Monthly Market Outlook: Peak Earnings Season! How to Navigate November?
華虹半導體2025Q3業績直播
Key Takeaways (AI-Generated)
Financial Performance
- Q3 2025 revenue hit record $635.2M, up 20.7% YoY and 12.2% QoQ from increased wafer shipments and improved ASP
- Gross margin improved to 13.5%, up 1.3pp YoY, driven by better capacity utilization and ASP gains
- Net profit attributable to shareholders was $25.7M, down 42.6% YoY but up 223.5% QoQ
- ASP improvement of 5.2% came from all technology platforms with strong performance across segments
Business Highlights
- Maintained extremely high utilization with 8-inch fabs above 110% and 12-inch fab loading above 100,000 wafers
- STMicroelectronics MCU partnership ahead of schedule, already started production in Q3 2025
- Strong growth across platforms: embedded NVM up 20.4% YoY, standalone NVM up 106.6% YoY
- International expansion with North America revenue up 36.7% YoY and Europe up 12.6% YoY
Financial Guidance
- Q4 2025 revenue expected at $650-660 million range
- Q4 2025 gross margin projected between 12-14%
- 2025 CapEx: $120M for 8-inch fabs, $2B for Fab 9A with $1.3-1.5B remaining in 2026
Opportunities
- Market momentum expected to continue into 2026 with better performance than 2025
- 40nm NOR flash and MCU products launching next year, gallium nitride development for power devices
- Expanding European partnerships for China-for-China strategy with multiple collaboration projects planned
- Acquisition progressing smoothly, expected to add $600-700M revenue with good synergies
Risks
- Increased competition and capacity in power discrete segment due to low barrier to entry
- Pressure from compound semiconductors competing with silicon-based power devices
- Geopolitical uncertainties could impact growth momentum and market expansion plans
Full Transcript (AI-Generated)
Operator
Ladies and gentlemen, thank you for standing by, welcome to our Hua Hong Semiconductor third Quarter 2025 Earnings Conference call. Today's call is hosted by Doctor Pan Bai, Chairman and President and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer.
Please be advised that your dial insight in the listen only mode. However, at the conclusions of the management presentation, there will be a question and answer session at which time you receive instructions on how to participate.
Earnings press release and third quarter 2025 summary slides are available to download at our company's website, www.warehomegrace.com. Without further ado, I would like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead.
Daniel Wang
Good afternoon, everyone. Thank you for joining our Q3 2025 earnings call today. We will first have Doctor Pan Bai, our Chairman and the President share some remarks on our third quarter performance.
I then take you through our financial results in detail and offer guidance for the upcoming quarter. We're then open the floor for a Q and A session. With that, I'd turn the call over to Doctor Bai.
Doctor Pan Bai
All right, thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. Third quarter 2025 sales revenue for Hua Hong Semiconductor reached a record high of 635.2 million U.S. dollars in line with guidance, while gross margin stood at 13.5% above guidance.
Driven by the recovery in global semiconductor demand and the company's lean management practices, our capacity utilization remained high. Both sales revenue and gross margin showed year on year and quarter on quarter growth.
The enhancements in our core competencies including process technology, R&D, market development and operation, along with the results of our cost reduction and efficiency improvement initiatives are gradually become evident. Our overall profitability is improving, laying a solid foundation for long term sustainable development.
Hua Hong Semiconductor possesses extensive expertise and exceptional management experience in specialty technologies. Facing the rapidly evolving global semiconductor landscape, the company must continuously advance across multiple core dimensions such as technology, capability and the capacity expansion.
The acquisition which is currently progressing smoothly, which will further increase our production capacity and diversify our process platform portfolio while creating synergies with our 12 inch production line in Wuxi to strengthen our profitability.
Furthermore, the company is actively engaged in strategic capacity planning, focusing on technological breakthrough and ecosystem development to continues enhance our core competitiveness amidst the global industry transformation. Now I would like to hand the call back to our CFO, Mr. Daniel Wang, for his comments. Daniel.
Daniel Wang
Thank you, Doctor Bai for your exciting remarks. Now let me walk you through a summary of our financial performance for the third quarter, followed by our revenue and margin outlook for Q4 2025 before opening the floor for the Q&A session.
