Hua Hong Grace Semiconductor Limited (1347) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Hua Hong Semiconductor Second Quarter 2024 Earnings Conference Call. The call is hosted by Mr. Junjun Tang, President and Executive Director; and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and second quarter 2024 summary slides are available to download at our company's website, www.huahonggrace.com. Without further ado, I would like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.

Good afternoon, ladies and gentlemen. Thank you for joining us -- our second quarter 2024 earnings conference. Today, we will first have Mr. Junjun Tang, our Executive Director and President, make remarks on our second quarter performance. President Tang will address in Chinese and Kathy Chien, our Deputy Director of Investor Relations, will be the translator. After that, I will discuss our financial results and provide guidance for the next quarter. This will be followed by our question-and-answer session. The call will be conducted in English. So please ask your questions in English. I'll now turn the call over to Mr. Tang.

[Foreign Language]

[Interpreted] Good afternoon, everyone. Thank you for joining our earnings call.

[Foreign Language]

[Interpreted] The semiconductor market is experiencing a slow recovery from the bottom. After several quarters of weak demand, the market showed signs of stabilization and recovery driven by some downstream sectors such as consumer electronics.

[Foreign Language]

[Interpreted] In the second quarter of 2024, sales revenue of Hua Hong Semiconductor reached USD 478.5 million in line with guidance, with a gross margin of 10.5% above our guidance and both achieving sequential growth. Capacity utilization also improved further from the previous quarter, approaching full utilization across the board, solidifying the company's market position as a leading foundry with specialty technologies.

[Foreign Language]

[Interpreted] Construction of our second 12-inch production line is progressing at a fast pace and is expected to enter trial production by the end of this year, further expanding our capacity, developing our technology platforms, and unlocking greater potential.

[Foreign Language]

[Interpreted] Hua Hong Semiconductor will continue to improve its research and development of process technology, solidify and strive to expand its advantage in specialty technologies, bring better operational performance to the market, and achieve more substantial investment returns to our investors.

[Foreign Language]

[Interpreted] Now I would like to hand the call over to our CFO, Mr. Daniel Wang for his comments.

