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

Good afternoon, and good morning, everyone. I'm Brad Lin, semiconductor analyst at Bank of America Securities. It's our pleasure today to host GlobalWafers' management for their second quarter earnings conference. Now let me hand over to Ms. Leah Peng, the spokesperson of GlobalWafers, for opening remarks. Over to you, Leah.

Thank you, Brad. Dear all, thank you very much for joining GlobalWafers Q2 2023 earnings call. This is Leah Peng, I'm the spokesperson. We also have Doris Hsu, the Chairperson and CEO of GlobalWafers. Doris will guide us through the executive comments, then I will elaborate on the industry overview and the financial results. Doris will answer the questions we received from the investors recently, followed by an open Q&A section. Kindly note that, the presentation has been uploaded onto our homepage. If you do not have the file on hand, please access our website. Please understand that, this earnings call contains forward-looking statements. Forward-looking terminology, such as beliefs, expectations, may or should anticipate plans, and their opposite or similar expressions are intended to identify forward-looking statements. We caution you that, these statements are not guarantees of future preference or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projection upon which the statements are based, and could cause the actual results to differ materially from those anticipated by the forward-looking statements. Please refer to the Safe harbor notice in our presentation. Now I would like to hand over the call to Doris for the executive comments. Doris, please.

Thank you, Leah, and good afternoon, everyone. Thank you very much for joining this GlobalWafers Earnings Call of Q1 2023. This is Doris. Leah Peng, GWC's spokesperson, will guide us through the presentation later on, and I will answer the FAQ received recently and also address some questions raised in the meeting later today. First of all, let me share some comments of our overall financial results and our operational status. Please, if you have our material, please turn to Page 3. That's our financial highlights. Q2 2023 is another very good quarter for GlobalWafers. GlobalWafers have demonstrated continuous growth over the past 13 quarters, but was tested in Q2 2023. Although, there was a slight Q-o-Q decrease of 3.87% in the second quarter this year, the company's overall performance remains very commendable, especially when considering the plights and challenges posed by the weak macroeconomics and imbalanced demand supply situation in the semiconductor industry. So we are doing pretty well. Notably, especially, GlobalWafers has also sustained its consecutive semi-annual growth for 6x from the first half of 2020, underscoring its resilience and competitive advantage in navigating through a volatile and unpredictable business landscape. Our Q2 revenue totaled TWD 17.9 billion, which is 2.2% Y-o-Y, and our first half revenue achieved TWD 36.5 billion, 7.9% increase Y-o-Y. This is definitely remarkable under such a weak macro economic environment. Both of these 2 numbers hit our record high over the same period. And regarding to gross margin and operating profit, our Q2 2023 gross profit margin was 37.7%. First half 2023 growth margin was 39.2%, and our operating profit margin was 29.1% in Q2 and 31% in H1. The erosion in Q2 is mainly due to charges associated with unused capacity and spiking power costs in some countries, especially European countries, and depreciation. These are the main reasons why our Q2 gross margin and operating profit is slightly lower than Q1. Page 4, please. I want to share some more highlights about financial results. Net profit, due to very stable operation, our overall net profit in H1 is 26.8%. This is the second best record for GlobalWafers, so 26.8% net income in the first half of this year. EPS, our second quarter EPS is very good too. Our EPS for Q2 totaled TWD 11 per share, and the first half EPS amounted to 22.49 NT per share. This is the second highest in the company history. Let me move to prepayment. As of end of June 2023, our prepayment totaled TWD 38.3 billion, or around USD 1.2 billion, marking the third highest prepayment net amount in our record. Please note that, prepayment balance is dynamic as we return the amount to customers once the contractual obligations are fulfilled. So during the first half of 2023, this is which I think very important is that GlobalWafers, even