Jack Ma makes his first move in nearly three years! Is a re-rating of Alibaba's AI business on the c

業績會第一現場

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华虹宏力2026Q2业绩直播

Key Takeaways (AI-Generated)

Financial Performance

- Revenue reached record high of $717.5 million, up 26.8% year-over-year and 8.6% quarter-over-quarter

- Gross margin improved to 16.5%, up 5.6 percentage points year-over-year and 3.5 percentage points quarter-over-quarter

- Net profit attributable to shareholders was $30.6 million, up 185.9% year-over-year and 84.6% quarter-over-quarter

- Operating cash flow was $330.1 million, up 99.3% year-over-year and 159.2% quarter-over-quarter

Business Highlights

- Maintained high fab utilization with growth across all process technology platforms, especially non-volatile memory products

- Obtained regulatory approval for Hua Li Micro Electronics acquisition, expected to complete within a month

- Strong AI-driven demand with orders 1.5x to 2x capacity for some products

- Fab 9A in Wuxi ramping to full capacity by Q3, with output starting Q4

Financial Guidance

- Q3 2026 revenue guidance: $770-780 million

- Q3 2026 gross margin guidance: 16-18%

- Approximately $6 billion CapEx over next three years for new 12-inch fab construction

- Expect continued price increases throughout second half of 2026 and into 2027

Opportunities

- Market expansion driven by AI applications creating strong demand for MCU, memory, and power management

- Product innovation in specialty technologies including silicon photonics and silicon carbide power devices

- Strategic partnerships with memory companies for logic die manufacturing as industry moves toward 3D

- Operational efficiency through acquisition integration and capacity optimization across multiple fabs

Risks

- Market competition from larger foundries emphasizing mature and specialty node processes

- Equipment supply tightness and longer lead times causing operational disruptions

- Economic fluctuations affecting consumer electronics demand despite current resilience

Full Transcript (AI-Generated)

Operator

Ladies and gentlemen, thank you for standing by. Welcome to her home Grace Semiconductor Second Quarter 2026 Earnings Conference Call. Today's call is hosted by Doctor Panbhai, Chairman and President and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please we advise that your balding are in a listen only mode. However, at the conclusions of the management presentation, there will be a question and answer session at which time you'll 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, triplew.wan.com. Without further ado, I'd like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer.

Daniel Wang

Thank you. Good afternoon, everyone. Thank you for joining our Q2 2026 earnings conference. Today we will first have Doctor Pamphai, 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. We then open the floor for a question and answer session. With that, I turn the call over to Doctor Bai.

Doctor Panbhai

Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. We continue to improve our operational performance in the second quarter of 2026. With profitability strengthened further, revenue hit a record high of 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 current company amounted to US 38.6 million, hosting substantial growth both year on year and quarter on quarter. Hua Hong Grace maintained a high fat utilization rate in Q2, delivered growth across all process technology platforms, especially the stand alone and embedded non volatile memory products. The improved business performance came as a result of rising volumes 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. As a specialty technology foundry serving as broad marketplace, we have clearly seen the overall positive impact on our business by the AI wave. We have also seen divergent in the intensity and strength of market demand depending on end user market segments amid the rapid evolving industry landscape.

Our strategy of steady capacity expansion ongoing technology upgrade and continuous capacity product mix optimization will allow us to capture growth opportunity to provide substantial improvement in our business results. Fangre has recently obtained registration approval from the China Security Regulatory Commission for our acquisition of Hua Li Micro Electronics. Integration of the acquired asset into Bajo Grace will strengthen our technologies portfolio, increase our operational economic 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. Danny Wein, for his comments. Daniel.

Daniel Wang

Thank you, Doctor Bhai for your very inspiring remarks. Now let me walk you through a summary of our financial performance for the second quarter, then provide our revenue and the margin outlook for Q32026 before opening the floor for the question and answer session. First, let's review our financial results for the second quarter. Revenue reached a all time high of 717.5 million dollars, 26.8% over Q2 2025 and 8.6% above Q 12026, primarily driven by increased wait for shipment and improved average selling price.