Thank you, Mr. Tang, for the inspiring comments. Now let me begin with the summary of our financial performance for the second quarter, followed by an outlook on revenue and margin for the third quarter 2024. And then we will move on to the question-and-answer session. First, let me summarize financial performance as of the second quarter. Revenue was $478.5 million compared to $631.4 million in Q2 2023, primarily due to decreased average selling price, and compared to $460 million in Q1 2024, mainly driven by increased wafer shipments. Gross margin was 10.5% compared to 27.7% in Q2 2023, primarily due to decreased average selling price and compared to 6.4% in Q1 2024, mainly driven by increased capacity utilization. Operating expenses were $90.3 million, 7.8% over Q2 2023, primarily due to increased expenses for new fab Hua Hong Manufacturing and engineering wafer costs, and 15% over Q1 2024, mainly due to increased labor expense. Other income net was $6.9 million compared to other lost net $54.7 million in Q2 2023, primarily due to decreased foreign exchange losses and increased interest income. It was 82.6% over Q1 2024, primarily due to increased interest income partially offset by increased foreign exchange losses. Income tax expenses was $8.4 million, 76.7% lower than Q2 2023 primarily due to decreased taxable income. There was an income tax credit in Q1 2024, primarily due to a reversal of the dividend withholding tax accrued for 2023. Loss for the period was $41.7 million, compared to profit for the period of $7.8 million in Q2 2023 and the loss for the period of $25.3 million in Q1 2024. Net profit attributable to shareholders of the parent company was $6.7 million compared to $78.5 million in Q2 2023 and $31.8 million in Q1 2024. Basic earnings per share was $0.004 compared to $0.006 in -- compared to $0.06 in Q2 2023 and $0.019 in Q1 2024. Annualized ROE was 0.4% compared to 10% in Q2 2023 and 2% in Q1 2024. Now, I will provide more details on our revenue from Q2 2024. From geographical perspective, revenue from China was $385.5 million, contributing 80.5% of total revenue and a decrease of 21.2% compared to Q2 2023, mainly due to decreased average selling price and demand for smart card ICs, partially offset by increased demand for logic, other power management IC and CIS products. Revenue from North America was $46.8 million, a decrease of 3.5% compared to Q2 2023, mainly due to decreased demand and average selling price for MCU, logic, super junction and general MOSFET products, partially offset by increased demand for other power management IC products. Revenue from Asia was $28.1 million, a decrease of 37.7% compared to Q2 2023, mainly due to decreased average selling price and demand for MCU, logic and super junction products. Revenue from Europe was $17.2 million, a decrease of 57% compared to Q2 2023, mainly due to decreased demand for smart card ICs, IGBT and general MOSFET products. Revenue from Japan was $0.9 million, a decrease of 89.7% compared to Q2 2023, primarily due to decreased demand for MCU and super junction products. With respect to technology platforms, revenue from embedded non-volatile memory was $137.1 million, a decrease of 34.2% compared to Q2 2023, mainly due to decreased average selling price for MCU products and decreased demand for smart card ICs. Revenue from a standalone non-volatile memory was $23.7 million, a decrease of 29% compared to Q2 2023, mainly due to decreased average selling price and demand for flash products. Revenue from discrete was $152.4 million, a decrease of 39.4% compared to Q2 2023, mainly due to decreased average selling price and demand for IGBT, super junction and decreased average selling price for general MOSFET products. Revenue from logic and RF was $63.5 million, an increase of 11% over Q2 2023, mainly due to increased demand for CIS and logic products. Revenue from analog and power management IC was $101.1 million, an increase of 25.7% over Q2 2023, mainly due to increased demand for other power management IC products. Let's now take a look at the cash flow statement. Net cash flows generated from operating activities was $96.9 million in Q2 2024, decreased by 39.9% compared to Q2 2023, primarily due to decreased receipts from customers and government subsidies, and 138.3% over Q1 2024, primarily due to increased receipts from customers. Capital expenditures were $196.8 million in Q2 2024 including $128.4 million for Hua Hong Manufacturing, $40.4 million for Hua Hong Wuxi and $28 million for Hua Hong, the 8-inch facility. Other cash flow generated from investing activities was $24.9 million in Q2 2024, which were interest income receipts. Net cash flows generated from financing activities was $416.1 million, including $492.4 million capital contribution from non-controlling interests, $99 million proceeds from bank borrowings, and $0.5 million proceeds from share option exercises, partially offset by $87.5 million of bank principal repayments, $49.8 million of interest payments, $36.2 million of dividend payout and $2.3 million of lease payments. Now let's move to the balance sheet. Cash and cash equivalents was $6.4239 billion on June 30, 2024, compared to $6.108 billion on March 31, 2024. Trade and notes receivables decreased from $306.2 million on March 31, 2024 to $274.4 million on June 30, 2024, mainly due to improved AR collection management. Inventories increased from $431.2 million on March 31, 2024 to $462.6 million on June 30, 2024, mainly due to increased work-in-progress. Property, plant and equipment was $3.7502 billion on June 30, 2024, compared to $3.5874 billion on March 31, 2024. Other non-current assets decreased from $492.8 million on March 31, 2024 to $428.6 million on June 30, 2024, primarily due to decreased advanced prepayments for construction and equipment for Hua Hong Manufacturing, which is the second 12-inch fab. Total assets increased from $11,648 million on March 31, 2024 to $12,104.8 million on June 30, 2024. Total liabilities increased to $3,599 million on June 30, 2024 from $2,980.8 million on March 31, 2024. Debt ratio decreased to 25.3% on June 30, 2024 from 25.6% on March 31, 2024. Finally, let me give you a high-level outlook for the third quarter 2024. We expect revenue to be approximately $500 million to $520 million, and our gross margin to be in the range of 10% to 12%. This concludes my financial remarks. Now we would like to start the question-and-answer session. Operator, please help. Thank you.

