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

Ladies and gentlemen, thank you for standing by. Welcome to the Hua Hong Semiconductor's Fourth Quarter 2024 Earnings Conference Call. Today's call is hosted by Dr. Peng Bai, President & Executive Director; and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and fourth 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, everyone. Thank you for joining our Q4 2024 earnings conference. I'm pleased to formally introduce Dr. Peng Bai, who was recently appointed as our New Executive Director and President. Dr. Bai is a highly respected veteran in the semiconductor industry, bringing over 30 years of leadership experience at Intel, followed by 2 years as CEO of Rong Semiconductor before joining Hua Hong. During his tenure at Intel, he served as Corporate Vice President for 7 years, and the Vice President and the Director of Logic Technology Development for 14 years, playing a pivotal role in advancing the company's technological capabilities. Most recently, he guided Rong Semiconductor through a period of transition, implementing key initiatives to strengthen its operations and drive initiatives, innovations. With his deep expertise, strategic vision, and proven leadership, Dr. Bai is well positioned to steer our company into its next phase of growth and success. President, Bai will allow -- now provide a overview of our fourth quarter and full year performance. Afterward, I will walk you through our financial results in detail and offer guidance for the upcoming quarter. We'll then open the floor for Q&A session. With that, I turn the call over to President, Bai.

Thanks, Daniel. Good afternoon, everyone. Thank you for joining our earning call. I'm honored to be addressing you as the new Executive Director and the President of Hua Hong Semiconductor. And I'm excited to share our progress and discuss our future plans. I would like to take this opportunity to express my gratitude to the entire Hua Hong team for their hard work and dedication. I'm very proud to be part of such talented and committed team. We have a strong and solid foundation, and I'm confident in our continuous growth and innovation going forward. We will make every effort to achieve our strategic goals and deliver greater value to our shareholders. Thank you for all your support. And I look forward to sharing more detail with you during this call. In the fourth quarter of 2024, revenue of Hua Hong Semiconductor reached USD 539 million, with a gross margin of 11.4%, both in line with our guidance. For the full year, we achieved sales revenue of USD 2.004 billion, with a gross margin of 10.2%. For Hua Hong Semiconductor, 2024 was a year with both challenges and opportunities. Market demand was complex and varied. Recovery in the consumer field and rapid growth of some of the emerging application markets drove good performance for the company's image sensor and the power management platforms. However, demand for mid to high end power devices needs improvement. Facing fierce market competition, the company maintained stable revenue and production volume. A quarter-by-quarter improvement trend in overall performance was achieved. Average capacity utilization rate throughout the year was approaching 100%, which was at a leading level for global wafer foundry enterprises. The year 2024 was also pivotal for building on past achievements and forging ahead. Success construction and commencement of operation in our second 12-inch production line in Wuxi, represents a significant milestone on the company's strategic development path. In 2025, Hua Hong Semiconductors were intensified. R&D investment centered on new process platforms and iteration of each platform, expand capacity of the new production line, continue to foster strategic cooperation with key domestic and international customers, focus on evolving demands of critical emerging industry and the future further solidify our leading position in the specialty process wafer foundry sector. Concurrently, the company will enhance efficiency and cost reduction efforts, thereby creating greater value for our shareholders. Now, I would like to hand the call over to our CFO, Mr. Daniel Wang for his comments.

