Sino-American Silicon Products Inc. (5483) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the joint earnings call for the fiscal year 2024, hosted by GlobalWafers and Sino-American Silicon Products, Inc. I'm Leah Peng, the spokesperson for GlobalWafers. Joining us today are CW Lee, the spokesperson for SAS; and Doris Hsu, the Chair Lady of both companies. Here's how today's call will unfold. Doris will begin with executive comments, providing insights into overall performance and strategic direction. We will then address investors' questions received in advance followed by an open Q&A session. The call will last for 90 minutes and conclude before 4:30 p.m. A quick reminder, please keep your audio on mute. To enjoy a smooth and interactive session, we have established 2 methods for you to post questions during this event. [Operator Instructions] Before we begin, I would like to remind you that today's discussion may contain forward-looking statements. Please be aware that these statements are subject to various risks and uncertainties, which could cause actual results to differ materially from our expectations. Please refer to the safe harbor notice in our presentation. Now without further delay, I would like to pass the floor to our Chair President for the executive comments on both GlobalWafers and SAS. Doris, please.

Thank you, Leah. Good afternoon, ladies and gentlemen. Let me begin with GlobalWafers. Today, we have both GlobalWafers and SAS. Let me begin with GlobalWafers. If you have GlobalWafers presentation material, please turn to Page 5. Let me start with our financial highlights. GlobalWafers consolidated revenue for the full year of 2024 was TWD 62.6 billion, representing an 11.4% decline Y-o-Y compared to the previous year. However, it still recorded the third highest revenue for the same period in history. The double-digit decline in revenue was primarily due to GlobalWafers' record high revenue in 2023, which set a challenging comparison base. Even amid a downturn in the semiconductor industry, factors such as customers ongoing inventory adjustments, a significant increase in electricity costs in Taiwan and higher depreciation expenses due to capacity expansion also impacted profitability. Despite these challenges, GlobalWafers maintained a quarter-over-quarter growth trend in 2024, achieving consecutive growth for 3 quarters. For the full year of 2024, the gross profit margin was 31.6%, and the operating profit margin was 22.5%. Additionally, our profitability was affected by valuation changes in our holdings of Siltronic AG shares and the exchangeable units overseas exchangeable bonds issued based on these holdings. Leah will provide further details on the valuation logic later. Siltronic stock price at the end of 2024 dropped nearly 50%, 5-0, 50% compared to the end of 2023. At the end of 2023, Siltronic's stock price was around EUR 88. And end of 2024, it was EUR 46.5. So GlobalWafers had to recognize valuation losses despite the partial buffer provided by the exchangeable unit. However, this is purely an accounting loss and does not impact our GlobalWafers' actual cash flow, operation or core profitability. If excluding the valuation impacts, GlobalWafers' EBITDA for 2024 would be 36% with an EPS of $28.97 per share, demonstrating solid core profitability in line with historical records. Let me move to prepayment. As of the end of 2024, our prepayment balance stood at TWD 31.9 billion or around USD 1 billion, reflecting a 3.5% decrease compared to the previous quarter. Driven by the ever-changing global landscape, GlobalWafers, with its global presence and local supply edge, has gained increased recognition from customers, many of whom have proactively approached us to discuss new supply agreements. GlobalWafers is highly favorable -- highly favored by customers due to several reasons. Number one, localized production strengthening supply chain resilience while reducing exposure to global uncertainties, carbon footprint and associated costs. And the second strength is potential mitigation of tariffs and freight costs. Domestic production helps minimize potential tariff burdens and logistic expenses, ensuring a most cost-effective supply chain. And the third strength is our proximity to customers, facilitating seamless collaboration in the same language, same time zone, enabling more efficient discussions on next-generation technology with our customers. So this strengthens our almost position GlobalWafers as one of the best supply chain partners for many of our customers who are seeking to navigate an evolving landscape of market fluctuations, trade policies and tariff challenges. We are very excited to share a major milestone in Q1 2025. We have signed a new long-term agreement in Q1 2025. The willingness of our partners to further strengthen collaborations at this moment serve as a strong testament to the correctiveness of GlobalWafers' strategic direction and reinforces our position as the preferred partner for customers navigating an increasingly volatile global environment. While we continue to strike a balance between capital expenditures for strengthening our core competitiveness and returning value to our shareholders, GlobalWafers is committed to a stable and shareholder-friendly dividend policy. In principle, we distribute at least 50% of our after-tax earnings each year after setting aside the legally required reserve stability in our article of cooperation. For the first half of 2024, a dividend of TWD 5 per share has already been distributed. And for the second half of the year, TWD 6 per share dividend will be issued, bringing the total annual dividend to TWD 11 per share. The 2024 dividend payout ratio stands at 52.2%, which is higher than the peers' average. Okay. Next, let me share some of our view of the global economy. While global GDP growth is projected to remain steady, it faces challenges stemming from policies on national subsidies, tariffs and fluctuations in exchange and interest rates. The U.S. economy continues to show resilience characterized by a robust labor market. As the economy recovers, consumer demand is expected to increase. Semiconductor, let me -- next, let me share some of our view of the semiconductor market outlook. In the first half of 2025, semiconductor market is expanded -- is expected to continue facing inventory adjustments in the first half of 2025 and tariff uncertainties. However, as inventory levels normalize and the trade environment stabilize, the recovery trend will become more evident in the second half of the year. That's our view, additionally -- and also many of our customers also agree with this kind of forecast. Additionally, the rise of affordable AI models is expected to drive the adoption of AI-enabled devices, leading to increased demand. The evolution of advanced packaging technology from 2D to 3D will further boost wafer consumption, while emerging innovations such as robust are also anticipated to expand market demand. In 2022, GlobalWafers announced a TWD 100 billion investment for global capacity expansion. Most brownfield expansions are complete with our new 12-inch epi wafer production lines in Japan and Taiwan running at full capacity, achieving record high output. Our flagship U.S. greenfield project, GWA, is progressing very well and has entered the sample production phase, enhancing domestic wafer manufacturing. Next, I would like to share some new technology and new market. This time, I'm going to specifically discuss something about silicon photonics. Silicon photonics is rapidly advancing across sectors like high-performance computing, AI, cloud, cloud infrastructure, autonomous driving, precision medicine and 5G, 6G communications, driving a smarter, faster and more energy efficiency future. GlobalWafers is unique in offering not only silicon but also silicon but also SOI wafers and even compound materials, enabling broader application, support and unmatched flexibility. Our Missouri fab is the only U.S. facility producing 12-inch SOI wafers. And with baking from -- backing from the CHIPS Act, we are expanding production with ramp-up expected in Q2 2025. Leveraging another group company, AWSC's GaAs, gallium arsenide for optical components, we provide a comprehensive supply chain solution in silicon photonics. Our global footprint is crucial to maintain a competitive edge in the evolving semiconductor industry. With ongoing impact from tariffs, interest rates, exchange rates and geopolitical risk, our manufacturing hubs across the U.S., Europe and Asia ensure a secure and flexible supply chain. This localized production strategy mitigates tariff risk and reduce carbon footprint by shortening transportation distances, making GlobalWafers the most resilient company in increasingly fragmented world trade. Our TWD 100 billion CapEx for the advanced and special products may increase short-term spending, depreciation and debt ratio, but this investment is essential for enhancing our core competitiveness. In both the current and future market, advanced nodes will continue to drive