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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to Hua Hong Semiconductor's First Quarter 2020 Earnings Conference Call. Today's call is hosted by Mr. Junjun Tang President and Executive Director; and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and first quarter 2020 summary slides are available to download at our company's website, www.huahonggrace.com.
Without further ado, I would now like to introduce you to Mr. Danny Wang, Executive Vice President and Chief Financial Officer. Thank you.
Good afternoon. Thank you all for joining our first quarter 2020 earnings conference.
Today, we will first have Mr. Tang, our Executive Director and President, give some remarks on our first quarter performance. President Tang will address in Chinese and Kathy, our Deputy Director of Investor Relations, will be the translator. After that, I will discuss our financial results and provide guidance for the next quarter. This will be followed by our question-and-answer session.
I'll now turn the call over to our Executive Director, Mr. -- President, Mr. Tang.
[Foreign language]
[Interpreted] Good afternoon, everyone. Thank you for joining our earnings call. Confronting the unexpected COVID-19 epidemic in 2020, management has always put the health and safety of our employees at the first priority, taking responsibility for protecting ourselves, protecting family members, protecting Hua Hong people and protecting Hua Hong. We prepared materials for epidemic prevention and control, adopting effective measures to ensure both the physical and mental health of our employees, while implementing effective measures for epidemic prevention and control. We organize the supply of raw materials and spare parts and communicated frequently with our customers via telephone, e-mail, Wechat, et cetera, to ensure an orderly operation. Our capacity utilization rates was constantly maintained above 90%. We achieved a year-on-year increase of 30.6% in first quarter revenue for analog and our power management product. Due to the impact of COVID-19, the near-term future of our market is uncertain. Demand for embedded flash memory, discrete device, and logic and RF products have dropped to a certain extent, and corresponding product shipments have declined to varying degrees. In the first quarter of 2020, our revenue was USD 202.9 million, a year-on-year decrease of 8.1% and a quarter-on-quarter decrease of 16.4%. Gross margin was 21% and net profit was USD 2.7 million. During the COVID-19 outbreak, architects, engineers, R&D staff, and management in charge of the 12-inch production line projects helped faster the content, and thus, the project moved forward steadily, offset by the overseas pandemic. The arrival time has been postponed for technicians from equipment manufacturers who are responsible for equipment debugging. We are working with our vendors to accelerate the equipment debugging program. As the COVID-19 situation is turning around, we believe the second stage of equipment commissioning will soon be completed. In addition, 90-nanometer and 65-nanometer R&D projects based on the 12-inch line has achieved their expected goal. We will continue to implement routine epidemic prevention and control to achieve full protection. We will closely interact with the industrial chain to ensure stable operation of our production line and actually expand market, especially to obtain more strategic customers so as to lay a foundation for sustainable development. I'm very grateful for the hard work of the team and thank all shareholders for your support. Now I would like to hand the call over to our CFO, Mr. Danny Wang, for his comments.
Thank you, President Tang, for the inspiring comments. Now let me begin with the summary of our financial performance for the first quarter, followed by outlook on revenue and margin for the second quarter 2020. Then we will move on to the question-and-answer session.
First, let me summarize financial performance as of the first quarter. Revenue was $202.9 million, 8.1% lower than the prior year, primarily due to decreased average selling price and 16.4% below Q4 2019, mainly due to decreased wafer shipments and average selling price. Cost of sales was $160.1 million, 6.9% above Q1 2019, mainly due to increased wafer shipments and depreciation expenses, and 9.4% lower than Q4 2019, primarily due to decreased wafer shipments and year-end bonus accrued in Q4 2019.
Gross margin was 21.1%, 11.1 percentage points below Q1 2019, mainly due to decreased average selling price, increased depreciation expenses and a change in product mix, and 6.1 percentage points below Q4 2019, mainly due to decreased average selling price and a change in product mix.
Operating expenses were $71.5 million, 125.2% above Q1 2019, largely due to increased labor, engineering wafers and depreciation expenses for Wuxi fab and flat to Q4, while basically, we moved $19.2 million fixed cost related to the unused capacity from cost of goods sold to operating expenses, including salary, depreciation and utilities. This is why that operating expenses were higher than usual.