Thank you, Dr. Bai for your inspiring remarks. Now, let me walk you through a summary of our financial performance for the fourth quarter, followed by a recap of our full year 2024 results. I would then provide our revenue and margin outlook for Q1 2025, before opening the floor for the Q&A session. First, let's review our financial results for the fourth quarter. Revenue was $539.2 million for 18.4% over Q4 2023, primarily driven by increased wafer shipments, partially offset by decreased average selling price, and 2.4% above Q3 2024, mainly driven by improved average selling price and increased wafer shipments. Gross margin was 11.4%, 7.4 percentage points over Q4 2023, primarily driven by improved capacity utilization, and 0.8 percentage points lower than Q3 2024. Operating expenses were $110.6 million, 16.4% and 35.9% over Q4 2023, and 2023 -- Q3 2024, primarily due to increased engineering wafer costs and increased new fab start-up costs. Other loss net was $40.5 million compared to other income net of $87.6 million in Q4 2023 and other income net of $51.8 million in Q3 2024, primarily due to foreign exchange losses versus foreign exchange gains in Q4 2023 and Q3 2024, and decreased government subsidies. Income tax expense was $6.6 million, 8.5% lower than Q4 2023, and a 42.4% lower than Q3 2024. Net loss for the period was $96.3 million compared to a profit of $3.5 million in Q4 2023, and $22.9 million in Q3 2024. Net loss attributable to shareholders of the parent company was $25.2 million, compared to net profit attributable to shareholders of the parent company of $35.4 million in Q4 2023 and $44.8 million in Q3 2024. Basic earnings per share was negative $0.015 compared to $0.021 in Q4 2023 and $0.026 in Q3 2024. Annualized return on equity was negative 1.6%, 4.0 and 4.4 percentage points lower than Q4 2023 and Q3 2024 respectively. Now, let's take a closer look at our Q4 2024 revenue performance. From a geographical perspective, revenue from China was $450.8 million contributing 83.7% of total revenue and a increase of 23% compared to Q4 2023, mainly driven by increased demand for Flash, MCU, super junction, logic and general MOSFET products. Revenue from North America was $48.1 million, increase of 30.7% compared to Q4 2023, mainly driven by increased demand for other power management IC products. Revenue from Asia was $23.9 million, a decrease of 20.9% compared to Q4 2023, mainly due to decreased demand for super junction, logic and the general MOSFET products. Revenue from Europe was $14.3 million, a decrease of 22.8% compared to Q4 2023, mainly due to decreased demand for general MOSFET. Revenue from Japan was $2.1 million, a decrease of 36.9% compared to Q4 2023, primarily due to decreased demand for super junction products. With respect to technology platforms, revenue from embedded non-volatile memory was $137.2 million, a increase of 22.5% compared to Q4 2023, mainly driven by increased demand for MCU and the smart card ICs. Revenue from standalone non-volatile memory was $46.1 million, a increase of 212.2% compared to Q4 2023, mainly driven by increased demand for flash products. Revenue from discrete was $165 million, a decrease of 9.6% compared to Q4 2023, mainly due to decreased demand for IGBT products, partially offset by increased demand for general MOSFET and super junction products. Revenue from logic and RF was $67.5 million, with increase of 20% over Q4 2023, mainly driven by increased demand for logic and CIS products. Revenue from analog and power management was $122.6 million, a increase of 37.1% over Q4 2023, mainly driven by increased demand for other power management IC and analog products. Now, turning to our cash flow statement, net cash flows generated from operating activities was $308.1 million, 56.8% over than Q4 2023, primarily due to increased receipts from customers. Capital expenditures were $1,505.7 million in Q4 2024, including $1,440.7 million for Hua Hong Manufacturing, $43.8 million for Hua Hong Wuxi and $21.1 million for Hua Hong 8-inch business. Other cash flow generated from investing activities was $61.7 million in Q4 2024, including $41.2 million receipts of government grants for equipment, $17.9 million interest income and $2.6 million of receipts from selling a equity. Net cash flows used in financing activities was $50.9 million including $91.5 million of bank principal repayments, $50.5 million interest payments and $0.4 million lease payments, partially offset by $84.5 million proceeds from bank borrowings, $5.5 million receipts of government grants for finance costs and $1.5 million proceeds from the share option exercise. Now, let's move to the balance sheet. Cash and cash equivalents was $4,459.1 million on December 31, 2024, compared to $5,766.7 million on September 30, 2024. Other current assets increased from $520.3 million on September 30, 2024 to $604.2 million on December 31, 2024, mainly due to increased value-added tax credit. Property, plants and equipment was $5,859.1 million on December 31, 2024 compared to $5,199 million on September 30, 2024. Total assets decreased from $13,082.5 million of September 30, 2024 to $12,415 million on December 31, 2024. Total liabilities decreased to $3,508.5 million on December 31, 2024 from $3,867 million on September 30, 2024, primarily due to decreased payables for capital expenditures. Debt ratio decreased to 28.3% on December 31, 2024 from 29.6% on September 30, 2024. I would now like to provide the recap of our financial performance for the full year of 2024. Revenue was $2,004 million, 12.3% lowered than prior year, primarily due to decreased average selling price, partially offset by increased wafer shipments. Gross margin was 10.2%, 11.1 percentage points lower than 2023, mainly due to decreased average selling price and increased depreciation costs. Operating expenses were $630.9 million, 8.4% over 2023, largely due to increased research and development expenses and increased new fab start-up costs. Other income net was $22 million, 12.5% above 2023 primarily due to increased interest income, partially offset by decreased government subsidies. Net loss was $140.4 million compared to a net profit of $126.4 million in 2023. Net profit attributable to shareholders of the parent company was $58.1 million, compared to $280 million in 2023. Basic earnings per share was $0.034 compared to $0.189 in 2023. ROE was 0.9% compared to 6.3% in 2023. Finally, let's discuss our outlook for the first quarter of 2025. We expect revenue to be in the range of $530 million to $550 million, with the project gross margin of 5% to 11%. This concludes my financial remarks. We will now begin the Q&A session. Operator, please assist. Thank you.