[Operator Instructions] The first question comes from Ziyuan Wang from CITIC Securities.

Congratulations on this great earnings this quarter. And my first question is about the pricing. We -- as we -- is there -- what's our outlook on the price -- the blended ASP side in the second half 2024? What's our expectation on the ASP there? I think maybe in Q2, I just calculated that it's $400 and maybe it's the lowest point in the past 5 years, but we have achieved over $600 in 2022. Is the Q2 ASP reflect the price adjustment in Q1, or as we mentioned in the -- in this -- yes. So I just want to ask about our expectation on the ASP.

Thank you, Ziyuan. It was a very, very good question. Just to answer your first part of your question, yes, we believe, Q2 is the -- basically in terms of pricing, I think we reached the bottom, okay. So, I mean, as you all know that the utilization rate has basically come back to 100% level at this point. For the 3-inch fabs at this point, the utilization rate have all exceeded for the 3-inch fabs, it all exceed 100% at this point. And the 12-inch fab, we have 95,000 wafer capacity. So the current run rate for the past 2 months, I would say, is at about 96% -- I mean 96,000 wafers in loading, okay. Certainly we can make the mix better, product mix -- continue to make product mix better. But because of the utilization rate is at very high level, we'll continue to improve the product mix over time. That will also help the ASP improvement. And secondly, we have also started to adjust the price upward in the past 2 months. So I would expect you're going to see -- in Q3 I think we're going to see price start to move up and that will continue into Q4.

Okay. That's very clear. And my second question is about the -- it's on the demand side. As Mr. Tang just mentioned that we are experiencing a slow recovery and there is some stabilization signal driven by the consumer electronics, how do we see the looking ahead of the second half and maybe next year? What are the drivers of the demand? Can we have a little breakdown on each demand side? And especially what is the outlook on the automotive and industrial demand?

Again, that was also very valid. It was a very good question. So the -- I mean, the utilization rates start to come back during the first half, okay. So at this point, they are all at pretty much all the fabs are above 100% utilization rate. The demand mostly come from consumer electronics in the first half of 2024, okay. So in terms of -- when you look at the segments that were going strong for us is largely, for example RF, CIS, power management IC, particularly for BCD, that's largely driven by the AI segment, so that will continue. If you look at our revenue by technology platform, if you look at the past 2 quarters, you also see that the embedded non-volatile memory area has also -- in terms of volume has also picked up. Price has not gone back to the original level yet, but I think that will happen slowly. So expect embedded -- for the area of the embedded non-volatile memory, I think it will continue to get better. So for things like MCU, smart card ICs, you're going to see it will start to recover. Basically that has been -- for that segment, it has been down for more than a year now, but we start to see some momentum basically in the first quarter. And that continued into second quarter. We expect the second half, it will also be better -- it will also be better. So that is the -- so basically all segments are going strong except for IGBT. IGBT is still weak at this point. We're hoping that things will start to recover in the second half. Yes, that's basically my -- it's my take on the order on the market.

Next question comes from the line of Leping Huang from Huatai Securities.

Okay. So can you share some color about the progress of your Wuxi new fab since your current fab is fully utilized. So when you expect the new capacity will start to contribute into your revenue? And what's your current plan regarding the mix between the power and the IC? This is the first question.

[Foreign Language]

[Interpreted] Thanks for your question. After 5 years development, our Fab 7 at Hua Hong Wuxi, the 12-inch production line is already fully completed.

[Foreign Language]

[Interpreted] So Fab 7 have 94,500 monthly capacity among which we have 4,500 for BSI backside process.