growth with our entire expansion dedicated to this area, strengthening our ability to meet global demand and solidify our long-term competitive advantages. By combining localized production with a focus on advanced technology, we established an unique amount that strengthens GlobalWafers' unique position in a dynamic global market. Next, I will move to -- I'll move on to Sino-American, SAS. Okay, so if you have our material, you can turn to SAS presentation material. In 2024, Taiwan's renewable energy industry faced multiple challenges. It was not an easy year. 2024 was difficult for renewable energy in Taiwan. We faced multiple challenges, including project development delays and intense price competition from overseas markets. In response, SAS has strategically adjusted its direction, reducing its manufacturing proportion while augmenting downstream power plant operations and green energy sales to seize the growth demand for renewable energy from corporate clients. Its green power retailers subsidiary, SAS sustainable energy solution has leveraged SAS Group's expertise in renewable energy, strong financial foundation and broad semiconductor customer network to ensure long-term agreements -- to secure long-term agreements with multiple enterprises. As a result, SAS 2024 revenue significantly exceeded our original plan, positioning it as a key growth catalyst. Furthermore, SAS continues to identify hidden champions, effectively utilizing global resources and sales channels to maximize group synergies. In 2024, SAS affiliated companies all delivered outstanding performance, contributes remarkable results and injecting new growth momentum into the group. To ensure stable growth in ever-changing industry landscape, SAS remains committed to advancing a high-value, light-asset business model, while evolving as an iconic conglomerate to embrace more promising companies to enlarge group's synergy. These initiatives have already begun to yield tangible results, which will be further detailed in the following sections. First, let me present SAS' consolidated financial performance for 2024. SAS' consolidated revenue totaled TWD 79.7 billion, marking the third highest revenue in history. Gross profit margin was 30.5%. Operating income margin stood at 20.2%. Net profit margin was 14.6%. EPS -- SAS' EPS amounted to TWD 9.24 per share. Similar to GlobalWafers, SAS' net property margin and EPS were impacted by mark-to-market valuation changes on its holdings of Siltronic AG shares and the exchangeable units issued based on the holdings. If excluding this factor, SAS' adjusted net profit margin would be close to 20% and adjusted EPS would reach around TWD 12.29. In the second half of 2024, SAS distributed a cash dividend of TWD 3.5 per share, including TWD 3 per share already paid in the first half. The total dividend for 2024 amounts to TWD 6.5 per share, resulting in a payout ratio of an impressive 70%. Okay. Let me share some global renewable energy industry's outlook. Global investment in clean tech energy is accelerating with projections indicating that by 2025, it will surpass upstream oil and gas expenditures for the first time, reaching a total of USD 670 billion. This milestone underscores the critical importance of renewable energy. Key growth drivers include solar, wind power and battery energy storage system, or BESS, which improved grid stability. While government policies on clean energy may fluctuate, the primary driving force behind renewable energy adoption comes from corporations' ESG commitments and their long-term sustainability goals. Based on our discussions with our key clients, this trend remains exceptionally strong and unchanged. Let's take a look of Taiwan's renewable energy industry outlook. As mentioned earlier, Taiwan's renewable energy market faced significant challenges in 2024. However, its importance has now extended beyond economic considerations to national security concerns. We are pleased to see that government has recognized this issue. On January 23, 2025, Taiwan government introduced more proactive policies, including simplified coordination between public sectors which is expected to accelerate project approvals. Additionally, the increasing budget allocation will further strengthen renewable energy infrastructure and momentum. We anticipate that these measures will start to take effect in the second half of the year, driving sequential revenue growth for SAS. As for 2024, renewable energy accounts for 11.6% of Taiwan's total electricity generation, 11.6%, with solar power contributing more than 2/3 of this share to achieve the 2030 target of 31.2 gigawatt of solar capacity and 10.9 gigawatts of wind capacity and annual addition of 2.82 gigawatts of solar and 1.17 gigawatts of wind will be required, setting a clear growth trajectory for both sectors. Furthermore, SAS forecasts that driven by ESG commitments, the RE initiative in Taiwan's heavy electricity user costs, corporate demand for green energy will grow at 21.3% CAGR from 2024 to 2035, creating significant growth opportunities. With strong policy support and increasing corporate demand, SAS' well-established presence in the green energy sales market is expected to continue expanding under this structural momentum. SAS is a diversified group with a broad portfolio across semiconductor, automotive, electronics and renewable energy sectors. Through strategic investments in identifying high potential business, it has built a competitive and balanced portfolio as digitalization and energy transformation progress, EV -- electric power and computing power are essential to infrastructure and national security. SAS and GWC's products and strategies align with these needs, positioning both companies as a key enabler of the sustainable and secure future. SAS leverage global expansions and strategic alliance to build a competitive semiconductor ecosystem as demand for advanced process wafers grows with AI, HPC and EV and GlobalWafers is expanding its advanced process capacity and strengthen its local supply chain, reinforcing this competitive edge. SAS is committed to sustainable development, evolving from a manufacturer to a one-stop renewable energy solution provider. As global corporations prioritize energy transition, SAS is expanding its diversified renewable energy portfolio, enhancing market competitiveness and strengthening the green supply chain. SAS adhere to a strategic approach of synergy and collaboration within the group, fostering complementary growth and expansion across key business sectors. This not only broaden its business scope, but also drive the sustained growth of SAS and its affiliated companies. CW later on will further explain their outstanding performance. Okay. Let me move to the dividend policy. One of SAS' distinguishing feature is above-industry average dividend payout ratio, contingent on earnings. Since 2020, its average payout ratio has been 66%, significantly higher than the 5-year industry average of 30.6% for the solar sector and 42% of semiconductor sector. With a dividend yield rate of 5%, SAS demonstrates its commitment to delivering lucrative returns to shareholders, reflecting strong financial performance and its focus on long-term value. This further highlights the company's undervaluation in the market. Yes, I was talking about undervaluation. SAS' stock price was undervalued. SAS has -- if you have SAS' presentation material, please turn to Page 15. We have a chart, the core -- our market cap chart analysis over there on Page 15. SAS has consistently pursued diversified expansion and strategic alliance, strengthening its competitive edge in the semiconductor and also renewable energy sectors. These efforts have enhanced its market position, create long-term value and fostered greater synergy. However, the market has not fully reflected SAS' growth potential. Based on the stock price as of February end, summing the market capitalization of its affiliates and weighted by SAS' ownership percentage, SAS market value should reach TWD 105 billion with a stock price of [ 163.6 ]. This represents a 23% discount to its current price, indicating a clear undervaluation. Furthermore, considering GlobalWafers' regional supply chain, reduced carbon footprint and the sustainable substantial increase in the proportion of advanced process and specialty products, the most -- that's most needed in the volatile world. The current stock price does not yet fully capture its core and unique competitive advantages. As the world continue to advance in cutting-edge process, technologies and accelerate the energy transition, SAS and GlobalWafers' strategic positioning and strength in the renewable energy and semiconductor sectors will become even more prominent, further propelling the growth momentum across the group. Okay, that's all I want to make -- all the summary, the comments I want to share with everyone. And next, Leah and CW will present our industry outlook and SAS 2024 operational performance and also address some key investors' concerns later on. Thank you very much. Leah, please.