[Operator Instructions] And now we're going to take our first question and it comes from the line of Ziyuan Wang from Citic securities.

I am Ziyuan Wang from Citic Securities. It is a pleasure to talk to you Dr. Bai and Mr. Wang. My first question is, I would like to ask what kind of business strategies Dr. Bai will promote after he becomes a new President of the company, for example, like will he promote, like the cost reduction and like localization of the supply chain. Could you please share some detail on this?

Thank you, Mr. Wang for the question. The short answer to your questions, yes, it is going to be a greater emphasize in the company to improve the efficiency and reduce the cost and domestic localization of both equipment, material and parts, is indeed part of that strategy. This is not only going to reduce cost and also or improve our supply chain security. So this is a -- this effort is going to be part of our overall strategy of basically promoting a better technology platform, also improve our marketing -- sales marketing effort, but yes, cost reduction will be a key component to the overall strategy.

And my second question is about the auto and the industry market. As we can see, like in 2024, the industrial and auto market is relatively weak, but we can see some inventory adjustment recently. After communicating with customers, how do you expect 2025, will there be some upward and also on the R&D and introduction of the new products and new platform side, are there any new changes that you can share?

There's a couple questions in there. I will try to answer them one-by-one. I think, in terms of the end market in the auto space and in some of the new energy space, you are correct that 2024, there were some inventory correction going on at our end customer. I believe that, the inventory correction by and large is complete. Therefore in 2025, we are somewhat cautiously optimistic that, that segment, our market -- end market will behave normally. So that's one part of your question. Second part is that, in order to address those growing end market -- those markets at secular -- is a -- secular is still growing market. There might be a year-to-year fluctuation, but on a long-term basis, it's still growing market for us. Not only we think the 2024 inventory correction was by and large over, we also have been enhancing our R&D effort in those by coming up with a technology platform that can better serve those market in both power devices in discrete space as well as in MCU, both are heavily utilized -- is increasingly being utilized in the auto markets. So that is also part of the equation that we are looking at. So in general, for me, as a new President of the company, I talked about cost reduction early, but another key emphasis, another key focus will be to enhance our technology development efforts, so that we have a better platform, be able to better serve especially the high-end market of the specialty technology that Hua Hong is known for.

Can I have a quick follow-up? Like, what kind of platform will be the key point on the R&D side?

On the R&D side, I think with our new 12-inch factory in Wuxi, we will basically go very aggressively on the no migration on some of the key technology platform we have, for example, MCU, where we're heavily getting into the 55-nanometer and 45-nanometer. So you should expect to see our revenue portfolio going forward, will be more heavily represented on the more advanced node. That's one area, I will point you to. Another area is the power devices. The high-voltage area is also our somewhat more focused direction we want to go, so that we can better address some of the needs in auto and some of the other industrial areas. And in general, all the platform, we want to be able to get qualified for automobile because that is overall a growing -- a growth market and end market that we want to participate. So those are some of the key initiatives or key focuses going forward in the technology development area.

And the next question comes from the line of Leping Huang from Huatai Securities.

