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.

I'll then take you through our financial results in detail, and then offer guidance for the upcoming quarter. We then open the floor for a question-and-answer session.

With that, I turn the call over to Dr. 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 at US$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 US$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 upturn in demand, 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 the overall positive impact on our business by the AI wave.

We have also seen diverging intensity and strength of market demand, depending on end-user market segments. Amid this rapid 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 Huali Microelectronics. Integration of the acquired asset into Hua Hong Grace will strengthen our technologies portfolio, increase our operational economy of scale, and improve our profitability, injecting fresh momentum into our future growth.

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

Daniel?

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, and then 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.

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. Other income, net, was $2.2 million, 79.4% lower than Q2 2025, primarily due to increased finance costs and decreased government subsidies, partially offset by increased share of profit of associates.

The other net loss, net was $2.4 million, mainly due to increased share of profit of associates. 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.

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 superjunction 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. With respect to technology platforms, revenue from 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 $68.8 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 million 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, 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 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 on bank borrowings, and $100,000 proceeds from share option exercise.

Next, moving to the balance sheet, cash and cash equivalents was $4,530 million on June 30th, 2026, compared to $4,867.9 million on March 31st, 2026. Other current assets increased from $894.6 million on March 31st, 2026, to $936.2 million on June 30th, 2026, mainly due to a increased value-added tax prepaid.

Property, plant, and equipment was $7,286.3 million on June 30th, 2026, compared to $7,105.9 million on March 31st, 2026 2026, primarily due to capacity expansion. Interest-bearing bank borrowings decreased from $2,897.2 million on March 31st, 2026, to $3,567.5 million on June 30th, 2026, primarily due to repayments of bank borrowings.

Total assets increased from $14,947.3 million on March 31st, 2026, to $15,225.8 million on June 30th, 2026. Total liabilities decreased to $5,528.4 million on June 30th, 2026, from $5,663 million on March 31st, 2026.

Debt ratio decreased to 36.3% on June 30th, 2026, from 37.9% on 31 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, with the projected gross margin of 8 16% to 18%. This concludes my financial remarks.

We'll now begin the Q&A session. Operator, please assist.

Thank you.

Oh, thank you for taking my question. Dr.

Bai, first congratulate for the very strong results. My calculation show that you deliver another 3% Q-on-Q ASP growth this quarter.

Could you unpack what drive this ASP growth and whether it's from pricing or some mix change? How do you see this ASP trend in the second half and beyond?

Also, we noticed that largest foundry in the world now also say they were re-emphasizing this mature and specialty node process to serve their customers. Plus also the domestic peer also want adding capacity.

What's your view? On this mature node supply-demand relation in next few years, and how Hua Hong can differentiate from peers and further improve the profitability ahead?

Thank you.

Thank you. You have a number of questions in there.

Let me try to piece them out and answer them one at a time. In terms of pricing, as that our in our industry, the pricing is set by market.

It's basically by the balance of the supply and demand. Since the beginning of the year, we have we started to see the demand going up and the balance is shifting towards tightness in terms of a supply situation.

As a result, that has driven up price increases, mostly in MCU and the memory area, and PMIC area. Those are the areas that are more associated with the AI applications.

Of course, they are also used in the consumer segment, but they're probably the AI demand upturn is probably more significant. That's why we're seeing the the supply-demand balance shifting towards demand supply being tight.

In fact, on some of the products, we clearly cannot meet the demand. The order the 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 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. It's really through some very hardworking and 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, so that's why we can still we can still get the good good capacity increase from the Fab 9A that we have, that that's still going through the capacity ramp-up. In a way, if you ask me what is our advantage, with Hua Hong's advantage, I think it come on two ways.

One is our our technology capability. Clearly is from domestic standpoint of view, industry-leading for many many many areas.

Some of them are also on par with our international competitors. That give us a strong foundation to to basically build our capacity and serve our customer.