Thank you, Doris. I will quickly update GlobalWafers' recent development and answering questions we have received so far. First is about the AI-driven growth that propel semiconductor expansion. Research institutions have increased their 2030 market forecast from USD 1 trillion to USD 1.3 trillion, with 18 new fabs under construction this year, indicating strong demand for semiconductors. The result is a 6.6% Y-o-Y growth rate. This leaves more room for further growth. Additionally, AI, high-performance computing and data centers are driving significant demand, particularly for advanced wafers, where supply chains remains constrained. We anticipate wafer consumption will continue to rise in response to these trends. At GlobalWafers, our expansion locations are well aligned with downstream new fabs. You can see the graph in the right-hand side, ensuring that we meet growing demand across key regions. Our localized production footprint positions us as a ready supplier for secure local supply should any potential tariff measures arise. Next page. GlobalWafers' expansion strategy aligns with regional customers' growth as well as the industry's recovery, with new capacity ramping up to meet customers' new fab operational time lines. Most of our brownfield projects have already been completed and are actively contributing to revenue. Notably, our advanced 12-inch epi lines in Taiwan and Japan are fully loaded, achieving record high shipments for consecutive months. Looking ahead, larger-scale expansion in Europe and the U.S. for 12-inch silicon and SOI wafers will come online in 2025 and 2026, reinforcing production resilience and ensuring a stable wafer supply exactly when and where the market needs it. Additionally, our Texas GWA plant has reached the sample preparation and delivery phase, marking a key milestone in strengthening U.S. wafer supply chain. The next page is about silicon photonics. Silicon photonics is transforming industry like computing, sensing, LiDAR and communications with these low power consumption, high bandwidth and scalability. It is key for AI content computing, 5G, 6G and the biomedical applications, and it's set to drive further innovations. The market could exceed USD 50 billion by 2035, cementing its role in digital infrastructure. The next page will show GlobalWafers' opportunities in silicon photonics. As the sole supplier of all silicon wafers and SOI materials, GlobalWafers plays a crucial role in this evolving ecosystem. Our Missouri fab in U.S. is the only domestic SOI maker in America and is currently expanding its 12-inch SOI wafer production capacity and supported by the chipset. Furthermore, its relevant technology platform requires for silicon based and substrates, which means polished wafer, epi wafer as well as SOI wafers. Along with the 3, 5 compound materials for optical active components, we could leverage our affiliated company, AWSC's gallium arsenide products, GlobalWafers ensures an integrated and a reliable supply chain for silicon photonics development. And next is our financial highlight. Our profitability in 2024 was mainly impacted by mark-to-market valuation changes on our holdings of Siltronic shares and the exchangeable units issued based on those holdings. GlobalWafers holds 13.67% stake in Siltronic. Classified as a financial asset, in accordance with IFRS standards, we recognize quarterly valuation gains or losses based on fluctuations in Siltronic stock price. To enhance capital flexibility, we utilize 10.3% of our Siltronic Holdings to issue EUR 345 million overseas exchangeable units in Q1 2024, followed by the remeasurement of lease assets. Typically, changes in the value of Siltronic shares on the asset side can be partially offset by changes in the value of warrants in the liability side. However, this offset is not linear and varies over time due to several influencing factors. In 2024, Siltronic stock price dropped nearly 50%, which led GlobalWafers to recognize valuation losses. Also, the exchangeable units provide some buffering effect. Please note that these valuation changes represent only an accounting loss and do not impact our actual cash flow, operations nor core profitability. Excluding the valuation impact, GlobalWafers' EBITDA margin for 2024 would be 36%. EPS would be 28.97%. ROE and ROA will be 16% and 8%, respectively, consistent with our track record. Now I would like to hand over to CW to highlight the key points regarding SAS.