First, let's review our financial results for the third quarter. Revenue reached an all time high of 635.2 million dollars, 20.7% over Q3 2024 and 12.2% over Q2 2025, primarily driven by increased wafer shipments and improved average selling price.
Gross margin was 13.5 percent, 1.3 percentage points over Q3 2024, primarily driven by improved capacity utilization and average selling price, partially offset by increased depreciation costs and 2.6 percentage points above Q2 2025, primarily driven by improved average selling price.
Operating expenses were $100.4 million, 23.3% over Q3 2024, primarily due to increased engineer wafer costs and depreciation expenses and 2.6% over Q2 2025.
Other income net was $17.8 million, 65.7% lower than Q3 2024, primarily due to decreased foreign exchange gains and interest income, partially offset by decreased finance costs and 67.4% over Q2 2025, primarily driven by foreign exchange gains versus foreign exchange losses in Q2 2025.
The income tax expense was 10.4 million dollars, 9.6% lower than Q3 2024, primarily due to decreased taxable income. Net loss for the period was $7.2 million, compared to a profit of $22.9 million in Q3 2024 and a loss of $32.8 million in Q2 2025.
Net profit attributable to shareholders of the parent company was $25.7 million, 42.6% lower than Q3 2024 and 223.5% above Q2 2025. Basic earnings per share was 1.5 cent, 42.3% lower than Q3 2024 and 200% over Q2 2025.
Annualized ROE was 1.6 percent, 1.2 percentage points lower than Q3 2024 and 1.2 percentage points above Q2 2025.
Now let's take a closer look at our Q3 2025 revenue performance from a geographical perspective. Revenue from China was $522.6 million, contributing 82.3% of total revenue and an increase of 20.3% compared to Q3 2024, mainly driven by increased demand for flash, other power management, IC and MCU products.
Revenue from North America was $63.8 million, an increase of 36.7% compared to Q3 2024, mainly driven by increased demand for other power management IC and MCU products. Revenue from Other Asia was $30.3 million, an increase of 5.6% compared to Q3 2024.
Revenue from Europe was $18.4 million, an increase of 12.6% compared to Q3 2024, mainly driven by increased demand for IGBT and smart car ICs.
With respect to technology platforms, revenue from embedded non volatile memory was $159.7 million, an increase of 20.4% compared to Q3 2024, mainly driven by increased demand for MCU products.
Revenue from standalone non volatile memory was $60.6 million, an increase of 106.6% compared to Q3 2024, mainly driven by increased demand for flash products. Revenue from Power Discrete was $169 million, an increase of 3.5% compared to Q3 2024, mainly driven by increased demand for super junction products.
Revenue from Logic and RF was $81.1 million, an increase of 5.3% over Q3 2024, mainly driven by increased demand for logic products. Revenue from analog and power management IC was $164.8 million, an increase of 32.8% over Q3 2024, 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 $184.2 million compared to net cash flow used in operating activities of $26.8 million, primarily due to increased receipts from customers.
Capital expenditures were $261.9 million in Q3 2025, including $230.7 million for Hua Hong Manufacturing, $19.3 million for Hua Hong 8 inch business and $11.9 million for Hua Hong Wuxi.
Other cash generated from investing activities was $8.6 million in Q3 2025, mainly including $15.6 million interest income and $7 million receipts of government grants of equipment, partially offset by $14 million investment in equity instrument.
Net cash flows used in financing activities was $104.2 million, including $99.9 million proceeds from bank borrowings and $14.4 million proceeds from share option exercises, partially offset by $5 million interest payments, $3.2 million of bank principal repayments and $1.9 million lease payments.
Now let's have a look at the balance sheet. Cash and cash equivalents was $3.9 billion on September 30th, 2025 compared to $3.85 billion on June 30th, 2025.
Other current assets increased from $688.5 million on June 30th, 2025 to $739.7 million on September 30th, 2025 mainly due to increase value added tax credit.
Property, plant and equipment was $6.2 billion on September 30th, 2025 compared to $6.1 billion on June 30th, 2025.
Equity instruments designated as fair value through other comprehensive income increased from $290.5 million on June 30th, 2025 to $381.3 million on September 30th, 2025 mainly due to increased fair value of the equity instruments.