[Foreign Language]

[Interpreted] So all our specialty technology platforms like logic and analog, embedded flash, power management, all the platforms are in mass production stably.

[Foreign Language]

[Interpreted] So the wafer start has been above 95,000 for about 5 months and the wafer out is about 80,000 per month.

[Foreign Language]

[Interpreted] So our first production line meets the original target and provide a stable supply for the overall chip market.

[Foreign Language]

[Interpreted] The second production line, our second 12-inch production line in our Wuxi plant, we started the construction last July 30. And after almost more than one year's construction, the infrastructure -- the installation of the infrastructure almost finished and meet original target. We have some pull-in schedule and overall we have completed about 80% of the work.

[Foreign Language]

[Interpreted] We plan to move the first [ little ] tool by the end of August.

[Foreign Language]

[Interpreted] We plan to move near 200 tools in Q3.

[Foreign Language]

[Interpreted] We aim to put all the production line go live by the end of the year.

[Foreign Language]

[Interpreted] And start to release some capacity in the first quarter next year.

[Foreign Language]

[Interpreted] Thank you.

Okay. The second question is about your revenue mix by countries. I remember when you did IPO, I mean, a few years -- I mean, quite many years ago, that the non-China portion is account for maybe more than 30% of the total. But currently the Chinese customer account for this quarter, which is 80%. And I think your pricing is very competitive nowadays, even globally, both in the power and the IC side. Do you see the mix -- well, what's the trend you will see on the mix looking forward? Do you expect that this is still maintain, let's say, 80% Chinese customer or you would see a non-Chinese customer will maybe come back in the future?

Look, that is an excellent question. We would like to keep it at 70% China, 30% global. That is our goal. We used to have around that ratio. I mean, you mentioned it several years ago, maybe more than 5 years ago. I think our long -- I mean, our long-term just continue to keep, the 70%, 30% ratio because it's important to have -- you know, continue to expand our business in the U.S., Europe, and in other parts of the world. The reason the ratio went up for China is largely because of the 12-inch fab. We released a lot of capacity. Our local customers in China, they want more capacity. They have -- their prices have been very competitive, good, give us good profit, so for that reason. So naturally these customers have naturally migrated their products into our 12-inch fab, okay, the first 12-inch. But you know, what? With the second 12-inch fab pretty much going to be -- going into production, we expect -- you know, at the same time we are also discussing basically exploring all sorts of partnerships with our existing and new global customers, okay. For people like in Europe, the big IDMs in Europe, big IDMs and design house in the U.S. and other parts of Asia, we have been very actively in discussions with these customers. We expect -- when we start to release the capacity from the second fab, we expect that ratio will start to go back to the original ratio which is 70%, 30%. I think it is very important to have a business that is both China and at the same time global.

Next question comes from the line of Qingyuan Lin from Bernstein.

My first question is around the utilization. We saw that right now the 8-inch utilization actually above 100 and that's kind of the second quarter average. Do we know what is the utilization for 12-inch and 8-inch at the end of the second quarter? And what do we expect the third quarter average for both kind of 8-inch and 12-inch?

So in the beginning of the second quarter, actually utilization rate even for the 8-inch fab, it wasn't quite at 100% utilization rate, but it was getting close. So now, as I said, all fabs are at 100% or above. We expect that utilization rate will continue throughout the year, okay. We see demand. We have demand. We -- based on the forecast that were given by our customers at this point, we're very confident that utilization rate will continue to state level. I'm a finance guy, so let's say, it will -- I'm very confident it's going to stay above 95% utilization rate throughout the year and continue into 2025.

Very clear. And related to that, for the second 12-inch fab, regarding the product mix, how different do we see it could be compared to our current product mix? Because I think it's a little bit related to the demand. What do we expect that there will be extra demand in 2025 that the current capacity cannot fulfill, right? Would it be, say more CIS or more PMIC or more discrete for the second 12-inch fab in Wuxi?

