Q2 2026 Hua Hong Grace Semiconductor Ltd Earnings Call

August 13, 2026

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Grace Semiconductor second quarter 2026 earnings conference call. Today's call is hosted by Dr. Peng Bai, Chairman and President, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please be advised that your dial-in are in a listen only mode. However, at the conclusion of the management presentation, there will be a question and answer session, at which time you will receive instructions on how to participate. The earnings press release and second quarter 2026 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.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Grace Semiconductor Q2 2026 Earnings Conference Call. Today's call is hosted by Dr. Peng Bai, Chairman and President, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please be advised that your dial-in are in a listen only mode. However, at the conclusion of the management presentation, there will be a question and answer session, at which time you will receive instructions on how to participate. The earnings press release and second quarter 2026 summary slides are available to download at our company's website, www.huahong.com. Without further ado, I would like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.

Speaker #2: Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Grace Semiconductor's second quarter 2026 earnings conference call. Today's call is hosted by Dr. Bai Peng, Chairman and President, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer.

Speaker #2: Please be advised that you are dialing in on listen-only mode. However, at the conclusion of the management presentation, there will be a question-and-answer session.

Speaker #2: At this time, you will receive instructions on how to participate. The earnings press release and second quarter 2026 summary slides are available to download on our company's website at www.hua-honggrace.com.

Speaker #2: Without further ado, I'd like to introduce Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.

Speaker #3: Good afternoon, everyone. Thank you for joining our Q2 2026 earnings conference. Today, we will first have Dr. Peng Bai, our Chairman and President, provide an overview of our second quarter performance.

Daniel Wang: Good afternoon, everyone. Thank you for joining our Q2 2026 earnings conference. Today, we will first have Dr. Peng Bai, our Chairman and President, provide an overview of our second quarter performance, then take you through our financial results in detail and then offer guidance for the upcoming quarter. With that, I turn the call over to Dr. Bai.

Speaker #3: Now, Dan will take you through our financial results in detail and offer guidance for the upcoming quarter. After Dan, we'll open the floor for a question and answer session.

Speaker #3: With that, I turn the call over to Dr. Bai.

Speaker #4: Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. We continued to improve our operational performance in the second quarter of 2026.

Peng Bai: Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. We continued to improve our operational performance in the second quarter of 2026, with profitability strengthened further. Revenue hit a record high of $717 million, representing a year-on-year increase of 26.8%. Gross margin stood at 16.5%, up 5.6 percentage points year-on-year. Both metrics beat guidance and achieved sequential growth. Net profit attributable to shareholders of the parent company amounted to $38.6 million, posting substantial growth both year-on-year and quarter-on-quarter. Hua Hong Grace maintained a high fab utilization rate in Q2, delivered growth across all process technology platforms, especially the standalone and embedded non-volatile memory products. The improved business performance came as a result of rising volumes and prices. Since the beginning of the year, the global semiconductor industry has witnessed a strong AI-driven uptick in demand.

Speaker #4: With profitability strengthened further, revenue hit a record high of $717 million, representing a year-on-year increase of 26.8%. Gross margin stood at 16.5%, up 5.6 percentage points year-on-year. Both metrics beat guidance and achieved sequential growth.

Speaker #4: Net profit attributable to shareholders of the company amounted to $38.6 million, posting substantial growth both year-on-year and quarter-on-quarter. Hua Hong Grace maintained a high fab utilization rate in Q2 and delivered growth across all process technology platforms, especially in standalone and embedded non-volatile memory products.

Speaker #4: The improved business performance came as a result of rising volume and the prices. Since the beginning of the year, the global semiconductor industry has witnessed a strong AI-driven upturn in demand, first on memory IC products then spreading to logic and analog IC products that are associated with AI applications.

Peng Bai: First, on memory IC products, then spreading to logic and analog IC products that are associated with AI applications. As a specialty technology foundry serving a broad marketplace, we have clearly seen an overall positive impact on our business by the AI wave. We have also seen divergence in intensity and strength of market demand depending on end user market segments. Amidst this rapidly evolving industry landscape, our strategy of steady capacity expansion, ongoing specialty technology upgrades, and continuous capacity product mix optimization will allow us to capture growth opportunity to provide substantial improvement in our business results. Hua Hong Grace has recently obtained registration approval from the China Securities Regulatory Commission for our acquisition of Hua Li Microelectronics. Integration of the acquired assets into Hua Hong Grace will strengthen our technologies portfolio, increase our operational economy and scale, and improve our profitability, injecting fresh momentum into our future growth.

Speaker #4: As a specialty technology foundry serving a broad marketplace, we have clearly seen an overall positive impact on our business from the AI wave. We have also witnessed divergence in the intensity and strength of market demand depending on end-user market segments.

Speaker #4: Amid the rapidly evolving industry landscape, our strategy of steady capacity expansion, ongoing specialty technology upgrades, and continuous capacity and product mix optimization will allow us to capture growth opportunities and provide substantial improvement in our business results.

Speaker #4: Hua Hong Grace has recently obtained registration approval from the China Securities Regulatory Commission for our acquisition of Huali Microelectronics. Integration of the acquired asset into Hua Hong Grace will strengthen our technology portfolio, increase our operational economy of scale, and improve our profitability, injecting fresh momentum into our future growth.

Speaker #4: Now, I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments. Daniel?

Peng Bai: Now, I would like to hand the call over to our CSO, Mr. Daniel Wang, for his comments. Daniel?

Speaker #5: Thank you, Dr. Bai, for your very inspiring remarks. Now, let me walk you through a summary of our financial performance for the second quarter.

Daniel Wang: Thank you, Dr. Bai, for your very inspiring remarks. Now, let me walk you through a summary of our financial performance for Q2, again, provide our revenue and the margin outlook for Q3 2026, before opening the floor for the question and answer session. First, let's review our financial results for Q2. Revenue reached an all-time high of $717.5 million, 26.8% over Q2 2025, and 8.6% above Q1 2026, primarily driven by increased wafer shipment and improved average selling price. Gross margin was 16.5%, 5.6 percentage points over Q2 2025, and 3.5 percentage points above Q1 2026, primarily driven by improved average selling price and the cost reduction efforts, partially offset by increased depreciation costs. Operating expenses were $109.1 million, 11.4% over Q2 2025, and 3.3% above Q1 2026, mainly due to increased labor expenses.

Speaker #5: Dan provide our revenue and the margin outlook for Q3 2026. Before opening the floor for the question and answer session, first let's review our financial results for the second quarter.

Speaker #5: Revenue reached an all-time high of $717.5 million, up 26.8% over Q2 2025 and 8.6% above Q1 2026. This was primarily driven by increased wafer shipments and improved average selling price.

Speaker #5: Gross margin was 16.5%, 5.6 percentage points above Q2 2025 and 3.5 percentage points above Q1 2026. This was primarily driven by improved average selling price and cost reduction efforts.

Speaker #5: Partially offset by increased depreciation costs. Operating expenses were $109.1 million, 11.4% over Q2 2025 and 3.3% above Q1 2026, mainly due to increased labor expenses.

Daniel Wang: Other income net was $2.2 million, 79.4% lower than Q2 2025, primarily due to increased finance costs and the decrease in government subsidies, partially offset by increased share of profit of associates. The other loss net was $2.4 million, mainly due to increased share of profit of associates. The income tax expenses was $7.6 million, 7.5% over Q2 2025. Profit for the period was $3.9 million, compared to a loss of $32.8 million in Q2 2025, and a loss of $17.3 million in Q1 2026. Net profit attributable to shareholders of the parent company was $38.6 million, 385.9% over Q2 2025, and 84.6% above Q1 2026. Basic earnings per share was $0.022, which is 2.2 cents, 340% over Q2 2025, and 83.3% above Q1 2026. Annualized ROE was 2.4%, 2 percentage points over Q2 2025, and 1.2 percentage points above Q1 2026.

Speaker #5: Other income net was 2.2 million dollars 79.4% lower than Q2 2025, primarily due to increased finance costs and the decreased government subsidies. Partially offset by increased share of profit of associates.

Speaker #5: The other net loss was $2.4 million, mainly due to the increased share of profit of associates. Income tax expenses were $7.6 million, up 7.5% over Q2 2025.

Speaker #5: Profit for the period was 3.9 million dollars compared to a loss of 32.8 million dollars in Q2 2025 and a loss of 17.3 million dollars in Q1 2026.

Speaker #5: Net profit attributable to shareholders of the parent company was 30.6 million dollars 385.9% over Q2 2025 and 84.6% above Q1 2026. Basic earnings per share was 1022, which is 2.2 cents 340% over Q2 2025 and 83.3% above Q1 2026.

Speaker #5: Annualized ROE was 2.4%, two percentage points over Q2 2025 and 1.2 percentage points above Q1 2026. Now, let's take a closer look at our Q2 2026 revenue performance.

Daniel Wang: Now, let's take a closer look at our Q2 2026 revenue performance. From geographical perspective, revenue from China was $563.7 million, contributing 78.6% of total revenue, and an increase of 20% over Q2 2025, mainly driven by increased demand for MCU, flash, general MOSFET, logic, and smart card ICs. Revenue from North America was $93.8 million, an increase of 77% over Q2 2025, mainly driven by increased demand for other power management IC and MCU products. Revenue from other Asia was $32 million, an increase of 11.6% over Q2 2025, mainly driven by increased demand for super junction and MCU products. Revenue from Europe was $28 million, an increase of 90.1% over Q2 2025, mainly driven by increased demand for MCU and smart card ICs.

Speaker #5: From a geographical perspective, revenue from China was $563.7 million, contributing 78.6% of total revenue and representing an increase of 20% over Q2 2025, mainly driven by increased demand for MCU/generic MOSFET logic and smart car ICs.

Speaker #5: Revenue from North America was $93.8 million, an increase of 77% over Q2 2025, mainly driven by increased demand for other power management IC and MCU products.

Speaker #5: Revenue from other Asia was 32 million dollars an increase of 11.6% over Q2 2025 mainly driven by increased demand for super junction and MCU products.