Total bank borrowings increased from $2.3 billion on June 30th, 2025 to $2.4 billion on September 30th, 2025, mainly due to withdrawal of bank loans.
Total assets increased from $12.2 billion on June 30th, 2025 to $12.5 billion on September 30th, 2025. Total liabilities increased to $3.5 billion on September 30th 2025 from $3.4 billion June 30th, 2025.
Debt ratio increased to 28% on September 30th, 2025 from 27.5% on June 30th, 2025.
Finally, let's discuss our outlook for the fourth quarter of 2025. We expect revenue to be in the range of $650 million to $660 million with a projected gross margin of 12% to 14%.
This concludes my financial remarks. We now begin our Q&A session. Operator, please assist.
Operator
Thank you. We will now begin the question and answer session to ask a question. Please press *1. To cancel request, please press *1 again. The first question from the line of Luming Huang. Please go ahead.
Luming Huang
OK, thank you to take my questions, I have two questions to Daniel and one question to Doctor Bai. So the first question, I noticed there's a very strong beat on the gross margin this quarter also I think ASP up 5.2% quarter over quarter this quarter.
So Daniel, can you explain breakdown the reason of this strong margin and the ASP beat between the product mix improvement and the price adjustment of the existing products? Also you give the guidance for next quarter. So what's your outlook for your ASP in the fourth quarter? Thank you.
Daniel Wang
Thank you Luming. First of all, we had extremely high utilization rate, OK. So that 8 inch fabs were consistently above 110% utilization rate. And our first 12 inch fab with 95,000 wafer capacity, the loading was consistently above 100,000 wafers, OK.
And then the other fab that is currently ramping, it has about 40,000 wafer capacity, but loading is above 35,000 and I'm pretty sure it's going to get to about 40,000 wafers in loading OK. And in terms of that, you know itself helps the margin.
And also I think the most critical thing is the ASP improvement start to raise ASP in the second quarter and start to take effect in the third quarter. So you said absolutely is correct. Overall gross margin is about you know, the ASP is you know, quarter to quarter or even compared to last year was about, you know 5.2%.
Basically the ASP improvement was coming from all technology platforms, all technology platforms including embedded non volatile memory, okay, power discrete and logic and RF and analog power management IC okay. So it basically came from all technology platform.
I would say if you want to really look at between product mix and ASP improvement, I would say 80% came from ASP improvement and the other 20% is largely due to product mix.
As far as going forward, I think, you know, we will continue to improve ASP. I mean we're looking at every order that comes in. We make sure that we, you know, if there's any opportunity we can adjust price, OK. So I'm extremely positive about our Q4 in terms of ASP and the gross margin as well.
Luming Huang
The second is also Daniel. So you also mentioned the utilization rate of your fab is very high, it's already 110%. So, so it seems to be do we, do you think that so first what are the actions you take to improve your factory utilization rate and also what you expect the utilization rate looking forward? It seems to be you are adding more wafer into your Wuxi fab. So do we should we expect the utilization rate will further improve in the coming quarters? Thank you.
Daniel Wang
You know what, excellent question. I'll let Doctor Bai answer the question.
Doctor Pan Bai
OK, let me try. There's a few factors playing together. It's a kind of a, there's some interplay of a few factors. First of all, utilization number as you know is based on standard IE calculation, meaning that you supposed to set up certain capacities and then based on that number, you should do better.
Utilization can be a little bit above 100%, but clearly you can't be significant about 100% otherwise the number would be incorrect. In our case, Fab 9A capacity is continues to come online.
So we can there's a benefit. Let's discuss our outlook for the fourth quarter primarily due to increased engineering from a geographical perspective does provide some avenue to make our existing capacity little bit more flexible in a sense that in the sense that now you have a bigger scale when the product mix shifts that you can, you can kind of use each others capacity each factory.
That's how we can get the capacity utilization little bit better above 100% or 100.5%. Let me also add a comment to the gross margin, gross margin also compressed because I already said there's always a balance between how much more depreciation coming online, which is which is inevitable as the new capacity start to contribute to revenue on one hand.
On the other hand you have whether you can manage to increase prices then you already talked about, we did manage to increase our prices by about you already calculated around 5% in Q3.