Both margin was 16.5%, 5.6 percentage points over Q2 2025 and 3.5 percentage points above Q 12026, primarily driven by improved average selling price and the cost reduction reduction efforts, partially offset by increased depreciation costs. Operating expenses were $109.1 million, 11.4% over Q2 2025 and 3.3% above Q12026, mainly due to increased labor expenses. Other income net was 2.2 million dollars, 79.4% lower than Q22025, primarily due to increased finance costs and the decreased government subsidies, partially offset by increased share of profit of associates.

The other not lost net was $2.4 million, mainly due to increased share of profit of associates. The income tax expenses was 7.6 million dollars, 7.5% over Q22025. Profit for the period was $3.9 million, compared to a loss of $32.8 million in Q22025 and a loss of $17.3 million in Q12026. Net profit attributable to shareholders of the parent company was $30.6 million. Three, 185.9% over Q2 2025 and 84.6% above Q12026.

Basic earnings per share was 1022, which is 2.2 cents, 340% over Q2 2025 and 83.3% above Q 12026. Annualized Roe was 2.4%, two percentage points over Q2 2025 and 1.2 percentage points above Q12026. Now let's take a closer look at our Q22026 revenue performance from geographical perspective. Revenue from China was $563.7 million, contributing 78.6% of total revenue and an increase of 20% over Q22025, mainly driven by increased demand for MCU, flash, general MOSFET, logic and smart car ICS.

Revenue from North America was $93.8 million, the increase of 77% over Q22025, 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 Q22025, mainly driven by increased demand for Super Junction and MCU products. Revenue from Europe was 28, $1,000,000, an increase of 90.1% over Q22025, mainly driven by increased demand for MCU and smart car ICS.

With respect to technology platforms, revenue from embedded non volatile memory was $200.1 million, an increase of 41.8% over Q22025, mainly driven by increased demand for MCU and smart car ICS. Revenue from stand alone non volatile memory was $68.8 million, a increase of 149.3% over Q22025, mainly driven by increased demand for flash products. Revenue from power dispute was $182.3 million, a 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, an increase of $21.3 million. Twenty 1.3% over Q22025, mainly driven by increased demand for logic products. Revenue from Analog and Power Management IC was $183.1 million, a increase of 13% over Q22025, mainly driven by increased demand for other part management IC products. Now turning to our cash flow statement. Net cash flows generated from operating activities was $330.1 million.99 point 3% over Q2 2025 and 159.2% above Q 12026, mainly due to increased receipts from customers.

Capital expenditures were $356.6 million in Q22026 including $325.9 million for the 12 for the 12 inch facilities and $30.7 million for the A inch facilities. Other cash flow generated from investing activities was $25.4 million in Q22026 include including a $25.4 million receipt of government grants for equipment, $8.6 million interest income. $7.3 million dividends and point $2,000,000 receipts from the disposal of equipment, partially offset by a $16.1 million investment in equity instruments.

Net cash flows Jet used in financing activities was $406,000,000, 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 and $100,000 proceeds from share option exercise. Next, moving to the balance sheet, cash and cash equivalents was $4,530,000,000 on June 30th, 2026 compared to four billion, $867.9 million on March 31st, 2026.

Auto current assets increased from $894.6 million on March 31st, 2026 to $936.2 million on June 30th, 2026 mainly due to a increased the IU add tax. Prep property, plant and equipment was 7 billion $286.3 million on June 30th, 2026 compared to seven billion $105.9 million on March 31st, 2026, 2026 primarily due to capacity expansion. Interest bearing bank volumes decreased from three billion $897.2 million on March 31st, 2026 to three billion $567.5 million on June 30th, 2026 primarily due to repayments of bank volumes.

Total assets increased from 14 billion $947.3 million on March 31st, 2026 to 15 billion $225.8 million on June 30th, 2026. Total liabilities decreased to five billion $528.4 million on June 30th, 2026 from 5 billion 606, $63 million on March 31st, 2026. That ratio decreased to 36.3% on June 30th, 2026 and 37.9% on 31 March 312026.