Another thing is since last year, although last year we nobody predict this year it's going to go up, but since last year we were also 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 can say, you you you might say that has pay pay off somewhat as as this year come come in and the the market is turning upward.

In terms of the future pricing prediction, it's really a function of this latest demand wave, how long it's going to last. It's a debatable point.

There's a lot of discussion or debate amongst the industry people. Short term, I think for the second half of this year and as well as 2027, that most people still believe the the the demand will continue to be strong.

I share that view, and so so in that in in that sense, I expect our price increases will continue throughout the second half of the year. Some of the pricing action we have taken over the last quarter, it will it will start to manifest itself probably in the second half and even next year.

I do think this up upside, this upturn in demand will be accompanied by our continued ability to to increase the price a little bit. I don't I do want to caution everybody that we are not like a DRAM market, that there is a multiple increase in multiple what over the percentage, in percentage term.

I do think it is a nice turn for for the better, and we should continue enjoy that for the foreseeable future, at least through second half of this year and perhaps to next year. Thank you.

The second question from me is about the memory. The largest China-based DRAM company just listed in A-share recently, and we see very strong investor interest on China's memory industry.

At the same time, looking in the global perspective that providing the logic die foundry service to memory maker has become a new trend these days. Dr.

Bai, can you share your view how Hua Hong can benefit from this memory buildout in China and globally, and do you have any view that you plan, for example, cooperate with the China or global memory makers on providing similar logic die service? Thank you.

Okay. The memory come in different types.

The one you're 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 that probably going to continue for second half of this year and next year. We do enjoy the demand uptick there.

In terms of I think the fact that the memory is going up, it's really representing the overall demand for semiconductor is increasing. In that sense, it definitely benefit everybody.

Benefit the memory more directly, because yeah, probably builds up there faster. It doesn't also benefit a logic foundry, 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 DRAM seeing the biggest demand increase is truly is just represent the fact that the AI has been driving a lot of demand increases for overall in the semiconductor. In that sense, it's definitely good thing.

We do benefit from the overall semiconductor demand increase. Specific to DRAM or even NAND, because the technology direction there is such that 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.

In that sense, if the memory houses want to spend more time or focus more on the pure memory elements, then they might let their logic, the peripheral logic die to be manufactured by the logic foundry. In that sense, we do see the logic houses probably will start to explore that cooperation with the logic foundry for us to So they can focus on truly what their specialty, which is the memory part of the overall memory product.

That is still probably in the early stages of this technological transition. By the overall, it is moving in the direction that they might even create some new demand for logic foundries, because their logic portion of their monolithic die, they might get separate out into separate die and give it to logic foundry to manufacture.

If that explained that clearly. Thank you.

Thank you. It's very clear.

Thank you, Dr. Bai.

Thank you for taking my question. This is Ziyuan from [Zhongxin Zhengquan?]

. 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 and how much is driven by the capacity expansion? Also, regarding on the expansion, approximately how much capacity will be added in Q3 and Q4?

Thank you.

Sure. Let me take on the capacity expansion part, and then I'll let Daniel to talk about the guidance for Q3 in terms of how it breaks down between volume increase versus price increases, as I think that's what he asked.

For the capacity increase, our Fab 9A in Wuxi, it will ramp up to the total capacity in Q3, next quarter. You'll 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 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.

We expect that we get a complete line in Q1, and we will start to have a small volume coming out. Next year, throughout 2027, we expect that we will start the capacity ramp-up from the next fab, which we call Fab 9B.

Now, I will let Daniel talk about Q3 revenue breakdown, the guidance between volume and the price increases.

Hey, Ziyuan, thank you for the question. We expect the revenue's going to be between $7.7 to $7 $770 million to $780 million.

That's our projection for Q3. The increase is largely coming from MCUs.

That whole sector, embedded non-volatile memory, will continue to grow strong. There'll be a double-digit growth.