Another factor was our general cost reduction effort make our cost structure little bit better. That effectively balanced out some of the pressure we get from increased depreciation coming online in the end the Q3 story was a very good one. It was also exceeded our expectation.
But I do see that momentum in cost reduction as well as the price stabilization if not increase also start to take a hold. So that's a good trend for us. One more add to this is that when the demand is a little bit higher.
And our supply, which relates to why our utilization is so high. Also give us a little bit of leeway, a little bit of flexibility in optimize our product mix. Namely, we can choose to focus or given priority or given capacity priority a little bit more for the product that has a higher margin than the ones that have a lower margin that also help our price increases.
If I know I said a lot of things, but all those facts are there and it's really the end result is and that is an interplay of all those factors that give us the overall Q3 results.
Luming Huang
OK, thank you. So the final question I want to ask is that I noticed that in Daniel's statement that there's the flash business is one major driver for your especially your China business and in the investor community we are talking about the memory super cycle.
So Doctor Bai what's your view on how Hua Hong can benefit from the coming memory cycle and is it initial sign we see this quarter that your memory business or your flash business is going very strong? Is it initial sign of this memory super cycle? Thank you.
Doctor Pan Bai
OK, well, thank you for the question. First I want to clarify the memory business that Hua Hong is engaged in is NOR Flash, which is one segment of overall flash business and that NOR flash business.
There's a two-part to it. One is stand alone, just stand alone, NOR Flash product and otherwise MCU that's basically integrated with a logic circuit. We are participating in both MCU as well as the NOR flash.
You are correct. We see strong business in Q3 in both MCU as well as stand alone Flash. I would say overall NOR flash market has a steady growth. It's probably a little bit different than the overall memory business.
The correlation with the other memory business is not that strong. For example, the NAND might be doing so has its own dynamics, DRAM, HBM, DRAM based HBM, all those related application those has its own dynamics.
Our part of the business, we do see steady growth in the NOR flash business in both MCU and stand alone. Our Q3 growth rate clearly is faster than the overall market growth. That probably has more to do with our own situation where our 55 nanometer NOR flash start to coming into the mass production phase in the last couple quarters that start to pick up volume.
And also our 55 nanometer MCU business also is going into the mass production. And in the next year or two we're going to have 40 nanometer in next year 40 nanometer NOR flash business stand alone as well as the MCU will come online that will give us another push.
So in general, we do see that our flash business will have a strong growth over the next few quarters next even next couple years mainly based on our new technology, new technology transitions.
I would say the other memory business, their dynamics might be a little bit different. Some of them are also going strongly. It's probably not correlated with our situation. Thank you.
Luming Huang
Thank you, very clear. I don't have further questions. Yeah, thank you.
Operator
Thank you for the questions. Our next questions comes from Zhiyuan Wang from Citic Securities. Please ask your question.
Zhiyuan Wang
OK. Thank you for taking my question. And the question is about the business and what percentage of? Thank you.
Operator
We couldn't hear the question clearly. So can you please ask him to repeat? Sorry, would you be able to dial again or change to another better connection to repeat your question, please?
Zhiyuan Wang
Can you hear me now?
Operator
I'm afraid the line is bad. Would you like to dial back and we will take your question next. OK. To move on to the next question, one moment please. So next question is from Suye from Guosen Securities. Please go ahead.
Suye
Thank you for taking my questions. Daniel, Doctor Bai. So I have a first, I have a quick follow up just now. Daniel also mentioned the growth drivers for the next few quarters, some factors like capacity expansion and also the price increases. So how about the product structure adjustment for the future growth? So could you give us more details? And this is the first question.
Doctor Pan Bai
All right. In terms of capacity expansion, we basically will see continued increase from our Fab 9A because it was still in the capacity expansion phase. Earlier Daniel mentioned that the Fab 9A reached about 30 to 40,000 wafer per month.
Right now it's been climbing over the last three, four quarters. That expansion will continue all the way towards till middle of next year that reached the peak about I would say 60 to 65,000. So you will and those capacity will all come online will continue to give us contribute to the revenue growth. So that's on the capacity expansion front.
In terms of the product mix, optimizing the product mix, let's really come down to the technology evolution the how our technology platform will evolve over the next few years. The key technology that we see that it will become better and more competitive.