Well, finally, let's let's. Discuss our outlook for the third quarter of 2026, we expect expect revenue to be in the range of 770 million to $780 million with the projected gross margin of 816% to 18%. This concludes my financial remarks. We'll now begin the Q&A session. Operator, please assist.

Operator

Thank you. Thank you. We will now begin the question and answer question. If you like to ask question, please press *1 and one on your telephone and wait for running VPN. Now to cancel your request, you can press *1 and one again. Our first questions come from the line of Le Ping Huang of Hua Tai. Please go ahead. Your line is open.

Le Ping Huang

Oh, thank you for taking my question, Doctor Bai. So first congratulate for the very strong results. So my calculations show that this your deliver another 3% ASP growth this quarter. So could you unpack what drive this ASP growth and whether it's from pricing or some mid change? And how do you see this ASP trend in the second-half and beyond?

Also we notice that the largest foundry in the world now also say they were reemphasizing these mature and the specialty node process to serve their customers. So plus also the domestic peer also want adding capacity. So how, what's our views so on this mature node supply demand relation in next few years or how and how Hong can differentiate from peers and further improve the profitability ahead? Thank you.

Doctor Panbhai

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. In terms of pricing, as you know 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 supply situation.

So as a result, there has driven up price increases mostly in the NCU and memory area and payment area. Those are the areas that are more associated with the. Applications. Of course, there are also. In the consumer segment, but there are probably the AI. Demand upturn is probably more significant. That's why we've seen the supply demand balance shifting towards demand and. In Kite, in fact, some of the products.

We're clearly cannot meet the demand, the order, the the order we're receiving is anywhere between 1.5 X to 2X of our capacity. So 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 have been pretty much 100% loaded. So it's really for some very hardworking innovation trying 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 good, good capacity increase from the 598 that we have then that's still going to the capacity ramp up. So in that way if you ask me what is our advantage, One advantage I think it come home two ways. 1 is our technology capability and clearly is from domestic standpoint of the industry leading and for many, many, many areas and some of them are also on par with our international competitors.

So 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 predicted this year is 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 a steadily expanding our capacity. Actually, you can say you, you, you might say that has a pay, pay offer somewhat as as this year come come in and 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 other discussion or debate amongst the industry people, but 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 will have taken over the last quarter. It was it was started to manifest itself probably in the second-half and even next year. So I do think that this outside this upturn in demand will be accompanied by our continued ability to to increase the price a little bit. I don't, I don't want to caution everybody that we are now like a DRAM market. There's a multiple increase in multiple because we're talking about still percentage in percentage time.

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

Le Ping Huang

OK. It's like so the second question from me is about the memory. So the the the largest China based DRAM company just listed in Asia recently and we see very strong investor interest on China's memory industry. And at the same time looking the global perspective that providing the logic dye foundry service to memory maker has been become a new trend these days. So Doctor Baiso please share some your your view how can benefit from. Memory built out in 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 type service? Thank you.

Doctor Panbhai

OK. The memory comes in different types like the, the one you're seeing the biggest optic in demand is the DRAM, the second come the land. We are not directly participating in dirham nor land, but we do have a substantial business in North flash business which we have seen demand increases this year and they're probably going to continue for for second-half of this year and the next year. 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 semiconductor is increasing.

So in that sense you definitely benefit everybody, benefit the memory more directly because yeah, probably it would build up there faster, but it doesn't want to benefit logic foundry. Our 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 more flash. So in a way, the fact that here I'm seeing the biggest demand increase, it's truly it's just to represent the fact that the AI is, it has been driving a lot of demand increases for overall in the semiconductor.

So in that sense, it's a definitely good, good thing. So we do benefit from the overall semiconductor demand increase specifically to DRAM or, or or or even NAND because the technology direction there is, is such that it tends to start to have their product tends to try to try to basically is not the right word. It's, it's basically their their product. They try to separate the memory elements from the the periphery logic into two different dye 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 elements, they might. Basically, then they might let their logic, the the peripheral logic die to, to to be manufactured by the larger foundry. So in in essence, we do see the larger houses probably will start to explore that cooperation with, with the logic foundry for us to so we can focus on truly what they, it's their their specialty, which is the memory, the bit, the memory part of the overall memory part.