in such a weak environment, we concluded new LTAs in the first half, and we received new prepayments in the first half as well. And the new prepayment we received in the first half is as high as TWD 1.5 billion. That's our overall prepayment performance. Page 5, please. Let me share some industry and overall outlook. A global economy is still, visibility is still low. According to OECD's June forecast, global GDP growth is expected to improve from 2023 to 2024, supported by moderating inflation and stronger real incomes. Despite these positive factors, the upturn is hindered by continued high underlying inflation pressures, presenting challenges for the economy. And for semiconductor industry, in 2023, I think global semiconductor industry is predicted to experience a decline due to cheap oversupply. Semi-analysts continue to refine 2023 revenue forecast downward, now with an aggregate decline of around minus 10.6%. Notably, the first drop in the semi-revenue trend since 2019. Due to very high supply imbalance, memory segment will weigh down the industry the most this year. However, there is optimism for a rebound in 2024 as fabs increase production and the material market, including silicon wafers like GlobalWafers, is expected to resume higher growth in 2024, driven by industry's recovery and fab ramping up. Key drivers of semiconductor market revenue include the automotive, industrial electronics, and generative AI sectors, which are expected to play a very important role in shaping the industry's growth trajectory. Also, in Semi-Silicon Manufacturers Group's latest report, worldwide silicon wafer shipments demonstrate a 2% increase Q-o-Q in Q2 2023. This is remarkable, and this is showing a sign of recovery as well. Page 6, please. I want to cover some industry outlook. First, let me talk a little bit about automotive. Semiconductor-enabled automobile innovations, including EVs, ADAS, AVs, and infotainment systems with features like navigation, Wi-Fi, smartphone integrations, voice commands, and audio/video services, constantly drive the silicon content per vehicle, getting higher and higher. And next, which is the hottest topic in the semiconductor industry now, is AI. Let me talk a little bit about Generative AI and AI Server. A well-functioning generative AI system requires robust peripherals to support its high-performance computing needs. These peripherals include essential components, such as cloud storage, memory, servers, and other critical infrastructures. These components work together to ensure seamless data processing, storage, and retrieval, allowing the generative AI system to operate efficiently and deliver optimal results. As AI finds versatile applications across various industries, the demand for AI technology becomes increasingly diverse. Semiconductors play a crucial role in enabling the high-speed computation required for AI applications, making them indispensable in the advancement and widespread adoption of artificial intelligence solutions. Next but not least, I would like to highlight our compound semiconductor performance. Compound semiconductors find wide applications in the power market, particularly in sectors, such as automotive, notably the EV segment, and the expanding renewable energy capacity. The increasing adoption of silicon carbide and gallium nitride power devices is further fueling this growth trend. As a result, GlobalWafers' business has thrived. With projected 2023, our 2023 revenue expected for our compound business, our revenue expected to exceed more than tenfold of what was achieved in 2022. So 10 times our revenue, compound revenue in 2023 is expected to exceed more than 10 times of our revenue in 2022, evidenced by our sold-out capacity and many new LTAs for compound material. Page 7 is the page for ESG. Please let me share some good news with you. GWC is again awarded top 5% corporate governance among all Taiwan-listed companies for 5 consecutive years and is included as 1 of the top 30 companies in Taipei Exchange ESG 30 Index. And we are very honored that we are listed, we are included as FTSE4Good Index Series by FTSE Russell, demonstrating our commitment to improving corporate governance and fulfilling our ESG commitment and ESG responsibilities. Above are my comments, high-level comments for our overall operation performance and the market outlook and all the related high-level updates. Leah, please share more on the industry outlook and financial performance, more detail. Thank you very much.