One starting with flash related I talked about earlier, flash is a growth factor, a growth sector for us. I think we with our 55 nanometer products online and next year 40 nanometer products online that will give an even stronger position in this sector. So hopefully that will bring the added value or the prices up with it.
Another significant technology platform is the BCD platform for power management. Now we see a strong growth and we see we are also purposely expanding capacity for BCD, basically skewing our product mix capacity. The mix toward supporting more BCD and BCD.
Technology BCD platform happens to be one that have a better margin amongst among the technology platforms that we offer. So that will also give us a better product mix in essence.
So then we continue to add, continue to strengthen our overall technology development. This is one of the areas that is definitely a focus for the company is when I talk about how can we further improve our core competencies, really talk about our technology capability and associated marketing capability.
So all the key specialty technology platform, we basically will continue to invest heavily and some of the platform were already the best were already number one in China, also very competitive worldwide. Some of them we still have a little bit distance to travel to become world class, to become the best.
Well, in general, we're best in China and in most of the technologies we participate in that we were done in some of the areas that we still need to improve little bit become really truly world class here.
I can also mention that some of the partnership we have with our many European companies in the context of China, their China for China strategy is also a way that for us to increase our competitiveness.
So I think I will stop right here in terms of answering your question. I don't know if it clarifies for you.
Suye
Thank you, very clear. My next question is a relatively big one. So driven by the boost from AI, we can see the global semiconductor sales have growth for like 8 quarters. So compared to the previous cycle, it's a relative long growth period.
So how do you see the growth momentum in following quarters? It is a very big question, a broad question.
Doctor Pan Bai
I give you my personal take on this. AI is still at its infancy. I think the AI will continue to grow. How it manifest the growth, How does the growth manifest in the semiconductor different segment that's a little bit complex.
The direct benefit obviously is for the advanced technology, advanced node, which Hua Hong Semiconductor is not directly participating. But there is a lot of supporting technology that associated with the AI product. We are a big part of those segments like power management because when you have you make AI systems, you need a lot of power management either for training or now the industry seems to switch towards more inference type of applications from training.
So I think we all, we definitely benefit from overall AI growth through their increased demand for power management, for MCU, for all kinds of power, discrete products. They all need those. They need those in order to make the AI system work. So we're definitely part of that ecosystem.
So we were in fact some of the power management demand increase, strong demand increase over the last year and continue that seems to continue into next year or two is primarily related to AI and plus some of the new application on the horizon like cars and robots, those type of things where AI definitely is a big factor.
So that's how I see it. I think AI will grow. You might the product mix there might go through its own evolution, but overall I think that bring along the whole all the chips that's needed in AI system, that's where we get. The direct benefit is all those associate chips in AI system that we do directly participate.
Suye
Yeah, so I have a follow up. So how about the power semiconductors? So compared to last few years, power semiconductors have shown some recovery. But still besides the AI demand, the rest of the part, the demand is relatively flat. So how we increase the pricing for in quarters and so how do you see the price in this part?
Doctor Pan Bai
All right, you are very astute observer. I agree with you. The power discrete platform amongst our technology platform that we participate in is probably has the biggest pressure in terms of the growth.
I think there are a couple of factors. One is they are increased competition, increased capacity in the power discrete because the power discrete area, the barrier to entry is relatively small. So there are, there has been over the last few years large capacity coming online. So that's one factor that puts some pressure on us.
The second factor is technological because right now the compounds semiconductor, they're taking silicon carbide mostly certain compound, but gallium nitride also start to become a significant factor. Those compound semiconductor based devices become a significant factor in the overall power devices market that inevitably take away from the silicon based devices especially for example, the Super junction, there used to be a Hua Hong, it still is a Hua Hong strength, but that is directly there's a direct competition for super junction based upon silicon super junction based product from the silicon carbide and silicon carbide looks like over there the people are willing to cut price very, very drastically.
So they start to have some competition with our super junction. And so it is one of the topic we've been inside the company when we talk about our technology road map and also talk about our market perspective is one of the focus area that we come out with some strategy.
We already started gallium nitride development. So we definitely we are having a big player in the power discrete. We'll definitely will not give up this market segment. We will continue to be big and stronger by adding all the whatever the customer needs.