So we but that is still probably in the earliest stages of this technical transition. And by overall, it is moving the direction that they might even create some new demand for logic foundries because their logic logic portion of their monolithic, they might get separated out into a separate and give it to large funded manufacturer. If I explain that clearly. Thank you.

Le Ping Huang

Thank you. It's very clear. Thank you.

Operator

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

Tsuyen Wang

OK, thank you for taking my question. This is from my first question is could you we see a great guidance show the solid growth in Q3 and could you break down the Q3 menu revenue guidance? To show how much is driven by ESP increase and how much is driven by the capacity expansion and also regarding on the expansion, approximately how much capacity will be added in Q3 and Q4. Thank you.

Doctor Panbhai

So let me take down the capacity expansion part. The last thing is the total of the the guidance for Q3, how it works on between volume increase versus pricing versus that's I think that's what you're asking. So the capacity increase our fast 9A in Wuxi, it will ramp up to the peak to the over to the total capacity by Q3 next quarter. You have all the equipment in that in fab install and so we will start to load the fab 400% starting in Q3, but the output probably will start to show up in Q4 or next year.

So I think the 2027 you should expect a full fab worth of output from fab 98. As you know we do have a another fact that's under construction that started in in March of this year and that have were have were start having equipment installed in, in Q3 as well in. So we expect there we have we got the completed line in Q1 and we will start to have a small volume coming out so next year throughout 2027. Expect, we expect. We will start the capacity ramp up from the next fab which we call Fab 919.

Now let I would let Dan you talk about Q3 revenue breakdown, the guidance between volume and the and the price increases.

Daniel Wang

Thank you for the question. So we expect you know the revenues. Be between 7.7% share and assembly. $1,000,000 to $780 million, that's our projection for Q3. The increase is largely coming from MCU's. MCU's that whole sector embedded in bio term memory will continue to grow strong. There will be a double digit growth and the standard room and monitor memory continue to be very, very strong in Q3 and I think this trend will continue throughout the year and into 2027 as well.

And apart the script, especially the low voltage products we're talking about, you know the MOSFET business and also split, split the median voltage products, they are also going strong, the IGBT and super junction 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. 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 it's point, but they're also growing pretty strong in Q3.

So overall it is you know when you look at technology platforms, these are the you know what I just discussed are the major drivers. And in terms of revenue increase when you look at by ASP and volume, it is really a split I think anywhere where we're looking to send a percent increase on revenue. I think I would say you know 60% coming from ASP and also another 40% were coming from were coming from increase in volume. Thank you.

Tsuyen Wang

OK, thank you. Thank you. My second question is about the the capacities 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 and which which type of capacities allow this kind of conversion And also what impact would such conversion have onto the OR ASP in in this in maybe next quarter or second-half? Thank you.

Doctor Panbhai

First of all, the capacity are somewhat fungible. To certain extent they are fungible meaning that if you build 11000 capacity for certain technology platform, you can also you get some with some conversion rate. You can use that capacity to do something else. Some fungibility? Exactly how much it depends on. The technology platform you're talking about, specifically CSS for example, that's the flow is close, pretty close to the logic flow.

So if you try to be fungible with some some technology platform that's close to logic flow, then a lot of them can be used for. For example, we normally group larger products CAS and and driver. The driver type of product, it won't group because they are very much mutually fungible to large degree. If you want to use CAS for BCD type of product, your fungibility will still, there's still some fungibility, but it will be decreased. 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, that that require.

So if you 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 found 100% fungible. We try to maximize the fungibility so that we can react to to market demand fluctuations among different technology platforms. So right now we're certainly exercising that the fungibility to maximum extent.

This of course is also limited by by the fact that we still want to maintain reasonable volume of of for each part. That's because we're into a long term business. We don't want the basic just for sure just just just look at the next quarter or even just one year then there is some level of strategic decision making that's going on to make sure that we do have a long term view now to be 100% driven by short term consideration. That's one.