[Foreign Language]

[Interpreted] So the second 12-inch production line is target to release capacity in the first quarter next year.

[Foreign Language]

[Interpreted] So as I mentioned just now, all our 5 specialty technology platforms will be ready by the end of this year on the second 12-inch fab and start to release capacity in the first quarter next year.

[Foreign Language]

[Interpreted] As for the capacity allocation, almost should be similar as the Fab 7.

[Foreign Language]

[Interpreted] So different products will require different verification process. So there will be a process -- progressing terms. So I believe in the mid of next year, we will meet our capacity allocation plan.

[Foreign Language]

[Interpreted] So we have 40 nanometers logic, 55 nanometer ETOX and power management super junction.

[Foreign Language]

[Interpreted] So we've received very positive feedback from our customers regarding our capacity release plan and our technology platform.

[Foreign Language]

[Interpreted] So the installation and R&D preparation are in good schedule. So we are confident we will have a very good delivery in next year to all the investors.

[Foreign Language]

[Interpreted] Thank you.

Maybe next question, just a bit on the by sector or by device type demand. We do notice that the embedded NVM has been growing kind of for this quarter in terms of the share. Do we see that for the third quarter, the embedded NVM will continue to grow at the rate faster than the other segment given that there could be potential demand pickup? And also given that right now the share for embedded NVM was at a much lower kind of a ratio compared to historical level?

That was -- yes, I mean, Qingyuan, that was a very good question. Yes, absolutely, you're correct. As I've mentioned, that entire segment embedded non-volatile memory has been down for over a year, literally over a year. Even -- I mean, it was the biggest impact on revenue throughout 2023 because of that segment that used to be account for 1/3 of revenue, sometimes more than 1/3. But it was good that started from Q1. We saw -- there's some pickup on that, especially on MCUs. That continued into Q2 as I've mentioned. From the current forecast that we see this trend will continue. It's not going to go back to the level that we had before, okay. But I think it's going to take some time. That entire segment has been strong for many, many years, okay. And so I took a little break last year. I mean, even throughout -- beginning of this year, I think we -- the recovery started in Q1 into Q2, very moderate small growth. But I expect second half this year, this work -- this trend -- you know, this growing trend will continue. It has been a while. And you have to realize MCU goes into many different applications. We talk about smartphones, smart home, smart meter, IoT, automotive electronics, especially with cars, whether it's new energy cars or traditional vehicles, you know, it requires a lot of MCUs, okay. So, I mean, as any product -- electronic product, you go to -- go into a cycle. But MCU would definitely come back. It is to be used in many different places. We're hoping that this is the beginning.

Very clear. Maybe one last question is around the gross margin expectation for third quarter. We do expect the ASP to further increase. And also given that the MCU will be stronger, and I would assume MCU also have higher ASP, why are we expecting a kind of moderate -- only moderate increase on the gross margin? Could you help to break down a bit on the expectation for gross margin for the third quarter?

I mean -- yes, I mean, that's a good question. Yes. Basically, we're very fortunate. If you compare -- if you look at some other colleagues in the industry, some of them on mature technology nodes, their utilization rate is around 60%, 70%, whether it's in China or somewhere else, these fabs, okay. So -- and because of the type of strategy we have, because we're a specialty technology foundry, we have 5 major technology platforms, virtually, we are a leader in each segment, okay. So that position -- and the other fact is our capacity is still limited. I always say that, our capacity is limited. We have 3-inch fabs and we have a 12-inch fab. For that reason, we're very fortunate. Our capacity is full. But you have to realize the market, in my view, it is still not fully recovered -- not fully recovered. So this is why we still haven't seen much movement on our SPS. We start to adjust price, but we're not back at the level we were in 2022, okay. So, it would take some time, It takes some time. This is exactly why we have been extremely conservative on guidance on gross margin, okay. And I mean, as we did last quarter, we said, 6% to 10%, we exceeded. We like to make this kind of progress. We give a 10%, 12% range. Hopefully, we can do better, okay. So anyway, it -- basically, it's also a reflection of the overall market.