Thank you, Leah. Next slide. This is CW. Next, let me introduce SAS company overview. Please turn to next page. On this page, we currently have 5 major consolidated group of companies. First one is GlobalWafers. It's just explained by Doris and Leah, so I'll skip this one. Actron is a leading automotive electronics supplier and the global largest automotive LLD, [ solar style ] and ultra-low supplier with over 50%, 70% market share, respectively. Next is AWSC. AWSC is the second largest GaAs foundry company with more than 20% market shares. Its power amplifier are widely applied in satellite and cellphones. TSC is 1 of only 4 semiconductor-grade, high-purity disilane mass-producing, a specialty chemical used in semiconductor manufacturing process. Following verification among customers in Taiwan and overseas, the business is expected to grow further. Lastly, SES provides renewable solutions to global companies and end customers it serves. It partners with companies in the green energy transition and ESG trend by assisting with renewable solutions. As a strategic enabler, we embrace more promising companies to enlarge our ecosystem and are passionate in embedding the hidden champions. Next page. With further consolidation of group companies into SAS' total group company's revenue share has grown from 0.2% in 2021 to 16.2% in 2024. It is also bringing sustainable growth to the SAS Group as a whole. Next page, premium renewable energy provider. On Page 34, premium renewable energy provider, on the left-hand side. On the left-hand side, with leverage power plants and semiconductor client networks from our other group companies. SES enhances synergies and drives ESG initiatives. On the right-hand side, SES is Taiwan's first retailer to sign a Corporate Power Purchase Agreement, CPPA, with Copenhagen Infrastructure Partners, CIP, for offshore wind power, securing a 30-year agreement to supply solar and wind energy for customers. With the collaboration with Anneal Energy, one of SAS' group company, SAS adds Type 3 plants to its portfolio, enabling SES, previously focused on electronics and semiconductors with Type 1 Plants to expand its customer base to include services, telecommunications and finance delivering tailored clean energy solutions to a broader market. Next page, in 2024, recent performance of key group companies. In 2024, group companies all delivered impressive operational results. Like Actron revenue created 4 consecutive years growth reached record high TWD 7.58 billion, a 34% Y-o-Y growth. AWSC achieved second highest record hitting TWD 4.46 billion, around 64% Y-o-Y growth. TSC TWD 874 million record high, 57.9% Y-o-Y growth. GlobalWafers also achieved TWD 62.6 billion, third highest record after 2023, TWD 70.6 billion highest record. Next page also is their performance. You can find EPS performance also super good with 7.3%, 142% and 531% Y-o-Y growth, respectively. Next, let's move to industrial overview. Please turn to Page 38, yes. Global clean energy investment trend. On the left-hand side, this page although explained by Doris earlier, on left-hand side showing our total spending to reach USD 670 billion in 2025. Solar and wind power account roughly 2/3 of our investment. Although some political shifts and the policy change may affect the market, but in the long term, corporate demand remains very solid driven by ESG commitment and the need of sustainable operations. Next page. On the left-hand side, Taiwan's renewable power generation capacity from 2021 to 2035, as government goal is to generate electricity with renewable energy to 30% by 2030. In order to achieve 31.2 gigawatts solar power in 2030, annual installation with 2.8 gigawatt is required. We estimate total renewable energy demand to grow forecast CAGR 21.3% year 2035. Next, let's move to our 2024 financial results. On page -- financial highlights on these 2 pages, 43 to 44, our Q4 end and 2024 financial highlights. As Doris mentioned earlier, our Q4 revenue was TWD 20 billion, represented Q-o-Q and Y-o-Y decline of 0.8% and 5.6%. Total 2024 revenue is reached to TWD 79.7 billion, a 2.8% Y-o-Y decline. EPS for Q4 was TWD 0.74 per share, and TWD 9.24 per share for 2024, declined TWD 7.75 Y-o-Y, mainly due to Siltronic stock valuation loss. Q4 and 2024 EBITDA margin was at 17.2%, 28% (sic) [ 29% ]; ROE was at 3.2%, 11.8%; ROA was at 1.7% and 5.03%, respectively. And next is the summary, Page 45 to 49, summary trend for revenue, gross profit, operating income, net profit and EPS. On this page, you can see 2024 revenue was, as mentioned earlier, TWD 79.7 billion. This is the third highest record. And net profit was TWD 11.6 billion. It was around 14.6%. And adjusted amount was TWD 15.3 billion, 19.2%. Adjusted means exclude the Siltronic stock valuation loss. And total EPS in 2024 was TWD 9.24 per share, with adjusted EPS was TWD 12.29 per share. Next is income statement and balance sheet. So these 2 pages, you can find the cash and cash equivalent was TWD 54 billion. Some deposit in bank held for 3 months or more and restricted cash need to move to other asset item, which accounts TWD 9 billion around. Shareholder equity increased to TWD 115 billion versus TWD 82 billion in 2023. So that is my presentation. Next, let's move to Q&A.