Other income net was $20 million, 267.3% up year-over-year, primarily due to, one, foreign exchange gain versus a loss in Q1 2019; and two, increased government subsidies and 17% down quarter-over-quarter, mainly due to 1 decreased share of profit of an associate and the 2 decreased government subsidies, partially offset by foreign exchange gain after foreign exchange loss in the prior period.
Income tax benefit was $11.4 million compared to $1.9 million in Q1 2019, due to a reversal of dividend withholding tax, about $15.8 million, accrued for the prior year. Profit for the period was $2.7 million compared to $46.6 million in Q1 2019 and $14 million in Q4 2019. Net profit attributable to shareholders of the parent company was $20.3 million compared to $47.5 million in Q1 2019 and $26.2 million in Q4 2019. Basic earnings per share was $0.016 compared to $0.037 in Q1 2019 and $0.02 in Q4 2019. Annualized ROE was 3.6%.
Now I will discuss the operating results of each Hua Hong 8-inch and Hua Hong Wuxi. First, let's take a look at Hua Hong 8-inch operation. Revenue was $200.6 million, 9.1% below Q1 2019, primarily due to decreased average selling price and 14.8% lower than Q4 2019, mainly due to decreased wafer shipments and average selling price. Gross margin was 21.1%, 11.1 percentage points below Q1 2019, mainly due to decreased average selling price, increased depreciation expenses and a change in product mix, and 7.1 percentage points below Q4 2019, mainly due to decreased average selling price and change in product mix. Operating expenses were $29.1 million, 8.5% below Q1 2019, largely due to increased labor and research -- R&D expenses, and 23.4% lower than Q4 2019, primarily due to year-end bonus and impairment provisions accrued in Q4 2019. Profit before tax was $27.2 million compared to $47.1 million in Q1 2019 and $43.6 million in Q4 2019.
Hua Hong Wuxi. Now let's take a look at Hua Hong Wuxi. Revenue was $2.3 million. Operating expenses were $42.4 million, including $19.2 million fixed costs moved from cost of goods sold compared to $4.9 million in Q1 2019 and $33.4 million in Q4 2019, mainly due to increased expenses on research and development and depreciation expenses. Profit before tax was minus $35.9 million. EBITDA was minus $22.8 million.
Now please let me provide you with more details on our revenue from Q1 2020. From geographical perspective, revenue from China was $124.5 million, contributing 61.4% of total revenue, an increase of 6.8% compared to Q1 2019, mainly driven by increased demand for MCU products. Revenue from Asia was $29.3 million, an increase of 17.1% compared to Q1 2019, mainly driven by increased demand for MCU products. Revenue from United States was $25.4 million, a decrease of 38.3% compared to Q1 2019, chiefly due to decreased demand for general MOSFET, super junction, logic and MCU products. Revenue from Europe was $16.2 million, a decrease of 12.2% compared to Q1 2019, chiefly due to decreased demand for smart card ICs. Revenue from Japan was $7.4 million, a decrease of 62.1% compared to Q1 2019, chiefly due to decreased demand for logic, MCU and super junction products.
With respect to technology platform, revenue from embedded nonvolatile memory was $73.4 million, a decrease of 13.4% compared to Q1 2019, primarily due to decreased demand for smart card ICs, partially offset by increased demand for MCU products. Revenue from discrete was $75.8 million, a decrease of 9.6% compared to Q1 2019, mainly due to decreased demand for super junction. Revenue from Analog and Power Management IC was $31 million, an increase of 30.6% compared to Q1 2019, chiefly driven by increased demand for analog, other power management IC and LED lighting products. Revenue from logic and RF was $19.7 million, a decrease of 19.2% compared to Q1 2019, mainly due to decreased demand for logic products. Revenue from stand-alone nonvolatile memory was $2.8 million, a decrease of 29.2% compared to Q1 2019, primarily due to decreased demand for flash products.
Let's take a quick look at the cash flow statement. Net cash used in operating activities were $6.6 million in Q1 2020 compared to $78.9 million of net cash flows generated from operating activities in Q1 2019, primarily due to decreased receipts from customers, increased payment to suppliers and the increased labor expenses. Capital expenditures were $200.6 million in Q1 2020, including $169.1 million for Wuxi and $31.4 million for the 8-inch operations. Other cash flow generate from investing activities were $251.9 million in Q1 2020, including 1 payout of -- a payout of $248.8 million in investment in bank products and $3.2 million of interest income. Net cash flow generated from financing activities were $1.7 million in Q1 2020, including $3.8 million proceeds from share option exercise, partially offset by $2 million of lease payments and the $200,000 interest expenses for bank borrowings.