Very clear. We do see that the company is going through upward revision, and the cycle is also supporting the company to get better financial results. Hope to see more to come in the next 2 quarters.

Our next question comes from Sunny Lin from UBS.

So my first question is quick. On your Q3 guidance, revenue is guided to grow by 4% to 9%. Given your full utilization rate, should we assume most of the growth is driven by upside in blended ASP? How should we think about the upside by wafer shipment and by blended ASP going into Q3?

If I want to take -- Sunny, thank you for the question first of all. It's good to have you back, actually. So I would say, if you look at the growth, okay, it's -- let's put this way, I think 70% will come from the ASP appreciation and the other 30% will come from the additional shipment, okay. As Mr. Tang just pointed out earlier, even though our loading for the 12-inch fab is at 90 -- I mean, it's loading, the wafer input, wafer in is above 95%, I mean, 90,000 wafers, but the wafer out still has some bottlenecks at some -- somewhere -- anywhere between 80,000 to 85,000 wafers a month, okay. So we need to resolve these bottlenecks over time. It's a new fab. It's still got glitches in here and there. We need to resolve these issues and then we can have a very smooth output. That would give us additional shipment -- okay, additional shipment. So it's going to be -- mostly it's coming from ASP and then maybe around 30% were driven by the additional units.

Got it. Daniel, that's very helpful. So to follow-up on the pricing, I guess, as of now, CIS foundry supply has been pretty tight, and that may provide you pretty good position to negotiate with clients. But what are some of the other products that you could also raise price in a more meaningful magnitude? If I think about power discrete, overall, the competitions within fabless and IDMs are pretty fierce in China market. And so for power discrete, for example, would you be able to also raise price in the coming few quarters?

You know, we talked about that raising price. That exercise, we virtually have been doing that for the past 6 to 8 weeks, gradually. I would say, if I can move price up anywhere between 5% to 10% this year, that is a major achievement, okay. As I mentioned earlier, I talked to Ziyuan earlier with our alliance bursting front. It's -- the overall market is still not fully recovered. It's still kind of weak, okay. If you talk to your foundry companies in Taiwan, they are still at 60%, 70% on mature notes, okay, in terms of utilization rate. So the ASP adjustment will be gradual this time, okay. When this will continue, hopefully this market, the trend will continue, the demand will get better and better, okay, over time. I think, I'm pretty confident. I think that's going to be the case, okay. So I mean, as I said, it's -- if I can do that for this year, anywhere 5% to 10% overall ASP improvement, all segments other than IGBT. IGBT is still weak, but the exercise we're doing, it is on all segments except for IGBT, okay, except for IGBT, the high voltage power dispute products. But virtually, we're doing it now from power management IC, logic and RF, including CIS. We start to -- since demand is high, we start to put pressure on customers in the embedded non-volatile memory space as well, okay. And then the other thing, the power management IC, the BCD, it's going very strong. We need to put pressure on these guys as well. You have to realize. Now to your other question, yes, there are a lot of capacity in the power space. But you know what? We don't care because we're absolutely the best. Globally, Infineon, they are much bigger. But in China, in terms of technology, we're at the same level. Whether it's MOSFET, whether it's medium voltage stuff or IGBT and super junction, we're way ahead of these guys. Now, in fact, what I want to say is, a lot of companies coming into this market by selling it at extremely low price, okay. Hey, this is really bad for the market, because at the end of the day, people will respect only on quality, on technology. So just like any other technology platform, we will win -- we will win over time.

Got it. Very glad to know about all these details and your insight. Last question on depreciation. So, Daniel, based on your estimates, how will that increase going to Q3 and Q4? And any guidance for 2025, based on your expansion plans for the second 12-inch fab?

