Nanya Technology Corporation (2408) Earnings Call Transcript & Summary

[Foreign Language] Welcome to Nanya Technology's 2026 Second Quarter Earnings Conference Call. [Operator Instructions] The conference will be held only in English for investors around the world. Today's conference will be approximately 60 minutes. Nanya Technology's President, Dr. Pei-Ing Lee, will summarize our operations in the second quarter of 2026, followed by our guidance for the next quarter and key messages. And then Nanya Technology's Executive Vice President, Dr. Lin-Chin Su; Senior Vice President, Mr. Joseph Wu; and Financial Executive, Mr. Philip Jao, will join us as we open our Q&A session. And today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. As usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause the actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation slide. And now I would like to turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee, for the summary of operations and current quarter guidance. Dr. Lee, please begin.

Ladies and gentlemen, welcome to Nanya Technology Investor Conference. I'm Pei-Ing Lee. Content of my presentation to you is start with the Q2 '26 revenue and results, followed by CapEx and bit shipment and then market outlook, conclude by business review and outlook. For Q2 '26, our net sales TWD 82.549 billion compared to Q1 TWD 49 billion or so, up by 68.2%. Gross profit, TWD 65.619 billion versus TWD 33.316 billion, up by 97%. And gross margin comes to around 79.5%. Operating income, TWD 60.826 billion at 73.7% versus Q1 at 61.3%. And comes to net income at -- net income comes to TWD 50.192 billion at net margin of 60.8% and -- versus Q1 of 53.1%. Our earnings per share for Q2 TWD 14.66 per share versus Q1 of TWD 8.41 per share. Book value, TWD 93.49 per share versus Q1 of TWD 62.25, okay? That's a significant improvement from Q2 compared to Q1. Quarterly revenue result comparison. Q-to-Q, revenue up by 68.2% and compared to Q2 last year, up by 684.2%. For ASP, Q-to-Q increased by around 60% and year-to-year increased by 500%. Our shipment Q-to-Q-wise is flat and year-to-year comparison increasing by high 20s. And exchange rate is flat and year-to-year-wise, is favorable low single digit. For the Q2 and Q1 comparison in more detail. The net sales, TWD 82.597 billion versus TWD 49.087 billion, up by 68.2%, mostly by increasing in ASP, okay? And our bit shipment Q-to-Q remained flat. For gross profit, TWD 65.619 billion, a margin of 79.5% versus Q1 of TWD 33.316 billion, a margin of 67.9%. The gross profit increased by TWD 32.3 billion, mainly due to higher ASP. Operating expense, TWD 4.793 billion versus Q1 TWD 3.205 billion. And the increase in operating expense is about TWD 1.6 billion and mostly due to employee profit sharing and as well as the operating cost increase and R&D cost increase. Operating income comes to TWD 60.826 billion and operating margin of 73.7% versus Q1 of TWD 30.111 billion. And operating income increased by TWD 30.7 billion, mostly due to ASP increase. Net income at the bottom line here, the net income in Q2, TWD 50.192 billion, a net margin of 60.8% compared to Q1 of TWD 26.058 billion and net margin of 53.1%. And the net income increased by TWD 24.1 billion. This basically is operating income minus the income tax unfavorable by TWD 6.5 billion. For operating expense, on the left-hand side of the table, you see the SG&A expense at Q2 '26, it comes to TWD 1.563 billion. And the key reason is due to higher employee profit sharing and expanded sales activity, okay? And the right-hand side, R&D expense has been increasing continuously to TWD 3.23 billion for the last quarter. And the reason behind it is also, again, due to higher employee profit sharing and expanded R&D activities. For cash situation, beginning of the quarter, the beginning balance is TWD 86.281 billion and with the cash from operating income, TWD 55.013 billion and then minus capital expenditure, TWD 4.046 billion. And we have a significant improvement in the financial activities income of TWD 79.509 billion, and this is mostly due to private placement happened on