Speaker #5: Revenue from Europe was $28 million, an increase of 90.1% over Q2 2025, mainly driven by increased demand for MCU and smart car ICs.

Daniel Wang: With respect to technology platforms, revenue from the embedded non-volatile memory was $200.1 million, an increase of 41.8% over Q2 2025, mainly driven by increased demand for MCU and smart card ICs. Revenue from standalone non-volatile memory was $63.8 million, an increase of 149.3% over Q2 2025, mainly driven by increased demand for flash products. Revenue from power discrete was $182.3 million, an increase of 9.4% over Q2 2025, mainly driven by increased demand for general MOSFET products. Revenue from logic and RF was $83.2 million, an increase of 21.3% over Q2 2025, mainly driven by increased demand for logic products. Revenue from analog and power management IC was $183.1 million, an increase of 13% over Q2 2025, mainly driven by increased demand for other power management IC products. Now turning to our cash flow statement.

Speaker #5: With respect to technology platforms, revenue from embedded and volatile management was 200.1 million dollars an increase of 41.8% over Q2 2025 mainly driven by increased demand for MCU and smart car ICs.

Speaker #5: Revenue from standalone and volatile memory was $68.8 million, an increase of 149.3% over Q2 2025, mainly driven by increased demand for flash products.

Speaker #5: Revenue from power discrete was 182.3 million dollars an increase of 9.4% over Q2 2025 mainly driven by increased demand for channel MOSFET products. Revenue from logic and RF was 83.2 million dollars an increase of 21.3 million dollars 21.3% over Q2 2025 mainly driven by increased demand for logic products.

Speaker #5: Revenue from analog and power management IC was $183.1 million, an increase of 13% over Q2 2025, mainly driven by increased demand for other power management IC products.

Speaker #5: Now, turning to our cash flow statement, net cash flows generated from operating activities was $330.1 million, 99.3% over Q2 2025 and 159.2% above Q1 2026, mainly due to increased receipts from customers.

Daniel Wang: Net cash flows generated from operating activities was $330.1 million, 99.3% over Q2 2025, and 159.2% above Q1 2026, mainly due to increased receipts from customers. Capital expenditures were $356.6 million in Q2 2026, including $325.9 million for the 12-inch facilities and $30.7 million for the 8-inch facilities. Other cash flow generated from investing activities was $25.4 million in Q2 2026, including a $25.4 million receipt of government grants for equipment, $8.6 million interest income, $7.3 million dividends, and $0.2 million receipts from the disposal of equipment, partially offset by a $16.1 million investment in equity instruments. Net cash flows used in financing activities was $406 million, including $569 million of bank principal repayments, $37.6 million interest payments, and $1 million lease payments, partially offset by $201.5 million proceeds from bank borrowings and $100,000 proceeds from share option exercise. Next, moving to the balance sheet.

Speaker #5: Capital expenditures were $356.6 million in Q2 2026, including $325.9 million for the 12-inch facilities and $30.7 million for the 8-inch facilities.

Speaker #5: Other cash flow generated from investing activities was $25.4 million in Q2 2026, including a $25.4 million receipt of government grants for equipment.

Speaker #5: $8.6 million interest income, $7.3 million in dividends, and $0.2 million receipts from the disposal of equipment, partially offset by a $16.1 million investment in equity instruments.

Speaker #5: Net cash flows used in financing activities was $406 million, including $569 million of bank principal repayments, $37.6 million in interest payments, and $1 million in lease payments.

Speaker #5: Partially offset by $201.5 million proceeds from bank borrowings, and $100,000 proceeds from share option exercise. Next, moving to the balance sheet. Cash and cash equivalents was $4,530.0 million as of June 30, 2026, compared to $4,867.9 million as of March 31, 2026.

Daniel Wang: Cash and cash equivalents was $4,530,000 on 30 June 2026 compared to $4,867,900,000 on 31 March 2026. Other current assets increased from $894.6 million on 31 March 2026 to $936.2 million on 30 June 2026, mainly due to an increased value-added tax credit. Property, plant, and equipment was $7,286.3 million on 30 June 2026 compared to $7,005.9 million on 31 March 2026, primarily due to capacity expansion. Interest-bearing bank borrowings decreased from $3,897.2 million on 31 March 2026 to $3,567.5 million on 30 June 2026, primarily due to repayments of bank borrowings. Total assets increased from $14,947.3 million on 31 March 2026 to $15,225.8 million on 30 June 2026. Total liabilities decreased to $5,528.4 million on 30 June 2026 from $5,663,000,000 on 31 March 2026. Debt ratio decreased to 36.3% on 30 June 2026 from 37.9% on 31 March 2026.

Speaker #5: Other current assets increased from 894.6 million dollars on March 31, 2026 to 936.2 million dollars on June 30, 2026 mainly due to an increased value add tax credit.

Speaker #5: Property, plant and equipment was $7,286.3 million on June 30, 2026, compared to $7,105.9 million on March 31, 2026, primarily due to capacity expansion.

Speaker #5: Interest-bearing bank borrowings decreased from $3,897.2 million as of March 31, 2026, to $3,567.5 million as of June 30, 2026, primarily due to repayments of bank borrowings.

Speaker #5: Total assets increased from $14,947.3 million as of March 31, 2026, to $15,225.8 million as of June 30, 2026. Total liabilities decreased to $5,528.4 million on June 30, 2026, from $5,606.63 million on March 31, 2026.

Speaker #5: The debt ratio decreased to 36.3% as of June 30, 2026, from 37.9% on March 31, 2026. Finally, let's discuss our outlook for the third quarter of 2026. We expect revenue to be in the range of $770 million to $780 million.

Daniel Wang: Well, finally, let's discuss our outlook for Q3 2026. We expect revenue to be in the range of $770 million to $780 million with a projected gross margin of 16% to 18%. This concludes my financial remarks. We will now begin the Q&A session. Operator, please assist. Thank you.

Speaker #5: With the projected gross margin of 16% to 18%, this concludes my financial remarks. We will now begin the Q&A session. Operative, please assist. Thank you.

Speaker #1: Thank you.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced. To cancel your request, you can press star one and one again. Our first question comes from the line of Leping Huang of Huatai Securities. Please go ahead, your line is open.

Speaker #2: We will now begin the question and answer session. If you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced.

Speaker #2: To cancel your request, you can press star one and then one again. Our first question comes from the line of Le Ping Huang of Hua Tai.

Speaker #2: Please go ahead, your line is open.

Speaker #3: Oh, thank you for taking my question. Dr. Bai, first, congratulations on the very strong results. My calculations show that you delivered another 3% quarter-on-quarter ASP growth this quarter.

Leping Huang: Thank you for taking my question. Dr. Bai, first, congratulations for the very strong results. My calculations show that you still deliver another 3% quarter-on-quarter ASP growth this quarter. Could you unpack what drove this ASP growth and whether it is from pricing or some mix change? How do you see this ASP trend in H2 and beyond? Also, we noticed that the largest foundry in the world now also says they were re-emphasizing these mature and specialty node processes to serve their customers. Plus, also the domestic peer also wants to add capacity. What is your view on this mature node supply-demand relation in next few years, and how Hua Hong can differentiate from peers and further improve their profitability ahead? Thank you.

Speaker #3: So could you unpack what drives this ASP growth and whether it's from pricing or some mix change? And how do you see this ASP trend in the second half and beyond?

Speaker #3: Also, we noticed that the largest foundry in the world now also says they are re-emphasizing this mature and specialty node process to serve their customers.

Speaker #3: So plus also the domestic peer also want adding capacity. So how what's your view? So on this mature node supply demand relation in next few years, how and how Hua Hong can differentiate from peers and further improve the profitability ahead.

Speaker #3: Thank you.

Speaker #1: Yeah, thank you. You have a number of questions in there. Let me try to tease them out and answer them one at a time.

Peng Bai: Thank you. You have a number of questions in there.

Leping Huang: Yeah.

Peng Bai: Let me try to tease them out and answer them one at a time. In terms of pricing, as you know, in our industry, the pricing is set by market. It is basically by the balance of the supply and demand. Since the beginning of the year, we started to see the demand going up and the balance is shifting towards tightness in term of supply situation. As a result, that has driven up price increases, mostly in the MCU and memory area and PMIC area. Those are the areas that are more associated with AI applications. Of course, they are also used in the consumer segment, but the AI demand upturn is probably more significant. That is why we see the supply-demand balance shifting towards demand and supply being tight. In fact, on some of the products, we clearly cannot meet the demand.

Speaker #1: In terms of the pricing, as you know, in our industry, the pricing is set by the market. It's basically determined by the balance of supply and demand.

Speaker #1: Since the beginning of the year, we have started seeing the demand go up, and the balance is shifting towards tightness in terms of the supply situation.

Speaker #1: So as a result, that has driven up price increases, mostly in MCU and memory areas. And payment area—those are the areas that are more associated with the AI applications.

Speaker #1: Of course, they are also used in the consumer segment, but the AI demand upturn is probably most significant. That's why we see the supply-demand balance shifting towards demand, with supply being tight.

Speaker #1: In fact, some of the products clearly cannot meet the demand. The orders we're receiving are anywhere between 1.5x to 2x of our capacity.

Peng Bai: The order we are receiving is anywhere between 1.5x to 2x of our capacity. As a result, we are doing everything we can to basically optimize our capacity structure and try to produce more across the board, which is somewhat difficult right now because we are being pretty much 100% loaded. So it is really through some very hard work and innovation, trying to squeeze more. Of course, we are fortunate to have a fab that was still going through the capacity expansion. That is why we can still get a good capacity increase from the Fab 9 that we have, that is still going through the capacity ramp-up. In a way, if you ask me what is our advantage, Hua Hong's advantage, I think, comes from two ways.

Speaker #1: So, as a result, we are doing everything we can to basically optimize our capacity structure and try to produce more across the board, which is somewhat difficult right now because we have been pretty much 100% loaded.