So there's a few new initiatives in the power area that we're trying to meet the challenge. The challenge is mostly a little bit long term or short term, I don't see a huge problem. But the whole longer term over the next three or five years that we do need to do something there to make sure that we continue to keep our very strong position historically in this area.
Suye
Thank you. Thank you, Doctor Bai, I also agree with you and we also think the gallium nitride on silicon is a good direction for the new power semiconductors. So that's all my questions. I'm looking forward to a better performance in next quarters. Thank you.
Operator
Thank you for the questions. Once again, we will take the questions from Zhiyuan Wang from Citic Securities. Please go ahead.
Zhiyuan Wang
OK, thank you. Sorry for the poor connection previously. My first question is about the international customers adoption. We can see that this quarter the proportion of customers in US and Europe increased and we also know that STMicroelectronics previously announced that they plan to produce 14 nanometer MCU in Hua Hong by the end of 2025. So how's it going? And are there any other new developments or new customers that you can share? Thank you.
Doctor Pan Bai
You're correct that we have a partnership with STMicroelectronics on MCU. That project has been going very smoothly. In fact, it's a little bit ahead of schedule. We already started with production in this quarter. So that's a little bit ahead of schedule that will continue, will start to contribute to our revenue in next quarter.
In terms of ramp rate, it will take a while to get up to fairly high volume, but it's definitely a steady and very robust addition to our product mix. So that one is going well.
Actually, this is one of the first collaboration projects we have with STMicroelectronics as well as other European companies for their China for China strategy. I think since now that we have worked together for quite a while and with this track record, everybody's confidence level has increased significantly.
They're probably going to play very positive role in terms of expanding our collaboration in the number of the products and also the area of the world we can collaborate with each other. So I would say that definitely is a hugely positive start and they will start next year. You will see a multiply of all those collaboration parties come to fruition in the next year.
In terms of the international portion of our business, we always like to increase our international business because of this one. Our strategy ever since I started here, we set a strategy to see how can we increase our international business.
In terms of percentage of international business where we are right now probably 15 to 20% of revenue. I haven't looked at the number exactly, but at the range we are in, I think Europe and North America, both regions, I do see strong growth going forward. Asia is a little bit more challenging, but our two biggest international region, North America and Europe will continue to grow strongly over the next few quarters, OK.
Zhiyuan Wang
And this kind of customers also benefit from the AI, especially the AI power, right?
Doctor Pan Bai
Correct. If you look at our business from North America, a big part of it is the power management chips. Indeed, those are the ones that got used in the AI systems.
Zhiyuan Wang
OK, thank you. Very clear. And my second question is about the CapEx. Is there any outlook for CapEx of next year as we are continue to expand our capacity in Fab 9A, will there any increase compared to this year or will it be stable? Thank you.
Daniel Wang
Thank you. Let me just give you an update on that. Basically you know for 2025 the three 8 inch fabs roughly it's about $120 million overall on cash flow basis. That is the capex spending for the three 8 inch fabs and the expected capex for fab 9A, it is about $2 billion for this year.
So we spend about $3 plus billion dollars up to the end of last year. So we're going to be spending about $2 billion this year. So that get us to about $5 plus billion dollars. The overall project, the total investment for the project is $6.7 billion.
So it'll be about $1.3 to $1.5 billion for next year for Fab 9A, Okay, so that is it for basically the capex for this year. So it'd be $120 million for the 8 inch, $2 billion next year be just about $1.3 to $1.5 billion for the remaining of the CAPEX spending that we have to spend for this Fab 9A and of course you know in the future we do have we want to continue to grow, we want to continue to expand.
We have planned to basically build another fab, but that would be a different story. OK, So that you know when that happens, we'll let you know what would be the total capital spending for that new project.
Zhiyuan Wang
OK, got it. Thank you. Thank you, Doctor Bai. And Mr. Wang, that's all my question. Thank you.
Operator
Thank you for the questions. Our next question comes from the line of Tony Shen of SPDB International. Please go ahead.