Thank you, Doris. Let me begin with the global GDP growth forecast in Page 9. According to OECD's latest forecast, global GDP growth in 2023 is projected to be 2.7%, the lowest annual rate since the global financial crisis. A modest improvement to 2.9% is foreseen for 2024, as inflation moderates and the real incomes strengthened, but underlying inflation pressures remain high. In Page 10, we can see that oversupply of chips, which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year. Global semiconductor revenue is projected to decline by 11.2% in 2023, but will rebound to USD 631 billion with double-digit worldwide growth as high as 18.5% in 2024, according to the latest forecast from Gartner. Steep demand and price declines for memory is likely to result in a 35.5% drop in 2023. However, it is on path to recover in 2024 with a 70% increase. The year-end net revenues are set to increase 87% and 61% due to price rebound and a deep supply shortage. We will focus on the semiconductor materials market in Page 11. In 2023, the semiconductor materials market is expected to decline by 3%, reaching a revenue of USD 70 billion. However, the decline will be mitigated by growth in leading-edge logic and automotive/power device production. A strong recovery is forecasted in 2024, with material revenues increasing by 8% to nearly USD 75 billion. The market is projected to achieve a CAGR of 4% over the next 5 years, resulting in a market size of USD 88 billion by 2027. Material supply constraints are expected to be resolved by the 2023 slowdown, while demand for materials will strengthen during the industry recovery and the global fab expansion. In Page 12, this is the long-term momentum and the growth by Semiconductor segments. Although in the short-term, the demand dynamics remain volatile, but if we look further ahead, McKinsey analysis shows that the demand for semiconductors is set to rise by 6% to 7% a year up to 2030, which is sustainable and propelled by multiple applications. Sectors such as industrial and automotive are likely to face continuing tightness of supply, both in the short and medium terms, given predicted growth in demand of 10% and 40% CAGR, respectively. The tightness will reflect both the microenvironment and the long-term trends, such as the switch to EV. In Page 13, the CAGR of global silicon wafer market is 3.3% from 2022 to 2027. Notably, 300-millimeter wafers are expected to outperform other wafer sizes, exhibiting a remarkable CAGR exceeding 4%. Please allow me to stress that, this is also the target product of GlobalWafers' expansion project. As for the silicon wafer area shipment, [ 60.3% ] growth rate is expected in the next year. And in Q2, the global worldwide silicon wafer shipment increased by 2%, indicating that the semiconductor industry is actively addressing these inventory issues. Please turn to Page 14. The 300-millimeter capacity, which was at 7.8 million wafers per month in 2022 is expected to rise to 8.5 million wafer per month in 2024. With additional greenfield capacity coming online in 2024, the aggregate utilization of 300-millimeter capacity is anticipated to remain in the upper 90% range. And Page 15 is the drivers of automotive semiconductor. Please note that when we talk about automotive semiconductors, the key is not the absolute value of how many vehicles are sold, but how many functions it contains per vehicle, like EVs, ADAS, and other infotainment systems. This propels the semiconductor content growth. Positive growth are shown across all functions. For example, EVs are estimated to occupy about 40% of total vehicles sold in 2030. ADAS will exhibit a 70% CAGR between 2022 and 2030. Infotainment systems, like what Doris just said, this include navigation, Wi-Fi, and smartphone integration. This is expected to grow at a CAGR of 9% to 11% from 2022 to 2030. These features are only enabled by semiconductors. Then let's talk about AI in Page 16. Driven by AI pioneers like ChatGPT, the generative AI market is set to explode from TWD 40 billion in 2022 to an unprecedented TWD 1.3 trillion by 2032, reshaping the global tech spending over the next decade. In Page 17, TrendForce predicts a substantial surge in AI server shipments. A 29% CAGR between 2022 to 2026 is projected. Please allow me once again to stress that the success of advanced AI systems heavily relies on robust infrastructure and peripherals, such as powerful servers and cloud computing resources. These elements work in tandem to handle the vast amount of data processing and computational tasks required by AI algorithms. A critical component enabling this technology prowess is the utilization of cutting-edge semiconductor