Speaker #1: So it's really for some very hard working innovation try to squeeze more. Of course, we have we had we are fortunate to have a fab that was still going through the capacity expansion.

Speaker #1: So that's why we can still we can still get good good capacity increase from the fab 9A that we have. That's still going through the capacity ramp up.

Speaker #1: So, in a way, if you ask me what our advantage is—Hua Hong's advantage—I think it comes from two areas. One is that our technology capability, clearly, is industry-leading from a domestic standpoint.

Peng Bai: One is our technology capability clearly is, from domestic standpoint, the industry leading in many areas, and some of them are also on par with our international competitors. So that give us a strong foundation to basically build our capacity and serve our customer. Another thing is, since last year, although last year, nobody predicted this year is going to go up, but since last year, we were quite steady. We were quite determined to continue to increase our capacity. That decision or that strategy of steadily expanding our capacity, actually, you might say that it has paid off somewhat as this year come in and the market is turning upward. In terms of the future pricing prediction, it is really a function of this latest demand wave, how long is it going to last? That is a debatable point. There is lot of discussion or debate amongst the industry people.

Speaker #1: Many, many areas. And some of them are also on par with our international competitors. So that gives us a strong foundation to basically build up capacity and serve our customers.

Speaker #1: Another thing is since last year, although last year we nobody predicted this year it's going to go up, but since last year we were also we were quite steady.

Speaker #1: We were quite determined to continue to increase our capacity. That decision or that strategy of a steadily expanding our capacity actually you can say you might say that has pay off somewhat as this year coming and the market is turning upward.

Speaker #1: In terms of future pricing prediction, it's really a function of this latest demand wave—how long it's going to last. That's a debatable point.

Speaker #1: There's other discussion or debate amongst industry people. But in the short term, I think for the second half of this year as well as 2027, most people still believe the demand will continue to be strong.

Peng Bai: But short term, I think that for the H2 of this year and as well as 2027, that most people still believe the demand will continue to be strong. I share that view, and so in that sense, I expect our price increases will continue throughout the H2 of the year. Some of the pricing action we have taken over the last quarter, it will start to manifest itself probably in the H2 and even next year. So I do think that this upturn in demand will be accompanied by our continued ability to increase the price a little bit. I don't want to caution everybody that We are now like a DRAM market. There is a multiple increase in the multiples.

Speaker #1: I share that view, and so in that sense, I expect our price increases will continue throughout the second half of the year. Some of the pricing actions we have taken over the last quarter will start to manifest themselves probably in the second half.

Speaker #1: Even next year. So I do think that this upturn in demand will be accompanied by our continued ability to increase the price a little bit.

Speaker #1: I don't want to caution everybody that we are not like the DRAM market. There's a multiple—an increasing multiple. We're talking about still percentage—in percentage terms. But I do think it is a nice turn for the better, and we should continue to enjoy that for the foreseeable future.

Peng Bai: We are talking about still percentage, in percentage term, but I do think it is a nice turn for the better, and we should continue enjoy that for the foreseeable future, at least through H2 of this year and perhaps to next year. Thank you.

Speaker #1: At least through the second half of this year, and perhaps two next year. Thank you.

Leping Huang: Okay. It is Mike. The second question from me is about the memory. The largest China-based DRAM company just listed in Asia recently, and we see very strong investor interest on China's memory industry. At the same time, looking the global perspective that providing the logic die foundry service to memory maker has become a new trend these days. Dr. Bai, please share some your view, how Hua Hong can benefit from this memory build-out in China and globally, and do you have any view that you plan to, for example, cooperate with the China global memory makers on providing similar logic die service? Thank you.

Speaker #3: Okay, so the second question from me is about the memory. The largest China-based DRAM company just listed in Asia recently, and we see very strong investor interest in China's memory industry.

Speaker #3: And at the same time, looking at the global perspective, providing logic die foundry services to memory makers has become a new trend these days.

Speaker #3: So Dr. Bai, can you share some of your views on how Hua Hong can benefit from this memory buildout in China and globally? And do you have any view or plan to, for example, cooperate with Chinese or global memory makers on providing similar logic die services?

Speaker #3: Thank you.

Speaker #1: Okay. Memory comes in different types. The one where we are seeing the biggest uptick in demand is DRAM. The second comes in demand. We are not directly participating in DRAM nor NAND.

Peng Bai: Okay. The memory come in different types. The one you are seeing, the biggest uptick in demand is the DRAM. The second come the NAND. We are not directly participating in DRAM nor NAND. But we do have a substantial business in NOR flash business, which we have seen demand increases this year, and they are probably going to continue for H2 of this year and then next year. So we do enjoy the demand uptick there. In term of how do we I think the fact that the memory is going up, it is really representing the overall demand for semiconductor is increasing. In that sense, it definitely benefit everybody, benefit the memory more directly because probably it would build up there faster.

Speaker #1: But we do have a substantial business in Northwash business, which we have seen demand increases this year, and that's probably going to continue for the second half of this year and next year.

Speaker #1: So we do enjoy the demand uptake there. In terms of how do we, I think the fact that the memory is going up, it's really representing the overall demand for semiconductors is increasing.

Speaker #1: So in that sense, it definitely benefits everybody. It benefits the memory more directly because probably it goes up there faster. But it also benefits logic foundry, or what I would call us—a specialty technology foundry—which is, we have a lot of products in logic, in analog, and some specialty memory.

Peng Bai: But it does also benefit logic foundry or I would call us as a specialty technology foundry, which is, we have a lot of product in logic, in analog, and some specialty memory, like NOR flash. In a way, the fact that the DRAM seeing the biggest demand increase, it just represent the fact that the AI has been driving a lot of demand increases for overall in the semiconductor. In that sense, it is definitely a good thing. So we do benefit from the overall semiconductor demand increase. Specifically to DRAM or even NAND, it is the technology direction there is such that their product tends to try to basically, fabricate is not the right word.

Speaker #1: Like Northwash. So in a way, the fact that DRAM is seeing the biggest demand increase truly just represents the fact that AI has been driving a lot of demand increases.

Speaker #1: For overall in the semiconductor, so in that sense, it's definitely a good thing. So we do benefit from the overall semiconductor demand increase. Specifically to DRAM or even NAND, because the technology direction there is such that it tends to start to have their product—tends to try to basically bifurcate is not the right word.

Peng Bai: It is basically their product, they try to separate the memory elements from the peripheral logic into two different die, and through some kind of a 3D assembly to put them together as a product. So in that sense, if the memory houses want to spend more time or focus more on the pure memory element, they might let their peripheral logic die to be manufactured by the larger foundries. In that sense, we do see the larger houses probably will start to explore that collaboration with the larger foundry for us to So they can focus on truly what is their specialty, which is the bit, the memory part of the overall memory product. But that is still probably in the early stages of this technical transition.

Speaker #1: Basically, their product— they try to separate the memory elements from the peripheral logic into two different dies, and through some kind of 3D assembly, they put them together as a product.

Speaker #1: So in that sense, if the memory houses want to spend more time or focus more on the pure memory elements, they might basically then they might let their logic, the peripheral logic die to be manufactured by the larger foundry.

Speaker #1: So, in that sense, we do see the logic houses probably will start to explore that collaboration with logic foundry for us too, so we can focus on truly what is their specialty, which is the memory, the bit—the memory part of the overall memory product.

Speaker #1: So we—but that is still probably in the early stages of this technical transition. But overall, it is moving in a direction that might even create some new demand for logic foundries, because their logic portion of their monolithic—they might get separated out into separate die and give it to logic foundry to manufacture.

Peng Bai: But overall, it is moving the direction that they might even create some new demand for logic foundries because logic portion of their monolithic die, they might get separate out in the separate die and give it to a logic foundry to manufacture. If I explain that clearly. Thank you.

Speaker #1: It's very clear. Thank you for explaining that.

Speaker #3: Thank you. It's very clear. Thank you. Thank you.

Leping Huang: Thank you. It is very clear. Thank you.

Speaker #4: Thank you for the questions. One moment for our next questions. The next question comes from Tsuyen Wang of CTIC Securities. Your line is open.

Operator: Thank you for the questions. One moment for our next questions. The next question comes from Yu-Cheng Wang of CITIC Securities. Your line is open. Please go ahead.

Speaker #4: Please go ahead.

Speaker #5: Okay. Thank you for taking my question. This is Tsuyen from Zhongxi in Zhengquan. My first question is, could you see a great guidance show the solid growth in Q3?

Yu-Cheng Wang: Okay. Thank you for taking my question. This is Yu-Cheng from CITIC Securities. My first question is, we see a great guidance show the solid growth in Q3. Could you break down the Q3 revenue guidance, to show how much is driven by ASP increase? How much is driven by the capacity expansion? Also, regarding the expansion, approximately how much capacity will be added in Q3 and Q4? Thank you.

Ziyuan Wang: Okay. Thank you for taking my question. This is Yu-Cheng from CITIC Securities. My first question is, we see a great guidance show the solid growth in Q3. Could you break down the Q3 revenue guidance, to show how much is driven by ASP increase? How much is driven by the capacity expansion? Also, regarding the expansion, approximately how much capacity will be added in Q3 and Q4? Thank you.

Speaker #5: And could you break down the Q3 manual revenue guidance to show how much it's driven by the ASP increase and how much it's driven by the capacity expansion?

Speaker #5: And also, regarding the expansion, approximately how much capacity will be added in Q3 and Q4? Thank you.

Peng Bai: Sure. Let me take on the capacity expansion part. Then I'll let Daniel to talk about the guidance for Q3, no matter how it works on between volume increase versus price increase. I think that's what you're asking. The capacity increase, our Fab 9A in Wuxi, it will ramp up to the peak to the total capacity in Q3, next quarter. You have all the equipment in that fab installed. We will start to load the fab 100% starting in Q3, but the output probably will start to show up in Q4 or next year. I think 2027, you should expect a full fab worth of output from Fab 9A. As you know, we do have another fab that's under construction. That started in March of this year. That fab will start to have equipment installed in Q3 as well.