Another one is we, we do use pricing as a as a tool to kind of manage the demand shift in demand and between the technology from some platforms so that the demand pattern matches our capacity pattern better. So yeah, overall I think when the overall demand is tight and in general we managed to to increase prices across the board far more than others. Thank you.

Tsuyen Wang

OK, very clear. Thank you.

Operator

OK, bye. Questions one moment for our next question. The next questions will come from the line of the year of Gauteng Securities. Your line is open. Please go ahead.

Yitzhou

Thank you for taking my questions. This is Yitzhou from Gautengcheng. I have 1st 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 how achieve sequential growth in consumer parts. 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.

Doctor Panbhai

That's actually a good question. Frankly, at the beginning of the year when everybody know start to know that the AI related father or has high, high demand. And another thing was discussed in the industry was the fact that when the deer I'm getting 2 pricing, you're probably gonna depress the consumer demand, which is probably true and and mark in end market and some of the end market segment. Cell phone, for example, clearly is going to see a decline. This year the so we were expecting actually maybe a demand decrease on the consumer segment for Huang.

As I said, we're a broad founded supporting all different market segments and I think the we were a little bit surprised that we actually didn't see it as much negative impact like some of the consumer and market demand decrease. It could be that because we're now we are founded so our direct customers are design houses their products and through them those those IC products goes into different segment of end market maybe through because we're not directly providing to the end market.

So maybe our our direct customers are doing a good job of managing, managing between different end market. That's one possibility. That's why we don't see much of a negative impact on the consumer end market. Another possibility is which is also possible that even short term consumer market and market might be might be having bit of a decrease in demand. The they also want the they don't want their stock level to to they don't want their they still want some inventory level to to build some inventory that for probably inevitable after in the future.

Yeah. So those are the two parts of villages. So, but the the net result is that we do see strong demand with with all the AI related products we haven't seen, we I haven't seen that much negative impact from the consumer market from at the funded level. It's very possibility. It could be our product, our technology as I said earlier, we are pretty strong on public technology. It could be if we're in the low end and the market which were not were mostly mid and up and mid and higher market, maybe the lower market like seeing a more negative impact. Thank you.

Yitzhou

Thank you. And my next question is about the the progress of the acquisition. And so could you have to update the progress and also the technology road map after the acquisition? Thank you.

Doctor Panbhai

The progress we already up. 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. After that the whole thing is complete and done. And 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 and once the final steps get completed and the body micro results will be included in our financial results.

If there's nothing, no surprises in Q3Q3 statement will include the Hawaii micro. Did that answer your question?

Yitzhou

Yeah. And also I have a quick follow up. So how about the technology road map after the acquisition? So any new?

Doctor Panbhai

Yeah. So in terms of what Qaada Hawaii Micro is doing, it's quite of a a synergy with the water we have in in Hua Hong Grace. So we do achieve quite a bit of savings, quite a bit of synergy in terms of technology or sharing. In other words, some of the the part the past the technology development that we do in, in, in Hong Grace or in Hawaii micro previously now can be combined. So we basically and for any given R&D dollar we get the bigger, bigger manufacturing scale. So that's good for us. So in terms of the improved efficiency, another thing it help us is that now we have one more fact.

So our our manufacturing scale for a given technology problem that effectively are virtually bigger. So we can take on more customer who have a bigger capacity needs that we previously. My struggle is we just have a have two separate entities especially with Hawley Micro is they are they are by themselves, they are not large. So that's another benefit. The third benefit is that now Hawley Micro joins the home grace the overall manufacturing system that we we can optimize the capacity structure like what kind of a technology problem place where.

So that give us a better, better ability to respond to market, market changing market demand, especially right now because in short supply that we immediately can can start from the technology problem where we cannot supply in Wuxi, for example, to put it in in Hawaii micro. So then so overall you see it's really. Of a 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.

So we, we, we think this is going to be a very, very, it has been a very good, good step for us to, to, to take. Thank you.