wafers. These wafers serve as the foundation for creating high-performance chips that power AI systems, enhancing their capabilities and efficiency. Together, the interconnected ecosystem of peripherals and advanced semiconductor technology lays the groundwork for the efficient and seamless functioning and achievement of successful AI applications across various domains. In Page 18, this is the global SiC power device market. It was valued at USSD 1.3 billion in 2022 and is projected to advance a CAGR of almost 20% in the next 10 years, reaching a USD 6.3 billion by 2031. GaN power device market size is forecast to reach USD 4.6 billion by 2033 from its current value of USD 1 billion, rising at a 17.5% CAGR for the next decade. Emerging uses such as EVs, renewable energy systems, and 5G communication networks all accelerate the use of compound semiconductors. Then, the following pages are GlobalWafers' financial results. In Page 21, our Q2 revenue hit TWD 17.9 billion with 2% YoY. Gross margin was 37.7%, eroded by the charges associated with the unused capacity, spiking power cost and the depreciation. Page 22 is our half-year performance. In the first half, the revenue hit TWD 36.5 billion with almost 8% YoY. Gross margin was 39.2%, operating profit margin was 31%. Benefited from the electronic share dividend, market-to-market valuation from the electronic shares we hold, and foreign exchange gains, our first half net profit margin amounted to 26.8%. This is our second highest record ever. The first half EPS hit TWD 22.49 per share. This is also our second best performance. So GlobalWafers did not continue the consecutive growth in the 14th quarter in Q2. Our semi-annual revenue has continued to increase for 6 consecutive periods since first half 2020. Then, let's move on to the balance sheet in Page 25. And I will add more color on the key item cash. In Q2 '23, our cash position was TWD 49 billion. The decrease is mainly resulted from the ECB repurchase in Q2. However, if we dive into other assets, there are additional TWD 25 billion. This is the deposits held for more than 3 months. And another TWD 3 billion, this is the restricted cash, which could be -- which is temporarily saved in the bank for tax consideration, but could be used when necessary. So if all of these cash-related assets are included, our total cash in Q2 is actually TWD 77 billion. Here, I would like to further elaborate the reason for the changes in the short-term and long-term loans. Our short-term loan almost tripled in Q2, while long-term loan decreased by TWD 23 billion. GlobalWafers issued a USD 1 billion ECB in 2021. The primary reason for such reduction in long-term borrowings is attributed to the reclassification of ECB into short-term loans based on liquidity considerations. Please allow me to present the key ESG achievements in the past year, starting from Page 27. To battle climate change, GlobalWafers host responsible growth as the principle. Use resources in a way that is socially equitable, environmentally sustainable, and economically beneficial. To be consistent with the recently published sustainability report, the following figures are 2022 performance on otherwise specified. On Page 28 first, this is our greenhouse gas. Despite our revenue has increased for the last 3 years, the greenhouse gas emission intensity has been decreasing for 3 consecutive years. In 2022, our CO2 emissions decreased around 9.2%, equivalent to 50,000 tons of CO2. This is quite remarkable. In Page 29, by means of process improvement and energy saving measures, GlobalWafers saved 1.3% in total electricity consumption compared to 2022 -- 2021. Please note that in 2022, we were fully loaded in global sites and the multiple expansion projects were carried out simultaneously. And we also managed to hit a record high annual revenue in TWD 72 billion. This demonstrates that GlobalWafers has identified a solution that allows us to generate higher profits, while significantly reduce power consumption, fostering a greener approach and achieving a harmonious balance with the environment. Please turn to Page 30. GlobalWafers is one of the very few manufacturers that possess its own solar power plant. Recent world events reveal the criticality of energy dependence. By building our own power plants, GlobalWafers is more resilient to the climate change and the power volatility. As of June 2023, the cumulative solar capacity reached nearly 41 megawatt, this equivalent to 25,000 tons of CO2 emission reduction. Please refer other pages for our corporate governance and the society devotion. Now I would like to give the floor to Doris for the Q&A section. Thank you. Doris, please.