Speaker #1: Okay, so let me take on the capacity expansion part. Last time, there was a talk about the guidance for Q3, how it breaks down between volume increase versus price increases.

Speaker #1: I think that's what you're asking. So, for the capacity increase, our Fab 9A in Yu-Cheng will ramp up to peak total capacity by Q3, next quarter.

Speaker #1: You have all the equipment in that fab installed. And so we will start to load the fab, focus 100% starting in Q3. But the output probably will start to show up in Q4 or next year.

Speaker #1: So, I think that in 2027, you should expect a full fab's worth of output from Fab 9A. As you know, we do have another fab that's under construction.

Speaker #1: That started in March of this year. That fab will start to have equipment installed in Q3 as well. So, we expect that we’ve got a complete line in Q1, and we will start to have a small volume coming out.

Peng Bai: We expect that we get a completed line in Q1 and we will start to have a small volume coming out. Next year throughout 2027, we expect the capacity ramp-up from the next fab, which we call Fab 9D. Now, I will let Daniel talk about Q3 revenue breakdown, the guidance between volume and the price increases.

Speaker #1: So, next year, throughout 2027, we expect we will start the capacity ramp-up from the next fab, which we call Fab 9D. Now, I would like Daniel to talk about the Q3 revenue breakdown.

Speaker #1: The guidance between volume and the price increases.

Daniel Wang: Hey, Xuan, thank you for the question. We expect the revenue is going to be between $770 million to $780 million. That's our projection for Q3. The increase is largely coming from MCUs. That whole sector, embedded memory, will continue to grow strong. There will be a double-digit growth. The standalone memory, volatile memory, continue to be very strong in Q3. I think this trend will continue throughout the year and into 2027 as well. Our power discrete, especially the low voltage products. We're talking about the MOSFET business and also split the medium voltage products. They are also going strong. The IGBT and super junction are virtually flat. On the logic and RF side, I think there's going to be pretty strong momentum from RF as well.

Speaker #3: Okay. Tsuyen, thank you for the question. So we expect the revenue is going to be between 7.7 to 770 million dollars to 780 million dollars.

Speaker #3: That's our projection for Q3. The increase is largely coming from MCUs, MCUs. That whole sector, embedded and biofilm memory, will continue to grow strong.

Speaker #3: There will be double-digit growth, and the standalone memory continues to be very, very strong in Q3. I think this trend will continue throughout the year.

Speaker #3: And into 2027 as well. And I'll apologize, especially for the low voltage products. We're talking about the MOSFET business, and also split the medium voltage products.

Speaker #3: They are also going strong. The IGBT and Super Junction are virtually flat, virtually flat. And then on the logic and RF side, I think there’s going to be pretty strong momentum from the RF as well, RF as well.

Daniel Wang: And other than that, I think we see strong momentum coming from power management IC and analog business as well. Even though analog is still a small segment at this point, they are also growing pretty strong in Q3. So overall, when you look at technology platforms, what I just discussed are the major drivers. In terms of revenue increase, when you look at by ASP and volume, it is really a split. I think anywhere, we are looking to 78% increase on revenue. I think, I would say, 60% coming from ASP and also another 40% will coming from increase in volume. Thank you.

Speaker #3: And other than that, I think we see strong momentum coming from the power management IC and analog business as well. Even though analog is still a small segment at this point, they're also growing pretty strongly in Q3.

Speaker #3: So overall, when you look at technology platforms, what I just discussed are the major drivers. And in terms of revenue increase, when you look at it by ASP and volume, it is really a split. I think, anywhere, we're looking at a 78% increase in revenue.

Speaker #3: I think I would say 60% coming from ASP, and also another 40% were coming from increases in volume. Thank you.

Speaker #4: Okay, thank you. Thank you. Eyes on line one.

Yu-Cheng Wang: Okay. Thank you. I do not mind one. My second question is about the capacity transit or switch. Since our demand is strong, is it possible to flexibly switch our capacity between product? Just like, can we shift the CIS capacity to memory products? Which type of capacities allow this kind of conversion? Also, what impact would such conversion have onto the overall ASP in maybe next quarter or H2? Thank you.

Ziyuan Wang: Okay. Thank you. I do not mind one. My second question is about the capacity transit or switch. Since our demand is strong, is it possible to flexibly switch our capacity between product? Just like, can we shift the CIS capacity to memory products? Which type of capacities allow this kind of conversion? Also, what impact would such conversion have onto the overall ASP in maybe next quarter or H2? Thank you.

Speaker #5: My second question is about the capacity transfer or switch. Since our demand is strong, is it possible to flexibly switch our capacity between products? For example, can we shift the CIS capacity to memory products?

Speaker #5: And which types of capacities allow this kind of conversion? Also, what impact would such conversion have on the overall ASP in the next quarter or in the second half?

Speaker #5: Thank you.

Peng Bai: First of all, the capacity are somewhat fungible to a certain extent. They are fungible, meaning that if you build 1,000 capacity for certain technology platform, with some conversion rate, you can use that capacity to do something else. So there is some fungibility. Exactly how much it depends on the technology platform we are talking about. Specifically, CIS, for example, the flow is pretty close to the logic flow. If you try to be fungible with some technology platform that is close to logic flow, then none of them can be used. For example, we normally group logic products, CIS, and the driver type of product into one group, because they are very much mutually fungible to a large degree. If you want to use CIS for BCD type of product, there is still some fungibility, but it will be decreased.

Speaker #1: First of all, the capacity are somewhat tangible to certain extent. They are tangible, meaning that if you build one 1,000 capacity for technology platform, you can also you get the some with some conversion rate, you can use that capacity to do something else.

Speaker #1: So there is some fungibility. The exactly how much it depends on the technology platform you're talking about. Specifically, CIS, for example, that's the flow is a close, pretty close to the logic flow.

Speaker #1: So if you try to be fungible with some technology platform that’s close to logic flow, then a lot of them can be used for—for example, we normally group logic products, CIS, and driver, the driver type of product.

Speaker #1: It's one group because they are very much mutually fungible to a large degree. If you want to use CIS for BCD type of product, the fungibility is still—there's still some fungibility, but it will be decreased.

Peng Bai: Or if we want to use for memory product, there are also some fungibility, but you will probably further decrease somewhat, because some of the memory product have some unique tool that require. A lot of times, your fungibility is limited by those unique tool that is unique to each technology platform. When we build a fab, we try to manage the fungibility. You obviously cannot be 100% fungible. We try to maximize the fungibility so that we can react to market demand fluctuations among different technology platforms. Right now, we are certainly exercising that fungibility to maximum extent. This, of course, is also limited by the fact that we still want to maintain a reasonable volume for each product because we are into a long-term business. We do not want to basically just look at the next quarter or even just one year.

Speaker #1: Or if you want to use it for memory products, there is also some fungibility, but it will probably decrease somewhat further because some of the memory products have some unique tools that are required.

Speaker #1: So if you—a lot of times, your fungibility is limited by those unique tools. That's unique to each technology platform. When we build a fab, we try to manage the fungibility.

Speaker #1: You obviously can't be 100% fungible. We try to maximize the fungibility so that we can react to market demand fluctuations among different technology platforms.

Speaker #1: So right now, we're certainly exercising that fungibility to the maximum extent. This, of course, is also limited by the fact that we still want to maintain reasonable volume for each product, because we're in a long-term business.

Speaker #1: We don't want to basically just, for a short time, just look at the next quarter or even just one year. There is some level of strategic decision-making that's going on to make sure that we do have a long-term view—not to be 100% driven by short-term considerations.

Peng Bai: There is some level of strategic decision-making that is going on to make sure that we do have a long-term view, not to be 100% driven by short-term considerations. That is one. Another one is we do use pricing as a tool to manage shifts in demand and between the technology platforms so that the demand pattern matches our capacity pattern better. Overall, I think when the overall demand is tight, in general, we have managed to increase prices across the board, some more than others. Thank you.

Speaker #1: That's one. Another one is we do use pricing as a tool to kind of manage the demand—shifting demand between the technology problems—so that the demand pattern matches our capacity pattern better.

Speaker #1: So, yeah, overall, I think when the overall demand is tight, in general, we manage to increase prices across the board—some more than others.

Speaker #1: Thank you.

Speaker #5: Okay. Very clear. Thank you, Dr. Bai.

Yu-Cheng Wang: Okay. Very clear. Thank you, Dr. Bai.

Ziyuan Wang: Okay. Very clear. Thank you, Dr. Bai.

Operator: Just one moment for our next question. The next question will come from Bai Ziye of Guosheng Securities. Your line is open. Please go ahead.

Speaker #4: Questions. One moment for our next question. The next questions will come from the line of the year of Guosan Securities. Your line is open.

Speaker #4: Please go ahead.

Ye Zi: Thank you for taking my questions. This is Ye Zi from Guosheng Securities. First is about the demand of the consumer electronics. The rising memory price may weigh on the demand of the consumer parts, but still, we can see Hua Hong achieve a sequential growth in consumer parts. How do you view the growth of our consumer-related parts in H2 of the year? This is the first question. Thank you.

[Analyst] (Guosheng Securities): Thank you for taking my questions. This is Ye Zi from Guosheng Securities. First is about the demand of the consumer electronics. The rising memory price may weigh on the demand of the consumer parts, but still, we can see Hua Hong achieve a sequential growth in consumer parts. How do you view the growth of our consumer-related parts in H2 of the year? This is the first question. Thank you.

Speaker #6: Thank you for taking my questions. This is Yu-Cheng from Guosan Securities. I have. First is about the demand of the consumer electronics. So the rising memory price may weigh on the demand of the consumer parts, but still we can see Hua Hong achieve a sequential growth in the consumer parts.

Speaker #6: So how do you view the growth of our consumer-related parts in the second half of the year? This is the first question. Thank you.