The standalone non-volatile memory continue to be very, very strong in Q3, and 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 superjunction are virtually flat. Then on the logic and RF side, I think there's going to be pretty strong momentum from the RF as well.

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, but they're also growing pretty strong in Q3. 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're looking to 7%-8% increase on revenue, I think I would say, 60% coming from ASP, and also another 40% were coming from increasing volume. Thank you.

Thank you. Hi, Dr.

Bai and Wang Zong. My second question is about the capacity's transit or switch.

Since our demand is strong, is it possible to flexibly switch our capacity between product? 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 second half?

Thank you.

The capacity are somewhat fungible to certainly a 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.

There is some fungibility. Exactly how much, depend on the technology platform you're talking about.

Specifically, CIS, for example, the flow is close, pretty close to the logic flow. 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 example, we normally group logic product, CIS, and the driver type of product in one group, because they are very much mutually fungible to large degree. If you want to use CIS for BCD type of product, there's still some fungibility, but will be decreased.

Or if you want to use for memory product, there are also some fungibility, but probably further decreased somewhat, because some of the memory product have some unique tool that requires. A lot of times, your fungibility is limited by those unique tool that's unique to each technology platform.

When we build a fab, we try to manage the fungibility. 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. 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're into a long-term business. We don't want to basically look at the next quarter or even just one year.

There's 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. That's one.

Another one is we do use pricing as a tool to kind of manage shift in demand between technology platforms, so that the demand pattern matches our capacity pattern better. Yeah.

Overall, I think when the overall demand is tight, in general, we managed to increase prices across the board, some more than others. Thank you.

Very clear. Thank you, Dr.

Bai.

Thank you for taking my questions. This is Yezi from [Guoxing Zhengquan?]

. First is about the demand of 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 the consumer parts. 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.

That's actually a good question. Frankly, at the beginning of the year, when everybody started to know that the AI-related product have high demand, another thing was discussed in the industry was the fact that when the DRAM getting to pricing, it probably going to depress the consumer demand, which is probably true in some of the end-market segments, like cell phone, for example.

Clearly, it's going to see a decline this year. We were expecting, actually, maybe a demand decrease on the consumer segment.

For Hua Hong, as I said, we're a broad foundry supporting all different market segments, and I think we were a little bit surprised that we actually didn't see as much negative impact by some of the consumer end-market demand decrease. It could be that because we are a foundry, our direct customers are design houses, through them, those IC product goes into different segment of end-market.

Because we're not directly providing to the end-market, maybe our direct customers are doing a good job of managing between different end-market. That's one possibility.

That's why we don't see much of a negative impact from the consumer end-market. Another possibility is, which is also a possible, that even short-term end-market might be having a bit of a decrease in demand, but They still want some inventory level to build some inventory for probably inevitable upturn in the future.

Those are the two possibilities. The net result is that we do see strong demand with all the AI-related products, and we haven't seen that much negative impact from the consumer market at the foundry level.

Third possibility could be our product, our technology, as I said earlier, we are pretty strong on technology. It could be if we're in the low end of the market, which we are not, we're mostly in mid and high-end market, maybe the low-end market might seeing a more negative impact.

Thank you.

Thank you. My next questions is about the progress of the acquisition.

Could you update the progress, and also the technology road map after the acquisition? Thank you.

The progress we already updated in the statement that we got the final approval from the exchange to proceed. We expect this final the the final step of this long acquisition process, it's 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 to be a very positive acquisition for our financial statement. When the once the final steps get completed, the Huali Micro results will be included in our financial results.

If if there's nothing no there's no surprises, in Q3 Q3 statement will include the Huali Micro. Did I answer your question?

Also I have a quick follow-up. How about the technology road map after the acquisition?

Yeah.

In terms of what product Huali Micro is doing, it's 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 Huali Micro previously now can be combined, we basically for any given R&D dollar, we get a bigger manufacturing scale. That's good for us, in terms of improve efficiency.