The first question is also for Dr. Bai. So what's your view about the Hua Hong's current strength in the global and in China semiconductor ecosystem? And what is missing today? So you just talked about the technology platform. Also, do you plan to lead Hua Hong to more advanced node in the future since you have very long experience in a much, much more advanced process versus today's Hua Hong. This is the first question.

Very good question. I will try to answer them, with as few words as possible. This is a long topic, but we can -- I will try to give you a flavor of what my thinking is. First, Hua Hong has a solid foundation in terms of -- in the specialty technology area. It has always focused on specialty technology at the mature nodes. But definition of mature nodes do change as a function of time because, for example, right now, a few years back, the mature nodes might be defined as anything above 40-nanometer. But now I think it's the next couple of years, it's going to move down to 28, even 22-nanometer. So, yes, in that sense, even if we -- our focus is still going to be on specialty technology at mature nodes, we will basically move with where the market is going to be. We're going to be a market-driven company in a sense that, if the market move towards more advanced node, we are still in the mature node space, but we will definitely go to 28, 22-nanometer. The fact that, we have started the 12-inch effort a few years back, which allow us to continue this migration. There are some detail there that different technology platform, where the sweet spots may be a little bit different. Some of the markets we participate in like MCU or logic, RF or CAS, those tend to have a faster migration to more advanced node, and those ones will go first. Some of the other areas, like power devices or even PCD, the power management devices, they also, over time, migrate to more advanced node, but their speed is a little bit slower. So those ones were -- move later, move slower compared to some of the other technology problem. In a way, the fact that we have a large portfolio of technologies, this actually give us an advantage, because we have assets across multiple technology nodes, so we can deploy them depending on the technology platform to where the market needs the most. This gets back to one part of your question, which is how do I view Hua Hong Semiconductor in China. As you know, Hua Hong is generally viewed as the second largest semiconductor company in China. And I think that position, that's still true. My intent is to actually grow the company at a faster rate compared to in the past. That does mean that we will deploy -- we will try to increase our capacity at a faster rate and also increase our technology portfolio at a fast rate. But since we are in the specialty technology at the mature node, this is the space where -- this is the market we serve, we're going to be market-driven, and we will also try to basically try to become the world leading on some of the technology. So this is the overall strategy. I don't know, if I answered your big question there, but this is -- I just give you a flavor of where my mind is -- my head is right now. Thank you.

The second question is about the AI or the -- I think, we are talking the global semiconductor industry -- I am talking about $1 trillion market by 2030. And considering the Hua Hong's current strength and the direction you want to move, what are the opportunity you think Hua Hong can capture in the next few years, especially these days, the DeepSeek is very hot and people are talking about whether the Chinese -- the Chinese tax system can capture more pie from this whole -- the $1 trillion pie in the future, yes?

I think, if you look at 2024, the overall semiconductor space, anything related to AI, as you know, was hard. Everything else, frankly, was flat. We also see the same thing. And although, we don't directly have the advanced nodes that directly make those advanced AI chips. Anything associated with AI, we do see demand is increasing. And we do participate in that space that, for example, all those data center build-out that's related to AI, or the power management area, for example, I just used one example. Power management chip, we do see -- we do participate in that space, and we do see some of the demand -- the related demand in those areas is also pretty robust. So going forward, we think that is going to be a growth area. So my general view of the AI or DeepSeek is that, this is -- it's a very exciting development, first of all. Secondly, if the AI space develop fast is generally a very good news for the entire semiconductor industry, semiconductor market because the whole segment not only need advanced node product, but also all the companion chips, or the associated chips that to support this whole -- hardware buildout. We will all benefit from it. DeepSeek, the fact it can lower the bar into -- the fact that you can lower the cost and lower the bar entering into that space, that in general, as an economic law, it means that it's probably will accelerate adoption across the board. So overall, we should increase the demand for all the hardware build-out as well. So if you ask my opinion on that, I view that as positive, even if for Hua Hong was more of an indirect benefit as opposed to directly benefit our technology platforms.

And the question comes from the line of Jian Kuai from Orient Securities.

My first question is about the international players, China for China strategy. We all know Hua Hong has a strategic relationship with ST. And also, we know that ST and also Infineon has expressed their strategy to have China -- want to have China business partners. So how do we see these business opportunities in the next several years? That's my first question.