Okay. Thank you, Leah. In the past several days, we received quite a lot of questions from analysts or shareholders. Many of them are -- were asked repeatedly. So today I'm going to choose, I'm going to choose 9 questions, which were most frequently asked by shareholders and investors and analysts in the past couple of days. So yes, let me start. Those 9 questions cover all the way from financial question, operation question, business status and CHIPS Act status and USA expansion status. So let me start from the financial items, financial questions first. The first question we received from many different investors is that GlobalWafers' stock is consecutive growth of 13 quarters in Q2 2023. Both gross margin and prepayment for Q2 2023 decreased. Please advise the reason. Okay. Yes. Our Q2 revenue is lower than Q1 by 3.87%. So it's a very small drop, small dip, 3.87% down. But our gross margin is decreased by around 2.9% compared with Q1. Our Q2 gross margin is 37.7%, which is 2.9% lower than Q1. This is mainly resulted by 3 reasons, which I have already explained in the executive comment. The first reason is the charges associated with the unused capacity. And the second reason is the spiking of the energy costs in some countries, especially European countries. You know that we have European factories and we have factories in 9 countries. Some countries' energy costs are so much higher than other countries. So that is the second reason of our gross margin drop. And the third reason is because of depreciation cost increase. So these are the 3 reasons of our gross margin 2.9% drop versus Q1. And the prepayment comparison, yes, our prepayment in Q2 -- as of end of Q2 is slightly lower than Q1, which is just only TWD 2 million lower than Q1. Our revenue, our prepayment as of end of Q2 is TWD 38.3 billion, or around USD 1.2 billion. And this is just TWD 2 million lower than Q1. But what is very important, as I explained in the executive comment, that what really matters is that, I care most is that we -- do we conclude new LTAs continuously? Do we keep receiving new prepayments continuously? Those factors are very important. And also for existing LTAs, because our customers are following their LTAs commitment and their liability. So whenever the commitments, LTA liabilities obligations are met, then we will repay the prepayment to customers as the contract. So that's why our prepayment balance is dynamic. We will return, repay to customers when the obligations are met. So at the same time, we will receive new prepayment as well. So yes, to answer your question, yes, our prepayment as of end of Q2 is TWD 2 million lower than Q1. Very, very minor difference, a little bit lower, but we received TWD 1.5 billion new prepayments from our newly concluded LTA. That's the answer for the first question. And the second question is that OpEx, GlobalWafers, usually our GlobalWafers OpEx control is one of the best in the industry. But the question here is that our GlobalWafers OpEx has increased 0.7% in Q2 and reached 8.5% in Q2, breaking GlobalWafers' usual record at around 8%. Please advise the reason. We receive a lot of questions about this one as well. So let me explain why our OpEx percentage increased. The increase is mainly from our R&D spending increase in our G&A. Also, we have some increase in G&A. And main reason for these 2 increases is like this. #1 is that our R&D, because we are developing a lot of new products like compound material and also CZ for IGBT, 300-millimeter IGBT. And we have a lot of new float-zone, which is super hot right now, float-zone, 200-millimeter float-zone product. So these 3 products are new for us and the demand are very strong. So customers are delivering, giving us more and more new specs. So we spend a lot more R&D resource, allocate more resource for these 3 key products. And that is why our R&D expense increased from 2.8% in Q1 up to 3.3% in Q2. That is the main reason. But I think this is very appropriate and very good arrangement to invest for future growth. That is one of the main reasons. And the second main reason is one of expense, which is cyber security concern. Because for the whole group, we -- this one, in 2023, we spend more resource and we have -- we pay more attention on our overall, the whole group's cyber security. So we spend quite a lot of one-off expense to upgrade our software, to increase our cloud protection, and also some hardware. We upgrade quite a lot of hardware as well. This is a global policy for GWC. All of our sites, not only Japan, American, Taiwan, and many sites are investing more and more R&D software and hardware expenses to improve, enhance our overall cyber security. These 2 are the main reason why our Q3 OpEx is slightly higher than Q1. The R&D cost, higher cost, this status, somewhere around 3.2%, 3.3%, this will be last seen. But the cyber security improvement investment, that will be one-time only. That's my answer to the second question. And the third question, again, this is a very good question as well. This question, we were asked by many -- very expert analysts and shareholders. The question is that GlobalWafers' debt ratio has increased to somewhere around 67%. That's our rate as of end of Q2. Our debt ratio is around 67%. So the question is, please advise if this will cause a favorable impact on your GlobalWafers' future operation and your future growth. A quick answer for this is, no. This will not affect our future growth or future opportunities. The reason is the following. This debt, our 67% debt is mainly composed of, #1, prepayment, because prepayment is liability as well. So it's