Another thing it help us is now we have one more fab, our manufacturing scale for a given technology platform, the effectively are virtually bigger, we can take on more customer who have a bigger capacity needs that we previously might struggle, if we just have two separate entities. Especially for Huali Micro, they are by themselves, they are not large.

That's another benefit. The third benefit is that now Huali Micro joined the Hua Hong Grace, the overall manufacturing system, now we can optimize the capacity structure, like what kind of a technology platform placed where, so that give us a better ability to respond to changing market demand.

Especially right now, because in short supply, that we immediately can start some of the technology platform that we cannot supply in Wuxi, for example, to put it in Huali Micro. Overall, you see it's really because of the bigger scale, R&D saving, and overall improved efficiency because of the large scale.

Also, in the procurement, now also we have a bigger volume. Everything is basically positive.

We think this is going to be a very, very It has been a very good step for us to take. Thank you.

Thank you, Dr. Bai.

That's all my

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's your view on the demand sustainability for '27, '28? You mentioned it was quite clear for the second half, but I was wondering, do we expect this cycle to be kind of continue to be stronger even for the next few year few years?

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 '27 and '28?

That will kind of lead to, I guess, a question for Daniel, do we have any plan to further ramp up our CapEx? That's my first question.

Thank you.

Yes, let me In terms of 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 to establish at this point. We do I do think, I said earlier, the second half of the year, everybody's the short-term market demand is strong, and 2027, the consensus is also going to be strong.

2028 is where things people start to have some debate. It's probably a little bit too early to tell in 2028, but I do think the overall the secular trend is I do see a secular growth story in the marketplace that we participate, which is the specialty technology.

We we So in that in that sense, that is that's the reason that give us confidence that we will continue to to expand capacity. This overall demand increase is based on new application of the semiconductor, also based on the fact that some of the industry player may start to close down some of the 8-inch fabs.

As 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 there's a lot of growth is mostly on 12-inch in terms of the demand side.

I think that in in terms of the supply side, 8-inch nobody's expanding 8-inch capacity, but the the supply side might might get decreased. But 12-inch, the demand side demand side is probably going to go continue to go up.

It's really based on our strategy of steadily expanding our capacity is based on our confidence that the market, even with some fluctuation, the overall direction is still going up. Another our confidence also based on the second factor, which is the we believe our technology capability relative to our our competitors in the industry is also going to strengthen as we we go, because we have the scale, we have the people, we have the track record, we have the position in in China as well as even worldwide now, that we we think our capability will increase.

We're not afraid of even the downturn comes. I think we we still going to keep on growing and keep going, getting more capacity steadily.

Thank you.

Thank you. Daniel, any comment on the CapEx guidance or kind of projection for next few years?

I would say, we start to construct the third 12-inch fab early this year, and this fab will start to ramp over the next three years to 55,000 wafer capacity. Overall, it's about roughly $6 billion CapEx spending.

I would say roughly $2 billion a year for the next three years. Other than that, unless we have other new fabs that we plan to build, this is going to be the major CapEx spending.

Just one comment, that $6 billion is not all CapEx, it's probably less than $2 billion per year, $1.5-ish, yeah. Over

three years. Over three years, yeah.

Yeah.

Got it. Very clear.

My second question is around in earnings, we do call out specifically that we have about $25 million of receipt for the government grants for equipment. May I have kind of a bit more details behind that?

Last time when we called that out was fourth quarter '25 is about $37 billion. This is kind of related to my question around the plan for the 9B, what's the share of local equipment?

Do we plan that to go up, and what kind of level we should expect? Thank you.

That was actually some subsidies grant we got, not in Wuxi, but it was really for Shanghai. We that's the that's the grant we received in Q Q2 from local government here.

The Wuxi part would most likely will be paid, I think, in Q4 part in Q4 in in Q4 2026.