Balance sheet. Cash and cash equivalents was $518.3 million on March 31, 2020, compared to $476.3 million on December 31, 2019. Financial assets at fair value through profit or loss decreased from $519.8 million on December 31, 2019, to $270.2 million on March 31 due to payout from investment in financial products. Other current assets increased from $122.7 million on December 31, 2019, to $143.7 million on March 31, 2020, primarily due to increased VAT deductible tax. Property, plants and equipment was $1,659.8 million on March 31, 2020, compared to $1,558.3 million on March 31, 2019. Total assets decreased from $3,613.3 million on December 31, 2019, to $3,540.3 million on March 31, 2020. Our total bank borrowings were $25.4 million on March 31, 2020. Total liabilities decreased to $498.1 million on March 31, 2020, from $530.7 million on December 31, 2019, primarily due to payments of year-end bonus and capital expenditures. Debt ratio decreased to 14.1% on March 31, 2020, from 14.7% on December 31, 2019.
Finally, let me give you a top level outlook for the second quarter 2020. We expect revenue to be approximately $220 million and our gross margin will be -- expect to be between 22% and 24%.
So this concludes my financial commentaries. Now we would like to start the question-and-answer session. Operator, please help. Thank you.
[Operator Instructions] Your first question comes from the line of Randy Abrams from Credit Suisse.
Okay. Yes. I wanted to ask the first question. If you could give an update on the growth for applications, just implied in the high single-digit growth into next quarter. And then the second part would be, if you could talk about the progress on qualifying and ramping applications into the 12-inch Wuxi fab?
Sure. Randy. Yes. Just into next quarter, I think on the 8-inch operation of the fabs, I think we're looking at -- clearly, we -- Randy, let me just tell you. I think we passed lowest point, okay? I mean Q1, we -- as far as we think, it is the lowest point. So we expect, Q2, there will be a relatively good growth. I think things will start to pick off. I think MCU, power discrete, I think, will continue. Logic and RF will continue. But I'm going to let Mr. Tang talk about the 12-inch operations.
[Foreign Language]
[Interpreted] Randy, thank you for your question. So since the end of the last year, we are accelerating our R&D progress. So we have some decent shipment in the fourth quarter last year and we also have some shipments in the first quarter. And starting from the Q2, the shipments of the Wuxi fab will have a decent growth. So the ramp-up plan of the 12-inch fab is still stick with the original plan. Okay. Thank you.
Okay. And one follow-up on that question. If you could give a view by second half with the new applications, the run rate for wafer per month shipments, at least…
For 12-inch?
Yes, for 12-inch.
Okay. Just a second, Randy.
[Foreign Language]
[Interpreted] So Randy, in the second quarter, the major 2 products will be the 90-nanometer CIS and 90-nanometer eFlash.
Randy, so it's going to be mostly SIM cards for the eFlash. And certainly, there is -- Mr. Tang has talked about CIS.
Okay. And -- but in terms of shipment volume, do you have a view how -- where we could expect the shipment -- like the wafer per month run rate per shipment volume ramp up?
So we expect there will be shipments in thousands, okay? So I think there will be a very -- pretty significant growth compared to the past 2 quarters, Randy. So we would expect a pretty significant growth in revenue for both of these products.
Okay. And that's for second quarter and then also for -- like each quarter through the year?
Well, actually, I mean, we expect -- well, certainly, if things -- all assume this pandemic will be contained globally, okay, I think, eventually, we get to about 20,000 wafers shipment by end of this year. That's the run rate.
Okay. That's a 20,000 -- because you have 20,000 capacity. Is that a 20,000 monthly? Like -- so you expect to fill the capacity? Because you have, I think, 20,000 capacity, so you'll be -- like based on the orders, you'll be running that type of capacity.