definitely is that you recognize prepayment as cash, and at the same time, that's our debt as well. So we have as high as TWD 38.3 billion liability as debt, because that's prepayment. And the second is ECB. Our ECB as of end of Q2, the balance of our ECB is TWD 11.4 billion. That's the second big debt for GlobalWafers. And the third one is corporate bond, which is TWD 19 billion. These 3 are the key components of our 67% debt ratio. But with very low interest rates, matter of fact, our ECB is a negative interest rate. So with super low interest rates, these financial measures and corporate bond -- our corporate bond interest rate is very low as well, which is just about 0.5% to 0.6%. So our -- these financial tools, interest rate is extremely low. So with this low interest rate, these financial measures force very strong leverage, insulating GlobalWafers from the rising funding costs right now in the whole market, worldwide markets. Funding costs is increasing very rapidly, but we have very good protection, because we already have those funders, super low interest rates fund, including ECB and corporate bond. That's a big protection for us. So these -- that's a very good installation for GWC from the increasing funding costs. And these funds also empower us to expand our operations and building -- build our long-term compatibility. So it's very important. This 67% loan debt is actually very healthy and is a good leverage for us. If we exclude prepayment, the debt ratio would have dropped to 56%. It's not 67%. If we exclude that, it's just 50-something percent. So also GlobalWafers, we hold abundant cash on hand. As of end of Q2, our cash on hand is about TWD 77.6 billion, and that's very strong cash position. If we deduct the bank loan, which is TWD 15 billion, and deduct the corporate bond, which is TWD 19 billion, and ECB TWD 11.4 billion, if we deduct these 3, actually GlobalWafers actually still holds net cash, TWD 34.6 billion. So that's my, I hope I made myself clear. Just a quick conclusion here is that in short, our financial status is very strong. Although, if you check our balance sheet, you see 67% debt ratio, but don't forget that our overall cash is TWD 77 billion. And even we deduct all the bonds or loans, our net cash is still as high as TWD 34.6 billion. That's my answer for the third question. And the #4 question is, how about your current utilization rate? We received hundreds of companies, investors asking us about our utilization rate. Let me share with everyone. 6-inch is the most difficult one. Our 6-inch utilization rate is just somewhere around 70%, or slightly lower than 70%. That's the most difficult one. 8-inch and 12-inch is somewhere still, Q2 is not as high as Q1, but it's still higher than 90% for 8-inch and 12-inch, still higher than 90%. But we have some products super hot, and we just cannot ship enough to customers. And those are, number one, float-zone wafer. Float-zone demand is extremely strong. We keep expanding our float-zone capacity, but we still cannot fulfill our customers' demand. Float-zone, especially 200-millimeter float-zone, this is super strong, demand is super strong. And the second one is silicon carbide. As I reported to everyone earlier, our silicon carbide 2023, we are expecting our 2023 silicon carbide revenue growth will be tenfold, 10x higher than 2022. As I reported to everyone earlier, our silicon carbide 2023, we are expecting our 2023 silicon carbide revenue growth will be tenfold, 10x higher than 2022. So 6-inches low, 8-and 12-inches, 90%-plus. And silicon carbide float-zone on these are super strong. We cannot deliver enough. That's my quick answer to the utilization rate. And the number five question is that, because everyone's talking about AI, talking about Chat GPT. So we receive a question about AI as well. The question is that, the AI boom brings the rapid and unprecedented development. Please advise, which kind of wafers will be applied in AI chip. It's not necessary to be Chat GPT, but all AI chip. What kind of wafers on earth that will be applied? So let me explain that. Chat GPT's popularity from Q4 2022 has continued to rise throughout the whole 2023. And demand for a semiconductor is needed for the AI servers -- servers, serves that servers in all AI chips includes advanced microprocessors as well as memory is included to return in Q3 and Q4 2023. That's our expectation. Demand will be AI will bring, will improve the whole market semiconductor demand, especially for microprocessor and memory. To effectively support AI functions, advanced semiconductor technology relies on a cohesive ecosystem of peripherals, such as servers, cloud computing and memories. These essential components play a very important role in processing, storing and managing the vast amount of data required for AI applications. As AI continues to advance and become more prevalent across various industries, this is an increasing demand for cutting edge semiconductor solutions to meet the computation, computational and storage requirements. So what kind of wafer will be needed? The wafers will be needed for AI is mainly for advanced, advanced technology. So advanced node, advanced technology, that means that for the microprocessor in computing, it has to be advanced material and for power supply for charging utility, the power management IC that needs to be extremely high reliability as well. So let me put it this way, that the wafer needed for AI is mainly for advanced technology, advanced node and advanced technology. Okay. That's my answer for this one. And the next question is for 2023 second half and 2024 overall industry