Your second part of your question about the domestic equipment, I think in the domestic equipment sector in China has been getting stronger year-over-year. We do expect, as a general trend, the newer fabs will have higher percentage of the domestic equipment.

Very clear. Thank you so much.

Thank you.

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.

Sorry, lead time in

Manufacturing lead time.

Oh, how long it takes to produce the wafer from start to finish?

Exactly, yeah. To deliver to your clients.

Oh, okay. That, obviously, depend on the technology platform.

Some process flow are longer, some are short. Like discrete power devices, that doesn't have too many steps, you can get it in couple weeks, if we accelerate it.

Then some of the MCU products have 50, 60, or 30, 40 mask layers, that would take two months, if we accelerate it. The speed of the wafer moving through a fab is also a function of loading.

If you have a very heavily loaded fab, basically you have a longer queue time in front of the equipment, the average speed will be slower. We also, usually in the fab, the way we manage it is that we have a different tier of the speed.

For some of the things like NTO, the first time you have a new product, we try to give a high priority, they can zip through the fab very fast. For the volume production, we tends to maximize the output versus speed, nothing takes more than a quarter, I would say.

The faster ones can be a month, two months, really depend on the type of products you have.

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 Yeah.

No,

no significant changes. When the demand gets tight, when demand is high and the supply gets tight, the one of the impact it one of the effect is to tends to make the the delivery time a little bit longer.

That's something we work out with our customers. We were basically when they place order, we usually have a commitment to say this will come out in certain this time.

If the if the customer agrees and that it works to their satisfaction, then we will just proceed. That's how that works.

If there's something they need urgently, we can also support that. Not 100% of the time, but a certain percentage of the wafer can come out really fast, if we need to.

Understood. That's very clear.

Thank you. My next question is about our investment plans.

I think Dr. Bai mentioned $1.5 billion USD per year CapEx.

What kind of technology platform will we focus more in the coming two to three years? Thank you.

That's gets back to our focus. Our business focus is the specialty technology.

If you look at specialty technology, they are very much application-driven, we go where the market is, to speak. We look at the reason we have those four or five large technology platform is because there's a large demand, market demand for those, like BCD for PMIC, power management; power devices for all things electric and a lot of power-related; MCU, microcontroller, nowadays a lot of AI-related application require microcontroller; or even auto, the new EVs, which has a lot of microcontroller in them; and CIS has been there since cell phone become a large application that drive a lot of CIS, the image sensor.

Now 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 looked at all the specialty technology we participate in, we look at where the demand is high, and combined with where we have our strength, like MCU, we're 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 results over the last couple quarters, the growth, the highest growth is really in the MCU, BCD, and even NOR flash, those areas we're going to put more.

On the CIS, logic, it is also a area of 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, try to get a bigger share there. For us, it might become a growth platform.

Those are the areas that it's really the capacity we're putting where the current technology platforms are. Each technology platform also, over time, the technology also evolve, and MCU probably going to go from 55-nanometer to 40-nanometer, and we will follow.

We will watch for where the sweet spot is in the market, and try to build our technology road maps 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.

It's a bit of a complex because by nature it's complex. We spend a lot of time on those things so to make sure we get it right so that we can have a good growth.

That's great. Thank you so much.

Thank you, Dr. Bai, Daniel, and the senior management for giving me this opportunity.

My questions is regarding the depreciations. With Fab 9A ramp-up and also new fab coming, wondering how much may be the depreciation in second half and also in next year?

Thank you.

Good question, Tracy. Look at the second half, overall, the 8-inch business, it'd be around $55 million, okay?

I understand it's going to be useful for your model. For our first 12-inch fab, there is going to be around $250 million depreciation expense for the second half of 2026.

For second fab, it is going to be at $210, roughly, $210 million for the second half. These are the forecast numbers.

For the third fab, we're just starting. If there's anything, will be minimal just for this year.