Well, let me just maybe talk about capacity here. We have 10,000 right now by end of last year. We're pretty certain the second 10,000 will be ready by end of this -- I mean, basically, end of this quarter, Q2. That's for sure thing. Because basically 80% of the tools are here, okay, at this point. So -- and we're just -- some of them are still waiting for the installation. But we expect these all be completed by end of this quarter, okay, mid of -- end of June. And then we have actually accelerate our capacity expansion per seat -- I mean, plan compared to prior quarter. Basically, we plan to bring the entire 40,000 capacity, have it installed by end of this year. So in other words, we'll add another 20K by end of this year, okay? But in terms of actually contribution, well, for sure, we have 20K capacity in production and in shipment by end of this year.
Okay. Yes. Great. And then if I could pop the -- like the revised CapEx spend for the accelerated plan. And if it will change depreciation or maybe appreciate [indiscernible] last year.
Well, it's not really going to change that much, but the tools will be in. I mean the capacity -- so it is -- the 8-inch will be, for the year on a cash basis, it's going to be $150 million, okay? Now because we're going to pull all the equipment in, I think I remember, in the last quarter -- I mean maybe 2 quarter or last quarter, we had a really pretty bad conference because -- I mean, the earnings call because of the bad communication. But we talked about like $900 million total, $800 million was for Wuxi. But when you look at now, Wuxi is probably going to be $1.4 billion, okay, for the year, on cash basis. On cash basis, for the 8-inch is going to be 8-inch -- I mean it's going to be $150 million.
Okay. And could you talk about the funding? I think in the past, you've talked about bank debt. The STAR listing, we've had some luck with filing, but I'm curious how interesting that looks to you for a vehicle, like if you're now considering that as an option for Hua Hong?
Randy, I didn't get what you say. I mean what option?
The -- to list, like to have a listing on the new [ Sitech ] board?
Yes. I mean -- you know what? I mean, we better have Mr. Tang talk about, and I will talk about as well.
[Foreign Language]
[Interpreted] So let me just paraphrase here. We're certainly aware of the recent policies on public listing at the STAR board in China. And also, we understand announcements by our peers. We're looking into it. However, no decision has been made at this point. Okay? So that's the status. So hopefully, we can give you update in the future.
[Operator Instructions] Your next question comes from the line of Sunny Lin from UBS.
Sure. So my first question is also on the Wuxi fab. So #1, just wondering for Q1, given we are still ramping, but the shipment appears to decline in Q1. And then for gross margin side, despite a slower scale, Q1 gross margin for this fab was better than Q4. Why is that?
Sunny, it's -- let me explain it to you. I mean, look, I mean, Wuxi, we're still doing a lot of R&D work and qualification, okay? I mean, even for Q1, We certainly -- you guys are all aware that we have a target. We have a hard target by expectation by all of you. Basically, it's a commitment. We need to have achieved certain revenue. That was a commitment we made. So we made it in Q4. So Q1, in reality, we're still doing a lot of our new work and qualification process. But we start to have wafers. Q2, there will be definitely a lot more wafers, okay? Now the revenue is slightly lower and the costs, as you said, the cost was low because, basically, as I mentioned earlier, a portion of the fixed costs that is basically unused. According to the accounting principle, we can basically move part of the unused capacity, and the costs of that, we actually move that into operating expenses, okay? So that's why our operating expense went up pretty -- a big way. That was the difference. So gross margin was certainly -- was much looks pretty -- in a pretty nice fashion. But this is totally legit.
I see. That's very helpful. So for gross margin, wondering if you could give us any guidance for next few quarters. And also, for operating loss of this fab, should we be expecting increasing loss for next few quarters as we continue to ramp?
What, are you talking about Wuxi fab or overall?
Wuxi fab.
Wuxi. Okay. You know why? With the way we're making adjustment, I think we should be pretty much at the same level. It should be pretty stable. I think, overall, our goal is -- if we really have a very, very nice quick surge on volume and shipment, production volume and shipment in the second half, I think our gross margin -- I'm hoping that we can have a positive gross margin for Wuxi even for this year. But let's see how it goes.
Right. And my last question is on government subsidy. Could you give us any color for this year?
It would be a pretty significant amount, as I said last year. We only give that number when we receive -- when we actually receive the money. So I would expect that will happen in Q4, but it would be -- my expectation, they were on time last year, so it's going to be paid once a year. I think this will be paid in Q4. I think -- I expect it will be a larger amount than last year.