Thank you, Lee. And now we will address both the questions we have received from investors recently and those we anticipate will be raised. Let's start with GlobalWafers. The first one is about outlook. Please share 2025 GlobalWafers' business outlook? In the first half of 2025, the semiconductor industry will continue to digest existing inventories, and the uncertainty surrounding tariffs have led customers to adopt a cautious wait-and-see approach. However, as market conditions become clearer in the second half, coupled with declining inventory levels, the recovery momentum is expected to strengthen. We have also observed several positive indicators. The first is local solutions. In anticipation of potential tariff hikes and freight, customers are eager to establish local solutions. The second one is cost-effective AI models, which are expected to drive market growth and the demand for AI edge devices. Next is advanced packaging technologies, which are likely to boost the wafer consumption. Reflecting on these trends, we have witnessed some rush orders, and customers are actively requesting local solution quotations from GlobalWafers' global facilities. We expect GlobalWafers' operation to grow in this year compared to 2024 with an even stronger increase projected for 2026. The first quarter of 2025 is expected to be the lowest point of the year, followed by sequential quarterly improvement. Moreover, each quarter in 2025 is expected to surpass both the previous quarter and the corresponding quarter in 2024, resulting in consistent Y-o-Y growth. The second one is the latest GWA status. First, construction and schedule-wise, we are on track for manufacturing test wafers according to plan and are on track to meet our goal of delivering commercial wafers within the first half of 2025. Regarding CHIPS Act subsidy, following the signing of the final agreement with the U.S. Department of Commerce last December, we will receive up to $400 million direct funding. After fulfilling the initial milestone commitment within lease for next month, GWA could qualify for its first direct grant payment in the second half of 2025 based on our estimate. The next is 25% AMIC Tax Credit. We are eligible for the U.S. Treasury Department's advanced manufacturing investment tax credit, which provides up to 25% of qualified expenditures at our GWA and the MEMC LLC facilities. We plan to file our tax return in the second half of 2025, and expect to get refund at IRS due course. So review times may be extended as this is a whole new program with larger amount. We will continue to process. In our viewpoint, it seems that GlobalWafers' America and MEMC will come online at just the right time. The global industry is finally picking up and the wafer inventories held by our customers are diminishing, so we are expecting an uptick in demand for GWA's Made in the U.S.A. wafers over the next several years. Combined with the continued national emphasis on revitalizing manufacturing to steady supply chains and the emerging importance of local solutions, GWA will remain solid and sound. Next question is about CHIPS Act. Well, the new U.S. administration continue supporting the CHIPS Act? And have there been any notifications or changes regarding this? Actually, the idea of the chipset began during the first Trump administration to bring semiconductor manufacturing back to the U.S. And Congress and the Biden administration continued bipartisan support, making it a law in 2022. The CHIPS Act aims to strengthen U.S. semiconductor manufacturing, and our expansion plays a crucial role in securing domestic wafer substrate supply and reinforcing the industry resilience. We continue close cooperation with the chips program office called CPO and expect to meet our first half '25 milestone, and we plan to apply the payment and expected to receive in the later half this year. There's no change to the schedule as of now. We are proceeding with sample deliveries, equipment installations and production ramp-up as planned. We appreciate the U.S. government's CHIPS Act support, which enables us to grow and strengthen the U.S. semiconductor ecosystem. A stable policy environment will help align our efforts with market needs, thus we continue expanding in response to customer commitments and LTAs. We look forward to working with the new administration to enhance U.S. semiconductor manufacturing. The next is about the tariff. President Trump clearly communicated his intent to implement a fair and the reciprocal trade and tariff policy in April. What impact will this have on GlobalWafers and the supply chain? Our answer is that it is still uncertain what this proposal would be and what it will mean for wafers as there is very limited supply of wafers directly from Taiwan to the U.S. It remains unclear whether wafers will be included in the tariff or not. Given GlobalWafers very strong regionalization strategy, including the building of GWA in Texas and MEMC in Missouri, we believe our company is well positioned to weather any changes to the U.S. tariff structure for semiconductors. Now we are completing phase 1 and connecting building of phase 2. In other words, we have the best insurance policy in place to preserve and substantially grow U.S. market share, regardless how tariffs are adjusted. Next one is about our gross margin expectations. Our gross margin has been impacted by several factors, including rising power cost, depreciation from capital expenditures and the fixed cost tied to our used capacity. However, we see opportunities for the improvement. The power costs have risen by 75% in Taiwan in the past 3 years and a spike in Europe due to the Ukraine war. Recently, the European prices have stabilized, and our U.S. operations benefit from the lowest power cost. As U.S. production ramps up and if the Ukraine was stops, we expect this positive effect will influence -- will dilute our overall power cost structure. Next factor that influence our gross margin is depreciation. Our U.S. expansion received $4 million cash grant, reducing capital expenditures and enhanced gross margin. Similarly, government subsidies in the U.S. and Italy will cover 35% and 25% of total investments, respectively. The next factor that will influence our gross margin is unused capacity. And we anticipate that as the industry recovers, we expect better utilization rates, and it will reduce unused capacity cost. In summary, while power cost and depreciation from expansion have pressured our gross margin, our strategic expansion are crucial for long-term growth. So short-term margin may be under pressure due to low utilization. This is a temporary effect of the macroeconomic environment, not poor decision. Regarding the future guidance, in 2025, as new facility ramp-up production, we anticipate some pressure on maintaining gross margin due to increased depreciation. We anticipate some pressure on maintaining a similar gross margin level with 2024 due to increased depreciation, uncertainty in electricity costs. We already confirmed that Taiwan power cost will continue to hike, but the European power cost might fluctuate due to their possibility of the end of Ukraine war and the potential tariff adjustments because if there is any additional tariffs are imposed, raw material we use may also be affected and this will impact the final price. Given these uncertainties, it is currently difficult to provide a precise estimate. However, as government subsidies are recognized and advanced process expand in our production, we expect a gradual improvement in our gross margin. And next question is about Siltronic shares. Even if there is no cash outflow, Siltronic's depressed share price has a significant impact on GlobalWafers' income statement. Does the company have any plan? Siltronic shares are treated with mark-to-market accounting, meaning value changes only affect both profit and result in unrealized losses with no impact on our cash flow. While stock price fluctuation may affect financial statements, they don't affect actual cash outflow. Our core business remains strong. We have a positive outlook on the long-term development of the semiconductor industry and are confident in its continued growth. Siltronic is an excellent company and a competitor and its current stock price doesn't reflect its true value. As always, we continue to evaluate the best capital allocation strategy for the group. The next is about of GlobalWafers' SiC strategy. What is our current process and layout in compound semiconductors? We are actively developing the compound semiconductor portfolio with a clear focus on SiC and gallium nitride, each offering distinctive advantage from other technology applications. SiC is renowned for its ability to handle high power, high voltage and making it the material of choice for applications such as EV high-power converters and renewable energy systems. There is no doubt that SiC is the right product for the technology innovation. Also, GlobalWafers originally anticipated threefold revenue growth in its SiC business in 2024. The actual growth has been limited to only tens of percentage points due to a significant drop in its average selling price in the market. This decline was primarily driven by steep price reduction starting from the end of 2023. Currently, 6-inch SiC wafer prices have stabilized but have not yet to rebound. Despite the weak automotive market, customers are proactively validating 8-inch products with 2025 identified as a critical certification period. Now we are committed to advancing 8-inch SiC wafer mass production and position ourselves as the most cost-effective supplier outside of the Chinese supply chain. Additionally, since the U.S. Section 301 investigation includes SiC, we anticipate a fair competitive environment that will allow only robust companies to prevail. The next is about our gallium nitride. Our gallium products continued to perform strongly with 4-year orders consistently at full capacity in 2025. GlobalWafers' focus on gallium nitride and silicon technology, which is widely used in power devices, 5G base stations and fast-charging systems for EV. The price decline, the application for GaN are expanding, and the market acceptance continues to grow. Looking ahead with the evolution of high-frequency applications, silicon photonics and the overall market share of compound semiconductors is expected to increase steadily. Then, I will give the floor to CW for SAS.