Peng Bai: That is actually a good question. Frankly, at the beginning of the year, when everybody started to know that the AI-related product will have high demand, another thing was discussed in the industry was the fact that when the DRAM getting to pricing, you are probably going to depress the consumer demand, which is probably true in some of the end market segments, like a cell phone, for example, clearly is going to see a decline this year. So we were expecting actually maybe a demand decrease on the consumer segment. For Hua Hong, as I said, we are a broad foundry supporting all different market segments, and I think we were a little bit surprised that we actually did not see as much negative impact by some of the consumer end market demand decrease. It could be that because we are now a foundry, so our direct customers are design houses.

Speaker #1: That's actually a good question. Frankly, at the beginning of the year, when everybody started to know that AI-related products would have high demand, another thing that was discussed in the industry was the fact that when DRAM gets too pricey, you're probably going to depress the consumer demand.

Speaker #1: Which is probably true. And in end markets, some of the end market segments, like cell phones, for example, are clearly going to see a decline this year.

Speaker #1: So we were expecting, actually, maybe a demand decrease in the consumer segment. For Hua Hong, as I said, we're a broad foundry, supporting all different market segments.

Peng Bai: For Hua Hong, as I said, we are a broad foundry supporting all different market segments, and I think we were a little bit surprised that we actually did not see as much negative impact by some of the consumer end market demand decrease. It could be that because we are now a foundry, so our direct customers are design houses.

Speaker #1: And I think that we were a little bit surprised that we actually didn't see as much negative impact from some of the consumer end market demand decrease.

Speaker #1: It could be that because we are a foundry, our direct customers are design houses. Their products then, through them, those IC products, those seem to go to different segments of the end market.

Peng Bai: Their product went through them. Those IC product, those seem to different segment of end market. Maybe because we are not directly providing to the end market, so maybe our direct customers are doing a good job of managing between different end market. That is one possibility. That is why we do not see much of a negative impact from the consumer end market. Another possibility, which is also possible, that even short-term consumer market, end market, might be having a bit of a decrease in demand. They still want some inventory level, to build some inventory for probably inevitable upturn in the future.

Speaker #1: Maybe it's because we're not directly providing to the end market, so perhaps our direct customers are doing a good job of managing between different end markets.

Speaker #1: That's one possibility. That's why we don't see much of a negative impact from the consumer end market. Another possibility, which is also possible, is that even the short-term consumer end market might be seeing a bit of a decrease in demand.

Speaker #1: They also want to they don't want to let a stock level to they don't want to let they still want some inventory level. To build some inventory that for probably inevitable upturn in the future.

Ye Zi: Yeah.

[Analyst] (Guosheng Securities): Yeah.

Peng Bai: So those are the two possibilities. But the net result is that we do see strong demand with all the AI-related products. We have not seen that much negative impact from the consumer market at the foundry level. It is hard possibility it could be our product, our technology, as I said earlier, we are pretty strong on the technology. It could be, if we are in the low end of the market, which we are not. We are mostly mid and higher market. Maybe the lower market might see a more negative impact. Thank you.

Speaker #1: So those are the two possibilities. So but the net result is that we do see strong demand with all the AI-related products. We haven't seen ways I haven't seen that much negative impact from the consumer market from at the funded level.

Speaker #1: A third possibility could be our product, our technology. As I said earlier, we are pretty strong from the technology side. It could be if we're in the low end of the market, which we're not.

Speaker #1: We're mostly mid and up, and mid and high-end market. Maybe the low-end market might see a more negative impact. Thank you.

Speaker #6: Thank you. And my next question is about the progress of the acquisition. Could you please update us on the progress, and also share the technology roadmap after the acquisition?

Ye Zi: Thank you. My next question is about the progress of the acquisition. Could you update the progress and also the technology roadmap after the acquisition? Thank you.

[Analyst] (Guosheng Securities): Thank you. My next question is about the progress of the acquisition. Could you update the progress and also the technology roadmap after the acquisition? Thank you.

Speaker #6: Thank you.

Peng Bai: The progress we already updated in the statement that we got the final approval from the exchange, to proceed. We expect the final step of this long acquisition process is going to take place probably within a month. After that, the whole thing is complete and done. The second part of your question I probably didn't quite get. We do expect this one to be a very positive acquisition for our financial statement. Once the final steps get completed, the Hua Li Micro results will be included in our financial results. If there's no surprises in Q3 statement, we'll include the Hua Li Micro. Did I answer your question?

Speaker #1: The progress was already updated in the statement, that we got to the final approval from the exchange to proceed. So we expect this final, the final step of this long acquisition process, is going to take place probably within a month.

Speaker #1: After that, the whole thing is complete and done. The second part of your question, I probably didn't quite get. We do expect this to be a very positive acquisition for our financial statement.

Speaker #1: Once the final steps get completed, the body micro results will be included in our financial results. If there are no surprises in Q3, the Q3 statement will include the quality micro.

Speaker #1: Did that answer your question?

Speaker #6: Yeah. And also, I have a quick follow-up. So how about the technology roadmap after the acquisition? Any new... yeah. Yeah.

Ye Zi: Yeah. Also, I have a quick follow-up. How about the technology roadmap after the acquisition?

[Analyst] (Guosheng Securities): Yeah. Also, I have a quick follow-up. How about the technology roadmap after the acquisition?

Peng Bai: Oh, okay.

Ye Zi: Any new Yeah.

[Analyst] (Guosheng Securities): Any new Yeah.

Speaker #1: So the internal—what Product Quality Micro is doing—there's quite a synergy with what we have in Hua Hong Grace. So we do achieve quite a bit of savings, quite a bit of synergy in terms of technology sharing.

Peng Bai: In terms of what product Hua Li Micro is doing, it is quite of a synergy with what we have in Hua Hong Grace. We do achieve quite a bit of savings, quite a bit of synergy in terms of technology sharing. In other words, some of the technology development that we do in Hua Hong Grace or in Hua Li Micro previously now can be combined. We basically, for any given R&D dollar, we get a bigger manufacturing scale. That is good for us. In terms of the improved efficiency. Another thing it help us is that now we have one more fab, so our manufacturing scale for a given technology problem, effectively are virtually bigger. We can take on more customer who have bigger capacity needs, that we previously might struggle with. We just have two separate entities, especially for Hua Li Micro.

Speaker #1: In other words, some of the technology development that we do in Hua Hong Grace, or in Quality Micro previously, can now be combined. So, basically, for any given R&D dollar, we get a bigger manufacturing scale.

Speaker #1: So that's good for us. In terms of the improved efficiency, another thing it helps us with is that now we have one more fact.

Speaker #1: So our manufacturing scale for a given technology platform is effectively much bigger. So we can take on more customers who have bigger capacity needs than we previously might have struggled with if we just had two separate entities.

Speaker #1: Especially for quality micro, they are by themselves. They are not large, so that's another benefit. The third benefit is that now quality micro joins the Hua Hong Grace manufacturing system, and we can optimize the capacity structure.

Peng Bai: They are by themselves, they are not large. That is another benefit. The third benefit is that now Hua Li Micro joins the Hua Hong Grace, the overall manufacturing system, that we can optimize the capacity structure, like what kind of a technology problem place where, so that give us a better ability to respond to changing market demands. Especially right now, because in short supply that we immediately can start some of the technology problem where we cannot supply. In Wuxi, for example, to put it in Hua Li Micro. Overall, you see it is really because of the bigger scale R&D saving and overall improved efficiency because of the large scale, and also in the procurement now also we have a bigger volume. Everything is basically positive. We think this has been a very good step for us to take. Thank you.

Speaker #1: Like, what kind of a technology platform do we need in place so that it gives us a better ability to respond to changing market demand? Especially right now, because of short supply, we can immediately start some of the technology production that we cannot supply in Wuxi, for example, and move it to Hua Hong Micro.

Speaker #1: So overall, you see, really because of the bigger scale, R&D savings, and overall improved efficiency because of the large scale, and also in procurement, now we also have a bigger volume.

Speaker #1: Everything is basically positive, so we think this is going to be a very, very—it has been a very good step for us to take.

Speaker #1: Thank you.

Speaker #6: Thank you. Dr. Bai, that's all of my questions.

Ye Zi: Thank you, Dr. Bai. That is all my questions.

[Analyst] (Guosheng Securities): Thank you, Dr. Bai. That is all my questions.

Speaker #7: Questions? Please hold for our next question. The next questions will come from the line of Qingyuan Lin of Sanford Seaburnstein. Please go ahead.

Operator: Questions. Please hold for our next questions. Next questions will come from the line of Qingyuan Lin of Sanford C. Bernstein. Please go ahead.

Speaker #8: Thanks for taking my question. Congratulations, Dr. Bai and Daniel, on the good results for earnings. My question comes from two angles. The first one is around future capacity expansion.

Qingyuan Lin: Thanks for taking my question. Congratulations, Dr. Bai and Daniel, for a good results for the earnings. My question comes from two angles. First one is around the future capacity expansion. Dr. Bai, what is your view on the demand sustainability for 2027, 2028? You mentioned it was quite clear for the H2, but I was wondering, do we expect this cycle to continue to be stronger, even for the next few years? You mentioned that last year it was a good decision to continue capacity expansion. With this strong demand, do we continue to see that we might need to further accelerate the capacity expansion even for 2027 and 2028? That will lead to, I guess, a question for Daniel. Do we have any plan to further ramp up our CapEx? That is my first question. Thank you.

Speaker #8: Dr. Bai, what's your view on the demand sustainability for 2027 and 2028? You mentioned it was quite clear for the second half, but I was wondering, do we expect this cycle to continue to be strong even for the next few years?

Speaker #8: And you mentioned that last year there was a good decision to continue capacity expansion with this strong demand. Do we continue to see that we might need to further accelerate the capacity expansion even for 2027? And that will kind of lead to, I guess, a question for Daniel.

Speaker #8: Do we have any plans to further ramp up our CapEx? That's my first question. Thank you.

Speaker #1: Yes. Let me in terms of the capacity expansion, we definitely want to continue the capacity expansion. As a steady pace, so that we can manage the CapEx expenditure while still maintaining profitability that we have come a long way to establish at this point.