outlook. I think overall silicon wafer market has entered a period of slow down. These periods have typically last around 4 quarters in duration with a silicon market lagging the semiconductor market by a 1 to 2 quarter due to inventory digestion. GWC has a wide, wide gain for its first half 2023 relatively to first half 2022. Also GWC H1, first half 2023's revenues higher than second half last year as well. So after experiencing is 13 Q-o-Q gain in 2023 Q1, we're doing up to Q1, our revenue we're doing very good continuously, 14 consecutively, 13 quarters growth, Q-o-Q growth. However, with customers digesting significant inventory, many of our customers are still digesting significant inventory and many of our customers are their visibility still not that good, yet they are more confident than first half but still nobody really know that how much the market will recover in Q2, second half this year or 2024. So visibility now is still low. So with this kind of all of this situation, we think that 2023 second half overall performance will be difficult, will be more difficult than H1 for silicon wafer industry. Overall 2023 revenue for GlobalWafers, our forecast is that our overall 2023 revenue will be flattish to low single digit, mid-single digit growth, that's our view. Flattish or low to mid-single digit growth, 2023 that's our expectation for 2023 revenue. And I think that, starting from 2024, GlobalWafers will return to Q-o-Q and Y-o-Y growth patterns starting from 2024. As typical, we are seeing the recovery somewhat and even with some markets rebounding more quickly than others. That's why I said that, we are seeing very strong rebound and strong demand for float-zone 200 millimeter. And also, we see very strong demand for compound, especially for silicon carbide. And we see a strong demand for IGBT, CZ-IGBT as well, like 300 millimeter IGBT. So we see the recovery from some market or some applications much faster than the others, that's our view. And next question is about -- next question is about our labor shortage in the U.S. For our GWA, because right now in the market, many parties are worrying about the labor shortage in the U.S. We too, GlobalWafers, we are constructing a very important operation in Texas named GWA. So the labor shortage issue, that is the common challenge for all tech companies, not only in the U.S., actually even in Taiwan, labor shortage is always tight. That's still always the case for all tech companies. And we are seeing labor shortage in Europe as well, in Japan as well. So it's not only for U.S., actually labor shortage is a common challenge for almost all the tech companies in many countries. For GWC, the impact of potential tech worker shortage to GWA is mitigated. Again, GWA is our Texas operation. It's our very important new expansion in the U.S. But we think that the tech worker shortfall to GWA will be mitigated by several key factors. Firstly, our strategic location. Our GWA is in Sherman in Texas, is traveling Texas and Oklahoma. Places in proximity to renowned tech universities. This allow us to take into a pool of skilled graduate school students and professionals seeking opportunities in the tech industry. And secondly, as part of GWC Global Network, GWA have the advantage of being able to transfer engineers and staffs internally from our 17 factories outside of GWA. This means that, we can leverage talents from other locations within our organization to address any local shortage in tech workers. Moreover, our talent acquisition efforts are not limited to the United States alone. With the GWC presence, global presence across the world, we have access to a diverse talent source from various countries and regions, allowing us to attract skilled individuals from a global talent pool. So overall, of course, while the potential tech workers shortfall in the U.S. may pose challenges to all tech companies, including GWA, the GWA is well positioned to overcome these issues and ensure a steady supply of talented professionals to meet our business needs. That's our status of our labor experience -- labor experience tech workers shortfall. And the last question I want to answer is, we've been asked that how -- please update your Greenfield Fab in the U.S., the status of that Greenfield Fab and also the CHIPS Act status. Our Greenfield Fab named GWA, again, is in Texas, Sherman. This is GWC's flagship 300-millimeter factory. GWC is on schedule for a sample capability by 2024 Q4. We will be able to submit sample on schedule by 2024 Q4, a mass production ramping from 2025. When the market is generally expected to be in full swing in 2025, so we think that that's a good timing for us to complete, start ramping up our flagship factory in the U.S. And regarding to CHIPS Act status, we have already submitted our statement of interest document and we also, we have received notice from CHIPS program office that GWA is now included in phase I of CHIPS Act applications, which is alongside the wafer fabs. So our pre-application is now available for submission and the full application also will be ready – follow-ups, will be ready in Q4 on schedule. So that is -- this notice is received for GlobalWafers for GWA. This notice is received as a great news for us since the Phase I wafer fab applicants are eligible for the U.S. Treasury's Advanced Manufacturing Investment Credit, ITC. So that is very good to us. Okay. These are the questions I prepared, we received and prepared the answers for everyone. Thank you very much. So I think we don't have much time, so I would like to take a couple of questions from the attendees, please, thank you.