Okay. Thank you, Leah. The question for SAS, some questions already we have explained in the previous presentation, but let me briefly explain. First question is about the Trump policy does not support green energy. What will be the impact to renewable energy industry? As I mentioned, while political shift, the policy change may affect the renewable energy, but basically the demands come from corporate demand. So corporate demand remains very solid and also driven by ESG commitment and the need for sustainable operations. So there's no change for the renewable energy demand, no change, still very strong. Next question is about 2025 Taiwan solar market outlook is of course, the government policy is also very important, as we explained on Page 22. By 2024, Taiwan has already installed 21.1 gigawatt of renewable energy capacity with solar. Solar PV is around -- contribute around 68%, around 14.3 gigawatt. But in order to achieve the target to 31.2 gigawatts in -- by 2030, still we need to install at least 2.82 gigawatts annually is the current situation. Next question is about the dividend policy for SAS and GWC. I think Doris has already explained very clearly. SAS Group is aiming high payout ratio and return to long-term shareholders. And based on 2024, the SAS' payout ratio reached 70%, dividend yield was 5.16% based on February 27 closing stock price. If you check the past record, the dividend payout ratio even higher than 70%. Okay, that's very simple about my SAS' question. So let's move to the next section.

Okay. Above is our response to the questions. Now I would like to turn it over to Doris for the Q&A session. [Operator Instructions]

Okay. Thank you, Leah and CW. Now let me answer some of the questions we just received from Slido. The first question is from Stanley. If the company doesn't receive CHIPS Act subsidies, how long do you expect the new U.S. plan to breakeven? That's a very -- definitely a very important question. It's -- there are still a lot of uncertainties out there, including the -- like what I said that the tariff and the product mix in the U.S. and the price, the average selling price because we expect that if there are tariff war, all the supply chain, I think it's very likely that the cost will be -- the material cost will be higher, the selling price will be higher as well. So there are a lot of uncertainties. And also currency and interest rates are still uncertain as well. So it's very hard to predict that, hard to estimate that when the U.S. plan will reach breakeven point without CHIPS Act subsidy. But I think that there are still a lot of opportunities out there, including that we will have higher loading than -- the utilization rate maybe will be higher than without tariff. So I think that there are a lot of potential opportunity to improve. So for now, what we can say is that I think if there was no CHIPS Act fund, then definitely our payback time or the breakeven time it will take a little bit longer. But it's still very hard to predict that how much longer would that be. There are still a lot of opportunities to improve. And the second question is what is the current production capacity and status of GlobalWafers' silicon carbide substrate? Additionally, could you provide details on Actron's acquisition plan for the 8-inch wafer fab? I have no comment for Actron's 8-inch wafer fab plant. And for silicon carbide -- GlobalWafers' silicon carbide substrate, we are -- our main shipment volume is still for 6-inch silicon carbide, but the new samples, new qualification samples are basically focused on 8-inch right now. So right now, the price is stabilizing and especially silicon carbide is -- silicon carbide also will incur some extra tax or tariff as well. So that means the price -- the global market price is stabilizing, but the demand itself, because of high inventory in the supply chain, silicon carbide total demand right now is still weak. Part of the reason is inventory and another reason is that EV business is still pretty weak right now. So demand is weak, but our capacity remain, and we have expansion plan for 8-inch capacity -- capability and capacity that also we keep the whole plan going as well. We keep moving on our technology improvement, cost-reduction plan and also 8-inch overall capability improvement, all of these are still ongoing as planned. Okay, so that's -- the next one is Stanley's, what's the idle cost in 4Q '24? We will share with you by e-mail. I don't have the number with me. And next is please give advice on SG&A, OpEx and OP for the following 3 years. Sorry, we don't disclose these details for the near future. So we don't disclose the details. And next is from Luca. How does GlobalWafers' view of technological and market impact of DeepSeek on major AI companies such as NVIDIA, Microsoft, Google and TSMC, what effect do you anticipate this development will have on GlobalWafers? I think in general, DeepSeek make AI more affordable than before. So in the past 2 or 18 months, AI definitely was super hot and -- but that's mainly for big companies. But now because of the affordability of AI, I think more and more smaller-scale business or a little bit smaller-scale applications will be able to afford AI. So we believe that an affordable solution -- an affordable AI solution definitely will broad edge computing, and more and more AI-enabled devices will be launched to the market. So I think it's positive for all AI supply chain companies. That's our view. Okay. And next is from James. If it is possible to obtain the presentation file from this meeting? I think we...