I see. So just to clarify. For the Wuxi fab, we only received a subsidy once every year in Q4. So basically, the subsidy in Q1 and Q2 are mainly for the existing 8-inch fab. Is that correct?
Yes. I mean, yes, we have -- that's relatively small. The subsidies from -- these are subsidies from -- because of pax, whatever reason. But it's -- compared to Wuxi, that's smaller.
Your next questions comes from the line of Andrew Lu from Sinolink Securities.
[Foreign Language] I have 2 or 3 questions for here.
[Foreign Language]
[Foreign Language] What will be the change for the depreciation cost?
Andrew, basically, it's not going to be just [Foreign Language] Okay? So the expectation is to bring the entire 40,000 -- have the entire 40,000 wafer capacity installed. And by end of this year, okay. So that's the plan, okay? The CapEx is going to happen. The cash flow is going to happen. This $1.4 billion for Wuxi accounts for all the -- basically, all the capital expenditures for the entire 40,000 wafer capacity. Okay. So the -- however, the depreciation expense really only account for the first 20,000 wafers because these will be the capacity that we're going to be using. Okay. So the other 20,000, yes, they're going to be there. It will be a start. But it really -- the depreciation will really only kick in next year.
So what kind of numbers we should factor into the model?
Well, let me give you a number. I mean the depreciation expenses for -- let me give you a number, okay? I mean these numbers change every quarter, but slightly. I think we have actually…
Because of based on first quarter and second quarter numbers, the number won't be too high.
Yes. No, in fact it has -- I -- we have already adjusted down. For the 8-inch, it's going to be about $130 million. That's the same number I give a quarter ago. And apart from Wuxi is $99 million, maybe. It going to be around $100 million. So that's the…
It's still about 230, 230.
Yes. Well, you have to. We're investing $2.5 billion. That's going to happen.
But in your second quarter, revenue at about 8%. I assume the depreciation up similarly. That's why doesn't affect your gross margin. Then Q3, Q4, the depreciation costs must be jumped a lot in order to get the USD 230 million depreciation cost.
For Wuxi, the depreciation expenses by quarter, it is not that much. I mean, yes, I mean it's going to be -- let me just give you the numbers. It's $13.4 million in total, okay, in total. Both -- including the depreciation and the cost of goods sold, and also within the operating expenses, with $13.4 million in Q1, $20 million in Q2, $25 million, that's expected, according to plan, $25 million and then $41 million in Q4.
Q4 what [indiscernible]
Yes, but revenue also.
Yes. My second question is the operating expenses. What's our plan for this year? Operating expenses for the rest of year?
For Wuxi or for combined?
For combined.
Well, let me give you a number for the -- of 8-inch operation is about $120 million, $120 million, $120 million, roughly. And then for Wuxi, it's going to be around $200 million. But including the charges, the fixed costs we moved from the COGS, total about $200 million.
So combined, will be $320 million operating expenses?
Yes, yes. Part of -- part or close to half of that, the $200 million is going to be the stuff we switched to fab COGS.
Can you withhold minority interest?
No. What? Sorry?
What do we mean? What, switch to what?
No, no, no. I said the operating expense is $200 million for Wuxi, okay?
Yes. And your hope is to…
Nearly half of that was -- we basically moved some of the fixed costs as the fixed costs moved from the manufacturing costs.
Okay.
Okay? So normally, it should be about $100 million. The reason we do that -- yes. Yes.
So on the accounting purpose, for the accounting purpose, the operating expenses will be around $220 million? Okay.
There will be a $200 million plus $120 million, it's to be $320 million total.
Yes. Understood. My last question, based on my check, the U.S. clients in second quarter kind of guiding down for most of the power device company. Your customer, your customer in second quarter. But your second quarter actually guiding up by 8%. Is that pretty much coming from the domestic clients?
Hey, Andrew. I said Q1 is the lowest point. It's the lowest point. Everything should be up. But I mean, I guess, 8%, it is up. Hopefully, it will be up every segment, okay?
So you don't see the difference between the U.S. clients versus domestic clients?
I think the U.S. and Europe are actually doing very well right now.
In second quarter?
Yes. Even Q1, orders are pretty -- they're actually up, for Europe and U.S. So it's going to -- similar that will reflect in Q2.
Okay. So that's possible that your fab has been affected. So that's why the guidance is coming down, but to by placing more order to you?