Tony Shen
Management, this is Tony from SPDB International. I've also got 2 questions here. The first one, can we have some color into the semiconductor cycle especially for Hua Hong into next year 2026? We know current stage is very good. The cycle is trending up. We have a little bit of tight supply with high demand and the gross margin is also trending up into third quarter and also into the fourth quarter. Do we still see the tight supply will continue into the next year and can we continue to raise prices for most of our products into next year? This is my first question. Thank you.
Doctor Pan Bai
From the market standpoint, we do see the momentum going into next year. We think the next year it should be better than 2025. There is uncertainties but just from the pure market standpoint unless there's something big happen like some of the geopoliticals otherwise we do see that growth will continue into next year that will give us some opportunity to raise prices or at least to keep the prices stable.
I think I want to be a little bit cautious in terms of raising too high expectation, how much prices we can raise because it was still in a very competitive industry and there's many manufacturing involved. But I do see overall even the demand, just even demand goes up. If nothing else you give us a knob will give us a way to optimize the product. I can choose to make more higher margin products and lower ones. So basically I have at least that possibility that flexibility and also with our improved technology offerings, we basically add value to our customers products.
We tend to be able to in that scenario, we should be able to share the benefit that come out from those improvement with our customer have some kind of win win situation. So in general, I'm cautiously optimistic to use the cliche that 2026 would be better than 2025.
Tony Shen
OK, perfect. That is very clear. And my second question is still related to AI servers. I can, I have a basic sense of how much revenue may come from directly or either indirectly from AI servers and how do we see the growth potential especially into next year? Yeah, this is my second question. Thank you.
Doctor Pan Bai
For AI server, there's power management is obvious product that goes into there. If you look at our power management business, I think it's about 10 to 15% there. And now, now that all of them are going to power the AI server. But the growth, the bigger growth part is really the power server.
Yeah, look at the numbers here that so I would say power management, we put it into analog and power management categories, about 25% of overall revenue. Probably right now more than half, about half of it is related to AI server. So it's about 10 to 12% of that. That portion we believe will continue to grow strongly. Thank you.
Tony Shen
OK, thank you. Thank you, Doctor Bai.
Operator
Thank you for the questions. Once again, if you'd like to ask questions, please dial *1. One moment for the next question. Our next question comes from the line of Scarlett Kerr from BNP Paribas. Please go ahead.
Scarlett Kerr
Hello, management. First of all, congratulations on the strong performance. My question is on one of the numbers, so the operating cost is around $100 million, could you share a bit of breakdown of the wafer engineering and the depreciation and could you also elaborate a bit on drives the increase of the wafer engineering cost and going forward what you expect the trend to be for both engineering cost and the depreciation? Thank you.
Daniel Wang
So out of that $100 million, the depreciation costs relate to the R&D, it is about $18 million for this quarter Q3, OK. And you know we continue to invest in R&D. you know we have a lot of new products, tape outs. So this number we expect in the future will continue to be stable and it will probably continue to grow as well. OK.
So you know, basically, you know, you have to realize the more we invest, that number will go a little bit higher compared to a year ago. That number is much higher now. So that is the basically the breakdown. But the other, you know, I would say $80 million is all related to, you know, mostly labor, IP and some other stuff. Yeah.
Operator
Thank you for the question. One moment for the next question. Our next question comes from Jingyuan Ling from Bernstein Research. Please go ahead.
Jingyuan Ling
Thanks for taking my question. Thank you Doctor Bai and Daniel for sharing and congratulations on the good results. My first questions around the one segment around the industrial and auto, how much is auto versus industrial and do we see stronger growth on auto segment because we are seeing the auto demand in China are still quite strong.
Daniel Wang
So the industrial auto that part is about the overall for that segment was about you know it's going to be nearly about for Q3 it was about 22%, OK. But going forward, I expect that that segment will continue to grow. We have a you know, we expect this segment will grow, you know have a pretty big, you know, growth percentage for Q4 quarter over quarter, OK.
So out of that 22%, about 16% is related to industrial. Now 6% is related to automotive. In fact, industrial has been recovering throughout this year compared to a year ago.
Doctor Pan Bai
Just add a little bit to Daniel's answer is that the category you call industrial auto, it actually cut across all our product lines. Some of them are in power discrete, some of them MCU, some of the power management because those end product, end user product like auto industrial, they use all kinds of products.