Thank you for asking that question. I think you pointed out a very important aspect of our overall strategy is that we do collaborate with some key international customers. ST is one of them. You already saw the announcement. We were collaborating in the 40-nanometer MCU space. So that is -- definitely it's going to be an important business for us going forward. And another collaboration you pointed out with Infineon, that's also is rapidly evolving, and we should also see quite a bit of results very shortly. Indeed, this China for China strategy, we are seeing more and more, especially from our European customers that, they are embarking on this China for China strategy, thereby they are looking for partners inside China. I think this is one place where Hua Hong is very strongly positioned because the European -- a lot of European customers, their products, their technology portfolio matches our very well. So we can very quickly become their partner and achieve a mutually beneficial results. This also reflects the fact that Hua Hong has a pretty good reputation in the specialty technology and mature nodes space that in China. So I think, I totally agree with what you said. And this indeed is one of the key focus going forward for us.

My second question is -- my second question is about the fab 9. Maybe Mr. Wang can give us an update about the fab 9 depreciation and also start-up cost, all these kind of things because we see in Q4, the start-up cost was a little bit high. So that's my second question.

Okay. Thank you. So this -- the total investment for this project was, as I said before, it's about $6.7 billion. That's the total capital expenditure number. So basically, right now, we have completed the fab building, the build-out for the facility. And also, we have already issued a POs for the first 40,000 wafer capacity. We expect that 40,000 wafer capacity will be installed by mid of this year. And then we will move on to build the next 40-plus thousand wafer capacity, okay? So we expect the entire 83,000 wafer capacity will be installed completely by sometime mid -- no later than mid-2026, okay? So as far as depreciation is concerned, the total -- it's going to start -- basically, the ramp starts this year. So for this year, 2025, the depreciation expense will be around $170 million to $180 million for this year, okay? So it's going to be gradually start from $30 million, $40 million to get to somewhere to $70 million to $80 million for the fourth quarter -- to the fourth quarter and the entire year will be about $180 million, okay? And then the capacity by end of this year, we get to close to around 30,000 wafer capacity, 30,000 to 40,000 wafer capacity will be fully installed. That's the plan.

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

This is Qingyuan Lin from Bernstein. I have a question around the kind of by segment breakdown, by product breakdown of the performance. What's your view on the MCU performance of embedded NOR Flash? The stimulus impact on the consumer sector supposed to be good on the home appliance. Why do you think that we haven't seen the recovery of the sector yet?

If I understand your question correctly, you're saying we have -- for Hua Hong specifically, MCU is, first of all, is one of the large platforms we have. We have offering at multiple technology nodes. The most advanced one will be 55 and 40-nanometer. I think the end market, the demand, I don't think there's much problem that's there. And we probably -- we just need to get our 12-inch, 55, 40-nanometer offering to get the volume increased so that we can fully, fully take advantage of what we have in terms of the technology and the capacity. If I -- I don't know if I answer your question, please let me know if I need to follow up with more answers.

Yes. So I was looking at the fourth quarter MCU performance and if you compare to our peak in around first quarter, second quarter 2023, and it has been gone through a decline, and I was expecting that it could recover. And given that the stimulus to your point, indeed help to promote the sort of the overall demand. I'm just wondering, if there's kind of a delay because of inventory or because of -- to your point, it's a capacity issue from us, we need the new 12-inch to capture that demand.

Okay. Thank you. And now it's much clear. I understand your question. You are correct. Over the course of 2024, the MCU revenue was in Q4 compared to Q1 was lower. I think, there's 2 factors. One is our 12-inch capacity in Wuxi is coming up online. That has an effect. We probably could have done more, if we had more capacity. Another one is we are heavily into NTO, New Product Introduction phase. And some of those products, the product core do take little bit time. So that was also a factor. So that's why I think -- I do think in 2025, all those issues will be worked out and going into 2025, our MCU revenue will catch up to the earlier peaks.

I see. That's very clear. Another point is the RF and logic and CIS has been quite strong over the past few quarters, but now starting to see a little bit of a correction. What do you think is driving that? Is it more of the customer -- our customer share gain loss? Or is it more just a seasonality? Or do you think it's already going through a secular downturn?