Could be.
Your next question comes from the line of Donnie Teng from Nomura.
My first question is regarding to the ASP decline in the first quarter. So may I ask what kind of reasons to drive lower ASP in the first quarter? Because I saw that you specifically mentioned about the slower demand on super junction. So just wondering, what kind of ASP trend we are expecting into the coming quarters?
Actually, the ASP drop came pretty much a lot of major segments that we own. But I think it's mostly on super junction. They were pretty high already. So there was an adjustment. I think -- we expect, hopefully, if the demand comes back, I think things are going to change.
And for the gross margin, it sounds like you just mentioned that the depreciation costs for Wuxi fab will jump more into the fourth quarter this year. So do you still expect the gross margin can improve sequentially in the coming quarters for this year?
We have never really changed our revenue plan. We still -- at this point, even though Q1 was a little lower. But I think, hopefully, we are in a recovery trajectory, okay? Hopefully, we can -- second half, it's going to be come back according to our original plan and then we should have a better margin, gross margin.
I see. My second question is -- sorry, my second question is regarding to your Wuxi fab's new products. You just mentioned you have 90-nanometer CMOS SIM sensor products will be ready in the second quarter. I was surprised because I think you probably -- we never done SaaS before, right? So how do you manage to have volume on SaaS such early in the second quarter? Or we just mentioned about that, maybe that is just [indiscernible], not the real production.
Yes. I think Mr. Tang will address this question.
[Foreign Language]
[Interpreted] So Donnie, as I mentioned before, we -- since Hua started mass production in this in September last year, we invest a lot in the R&D process. We discussed a lot with the marketing people and some strategic partners. So we decide to invest in 90-nanometer CIS. And we realized some shipments in the quarter. And in second quarter, the shipment will still go up. So as for now, we have already achieved some good results on that. So it's a good results to show our capability of our R&D team and engineering team, also, the cooperation between us and our customers. Thank you.
Can I just add one thing? Donnie, we have 5 to 6 products or platforms that are undergoing concurrently in Wuxi. I mean we're talking about embedded nonvolatile memory, CIS, discrete, logic and the RF, and some other things, okay, NOR. So all these things are going to be -- eventually, all will take off. We have customers, old, existing and new. Okay? People are, I said before, very, very excited about this capacity we're building. We have acquired a lot of new customers. So we just have to deliver. Now there's a lot of pressure on our TD, our fab, just to get it going because we expect this fab should have a very -- it's going to be a very -- a quick sort of ramp-up, okay? So this is what we have to deal. So we're very excited, okay? Conducting really, we're concerned -- we have -- only thing we have to do is just to make sure we have a very, very quick ramp up. But concurrently, there are a lot of products that are currently been qualified and going through R&D process.
I see. Okay. I have just a quick follow-up. Is that possible, you can disclose what kind of capacity you are building for CMOS SIM sensor? Or what kind of resolution you are going to manufacture for CMOS SIM sensor?
[Foreign language]
[Interpreted] So for now, we allocate 8,000 for CIS. And for the plan, it will be 20,000. And during the process, we will also have some other new products and process. We make -- we will make some adjustments during the process.
Your next questions comes from the line of Ng, Szeho from China Renaissance.
I have 2 questions on the JV, in fact, the 12-inch fab. Are we still expecting the revenue should be around $100 million? That's the target on track?
Szeho, we -- I mean, we have not changed our internal plan, okay? Whatever that is, we know we missed a little bit in Q1, but we'll do everything we can try to get it -- try to basically cover all the -- whatever it was lost.
Okay. Great. And the other question, on the OpEx side. I think last quarter, you mentioned that the steady state OpEx for the JV fab will be around $30 million a quarter, right? When should we expect that the figures to be stabilized? Because right now, you still work really around I think $50 million, $60 million at the quarter, right, based on what you said earlier?
I think -- I hope I have explained this very carefully. Currently, I said to Andrew earlier, Andrew Lu, that it's going to be around $200 million, okay? But nearly half of that was because -- I expected, we're currently, we were looking at these numbers, right? Because of the utilization is not at that normal rate, so we moved the portion of the fixed costs that has not been used related to the unused -- the idle capacity, the unused capacity, to the operating expenses. So that result to $200 million number. But half of that would be the operating expenses. So it is about -- it's actually came down compared to what we had before. It's more like $30 million. I mean, you said $30 million, but now I'm looking at $25 million. But they will go up. On the average, it is $25 million. But overall, it's going to be slightly over $100 million. But I think this -- well, probably go up a little bit each quarter, but not by much.