Q2, okay? And the end balance for the quarter is TWD 216.757 billion. And the bottom row that you may see, at the bottom of this chart, is that the Q2, our net cash and equivalent comes to TWD 198.4 billion, and this takes the cash equivalent minus the long-term debt of TWD 18.4 billion, okay? And this number compared to Q1 TWD 68.5 billion is significant improvement due to the cash from operating activity as well as the private placement injection. For Nanya, our profitability over past 13 years is described by this chart. On the top chart is the net income, okay? And for the past 13 years, we had substantially profit for 11 and then 2 years of loss. This indicated that the cyclicality has been mitigated in DRAM industry, okay? And also for accumulated profit for the last 13.5 years for Nanya is TWD 282 billion. And for net cash, it's also continually improving. For CapEx and bit shipment, left-hand side, the CapEx, we expect to spend TWD 52 billion for the CapEx. And first half so far is TWD 6.9 billion. And most of the CapEx for this year will be for construction with around 30% for capital equipment, okay? And bit shipment on the right-hand side of the chart, this year, we expect for the whole year will be up by high teens. And Q2 compared to Q1 is basically flat, okay? And at this time, we have very low inventory level. And for this, 2026, most of the bit shipment is due to the inventory consumption. For financial summary and outlook, our Q2 net profit is TWD 50.19 billion with EPS of TWD 14.66 per share. And Q2 gross margin is 79.5%, net margin of 60.8%. For the first half summary, net profit of TWD 76.25 billion with EPS of TWD 23.38 per share. And for Q3, we are expecting operational results continue to improve and also operational result may be sustainable in the next few quarters. For operation update and outlook, we have, for our AI infrastructure, including the server, contributed to more than 20% of our revenue. And our new fab, first phase ramp-up is scheduled for 2028 for up to 30,000 wafer start per month, okay? And total CapEx plan is TWD 16 billion (sic) [ USD 16 billion ] for the full capacity of 45,000 for the new fab, that's including construction. And for our new development 1C, 1D and 1E and EUV development is on schedule. And we will continue to provide broad product portfolio, including DDR5, low-power DDR5 and DDR4 low-power DDR4, DDR3 and low-power DDR3. And we will continue to support customized AI and wafer-to-wafer products and also AI infrastructure solutions. For ESG recognitions, we were selected in the Dow Jones BIC World Index for the fifth consecutive year. And we're also selected in Standard & Poor's Sustainability Yearbook member for the seventh consecutive year. For market outlook, the market-wise, the first point is AI-driven structural change is mitigating memory market cyclicality. And AI and general-purpose server continue to drive strong demand in high-bandwidth memory and resistive memory, which also constrained memory supply for smartphone, PC, automotive and consumer electronics. And the supply tightness is expected to persist over the next several quarters. And multiyear long-term agreement is aligning between supply and demand. And for the supply side, the supplier are expanding capacity as we speak, while dynamically shifting their product mix for higher-margin products. The new capacity, the greenfield capacity, aligning with multiyear LTA beyond 2028. On the demand side, AI-driven mostly and the evolution from GPU, CPU, TPU and ASIC driving robust demand in HBM, low-power DDR5 and DDR5. And also AI infrastructure accelerating adoption of higher-content, higher-performance DRAM in enterprise SSD, SmartNICs and BMC. For general purpose, for those non-AI-related applications, are favoring high-end markets, high-end product models, okay, and resulting in pricing adjustment across end markets. But overall speaking, the structural shift is intensifying memory shortage and fostering diverse AI innovation. For example, agentic AI, edge AI and physical AI. With that, I'll conclude my presentation to you. Now we may move to question and answer.