In the logic and what do we call logic and RF space, we do have CIS revenue in there. In fact, CIS revenue is a large part of the category. In the CIS front, we basically have a few -- only a few customers with large volume. So their fluctuation will reflect in our demand. It will reflect in our demand for us. I think overall CIS, I wouldn't say there's any significant changes. It's more of a quarter-to-quarter fluctuation type of thing. For logic and RF product, we do see a gradual increase because they start with a smaller pace. And when we group them together with CIS, it doesn't show very clearly. But I think there is a long-term secular growth in those 2 categories; logic -- pure logic and RF. And CIS thus tends to have more quarter-to-quarter fluctuation just because we only have a couple of customers in there. They have a large volume, their fluctuation get reflected on us.

That's very, very clear. Maybe last one around this breakdown is on the discrete sector. We all know that, it has been through kind of a bit of a challenge due to the overcapacity in the end markets. When do you think will be the tipping point that this segment will back to growth?

I will try to put it this way. The power device discrete segment, I think, the overall market, the demand is there. The bigger problem is on the supply side. I think, there's -- as you know, there's more newer fabs coming online since the entry -- the bar to entry into that space is rather low. So there's definitely a fierce competition, especially at the low end of the market. So in that regard, your observation is correct that in the discrete space, there is -- in general, is a bit of a decrease for us. That is reflected in quantity as well as the pricing pressure. We will also suffer a lot of pricing pressure in that space. Our strategy going forward is to basically have a high-quality technology platform and try to gradually move our portfolio towards the higher end of the market so that we can maintain both quantity and prices. As you know, Hua Hong in power devices, we have both -- we have reasonably large capacity in both 8-inch and 12-inch, and we fully expect to continue utilizing and leveraging the capacity we have there. The key is to be able to move to a higher end of the market. Earlier, we talked about some of the collaborations with some of our European customers. Some of the collaboration is in that space. So I think we were -- we should be able to get moved -- gradually move towards the higher end of the market. That's the way I see how we're going to solve that problem.

I see. Very, very clear. Maybe a follow-up on that is, what do you think is the implication to the blended ASP for the 2025 outlook, given that we are kind of migrating to a sort of a higher -- better mix of the more advanced products?

In general, in the power device area for 2024, our forecast -- we're not forecasting a further decline. If anything, our model assumes some pricing recovery. Now, there's some uncertainty as to how fast some of those work is going to come to fruition and also the volume. But the general trend, we believe is that 2024, we should bottom out in the pricing on the power device discrete area.

I see. How about the company overall blended ASP for the 2025? Because if you look at the first quarter 2025 guidance, it seems to be a little bit sort of getting pressure on the margin and pricing. Do you?

I think that pricing comment apply to the -- what mix -- the average mix of the pricing that we should see -- we definitely assume some recovery. The margin pressure you see in Q1 mostly come from the fact that we have a new capacity coming online, there is a higher depreciation that's going to become a burden for us, not because of the pricing. Go ahead, Daniel.

But with that, even though, yes, there's -- as Dr. Bai said, there's additional capacity that will be rolling out in the coming quarters. But at the same time, we're going to be able to generate more revenue going forward.

And the question comes from the line of Tony Shen from SPDBI.

Dear management, this is Tony from SPDB International. Actually, I've got 2 questions here. The first question may be for Dr. Bai. Could you give us a big picture of the outlook of 2025 in terms of iron demand? What is good, what is strong and what is weak? And how Hua Hong is positioned in the semiconductor cycle? This is my first question.

Let me try. Making predictions is a bit of a hazardous business. 2025, I'm cautiously optimistic that we're going to see a reasonable year. This obviously depends on many factors. One of them is going to be how Chinese economy is recovering. Second is how the geopolitical situation is going to be overall. But if you look at our forecast in Q1 and eventually, we're going to get to subsequent quarters in 2025 in terms of the forecast. We are, in general, assuming a flat to a slight better situation in 2025. That's probably how much I'm willing to venture out at this point.

Got it. My second question maybe for Mr. Wang. Could you share us about the gross margin maybe into second quarter or into the second half of 2025? And you already talked about depreciation on the margin in the first quarter. Any other big reasons or factors will impact the gross margin into the rest of 2025?