Yes, we have already uploaded to the WAP system as well as GlobalWafers' and SAS' company websites. So please feel free visit our website and download the files.

Okay. Thank you, Leah. Next is Philip Li. After TSMC announced USD 100 billion investment, how does GlobalWafers view the prospects of further expansion to GWA or greenfield size? That's a very good question. I think, first of all, if the local demand increase in the U.S., that's definitely good for -- no matter if it's from which company, as long as that the whole local demand in the U.S. is stronger than we, as a key supplier, I think we definitely -- we have to prepare ourselves to be able to supply our customers' demand. So that's definitely a good news for us. But are we going to expand -- make further expansion to GWA or the greenfield size? I think that depends. I think there are still a lot of uncertainties, including the tariffs and how the tariff play the role for the overall global trading policy. And I think there are a lot of uncertainties. We need to know -- of course, we need to know our GWA cost competitiveness because we are in the sample production phase right now. So when we move -- when we start ramping up for mass production, I will have much better idea about the cost competitiveness of our GWA operations. So if we have strong demand in the U.S. and we have a strong cost-competitive operation in Texas, in Missouri and also our U.S. customers are willing to have a long-term commitment to us, then we definitely will be very willing to make further expansion. But that depends on our business performance. That's very important. It also depends on the overall market demand in the U.S. So that's our answer to this question. That's a very important question and we will keep monitoring this. Okay, next question is for outlook of TSC. Does the demand outlook require capacity expansion? If it does, what's the time -- what's the firm's expansion plan for the next 2 years? What margin can be achieved when fully utilized? That's a very important question as well. I think we have very good capacity. TSC has good capacity. So if the market -- if the demand keeps growing, then in the next 2 years, maybe we will do a little bit debottlenecking here and there, but that's not a huge CapEx. And -- but what's more important than the expansion or debottlenecking is that we will try to develop some new -- we will try to launch our new chemical as our original plan every year, so that's -- for those new products, we'll need some new CapEx. That's the plan. So basically, I think we'll be doing -- we'll be very cautious, monitor our overall performance and technology readiness to decide our expansion plan. So basically, I think we will be very cautious and we'll keep growing okay. Next question is our utilization rate for 6-inch, 8-inch and 12-inch in 4Q last year, outlook for first Q '25. First of all, 4Q -- Q1 this year's overall utilization rate is lower than Q4 last year. Q4 last year was the highest quarter of 2024. So utilization-wise, Q4 last year was much better, and 12-inch's utilization rate was pretty okay, especially epi -- 12-inch epi's loading was okay. Utilization was okay. 8-inch was lower than 12-inch, and 6-inch, was even lower than 8-inch. That's the status. In Q1 '25, supposed to be the lowest point of 2025. So Q1 '25 will be lower than Q4 '24. That's current status. But Q1 '25 will be higher than Q1 '24. So that's what -- that's our view. Okay, next questions. We also have questions regarding SES operation status and outlook. SES, which is Sustainable Energy Solutions, it's a renewable energy electricity supply company. So we sell the products, not tangible module or sell, it's renewable energy. So it's doing very good. This year, we are expecting to have several X -- revenue-wise, several X higher, Y-o-Y will be much higher than last year, and we're doing okay. And you might know that we signed -- and also CW covered this part as well, we signed 30 years' power supply with CIP, Copenhagen Infrastructure Partner, got the wind power 30 years. And we -- also we announced that we have signed some long-term 30 years, 20 years, 30 years power supply agreement with some semiconductor -- very good semiconductor companies in Taiwan. So we're doing okay, and I believe that 2025 SES will be -- will have several X growth as well. Okay. Next is Jack. Does 2025 GWC guidance of gross margin under pressure already consider likely subsidies received in second half '25? It's not -- I think we -- what we said is it's just a guideline. So we didn't really factor in that how much when we're going to receive. So if we receive the subsidy as anticipated, I think our gross margin performance will be better than what our outlook. Okay. And next one is that please advise SAS solution to the past poor financial performance with a CAGR. So this...

This is still true.

Yes. When we talk about CAGR, that's the macro market CAGR, it's not SAS CAGR. I think market -- especially when we talk about CAGR, we're talking about the market size and revenue growth instead of the margin or performance. And so the global renewable energy demand according to the forecast and government policy, the CAGR for renewable energy demand is very high, but that doesn't mean that Taiwan itself will immediately grow that much. And another point is that the market price is a little bit different. So I think maybe I didn't make myself clear enough. When we say CAGR, we mean that the market outlook, not SAS solar cell or solar modules CAGR. If you need more details, please feel free to reach out to our spokesperson Leah or CW. Okay. And the next question is about renewable energy business update. And no, I think we have already covered this one.

Sunny.