Peng Bai: Yes. In terms of the capacity expansion, we definitely want to continue the capacity expansion at a steady pace so that we can manage the CapEx expenditure while still we maintain profitability that we have come a long way to establish at this point. I do think, I said earlier, the H2 of the year, the short-term market demand is strong. In 2027, the consensus is also going to be strong. 2028 is where things, people start to have some debate. So it is probably a little bit too early to tell in 2028. But, I do think that overall, the secular trend is, I do see a secular growth story in the marketplace that we participate, which is the specialty technology. So, in that sense, that is the reason that give us confidence that we will continue this to expand capacity.

Speaker #1: Well, I do think, as I said earlier, the second half of the year, everybody sees the short-term market demand is strong. And for 2027, the consensus is also going to be strong.

Speaker #1: 2028 is where people start to have some debate. So it's probably a little bit too early to tell in 2028, but I do think overall the cyclical trend is, I do see a cyclical growth story in the marketplace that would participate, which is especially in technology.

Speaker #1: So we so in that sense, that is the reason that give us confidence that we will continue to expand. Capacity. So this overall demand increase, it's based on new application of the semiconductor, also based on the fact that some of the industry player might start to close down some of the eight-inch fabs.

Peng Bai: This overall demand increase is based on new application of the semiconductor, and also based on the fact that some of the industry player may start to close down some of the 8-inch fabs. As you know, we do have three 8-inch fabs that also benefit from some of the industry capacity going offline. 12 inch is a different story. But a lot of the growth is mostly on 12 inch in terms of the demand side. I think that in terms of the supply side, 8 inch, nobody is spending 8-inch capacity. So the supply side might decrease. But the 12 inch, the demand side is probably going to continue to go up. So it is really based on our strategy of steadily expanding our capacity is based on our confidence that the market, even with some fluctuation, overall direction is still going up.

Speaker #1: As you know, we do have three 8-inch fabs that also benefit from some of the industry capacity going offline. Twelve-inch is a different story.

Speaker #1: But a lot of the growth is mostly on 12-inch in terms of the demand side. So I think that, in terms of the supply side, 8-inch has limited spending and limited capacity.

Speaker #1: But the supply side might get decreased. But 12-inch the demand side is probably going to go continue to go up. So it's really based on our strategy of a steady expanding our capacity is based on our confidence that the market, even with some fluctuation, overall direction is still going up.

Speaker #1: Another area our confidence is also based on is the second factor, which is that we believe our technology capability relative to our competitors in the industry is also going to strengthen as we go.

Peng Bai: Our confidence also based on the second factor, which is we believe our technology capability relative to our competitors in the industry is also going to strengthen as we go. Because we have the scale, we have the people, we have the track record, we have the position in China as well as even worldwide now, that we think our capability will increase. So we are not afraid of even the downturn comes. I think we are still going to keep on growing and keep building, getting more capacity and steadily. Thank you.

Speaker #1: Because we have the scale, we have the people, and we have the track record. We have the position in China, as well as—worldwide now—we see that our capability will increase.

Speaker #1: So we're not afraid even if a downturn comes. I think we're still going to keep on growing and keep getting more capacity, steadily.

Speaker #1: Thank you.

Speaker #8: Thank you. Daniel, any comments on the CapEx guidance or projections for the next two years?

Qingyuan Lin: Thank you. Daniel, any comment on the CapEx guidance or projection for next two years?

Daniel Wang: I would say, we start to construct the third 12-inch fab early this year. This fab will start to ramp over the next three years to 55,000 wafer capacity. Overall, it is approximately USD 6 billion CapEx spending. I would say roughly USD 2 billion a year for the next three years. But other than that, unless we have other new fabs that we plan to build, this is going to be the major CapEx spending.

Speaker #9: I would say we started to construct the third 12-inch fab early this year, and this fab will start to ramp over the next three years.

Speaker #9: To 55,000 wafer capacity. So it's going to be it's about overall, it's about approximately 6 billion dollars CapEx spending. So I would say roughly 2 billion dollars a year.

Speaker #9: For the next three years. But other than that, unless we have other new fabs that we plan to build, this is going to be the major CapEx spending.

Peng Bai: Just one comment. That USD 60 billion is not all the CapEx. It is roughly less than USD 2 billion per year. USD 1.5-ish, over three years.

Speaker #1: Okay, just one comment. That $60 billion is not all the CapEx, so it's roughly less than $2 billion per year. The $1.5 billion is over three years.

Daniel Wang: Got it.

Qingyuan Lin: Got it.

Qingyuan Lin: Over three years, yeah.

Daniel Wang: Over three years, yeah.

Speaker #1: Over three years. Yeah.

Daniel Wang: Got it.

Qingyuan Lin: Got it. Very clear. My second question is around in the earnings. In earnings, we do call out specifically that we have about $25 million of receipt for the government grants for equipment. May I have a bit more details behind that? Last time when we called that out was Q4 2025. It is about $37 billion. This is kind of related to my question around the plan for the Fab 9. With the share of local equipment, do we plan that to go up, and what kind of level we should expect? Thank you.

Speaker #8: Got it. Very clear. And my second question is about the earnings. In the earnings, we specifically called out that we have about $25 million of receipts for the government grants for equipment.

Qingyuan Lin: Very clear. My second question is around in the earnings. In earnings, we do call out specifically that we have about $25 million of receipt for the government grants for equipment. May I have a bit more details behind that? Last time when we called that out was Q4 2025. It is about $37 billion. This is kind of related to my question around the plan for the Fab 9. With the share of local equipment, do we plan that to go up, and what kind of level we should expect? Thank you.

Speaker #8: May I have a bit more detail behind that? The last time we called it out was in the fourth quarter of '25, and it's about $37 billion.

Speaker #8: And this is kind of related to my question around the plan for the $9 billion. What's the share of local equipment? Do we plan for that to go up, and what kind of level should we expect?

Speaker #8: Thank you.

Peng Bai: Well, that was actually some subsidies grant we got, not in Wuxi, but it was really for Shanghai. Okay? That is the grant we received in Q2 from local government here. The Wuxi part will most likely will be paid, I think in Q4 2026. The second part of your question about the domestic equipment. I think the domestic equipment sector in China has been getting strong year-over-year. We do expect, as a general trend, the newer fabs will have higher percentage of the domestic equipment.

Speaker #9: Well, that was actually some subsidy grant we got not in Fukushi, but it was really for Shanghai. Okay? That's the grant we received in Q2 from the local government here.

Speaker #9: The Wushi part most likely will be paid, I think, in Q4—in Q4 2026.

Speaker #1: The second part of your question about domestic equipment, I think the domestic equipment sector in China has been getting stronger year over year.

Speaker #1: We do express, as a general trend, that the newer fabs will have a higher percentage of domestic equipment.

Qingyuan Lin: Very clear. Thank you so much.

Speaker #8: Very clear. Thank you so much. Thank you for the questions. Our next question comes from Daiwa Securities. Your line is open. Please go ahead.

Peng Bai: Thank you.

Operator: Thank you for the question. Our next question comes from Ying Tong Ni from Daiwa Securities. Your line is open. Please go ahead.

Ying Tong Ni: Thank you. Hey, thanks for taking my question and congrats on the great executions. Can I ask your current lead time for products across different technology platform and which segment is expanding and which segment is decreasing? Thank you.

Speaker #9: Thank you. Hey, y'all. Thanks for taking my question, and congrats on the great execution. So can I ask your current lead time for products across different technology platforms?

Speaker #9: And which segment is expanding and which segment is decreasing? Thank you.

Peng Bai: Sorry, lead time in?

Speaker #1: Sorry. Lead time in manufacturing—lead time. How long does it take to get the wafer from start to finish?

Ying Tong Ni: Manufacturing time.

Peng Bai: Oh, how long it takes to manage to get the wafer from start to finish?

Ying Tong Ni: Exactly. Yeah, to deliver to your clients.

Speaker #9: Exactly, yeah. To deliver to your clients.

Peng Bai: Oh, okay. That obviously depends on the technology platform. Some process flow longer, some are short. Like the discrete power devices, that doesn't have too many steps. You can get it in a couple weeks, if we accelerate it. Then some of the MCU products have 50, 60, or 30, 40 mask layers that will take two months if we accelerate it. The speed of the wafer moving through a fab is also a function with loading. If you have a very heavily loaded fab, they basically have a longer queue time in front of the equipment, so the average speed will be slower. But we also, usually in the fab, the way we manage it is that we have different tier of the speed. If some of the things like NTO, where first time you have a new product, we try to give a high priority.

Speaker #1: Oh, okay. That obviously depends on the technology platform. Some process flows are longer, some are shorter. Like power, the discrete power devices don't have too many steps.

Speaker #1: You can get it in a couple of weeks if we accelerate it. Then, some of the MCU products have 50, 60, or 30, 40 mask layers.

Speaker #1: That will take two months—if we accelerate it. And the speed of the wafer moving through a fab is also a function of loading.

Speaker #1: If you have a very heavily loaded a fab, basically you have a longer queue time in front of the equipment. So they tend to go so the average speed will be slower.

Speaker #1: But we can we also usually in the fab, the way we manage it is that we have a different tiers of the different tier of the speed.

Speaker #1: If some of the things, like an NTO where for the first time you have a new product, we try to give it a high priority.

Peng Bai: They can zip through the fab very fast. But for the volume production, which we tend to maximize the output versus speed, so we let that. Nothing takes more than a quarter. I would say the faster ones can be a month, two months. Really depends on the type of products you have.

Speaker #1: They can zip through the fab very fast. But for the volume production, which you are not, we tend to maximize the output versus speed.

Speaker #1: So we let that, too. That still doesn't—nothing takes more than a quarter. I would say the faster ones can be months—two months, really—depending on the type of products you have.

Ying Tong Ni: Great. Thank you. Is there any changes in lead time in terms of when we receive the order until we deliver the product? Is there any changes in lead time? I'm trying to understand, is there any?

Speaker #9: Right. Thank you. Is there any change in lead time in terms of when we receive the order until we deliver the product? Is there any change in lead time?