The second 12-inch fab will go into trial production in the end of the year, okay, sometime in Q4. So it's going to be trial production. So the depreciation expense will start to hit the books in 2025. There will be no 0 depreciation expenses from the second 12- inch fab. But in terms of the first 12-inch fab, as I've said many times, it will be about $450 million for the first 12-inch fab, and for the 3-inch fabs it will be about $120 million.

Our next question comes from Tony Shen from SPDB International Securities.

[Foreign Language] Tony from SPDBI. So I've got 2 questions here. The first question is about the growth margin into the first quarter. I think our third quarter gross margin is still improving from the second quarter at a moderate level. How do we see that into the first quarter? Can you give us some color and the reasons behind it?

Tony, it's a very good question. I want to get back to the normal gross margin. I mean, the high utilization rate has really helped us. I mean, you can see it for yourself, the second quarter, because of the high utilization rate, our gross margin has already started to improve for both the 8-inch, the 3-inch fabs, and the 12-inch fab, okay. So, the goal is to eventually, but there's going to be a process. There's going to be a period of time, okay. It's going to be -- what I'm saying is, I mean, we want to -- for the 12-inch fab starting next year, it's going to -- basically the depreciation expense will reach the peak, okay. All the tools will start to depreciate starting next year, okay. I mean, we're out to 95,000 wafers. So the tools have all started their depreciation process. So next year it will be at peak starting from next year. So if we can continue to improve the ASP, let's say by 20%, 25%, we'll get there. For the 12-inch fab, we're hoping that we can get to 25% to 30% gross margin, but that would take some time, I hope within the next 12 months. And then for the 3 -- 8-inch fabs, I think our goal is to get to 45% and even to 50% like we had before in 2022, okay. So these are the goals the company has we want to achieve, okay. But when we're going to get that -- get there? I mean, it will probably -- I said, probably 12 months to 16 months. So, this is the goal to get there. But for the second half, gross margin will get better, Q3 and Q4, will continue to improve, okay. But just be honest, for the 12-inch fab to become positive in gross margin, that is still a challenge for the company this year in the next 2 quarters, okay, even with the high utilization rates, but it definitely will improve. It will get better.

Okay, perfect. That's clear. And my second question is about the second 12-inch fab. How much capacity can we expect to release? Maybe in the first quarter next year or by the middle of next year? And how should we think about the blended gross margin, because depreciation from the new fab is going up, but our other 8-inch under the first 12-inch gross margin is improving. So net-net, can we expect the growth margin to go down or go up? Can you give us some directions about it?

For next year?

Yes, for 2025.

For 2025, we're going to start to release some capacity. We're hoping that there will be some products that will migrate from the existing 12-inch fab and some new customers, new products as well. So that will help us to grab the fab up with some respectable ASP and revenue -- therefore revenue. So hopefully, we will have a nice start. That's not going to really put a lot of pressure on the overall depreciation on margin. We expect this thing will ramp slowly, gradually. Hopefully by end of next year, if we get like 20,000 wafer in loading, that is already a major achievement for the new fab. And at the same time, we continue to expect the margin will continue to improve, get better from the 3-inch fabs and the 12-inch fab because we will improve the ASP as the loading continue to get tighter and tighter.

Okay, perfect. Okay.

So I can't really give you a number. You can look at the -- if it's 40% or 45% for the 3-inch fabs gross margin and the 12-inch fab become positive on gross margin slowly get better, eventually get to 10% to 20%, hey, we're talking about 30 -- mid-30s on gross margin.

Thank you for the question. Ladies and gentlemen, that's all the time we have for questions. I will hand back to the management for closing remarks.

Well, again, I want to thank you all for joining us today and asking all the enlightening questions. We hope you will join us again next quarter. Please continue to stay safe, stay away from the heat and have a great summer. We're looking forward to meeting you in person in the near future. Thank you very much.

Ladies and gentlemen, thank you for your attendance. You may disconnect now. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]