Yitzhou

Thank you, Doctor Bai. That's all my question questions.

Operator

Please hold for our next questions. Next questions will come from the line of Qin Yuan Lin of Sanford C Bernstein. Please go ahead.

Qin Yuan Lin

Thanks for taking my question. Congratulations, Doctor, Bai and Daniel for a good results for earnings. My question comes from 2 angles. First one is around the future capacity expansion, but the by what's your view on the demand sustainability for 2728? You mentioned it was quite clear for the second-half. I was wondering, do we expect this cycle to be kind of continue to be stronger even for the next few years, few years?

And you mentioned that, you know 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. So you know that will kind of lead to I guess a question, but Daniel, do we have any plan to further ramp up our CapEx? That's my first question. Thank you.

Doctor Panbhai

Yes, let me we in 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 to establish at this point. We do. I do think I said earlier the second-half of the year everybody's the, the, the short term market demand is strong in 2027. The consensus is also going to be strong. 2028 is where since people started have some debate. So it's probably a little bit too early to tell in 2028.

But I do think overall the secular trend is I do see a secular growth story in the marketplace that we participate which is the specialty technology. So 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. So this overall demand increase is based on new application of the semiconductor also based on the. That some of the industry player may start to close. Some of the 8 inch traps we as you know we do have 3/8 inch traps that also benefit. From some of the industry capacity going. Offline 12 inch is a different story, but a lot of growth is mostly on 12 inch in terms of the demand side.

So I think that in in terms of the supply side 8 inch, nobody is spending 8 inch capacity, but the the the supply side might like decreased, but the 12 inch the demand side, demand side is probably going to go continue to go up. So it's really based on our strategy of a strategy expanding our capacity is based on our confidence that the market even with some fluctuation overall direction is still going up. Another the our confidence also based on the second factor, which is 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 the in China as well as the even worldwide now that we, we see that our capability will increase.

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

Daniel Wang

Thank you Daniel. Any comment on the net guidance or kind of projection for next two years? I would say you know we are we start to construct the 3rd 12 inch fab early this year and established start to ramp over the next three years to 55,000 wafer capacity. So it's going to be it's about overall it's about approximately $6 billion CapEx spending. So I would say roughly $2 billion a year for the next three years. But other than that, you know, unless we have other new apps that we plan to build, this is what we this, this is going to be the major CapEx spending just one uncommon that 60 billion, not all the CapEx.

So it's probably less than 2 billion per year, 1.5 years over three years, got it. Over three years, yeah, got it very clear. And my second question is around in the earnings. In earnings we do call out specifically that we have about 25 millions of receipts for the government grants for equipment. May I have kind of a bit more details behind that? And last time when we called that out was fourth quarter 25 is about like 37 billion. And 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.

Daniel Wang

Well, that was actually some subsidies when we got not in Fushi, but it, it was really for Shanghai. OK. We that's the, that's the grant we received in QQ 2 from local government here, the Wushi part where most likely will be paid I think in Q4 time in Q4 in, in Q 4/20/26. The second part of your question about the domestic equipment, I think in the domestic equipment sector in China has been getting strong year over year. We do express as a general trend, the newer fabs will have higher percentage of the domestic equipment. Very clear. Thank you so much.

Qin Yuan Lin

Thank you.

Operator

Thank you for the questions. Our next question comes from Bintuo NI from Daiwa Securities. Your line is open. Please go ahead.

Bintuo NI

Thank you. Hey, thanks for taking my question and Congrats on the great executions. So 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.

Doctor Panbhai

Sorry, lead time in manufacturing time. How long it takes to manage to get the wafer from start to finish Exactly. Yeah, to deliver to your clients. Oh, OK. That obviously depend on the technology platform. Some process flow longer, some are short like power, the discrete power devices that doesn't have too many steps, you can get it in couple of weeks. If we if we accelerate it, then some of the MCU products have 5060 or 3040 mass layers that will take two months if it's if we accelerate it and the the speed of the wafer moving through a fab is also a function with loading.