Yes. Thank you, Dr. Lee. [Operator Instructions] We will begin taking questions from dial-in first and followed by the questions from webcast. [Operator Instructions] Now the first one to ask questions, Tiffany Yeh from Morgan Stanley.

Congratulations on the great results. And my first question for management is what's your view on the overall pricing trend for DDR4 and DDR5 into the next few quarters? And then I have a follow-up.

Tiffany, I did not quite catch your question. You mean the ASP or DDR4 and DDR5 ASP?

Yes, yes, the pricing trend.

Pricing trend, okay.

Yes.

In general speaking, the pricing trend may continue to go higher, okay? So that depends on each different sector of the market and depends on the short-term agreement or long-term agreement, okay? For long-term agreement, it may becoming more and more stable. But for those short-term agreement, likely the new replacement of the agreement, will have some price increasing.

Got it. Got it. Is it possible to share some like magnitude, if possible?

Magnitude?

Yes.

I cannot give you a very specific magnitude, okay? And in general speaking, as I described to you, for those very long-term agreement, the price is relatively stable. And for those relatively short term, the price may continue to improve in some way. The shorter one may be improving more.

All right. Got it. And my second question is, as you just indicated that the supply-demand is still quite balanced in the near term. But can you share your view on like the supply-demand dynamic into 2028 or 2029, after some of our competitors or peers have been more -- new capacity coming online?

Based on what we learned from the market information, the expansion that happened, recently announced by several supplier, looks like their expansion, if you basically calculate back to EUV capacity increasing, is still within the quite reasonable range, okay? And based on current market demand situation, we are not expecting that the market will be turning our way in 2028.

Next one to ask questions, Simon Woo from Bank of America.

Okay. Great. Congratulations on the great results. We think the key contributor to the very good second quarter result is more than 60% ASP increase quarter-on-quarter, right, because your volume -- shipment is very flat. And then maybe your cost structure not much changed, right, in second quarter?

The first question, the answer is yes, okay? Our shipment is basically flat.

And then the cost structure -- the cost reduction quarter-on-quarter very limited, right?

Cost structure is very stable, yes, mostly due to ASP change.

Yes, yes. Then the -- I do remember you have some customers which ask the LTA long-term agreement and also some customers prepayment. But just 1 quarter, more than 60% ASP increase, that means still most of your business based on the monthly, quarterly price negotiations then?

The long-term LTA also based on fair market price at a certain time, okay? So basically, this is all related to market change situation.

Yes. So for example, if any customer ask LTA, if the Nanya Tech agrees on this, that is mainly for the volume, right, but the price should be negotiable maybe monthly, quarterly?

So there are several different kind of LTA. There were some LTA that we fixed volume and fixed price. And then we renew at the end of the period of the commitment from both sides, okay? We had many kind of -- many of these LTA this way. We also have LTA we discussed about a committed volume, and then we will determine the pricing according to the market trend.

Yes. According to the market trend, you mean the more monthly basis or a quarterly basis, sir, or half and half?

Mostly quarterly basis.

Yes, yes. So, so far, the Nanya Tech's great result, based on the ASP increase. So any color for September quarter or December quarter still you just see rising trend?

I think July quarter, for third quarter, as I described, our operational result is likely to continue to improve. And for Nanya's operation point of view, we think that the operating margin is already reasonably high, okay? And with the continued improvement on Q3 will be even higher, okay? And Q4-wise, it will subject to market situation change. And at this moment, we don't see major opportunity of major change from Q4 versus Q3.

Yes. So, so far, you don't see any impact of the Chinese local DRAM makers' revenue increase, production increase, high margin. These guys are also working for some local market listing process. So you don't see any impact from the Chinese local DRAM makers?

Not directly to Nanya, okay? Our business worldwide, including our business in China, has been quite stable.

So still, roughly, DDR4, maybe 40%, 50% -- sorry, sorry, DDR3 and DDR4, maybe more than 80% of the total revenue this days. DDR5, less than 20%. What's the rough idea of mix?

Currently, maybe DDR4 is small percentage. DDR5 and DDR3 is about equal, okay?

So 20% to 20% -- you mean the DDR5, to 20%? DDR3, 20%, 30%?

Maybe 10% and 10%, but also low power. You talk about DDR4, if you include low power, then maybe somewhat 70% and then 10%, 10%, then the others are 10%, yes.

Yes. So DDR4 and low-power DDR4 together more than 70% in...

Around probably 60%, some near 70%.

60% to 70%?

Yes. DDR4 and low-power DDR4.

Yes, yes, yes. And then the...

And Simon, this is dynamically changing a little bit according to customer request.

Yes, yes, yes. So only the DDR5 is around, what, 10% range?

Yes, 10% range.

Yes, yes. All clear, sir. Okay. Sorry, one last question for some investors. So you already mentioned the $45 billion of spending -- sorry, $16 billion spending for the 45,000, including the construction cost. Any rough idea, construction cost is what, $5 billion or...

$5 billion? Construction cost by itself probably less than $3 billion, maybe $2-point-some billion.

Yes, the rest equipment?

The rest are equipment. And that's including EUV as well.

Yes. But the EUV starts from -- after 1E, so it must be 1F, technology or something.

We will start to implement EUV in 2028.

Yes. But up to 1E technology, 1E node...

That could be 1C, could be 1D or could be 1E.

One of these, you may use EUV?