Your next questions comes from the line of Sebastian Hou from CLSA.
First, I want to ask about the -- for the second quarter outlook, what's the growth difference between 8-inch and 12-inch?
I think for the -- inch, we have a nice growth. I mean we are up by $220 million. I would say, it's going to be, hey, I would say it would be nice to have a split between the 8. It's a tricky question, but it's going to be a split between -- hopefully, be split between the 8-inch and the Wuxi fab. Hopefully, around that number.
Okay. So Daniel, what you mean is that you're going to up by $80 million, right, $80 million -- USD 80 million revenue, absolute. And half of that absolute terms will be 8-inch, half of that absolute term will be 12-inch. Is that right?
Well, so what I had before was -- I think it was -- what was it before? It's -- yes, it's $202 million, right? We had $202.9 million. I was going to get $220 million. Yes, I think it'll be slightly more of the 8-inch, a little bit less on the 12.
Okay. Okay. But that's likely still like your Wuxi tailwind still likely to go back to -- if it couldn't be done, it'd likely to go back to the 4Q '19 level in the absolute terms, roughly around that rate.
Yes. Yes. Yes. But it's -- we're doing a lot of transition. We're in a transition phase. But you know why? We really want to keep the 8-inch -- continue to improve the 8-inch. Right now, it is above 90. We want to really get a little -- even a little higher. Hopefully, the demand will support us.
Great. I think besides, you sure about like, the new product on Wuxi fab, like 19-nanometer CIS and eFlash will start to ramp in the second quarter. Can you share with us what's beyond that, let's say, the second half this year? Is there any other products you -- in the pipeline that would ramp?
[Foreign Language]
[Interpreted] So Sebastian, so for now, we have CIS and eFlash. And going forward, we will have some new platforms. We have some strategic partners in discussion. But maybe, at present, it's still -- as for now, it's still too early to mention details. But anyway, in total, no matter it's 8-inch or a 12-inches group, we will try our best to make it well balanced. Thank you.
[Foreign Language]
[Foreign Language]
So Daniel, I think this is probably for you. The next question is, what the -- again, can you remind us again about the operating breakeven revenue or wafer output level for Wuxi fab?
Sorry, what revenue?
Operating breakeven.
I'm sorry. Well, it's -- as I said before, it's about 20,000, 25,000, wafer capacity. Let me tell this, okay. I mean, I hope, when -- I really hope this pandemic will be over soon, okay? And I want really take opportunity to all you guys on -- my favorite analysts to take you to Wuxi and have a look at our fab. Okay. I mean it's a huge fab. It's just -- the 40,000 wafer capacity barely maybe take half of the space, okay? So to get that breakeven, I would say, 25,000 wafer capacity, okay, at around $400 million to $500 million, okay. As we continue to improve the product mix like we did before, ASP can go up, okay? And I think this level will come back. But really, I mean, we built a huge fab. Later on, we can continue to add another 20,000, 40,000 wafer capacity through our internal operating proceeds, okay, or maybe some backlogs. So that would give us a lot of efficiency for this fab. I mean, we really have built a great fab.
Okay. One more questions from me is, I think the company is pulling in the capacity expansion or the equipment procurement. So I wonder how much of that is driven by like your design pipeline visibility or how much of that is driven by supply chain disruption fear or maybe driven by some uncertainty in regarding the regulatory changes recently by the United States government on that export -- technology export?
The second. Just second -- the second, yes.
Is more than the last?
I think we're going to share that question -- I share that question with Mr. Tang.
[Foreign Language]
[Interpreted] So the acceleration of the capacity ramp-up is mainly due to the cooperation with our strategic partners and the marketing demand.
Okay. Got it. And the other question related to this is there have been some regulatory changes on the U.S. main technology exports, I think, the 3 weeks ago. And they started to put the semiconductor equipment and EDA tools into the regulated products. So I'm not sure how the company will evaluate this potential certainty or risk of the future access to this equipment?