As Dr. Bai just said earlier, I think overall, I think we're going to see some improvement on ASP, okay? Personally, I'm very, very positive about this. I think particularly second half of this year, we see -- we are confident, we're hopeful that overall, for the specialty technology market, I think we're going to be pretty strong, okay? We believe price will do better in a gradual fashion throughout this year, okay? ASP should improve, okay? So that should help our gross margin, both for the 8-inch business as well as for the 12-inch business, especially for the -- our first 12-inch fab in Wuxi. I think -- so as I said, we're currently at slightly above 30% for the 3-inch fabs. And that should continue to improve as the price -- average selling price will get better. So the goal is to do better. The eventual goal is to do 40 or even above. That is the goal. And for the 12-inch fab as well, we want, first of all, to make sure the gross margin make it turn that into positive, okay, and then continue to improve as the market recovers. At the same time, we're going to have the second fab, which is the second 12-inch fab. The depreciation expense for that fab will start to come -- start to come out this year, okay? So that itself will put additional basically burden on the overall gross margin, okay? So overall, I think we're positive. I think we should continue -- so the gross margin at this point, we're talking about above anywhere 11% to 12%. I think that number, we should basically make that number better. The goal is to get it close to 20%. That is the, I would say, near-term within 1 year and 1.5 years that we should strive to make it happen, okay? So that is the goal.

[Operator Instructions] And the question comes from the line of Leping Huang from Huatai Securities.

So first, Daniel, so the question is about the FX loss. So can you explain the scale of loss? And is it -- it's a onetime issue we should expect and the first quarter should turn profit again? This is the first question.

This is largely caused by the FX effect, the U.S. dollar compared to RMB appreciated by 2.4% in fourth quarter. We have a dollar loan, okay, about $1.5 billion. That was the reason for the FX loss, okay? Depending on how it goes in Q1, I think in general, I would expect these things will fluctuate quarter-to-quarter. But long term, I think we also plan to fix that problem. Basically, at some point in the future, when RMB becomes stronger, we're just going to fix that problem. We're going to convert all the -- basically the dollar loans into RMB loan. That will fix the problem.

The second question is how we should model your 2025 growth from -- either way because you have a very large capacity to be introduced this year. We just simply multiply your first quarter guidance by 4 as the minimum revenue you plan to deliver. This imply a roughly 10% growth or what -- but you have a large capacity under Wuxi Phase 2. How we should model this -- your 2025 growth?

Other than ASP improvement throughout the quarters through the next 4 quarters, we are also going to basically release more capacity. The additional capacity is mainly coming out of the second 12-inch fab, okay? So we expect the capacity by end of this year will -- the production capacity will get to around 20,000 to 30,000 wafers, okay? So basically, based on that, I think, I would say 10% should be a pretty fair assumption that's been conservative. If we have a few good products that start to ramp in the new fab, we can potentially get above 20,000 wafers by end of this year.

[Operator Instructions] And the question comes from the line of Jian Kuai from Orient Securities.

My question is about the standalone NVM product. The revenue increased a lot in Q4. So could you please give us more color about this product? And we can see because AI is going to all kinds of terminal products. So some investors is actually expecting standalone NVM like NOR Flash or these kind of products can have a bigger market in the future. So maybe you can give us more color about this product?

Sure. Let me try. The standalone NVM space, we have a situation similar to CAS that we have 1 or 2 large customers that we serve. And there's always going to be some quarter-to-quarter fluctuations. In this case, Q4 was -- I don't remember the number was particularly good. But in general, you are correct, the standalone NOR flash market, I do see long term, we have a secular growth story here. This is a space I didn't spend a lot of time talking about it, but we also have some new exciting technology we are working with our customer that we're probably going to drive the long-term secular growth in this space. And also, the customer -- one of the customers we have is one of the world leading customers. So they are -- they have a very strong position in the market as well. So I do think this is an area that we should see -- you should expect us to deliver some growth long term.

Dear speakers, there are no further questions at this time. I would now like to hand the conference over to the management team for any closing remarks.

Let me just try to conclude this earnings call. Again, I want to thank all of you for joining us today, asking all the wonderful questions. I hope that, you will join us again next quarter. Please -- I look forward to meeting you in person very soon. I wish you a very happy, prosperous year of state. Thank you very much.

Thank you.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.