to ask is that what's your plan right now moving forward? And is there any showstopper for you to kick off the acquisition again for Siltronic, if there is any?

Yes. Yes, let me answer this very typical question. I think for now, we have no plan to move forward for that project. That project is finished, it's done, it's finished. We didn't make it, and that's the current status. Of course, we still believe that [indiscernible] right now, it's worldwide sentiment for semiconductor industry is like what we are seeing today. I think it's very difficult to do this kind of global transaction for now. That's our view. So we are not going to have any -- we're not going to make it move for now. If anything changed, like the environment change, global -- back to the globalization, then maybe we will revisit this topic again then. But no plan for now.

I'm sorry, just double check that because you have -- you don't want to kick it again -- kick off again because of the -- you don't think the globalization is the trend? Do I have the right understanding?

No. Sorry for not making myself clear. I mean we're not going to kick off this project again now. I think there are 2 reasons. One is that we are already doing our greenfield expansion right now. So no matter what, we are building our capacity. And the second is that it seems that it's getting more and more difficult for the world to have this kind of cross-border transactions. That's our view. Maybe we're wrong, but we are busy for our greenfield expansion. And also, we still have some concern for the cross-border acquisition like this. So we think that it's better to focus on greenfield expansion right now. That's our point. That's my answer. Thank you.

Thank you so much. In the interest of time, we will have to wrap up the call here. Thank you all for joining. Thanks again to Doris, William and Leah. This marks the end of the call. Thank you.

Thank you very much.

Thank you.

Thank you very much.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining. Enjoy the rest of the today.