Speaker #9: So, I'm trying to understand—is there any... yeah. No. No significant changes.

Peng Bai: No significant changes. When demand is high and the supply gets high, one of the effects is to tend to make the delivery time a little bit longer. But that's something we work out with our customers. When they place order, we usually have a commitment to say, "This will come out in certain this time." If the customer agrees, and it works to their satisfaction, then we just proceed. So that's how that works. But if there's something they need it urgently, we can also support that. Not 100% of the time, but a certain percentage of the wafer can come out very fast if we need to.

Speaker #1: When the demand gets tight—when demand is high—and the supply gets tight, one of the impacts, one of the effects, is to tend to make the delivery time longer.

Speaker #1: It's a little bit longer, but that's something we work out with our customers. Basically, when they place the order, we usually have a commitment to say this will come out within a certain time frame.

Speaker #1: If the customer agrees and it works to their satisfaction, then we will just proceed. So that's how that works. But if there's something they need urgently today, we can also support that.

Speaker #1: Not 100% of the time, but a certain percentage of the wafer can come out very fast if we need to.

Ying Tong Ni: Understood. That's very clear. Thank you. My next question is about our investment plans. I think Dr. Dai mentioned $1.5 billion per year, CapEx. What kind of technology platform will we focus more in the coming 2 to 3 years? Thank you.

Speaker #9: Understood. It's very clear, thank you. My next question is about our investment plans. I think Dr. mentioned $1.5 billion per year CAPEX. So, what kind of technology platform will we focus on more in the coming two to three years?

Speaker #9: Thank you.

Peng Bai: Let's get back to our focus. Our business focus is specialty technology. If you look at specialty technology, they are very much application driven. We go where the market is, so to speak. The reason we have those 4 or 5 large technology platforms is because there is a large market demand for those, like BCD for pinning, power management and power devices for all things electric and a lot of power related. MCU microcontroller, nowadays, a lot of AI related applications require microcontroller or even auto. The new EVs, which have a lot of microcontrollers in them. CIS has been there since the cell phone became a large application that drives a lot of CIS because the image sensor.

Speaker #1: Let's get back to our focus. Our business focus is especially on technology. So, if you look at technology in particular, it is very much application-driven.

Speaker #1: So we go where the market is, so to speak. So, we look at the reason we have those four or five large technology platforms is because there is a large demand.

Speaker #1: Market demand for those, like BCD for PIMIC, power management, and power devices for all things electric and all of the power-related areas. MCU, microcontroller—nowadays a lot of AI-related applications require microcontrollers, or even auto; the new EVs have a lot of microcontrollers in them.

Speaker #1: CAS has been there since the cell phone. It has become a large application that drives a lot of CAS because the image sensors are now CAS. CAS is also driven by some security needs, and even the new auto, the new EV, the autonomous driving cars or robots for them.

Peng Bai: CIS is also driven by some security needs and even the auto, the new EVs, the autonomous driving car or robots, for that matter, some emerging application will drive a lot of that. There's no short answer to your question, but overall, we look at all the specific technology we participate in. We look at where the demand is high and combined with where we have our strengths, like MCU. We are very strong in MCU historically. That's also a growth area. We're going to put a lot of, for example, we're going to put a lot of capacity there. BCD is another area. In general, if you look at our financial, the results over the last couple quarters, the highest growth is really in MCU, BCD, even NOR flash. Those areas we're going to put more.

Speaker #1: That's something—emerging applications are driving a lot of that. So, I mean, there's no short answer to your question. But overall, we look at all the specific technologies we participate in. We see, we look at where the demand is high and combine that with the work where we have our strengths.

Speaker #1: Like MCU, we are very strong in MSCU historically. That's also a growth area. So we're going to pull out— for example, we're going to pull out some capacity there.

Speaker #1: And BCD is another area. So in general, if you look at our financial results over the last couple of quarters, the highest growth is really in the MCU and BCD, and even more fast.

Speaker #1: Those areas we're going to put more. And on the CAS logic, it is also an area that very much interest to us. Although the growth rate hasn't been as high as the other two technology platform or other three, but we also try to drive up and try to get a bigger share there.

Peng Bai: On the CIS logic, it is also an area that has very much interest to us. Although the growth rate hasn't been as high as the other two technology platforms or other three, but we also try to drive up, try to get a bigger share there. For us, it might become a growth platform. Those are the areas. It's really the capacity we're putting in where the current technology platforms are. Each technology platform also, over time, the technology also evolves, and it goes, MCU probably going to go from 55 nanometer to 40 nanometer MCUs, and we will follow. We will watch for where the sweet spot is in the market and try to build our technology roadmaps to go where the market is, and also to go where we think we have a competitive advantage. That's the complex answer I give to you.

Speaker #1: So for us, it might become a growth problem. So those are the areas where we're really putting in capacity, where the current technology platforms are.

Speaker #1: And each technology platform, also over time, the technology also evolves, and it goes—MCU is probably going to go from 55 nanometers to 40-nanometer MCUs, and we will follow, we will watch for where the sweet spot is in the market and try to build our technology roadmaps to go where the market is, and also to go where we think we have a competitive advantage.

Speaker #1: So that's the complex answer I give to you. So it's a bit of a complexity because by nature it's complex. That's a lot of we spend a lot of time on those things.

Peng Bai: So it is a bit of a complex because by nature it is complex. We spend a lot of time on those things so that we make sure we get it right so that we can have a good growth.

Speaker #1: So we make sure we get it right, so that we can have good growth.

Speaker #9: That's great. Thank you so much.

Ying Tong Ni: That is great. Thank you so much.

Speaker #2: Thank you for the questions. In the interest of time, we will now take the last two questions. Please keep your question brief so we can take all the questions.

Operator: Thank you for the questions. In the interest of time, we will now take the last two questions. Kindly keep your question brief so we can take all the questions. The next question comes from Tracy Cui of CLSA. Your line is open. Please go ahead.

Speaker #2: The next question comes from Tracy Choi of CLSA. Your line is open. Please go ahead.

Speaker #10: Thank you, Dr. Bai, Daniel, and Senior Management for giving me this opportunity. My question is regarding depreciation. Please clarify my AUM path and also the new set coming.

Tracy Cui: Thank you, Dr. Bai, Danny, and the senior management for giving me this opportunity. So, my question is regarding the depreciations. Fab my AM pop and also new fab coming. Wondering how much may be the depreciation in H2 and also in next year. Thank you.

Speaker #10: Wondering how much maybe the depreciation in second half and also in next year. Thank you.

Daniel Wang: Good question, Tracy. Look at the H2. Overall, the age business is maybe around $55 million. I understand this could be useful for your model. For our first 4-inch fab, it is going to be around $250 million depreciation expense for the H2 of 2026. For second fab, it is going to be at roughly $210 million for the H2. These are the forecast numbers. For the third fab, we are just starting. There is virtually not going to be any. If there is anything, it would be minimal for this year. Then for Hua Li Microelectronics, we are projecting about $30 million for the H2. For that fab, the depreciation expense is pretty much behind them. We are looking at around $50 to $60 million a year, and it is going to start to decline even further down in the next few years.

Speaker #9: Good question, Tracy. So, looking at the second half overall, the ASP business is at around $55 million, okay? I understand you probably think this could be useful for your model.

Speaker #9: And for our first 12-inch fab, it is going to be around $250 million in depreciation expense for the second half of 2026.

Speaker #9: And for the second half, it is going to be at $210 million. Roughly, $210 million for the second half is in the forecast numbers. And for the third fab, we're just starting.

Speaker #9: There's not—virtually there's not going to be any, there's not going to be any. If there's anything, it will be minimal for this year. And then for micro quality electronics, okay, we're projecting about $30 million for the second half, okay?

Speaker #9: They're for that fab, the depreciation expense is pretty much behind them. We're looking at around $50 to $60 million a year, and it's going to start to decline even further down in the next few years.

Tracy Cui: Got it. Thanks, Danny. My next question is regarding the new business. I think last earnings call, you talk about expanding to interconnect solutions such as silicon photonics, interposer. Wondering if any real quick update progress in any of those business, any specific area that you see stronger growth potential? Thank you.

Speaker #10: Got it. Thanks, Daniel. And my next question is regarding the new business. I think on the last earnings call you talked about expanding into interconnect solutions, such as silicon photonics and Interposer.

Speaker #10: So, wondering if you have a quick update on progress in any of those businesses. Are there any specific areas where you see stronger growth potential? Thank you.

Speaker #1: Okay. Thank you for the question. I have to be careful what I say here. We are probably the largest specialty foundry in China, and also the second largest foundry in China.

Peng Bai: Okay. Thank you for the question. I have to be careful what I say here. We are probably the largest specialty foundry in China. Hua Hong Grace, the second-largest foundry in China, but in the specialty technology. As I said earlier, in answering earlier questions, we work all where the market goes. In that regard, of course, that is one factor. Another factor is we also go where we think we have a strength or have advantage. Those two, combining those two, that determine where we go. The part you mentioned, we looked at the AI is definitely a growth driver. Therefore, anything that is related with AI application that happens to be in the specialty technology area, we look at very carefully and decide whether then if we are now already there. We are already in a lot of those areas, the PMIC, MCU I mentioned, the power devices, all those inside.

Speaker #1: But in the specialty technology, as I said earlier in answering earlier questions, we'll go where the market goes. So, in that regard, of course, that is one factor.

Speaker #1: Another factor is that we also go where we think we have a strength or an advantage. Those are two—combining those two, that's the determinant of where we go.

Speaker #1: The part you mentioned, there's—we look at the AI as definitely a growth driver. Therefore, anything that's related to AI applications that happens to be in the specialty technology area, we want to look at very carefully and decide whether, if we are not already there, we should be.

Peng Bai: We are already in a lot of those areas, the PMIC, MCU I mentioned, the power devices, all those inside. There is a few, like optoelectronics, silicon photonics, for example. We actually are already in there. Some of the MCU do go into the module that makes the final silicon photonics. We like to expand the footprint there to probably get into more type of silicon-based devices. Because that is where we have expertise. So yes, we are going to basically look at the application there, look at some of the chips that are inside the silicon photonics module to see. We already participate in some of those chips in there. We want to expand a couple more into the IC, silicon-based IC. That is still the plan, and we are still in the early stages of doing that.