Thank you very much, Doris and Leah, and let's start the Q&A session. [Operator Instructions] Now let me start from 2 questions from my side, if I may. My first question is on the pricing. How is the overall pricing trend into second half and the next year? Especially, we are facing quite some headwinds in second half, and would you please share, if we are impacted by the spot pricing for 8-inch and 12-inch in second half of the year? That's the first question.

Thank you, Brad. The first question, pricing. We know that GWC, we have very high percentage of our capacity is covered or protected by LTA. So up to now, all of our LTAs are being executed very well, followed by original pricing. So this portion is okay, but no matter what, we are not 100% protected by LTA. We don't have enough LTA coverage. Our coverage is very high, but it's not 100%. So we still have some spot orders at the same time, and spot orders price is definitely dropping. It's lower than 2022. And we think that the second half, maybe spot order price will be still weak, but our LTA price will remain unchanged. In fact, that's our view.

And then, my second question is on the export ban. So does the company see any impact from the China's recent export control on the Gallium and Germanium? Will it cause any impact on our cost, our pricing?

For Germanium, we have no impact because we don't have the products. We don't really need too much Germanium. We don't have the impact. Gallium, you know that we are developing gallium nitride. So gallium is definitely a material, but gallium is our MOCVD source. So we need to buy the source, MOCVD source, gallium source for our AP process. Fortunately, same as all other key materials, we have multiple sources from different countries. So, so far, we are okay. We don't see -- we don't foresee any supply issue for gallium, but it's likely that the price maybe will be a little bit fluctuating. It's not very clear yet. Today, it's August 1st, the export control starting from today, effective from today. So, so far, we don't know yet. And of course, we have several different sources, and also even our, of course, one of our sources is from China. But even from China, many Chinese makers are trying to get the license from China government to get the supporting approval, the export approval. So, so far, no impact price, also no impact. But I think that maybe in the next couple months, if it's not easy to get enough gallium export license from China, then maybe the price will be increasing a little bit. That's our review.

So our first question coming from Bruce Lu, Goldman Sachs.

I think, next in the future, can we leave more time for the analysts to ask questions, even though I got the privilege to ask the question, but I think we should still leave some time for the other analysts as well. So the first question is for the profitability. I think, Doris, you mentioned that you're going to see somehow mutated growth in the coming quarters, but you will see the Y-o-Y and Q-o-Q growth starting from 2024. Can we expect that the profitability will be roughly at the similar trend for second half 2023 and 2024?

There are several, it's hard to predict. There are several uncertainties or potential variations. One is FX, and the second one is that starting from, actually you see that starting from Q2, we have more depreciation because of some expansion, new tools, so this trend, in the second half, we will have a little bit more depreciation as well. And the third point is that, it's also likely that maybe the spot price will keep dropping a little bit in the second half. So it's not very easy to predict, but I think that we will have some pressure. A good thing is that, we have pretty high LTA coverage, so this should make our overall, not only revenue, but also profitability more stable than others. That's our view.

But the raw material costs and utility costs you already factored in, because when you mentioned the headwind for the margins, you didn't talk about those. So I'm assuming that your pricing environment your new LTA pricing should somehow be strong enough to offset that. Is that correct?

Yes, our LTA is not an LTA, it's a LTA with prepayment. So yes, I think that we have okay management, the overall execution is okay.

The reason I ask this is that, I do recall that 2 to 3 quarters ago, when I asked you about multi-year profitability, I think that 40 something percent is somehow the comfort zone that Doris was guiding for. But we do have 4 consecutive quarter margin decline. And when is the tipping point for the margin? When can we go back to the structure of profitability which Doris mentioned earlier?

Yes, there are too many uncertain factors. It's very hard to make the, and also it's our company policy that we don't really provide any guidance that what would be the range. We think our H1 performance is acceptable and in the next coming quarters, maybe it will be a little bit challenging percentage-wise, but if our revenue is stable, I think overall performance will be still pretty okay. Yes, I'm sorry that I cannot provide any numbers. That's on our company policy. And -- yes, Bruce, also, I hear you, you mentioned that, yes, you want to have more time for analysts to discuss and you can always discuss with our team, even after the earnings call. But for earnings call, we receive so many frequently asked question, and those are very good questions. I want to share with everyone and that's our company way as well. So sorry for not enough time for the communication, but feel free to contact with our team anytime.

Yes, just one suggestion. Can we cut the -- make it shorter for the industry overview discussion? I think we do understand that.

That's a very good advice. We hear you. Thank you very much, Bruce. Appreciate.

Thank you very much. So in the interest of time, we will need to wrap-up the call here. Thank you all for joining, and thanks again, Doris and Leah for your time today. This marks the end of the call. Thank you, everyone.

Thank you. Thank you, everyone. Have a good day.