And so it's not just about say power management or MCU or power discrete. And so it's basically a different, but the number that Daniel gave you is the correct numbers.
Jingyuan Ling
Got it, got it very clear. And the second question is around the power discrete actually looks like the percent of the revenue from power discrete coming down a little bit. Is it capacity constraint or we actually pushing out a bit of demand because we don't see sort of enough demand?
Doctor Pan Bai
We talk about this in one of the earlier question too, that power discrete as a percentage of all revenue is going down a little bit because it has not grown as faster as the other segment. So that's how the number play out.
The in absolute numbers the power discrete business still grow a little bit, but as a percentage because it hasn't grown as fast with others, so that relatively speaking, you will have a smaller percentage of our overall revenue. So that's number one.
The second point is that the reason we discussed earlier that this is one segment that we do see more competitive pressure most on pricing. We still have a fully loading and demand is still strong, but the pricing pressure we won't give it to. We have being able to raise price on this area too much and then going forward is probably it's going to be continued bit of a pressure just because of the entry barrier to this market segment is relatively low.
And plus we talk about early silicon carbide and gallium nitride to a smaller extent started have added pressure for this market.
Jingyuan Ling
Very clear. Thank you so much. Maybe last quickly on any updates on acquisition consolidation timeline, impact, synergy, etc.
Daniel Wang
Well, it is being moving along according to schedule. OK. So we had our first announcement, we basically already announced the price for the deal. We're negotiating almost close to the completion. Pretty soon we're going to have our second announcement, second board meeting and we expect that would happen very, very quickly.
So expect, you know, we literally we're going to start to take over the operation start beginning of next year, expect the transaction will be closed by August next year, OK. And all of that will happen, you know, even the shareholder meeting will probably happen in December.
So we're moving according to the schedule, we're working with the shareholders, the other side very closely to make sure in the end we're going to have a very, you know, a fair deal, a fair transaction and whatever we're going to pay for the value, it's going to be from company's perspective, we're looking out, you know, to the interest of other independent shareholders. OK. So we want to protect the interest of all shareholders.
Doctor Pan Bai
Just to add a comment there that the acquisition deal obviously is moving along at the pace that's commensurate with the regulatory requirements. We're following all the requirements of the both exchanges because we're listed in both Hong Kong and in Shanghai. So we definitely follow all the regulatory requirements and taking all the steps.
Our goal is to have a good deal for all the shareholder as well as the seller as well as the buyer side of the shareholders. So this obviously require a lot of work to negotiate to kind of get the assessment right. Daniel's and Daniel's team has done a great work so far. We're getting close to the second milestone of announcing something very quickly and then we're set to the deal price.
I think then we will follow the regulatory requirement of having all the appropriate approvals so that we still need to get go through. We hope that in this process all the people who support our company support our home. Please do your part to make this thing go through smoothly. Acquisition is always there, not that easy things to do especially when listing both exchanges.
But we are pretty confident and that we will have a very good outcome for everybody, for the stakeholder as well as the whole the people. We've been cheering for a while, Thank you.
Daniel Wang
I mean just you know, one last time and it's going to be a good acquisition. You know, it's going to basically give us, as I mentioned before to you know, many investors, $600-700 million, you know, revenue addition, the company is profitable. Most of depreciation is you know behind us. So it's going to be good for the semiconductor and then you know, long term consolidation is the way.
Doctor Pan Bai
Yeah, I think Daniel makes very important point that this acquisition is strategically is definitely a very good deal for the company because it has a lot of synergy. Our growth model is both organic, which we've been doing very aggressively over the last few years as well as inorganic through acquisition.
If we think it as if the total 1 + 1 is going to be larger than two, we will do that. And this is a good example of having a target having an asset that can significantly add to our growth as well as increase our synergy that should help our long term growth and the profitability picture. Thank you.
And also with the you know, with the additional specialty technology platform under Doctor Bai's leadership. I think it's going to be more. Thank you.
Operator
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
So this concludes our today's call. Once again, thank you all for joining us today. It's been very exciting. Thank you for all your thoughtful questions. We appreciate your continued support and look forward to speaking and seeing you again soon next quarter. OK, thank you.
Operator
Ladies and gentlemen, thank you for your attendance. All now disconnect.
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