If you have a very heavily loaded, in fact they basically have a longer queue time in front of the equipment, so they tends to go. So the average speed will be slower. But we can we also usually in the fact the way we manage it is that we have a different tiers of the different tier of of the speed. If some of the things like some, some some like NTO where first time you have a new product, we try to give a high priority. They can this through the fat very fast. But for the volume production which you are now, the we tends to maximize the output versus C So we LED that to that still doesn't nothing takes more than 1/4.

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, you know changes in E time in terms of when we receive the order until we deliver the product You don't need changes in the time. So I'm trying to understand, isn't it? Yeah, no, no significant changes when the demand gets tight, when the demand is high and the supply gets high, the one the impact one the effect is to tends to make the, the deliver time little bit longer.

But there's something we work out with our customers. We were basically when they place the order, we usually have a commitment to say this will come out in certain this time. If the if the customer agrees and then it works to their satisfaction, then we we just proceed. So that's how that works. But if there's something they needed urgently, we can also support that not 100% of the time, but 7% of the wafer can come out very fast if we need to. Understood. It's very clear. Thank you.

Bintuo NI

My, my next question is about our investment plans. I think I mentioned, you know, 1.5 billion USD per year cutbacks. So what kind of technology platform will we focus more, you know, in the coming two to three years? Thank you.

Doctor Panbhai

Let's get back to our focus. Our business focus is to is a specialty technology. So if you like look at specialty technology, they are very much application driven. So we go where the market is so to speak. So we look at the reason we have those 4-5 large technology platform, is it because there's a large demand market demand for those like BCD for power management and 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 new E VS which has a lot of microcontroller in them.

CAS has been there since the cell phone become a large application that drives a lot of CAS because the image sensor. Now CAS is also driven by some security needs and even the out of the new EV the the autonomous driving car or or robots for them and some of the emergency. Application or drive out of that. So I mean there's a, there's no short answer to your question. But overall, we look at all the specific technology we participate in, we see, we look at where the demand is high and combined with the work we have our strengths like MCU, we're very strong MSC historically that's also a growth area.

So we're going to pull out of for example, we're going to pull out of capacity there and BCD is another area. So in general, if you look at our financial, the results over the last couple quarters, the growth, the highest growth is really. In the MCU BCD even more flash those. Areas we're going to put more and on the CNS logic, it is also an area that 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 and try to get the bigger share there. So if for us it might become my growth platform.

So those are the areas that it's really the capacity we're put it in where the current technology platforms are. And each technology platform also over time, then the technology also evolve and it goes MCU probably going to go from 55 nanometer to 40 nanometer MCU's. And we will follow, we will watch for where the the sweet spot is in the market and try to build our technology Rd. maps to, to the goal where the market is and also the goal where we think we have a competitive advantage.

So that's the complex answer I gave to you. So it's a, 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 so that we make sure we we get it right so that we can have a have a good growth. That's great. Thank you so much.

Bintuo NI

Thank you for the questions.

Operator

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 Chui of Closa. Your line is open. Please go ahead.

Tracy Chui

Thank you, Doctor Bai, Danny and the cinema management for giving me this opportunity. So my question is regarding the depreciations set my a ramp up and also news that coming wondering how much may be the depreciation in second-half and also in next year? Thank you.

Daniel Wang

Good question Tracy. So look at the second-half overall you know the the age business is be around $55 million, OK, I understand you probably this could be useful for your model and for the for our first 12 inch fab it is going to be around $250 million depreciation expense for the second-half of 2026 and for second-half it is going to be at the 210 roughly $210 million in the second-half. These are the forecast numbers. And for the third five, we're just starting. There's not versus not going to be any, There's not going to be any. If there's anything, we'll be minimal just for this year.

And then for my widely microelectronics, OK, we're projecting about $30 million for the second-half, OK, they're for that 5, the depreciation expense is pretty much behind them. They were looking at around 50 to $6 million a year and it's it's going to start to decline even further down in the next few years. Got it. Thanks Daniel.

Tracy Chui

And my next question is regarding the new business. I think last earnings call you talk about expanding to like interconnect solutions such as silicon photonics Interposal. So wondering if any like a quick update progress in any of those business, any specific area that you see stronger growth potential? Thank you.