Okay. From Sunny, could you share some color on the gross margin dilution from the U.S. GF fab?

Sunny, do you mean GlobalFoundries or...

GlobalWafers?

Because our fab is called GWA. Sunny, we are going to unmute you, so please accept our invitation to unmute. Could you raise your hand so we could locate you more quickly?

Okay. Let's move to the next question. [Foreign Language] Does your 8-inch fab have any plans for production cuts? No, we don't have any plan. I think we're talking about silicon -- 8-inch silicon fab. No, we don't have any plan to cut the production. We have some special project applications. And you might know that we have very good flow zone business as well and the main flow zone business is 8-inch. So actually, our 8-inch will -- I think we are expecting to see some growth for 8-inch flow zone as well. So no, we have no plan for production capacity cut. Next is please indicate if SAS plan to expand operations into India market. Not today, not today. Of course, we're open. We keep monitoring the growth, the potential, the business opportunity in every region, but we don't have any solid plan for the expansion in India yet. Okay. So [Foreign Language]. Thank you, Sunny. I got you. Okay. Back to Sunny's question.

This one. So Sunny is asking, could you share some color on the gross margin dilution from the U.S. greenfield...

Greenfield fab, okay.

How much will depreciation increase this year? And on the product rev of U.S. new fab, have you been qualified to supply to TSMC's 4-nanometer fab in Arizona?

Okay. Thank you, Sunny's question. We haven't been qualified by -- I mean GWA haven't been qualified by TSMC's 4-nanometer fab yet because we are in the sample preparation stage now, and it takes couple of quarters to get qualification. So we are working on the sample production right now. Depreciation increase, we don't have specific number today, especially if we are talking about global foundry greenfield. Greenfield -- 2024 greenfield depreciation actually is still low GWA, because we're still under construction. Last year, we were still working on the construction and tools moving, but we're evaluating -- we haven't passed the final acceptance yet in 2024. So the depreciation from greenfield fab last year was relatively low. But starting from 2025, when we finish the hookup, the installation and final acceptance confirmation of each tool, then we will start seeing more and more depreciation.

Okay. Then we will take the last question on the tax question. So that will be Stanley's. Could you please share your view on supply and demand dynamic in 2026 and beyond?

Yes. I think for -- I guess you are talking about semiconductor. Semiconductor 2026, we -- our point to -- our forecast and many of our customers' view is that 2026 will be much stronger. Overall will be a much better year than 2025 because of a lot of potential political or any regulation rule tariff uncertainties will be settled, will be confirmed, and also inventory level will be normalized much better than what we are seeing today. So -- and also, we expect that the interest rate maybe will be normalized as well. So I think our forecast is that 2026 will be a much better year than '25. Although '25, we still expect that GlobalWafers will grow as well in 2025, that's our forecast.

Okay. Thank you, ladies and gentlemen. The floor is now open for last questions. [Operator Instructions] The first one will be Sunny. Sunny, we are going to unmute you, so please accept our invitation for unmute.

Doris, Leah, could you hear me okay?

Yes.

Thank you for answering my prior question on the greenfield expansion, on the gross margin impact for the [Technical Difficulty]. Also, my other question is on the pricing. And so has spot price for 12-inch stabilized into 2025 or is it still declining? And at this point, roughly what's the gap between spot and LTA pricing for 12-inch? So I think the concern out there is if the gap is still there and even widening, would there be any risk that the customer want to renegotiate on the contract pricing, especially with the imbalance for the industry supply-demand?

Thank you, Sunny. That's a very important question and it varied quarter -- it changed quarter-by-quarter. Right now, I think our LTA counter price is mainly for advanced nodes. So in spot prices, mainly for the mature node or legacy product, so obviously, the spot price is still -- is stabilizing, but it's not really 100% stabilized yet, it's stabilizing. And I think, as I said that Q1 is the weakest -- the lowest quarter in this year. So right now, it's still now the best time to comment that is the spot price stabilized yet or not. But I think that starting from Q2, spot price will be much stable than Q1. And another reason, it's not only because starting from Q2, we will see stronger demand than Q1, not only this, but also that if the tariff is implemented, then I think the spot price -- it will be more complicated for a spot price because if your spot wafers are shipped from a country with a little bit higher tariff, then actually the price will -- the price gap will be narrower than what we are seeing today. That's our view. But for advanced node, I think price is pretty stable. It's okay. Basically, there is no -- not many supply spot market for advanced products. For advanced products, which is the main driver for the growth in the market right now, the price is pretty stable, no matter it's GlobalWafers or the other market -- the other players. Yes, I hope I answered this clear. Thank you, Sunny.

Thank you, Sunny. Then, I think -- do you have a follow-up question?

That's very helpful. Yes, may I have a...

Sunny, we cannot hear you clearly because...

You're breaking up.

Quick second ones.

We think you're breaking up.

Right. Let me try again. So on the U.S. subsidy, what's the specific milestone you need to achieve for you get the first batch of subsidy in second half of the year?

We have several milestones, but we -- because our policy is that if a chip project office didn't disclose then we don't discuss. But it's very -- I can tell you, Sunny, that the milestones are very -- really very clear for us, and we are about to achieve -- to reach the milestone one. But I apologize, I cannot disclose what specific milestone one is. Thank you very much, Sunny. Thank you.

This one will goes to -- I saw that [ Ibo ] just raised your hand. So do you have any questions?

We lost Ibo, right?

Yes, we lost Ibo. Okay. So is there any questions for SAS and GlobalWafers? If there is no more voice questions...

Okay. Thank you so much. If no more questions, then we will conclude the meeting here. Thank you again for spending your time with us. And thank you very much. And if you need further details or if there is any point I didn't make it clear enough, please feel free to reach out to Leah and CW via e-mail. Thank you so much, and have a great day. Thank you.

Thank you. Bye-bye.

Bye-bye.