Speaker #1: We're already in all of those areas. Paymake, MCU I mentioned, power devices—all those things are in. There are a few, like optoelectronics, silicon photonics, for example.

Peng Bai: There is a few, like optoelectronics, silicon photonics, for example. We actually are already in there. Some of the MCU do go into the module that makes the final silicon photonics. We like to expand the footprint there to probably get into more type of silicon-based devices. Because that is where we have expertise. So yes, we are going to basically look at the application there, look at some of the chips that are inside the silicon photonics module to see. We already participate in some of those chips in there. We want to expand a couple more into the IC, silicon-based IC. That is still the plan, and we are still in the early stages of doing that. The power devices, that is another area that is probably going through some technological or market transition. Up to this point, it is mostly silicon-based.

Speaker #1: We actually, in a way, we are already in there, that some of the MCU do go into the module that makes the final silicon photonic topic.

Speaker #1: We'd like to expand our footprint there to probably get into more types of silicon-based devices. So it's going to be—because that's where we will have expertise.

Speaker #1: So yes, we are going to basically look at the application there, look at some of the chips that are inside the optics, that silicon photonic module, to see if we already participate in some of those chips in there.

Speaker #1: We want to expand a couple more in terms of IC, silicon-based IC. That's still the plan. We are seeing the earliest stages of doing that.

Peng Bai: The power devices, that is another area that is probably going through some technological or market transition. Up to this point, it is mostly silicon-based. Now, the silicon carbide, for example, these devices are also become part of a power device offering. Again, there, the product is, if you look at a module where it tends to contain silicon-based devices and increasingly silicon carbide. So this is something if we want to continue in the power device area, we will have to look at. We have no choice but look at, see whether we have a more complete offering. So we are definitely doing the planning and a lot of the planning, we do need to get a few things together before we say that we officially are in there. We are not slowing down. We are going forward. Thank you.

Speaker #1: The power devices—that's another area that is probably going through some transition that up to this point is mostly silicon-based. But now, there's silicon carbide, for example.

Peng Bai: Now, the silicon carbide, for example, these devices are also become part of a power device offering. Again, there, the product is, if you look at a module where it tends to contain silicon-based devices and increasingly silicon carbide. So this is something if we want to continue in the power device area, we will have to look at. We have no choice but look at, see whether we have a more complete offering. So we are definitely doing the planning and a lot of the planning, we do need to get a few things together before we say that we officially are in there. We are not slowing down. We are going forward. Thank you.

Speaker #1: Base devices are also becoming part of the power device offering. Again, there the product is—if you look at a module where it tends to contain silicon-based devices, and increasingly, silicon carbide.

Speaker #1: So, this is something that, if we want to continue in the power device area, we will have to look at. We have no choice but to look and see whether we have a more complete offering.

Speaker #1: So we are definitely doing planning and all of the planning. We do need to get a few things together before we say that we are officially in there.

Speaker #1: But we're not slowing down—we're going forward. Thank you.

Tracy Cui: Got it. That is very clear. Thank you, Dr. Bai and Daniel. That is all for me, and I will go back to the queue. Thank you.

Speaker #10: Got it. That's very clear. Thank you, Dr. Bai and Daniel. That's all from me, and I will go back to the queue. Thank you.

Speaker #11: Thank you for the questions. With that, I'll now take the last question from Hua Jian of Orient Securities. Your line is open. Please go ahead.

Operator: Thank you for the questions. With that, I will now take the last question from Kwai Jian of Orient Securities. Your line is open. Please go ahead.

Kwai Jian: Hi. This is Kwai Jian from Dongfang Zhengquan. Thank you, Dr. Bai and Daniel. My first question is about our revenue from North America and Europe grew very strongly. Could you give us more color about these two regions? Maybe it is from the server PMIC or maybe MCU or this kind of products. That is my first question.

Jian Kuai: Hi. This is Kwai Jian from Dongfang Zhengquan. Thank you, Dr. Bai and Daniel. My first question is about our revenue from North America and Europe grew very strongly. Could you give us more color about these two regions? Maybe it is from the server PMIC or maybe MCU or this kind of products. That is my first question.

Speaker #12: Hi, this is Hua Jian from 东方证券. Thank you, Dr. Bai and Daniel. My first question is about our revenue from North America and Europe, which grew very strongly.

Speaker #12: So could you give us more color about these two regions? Maybe it’s from, like, the server PMIC or maybe MCU or these kinds of products?

Speaker #12: That's my first question.

Peng Bai: The revenue from North America, a large part of it is in the DC-DC PMIC area. A lot of the product there happens to be related to AI server boxes. That is the reason you see huge increases, because that is directly going to AI. For Europe, the large European company have this China for China strategy. Their product is mostly in MCU, smart cards, and some power devices as well. I think as they prosecute their China for China strategy, if we are their partner of choice, which we think we are in China, that is the reason we see growth. We expect to continue to see more growth from Europe as well.

Speaker #1: The revenue from North America—a large part of it is in the CCD Paymak area. And a lot of the product there happens to be related to AI server boxes.

Speaker #1: That's the reason you see huge increases, because that's directly going to AI. For Europe, it's really Europe where the large European companies have this 'China for China for China' strategy.

Speaker #1: Their products mostly in MCU and the smart parts and some power devices as well. I think as they prosecute their China for China strategy, if we are their partner of choice, which we think we are in China, that we that's the reason we see growth.

Speaker #1: We expect to continue seeing more growth from Europe as well.

Speaker #12: Thank you, Dr. Bai.

Kwai Jian: Thank you, Dr. Bai.

Jian Kuai: Thank you, Dr. Bai.

Speaker #1: Thank you.

Peng Bai: Yes.

Kwai Jian: My second question is about the equipment and material. People are always talking about the equipment supply are very tight, and the price for materials are increasing, all these kind of things. From our point, how do we see the supply of equipment and materials?

Jian Kuai: My second question is about the equipment and material. People are always talking about the equipment supply are very tight, and the price for materials are increasing, all these kind of things. From our point, how do we see the supply of equipment and materials?

Speaker #12: My second question is about the equipment and material. People are always talking about the equipment supply being very tight, and the prices for materials are increasing.

Speaker #12: All these kinds of things. So, from our point of view, how do we see the supply of equipment and materials?

Peng Bai: A good question. The equipment supply is getting tighter because all over the world, the semiconductor houses are increasing their capacity. This is true for our overseas suppliers as well as domestic suppliers. The one manifestation is the lead time has been increasing, but it is still manageable. It is still manageable level. Since for us, we started this capacity expansion last year, a lot of the equipment we already booked last year, so we have not seen huge impact. They are definitely getting tighter, so we are tightly managing with our suppliers, with our supplier partners to get the equipment lead time to a point that does not affect our overall capacity, both increase schedule. So far, I think that we, by and large, can do that. For material, there is some isolate.

Speaker #1: That's a good question. The equipment supply is getting tighter because, all over the world, semiconductor houses are increasing their capacity. So this is true for our overseas suppliers as well as domestic suppliers.

Speaker #1: So one manifestation is that the lead time has been increasing, but it's still manageable. It's still at a manageable level. And for us, since we started this capacity expansion last year...

Speaker #1: So a lot of the equipment we already booked last year. So we haven't seen huge increase. Huge impact but there are definitely getting tighter so we are tightly managing with our suppliers where our partner supplier supplier partners to get the equipment lead time to a point that doesn't affect our overall capacity growth increase schedule.

Speaker #1: And so far, I think that we, by and large, can do that. For materials, there are some isolated cases—there are a few examples. For example, because of the war in the Middle East, or some other reasons, we do see tightness and even price increases on some materials. For example, helium gases, because of the war there, we had a temporary spike, but now it has managed to calm down.

Peng Bai: There's a few examples. For example, because of the war in Middle East or some other reasons, we do see tightness and even price increases on some of the, for example, helium gases, because of the war there. It had a temporary spike, but now it has managed to come down. Overall, there's some metals, also metal, the prices, because of general inflation or because of the supply situation. So we do see some price increases in some isolated area. But overall, it hasn't been a significant impact. We still managed to basically keep the price flat or down, because the overall market price in terms of our supplier market is still reasonably healthy for us. Thank you.

Speaker #1: And overall, we don't see—a there are some metals, or some metal prices, up because of general inflation or because of the supply situation.

Speaker #1: So, we do see some price increases in some isolated areas, but overall, there hasn't been a significant impact. We still managed to basically keep the price flat or down.

Speaker #1: And we, because the overall marketplace—in terms of our supplier marketplace—is still reasonably healthy for us. Thank you.

Speaker #12: Thank you, Dr. Bai. That's very clear. Those are all my questions.

Kwai Jian: Thank you, Dr. Bai. It's very clear. That's all my questions.

Jian Kuai: Thank you, Dr. Bai. It's very clear. That's all my questions.

Speaker #11: Thank you, ladies and gentlemen. That's all the time we have for questions. I will now hand back to Mr. Daniel Wong for closing remarks.

Operator: Thank you, ladies and gentlemen. That's all the time we have for questions. I'll now hand back to Mr. Daniel Wang for closing remarks.

Daniel Wang: This concludes our today's call. Once again, thank you all for joining us today and for your valuable questions and input. It has been an exciting quarter. We look forward to see you again in the next earnings call. Thank you.

Speaker #1: This concludes our call today. Once again, thank you all for joining us and for your valuable questions and input. It has been an exciting quarter.

Speaker #1: We look forward to seeing you again in the next earnings call. Thank you. Thank you.

Peng Bai: Thank you.

Operator: Ladies and gentlemen, thank you for attending. You may all now disconnect.

Browse all earnings call transcripts

Q2 2026 Hua Hong Grace Semiconductor Ltd Earnings Call

Request TrialDemo

Hua Hong Grace Semi

Earnings