Then for Huali Microelectronics, okay, we're projecting about $30 million for the second half, okay? For that fab, the depreciation expense is pretty much behind them.

We're looking at around $50 million to $60 million a year, and it's going to start to decline even further down in the next few years.

Got it. Thanks, Daniel.

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 quick update progress in any of those business and a specific area that you see stronger growth potential? Thank you.

Thank you for the question. I have to be careful what I say here.

We we are the probably largest specialty foundry in China. Even we are the second largest foundry in China, but in the specialty technology, as I said earlier in answering earlier questions, we we go 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 are two combining those two, that's the determinant where we go. The the part you mentioned, there's we look at the AI is definitely a growth driver, therefore anything that's related with AI application that happens to be in the specialty technology area, we want to we we look at very carefully and decide whether then then if we are now already there We're already in a lot of those area: the PMIC, MCU I mentioned, the power devices, all those things are in.

There's a few, like optoelectronics, silicon photonics, for example, we are we actually, in a way, we're already in there, that some of our MCU do go into the module that makes the final silicon photonics target. We like to expand the footprint there to probably get into more type of a silicon-based devices.

It's going to be because that's where we have expertise. Yes, we are going to basically look at the the application there, look at some of the chips that's inside that's the optic that's silicon photonics module to see We're already in already participate in some of those chips in there.

We want to expand a couple more in terms of the IC, silicon-based IC. That's still the plan, and we are still in the early stages of doing that.

The power devices, that's another area that is probably going through some technological or market transition, that up to this point is mostly silicon-based, and now the silicon carbide, for example, based devices are also become part of a power device offering. Again, there the the product is if you look at a module where it tends to contain silicon-based devices and, increasingly, silicon carbide.

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 the see whether we have a more complete offering.

We are definitely doing a planning, a lot of planning. We do need to get a few things together before we say that we we officially are in there.

We're not slowing down. We're going forward.

Thank you.

Got it. That's very clear.

Thank you, Dr. Bai and Daniel.

That's all for me, and I will go back to the queue. Thank you.

Hi. Good evening.

This is Kuai 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's from the server PMIC or maybe MCU or this kind of products? That's my first question.

The revenue from North America, a large part of it is in the BCD, PMIC area. A lot of the product there happens to be related to AI server boxes.

That's the reason you see huge increases, because that's directly going to AI. For Europe, a large European company have this China-for-China strategy.

Their product is mostly in MCU and the smart cards and some power devices as well. I think they, as they prosecute their China-for-China strategy, if we are their partner of choice, which we think we are in China, that's the reason we see growth.

We expect to continue to see more growth from Europe as well.

Thank you, Dr. Bai.

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?

Good question. The equipment supply is getting tighter, because overall, all over the world, the semiconductor houses are increasing their capacity.

This was true for our overseas suppliers as well as domestic suppliers. The one manifestation is the lead time has been increasing.

It's still manageable level, and for us, we started this capacity expansion last year, a lot of the equipment we already booked last year. We haven't seen huge impact, but they are definitely getting tighter.

We are tightly managing with our supplier partners to get the equipment lead time to a point that doesn't affect our overall capacity increase schedule. Far, I think that we, by and large, can do that.

For material, there's a few example because of the war in Middle East or some other reasons, that we do see tightness and even price increases on some of the, for example, helium gases, because of the war there that it had a temporary spike, but now it has managed to calm down. There are some metals also.

The prices, some because of general inflation or because of a supply situation. We do see some price increases in some isolated area, but overall hasn't been a significant impact.

We still managed to basically keep the price flat or down, and because the overall marketplace in terms of our supplier market is still reasonably healthy for us. Thank you.

Thank you, Dr. Bai.

It's very clear. That's all my questions.

This concludes our today's call. Once again, thank you all for joining us today and for your valuable questions and the input.

It has been an exciting quarter. We look forward to see you again in the next earnings call.

Thank you.

Thank you.