Doctor Panbhai

The we we are the probably large. Artist specialty founder in China even while the second largest founder in China. But in the specialty technology as I said earlier in answering earlier questions, we were go where the market goes. So in that regard of course that is one factor. Another factor is that we also go where we think we have strength or have advantage. Those are two. Combining those two, that's the determine where we go the. Part you mentioned, there's a we looked at.

The AI is definitely a growth driver. Therefore, anything that's related with the IAI 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 all of those areas. The Pymic MC where I mentioned the power devices, all those inside and there is a few like optic electronics, silicon photonics for example. We are we, we actually in a way we are already in there that some of the MSMCU do go into the module that make the final silicon flag atomic.

We like to expand the footprint there to probably get into more type of a silicon based devices. So it's going to be because that's where we'll have expertise. So yes, we are going to basically look at the the application there, look at some of the chips that inside the the silicon photography module to see we already in already participate in some of those chips in there. We want to expand a couple more on the IC, silicon based IC, that's still the plan and we are seeing the early stages and we're doing that.

The power devices, that's another area that is probably going through some technological on market transition that after this point is mostly silicon based. But now the silicon carbide for example, these devices are also become part of a power device offering again there the part 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 the see whether we have a more complete offering.

So the 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 we officially are in there, but we're not slowing down well going forward. Thank you.

Tracy Chui

Got it. That's very clear. Thank you, Doctor. Bai and Daniel, that's all for me and I will go back to the queue. Thank you.

Operator

Thank you for the questions. With that, I'll now take the last question from Kuai Jin of Oran Securities. Your line is open. Please go ahead.

Kuai Jin

Hi, this is Kaijian from Bong Bong and Shan. Thank you, Doctor Bai and Daniel. My first question is about the, our revenue from North America and Europe grew very strongly. So could you give us more color about these two regions? Maybe it's from like the server PMIC or maybe MCU or this kind of products? That's my first question.

Doctor Panbhai

The the revenue that from North America, a large part of it is in the CCD payment area and we and that a lot of the product there happens to be related to AA server boxes. That's the reason you see huge increases because that's directly going to AI for Europe. It's really Europe. The large European company has this China for China, China in for China strategy, their products mostly in NCU and the smart price and some power devices as well. I think that as they prosecute their China for China strategy, if we are their partner with toys which we think we are in China that we that's the reason we see growth. We expect to continue to see more growth from Europe as well. Thank you.

Kuai Jin

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

Doctor Panbhai

Good question. The the equipment supply is getting tighter because the overall, overall all over the world, the semiconductor houses are increasing their capacity. So this is true for our overseas suppliers as well as domestic supplier. So the one manifestation is the lead time has has been increasing, but it's still manageable. It's still manageable level. And we, we since we for us, we started this capacity, capacity expansion last year. 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 our suppliers, where our partners, suppliers, supplier partners to get the equipment lead time to to a point that doesn't affect our overall, overall capacity growth increase schedule. And so far I think that we by and large can do that for material. There's a, some isolated, there's a few example because of the, for example, because of the war in Middle East or or some other reasons that we do see tightness and even price increases on some of the, for example, helium gases because of the wall there that it has a temporary spike, but now it has managed to calm down.

And overall, we don't see a A and there are there are some metals also metal the prices some because of the general inflation or because of the supply situation. So we do see some, some price increases in, in, in some isolated area, But overall hasn't been a significant impact. We still managed to to basically keep the price flat or down. And we because the overall overall marketplace in terms of the our supplier market is still reasonably healthy for us. Thank you.

Kuai Jin

Thank you, Doctor Bai. It's very clear. That's all my questions.

Operator

Thank you, ladies and gentlemen, that's all the time we have for questions. I'll now hand back to Mr. Daniel Wong 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 the input. It has been being an exciting quarter. We look forward to see you again in the next earnings call. Thank you, Thank you, ladies and gentlemen, thank you for your attendance. We may all now disconnect.

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