[Foreign Language]
So I think just for Sebastian and also for other analysts that your interest in this question, we are certainly aware of some of the recent changes to certain sections of the export administration regulation published by the U.S. Commerce department. As a global semiconductor foundry, we have always been in compliance with the rules and regulations on export control. Hua Hong Semiconductor has a very thorough and a strict internal control procedure. I mean you wouldn't believe, we had this for 20 years, including customer screen and good screen, okay? They have always been in a great communication with the U.S. Commerce Department, including the Bureau of Industry and Security. And we're definitely a trusted foundry partner to our customers. So Hua Hong Semiconductor makes nothing but commercial products.
Your next questions comes from the line of from [ Ching Chauzon ] from CICC.
[Foreign Language] My first question is about your 8-inch fab. It seems that your 8-inch fab utilization also dropped a lot in the first quarter. And so are you still optimistic on meaningful utilization improvement in the second half? And how the COVID-19 changed the demand in the first quarter and in the future? And then, which application will be most impacted?
Actually, our 8-inch utilization has not dropped. I mean our 8-inch utilization has been very stable. I mean what -- and actually, was -- we're doing a lot of qualification and product, our new work in the Wuxi fab. Therefore, the Wuxi fab, in terms of production utilization rate, it is low, okay? So -- it also result in lower revenue, but this will change in the second quarter. So I mean I think if I want to -- just to remind you, our 8-inch utilization rate has been always above 90%. We hope it can get even higher, maybe around 98% to 100%. But if the market demand comes back, I think it will.
Okay. And could you please also elaborate more about your 8-inch ASP trend for the rest of the year? I mean, are we going to expect a -- I mean, a very sharp recovery in the second half?
I think so. I mean Q2 is going to be better, okay? And also, just our work condition, if this pandemic will be contained globally, I think I personally expect a strong recovery. We never change our plan. Everybody -- I think the entire world expect a strong bounce back in the second half. And I -- personally, I think we need that.
We have one follow-up questions from the line of Randy Abrams from Credit Suisse.
Okay. Yes. Just wanted to follow-up, and it's a clarification. It might have been the [ CMOS ] question on your target for the full year. I just wanted to see, was your target to be -- to achieve growth this year? And I guess just based on the base view now, is that kind of what you're aiming for and what you're seeing from the pipeline and given it can still change?
Randy, very good question. I mean, sure, absolutely. I love to see growth. We love growth. We've always been growing. As I said again, as long as the second half -- if there's no external factors like the pandemic, hopefully, this will be completely contained globally. I think -- so far, the U.S. and Europe, actually, we see these quick orders. So second quarter is a good quarter, okay? We have a lot of new capacity in Wuxi. CIS is ready. Demos is ready. Some of the SIM cards are ready to take off as well as -- I mean, technology-wise, I think we have a lot of good things to start to do the ramp-up, and we have capacity. Why not? But there's one condition, is that the global -- there's going to be a containment on the pandemic. Yes?
Yes. That makes sense. And the follow-up, on the U.S. Europe. I mean you sense there might be a little bit of disruption in overseas that's driving quick orders. I guess on a bigger picture, U.S., Europe fell, and Japan fell last year. Is there -- I guess in terms of the project activity in base business, are you seeing -- are there encouraging things you're seeing or new project activity to kind of lift that beyond these quick turn orders? Like how does that overseas business look?
Yes. Let me just comment on last year. Definitely, U.S. came down because some of our major customers like Ang or a few other customers, they had business with Huawei, okay? So they got affected. But I think in a way, we also helped because the China side picked it up because some of the MCU products actually moved to China. But as far as -- do you -- your second question was?
Yes. Just now kind of looking ahead to this year, like how you're seeing that overseas base? On some of the…
U.S., as I said, actually, starting from now, second quarter -- I mean, even from the first quarter, we see increased orders, bookings from U.S. and Europe. In fact, we are also acquiring new customers.
Thank you. Ladies and gentlemen, that's all the time we have for questions. I will now hand back to Mr. Daniel Wang for closing remarks. Thank you.
Again, thank you all for joining us today. It was a great exchange. We hope you will join us again next quarter. I wish you all have a very happy weekend. Please stay safe and healthy. Thank you.
Thank you. Ladies and gentlemen, thank you for your attendance. You may all now disconnect.