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Ladies and gentlemen, thank you for standing by, and welcome to Hua Hong Semiconductor's First Quarter 2023 Earnings Conference Call. The 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 2023 summary slides are available to download at our company's website, www.huahonggrace.com. Without further ado, I'd like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.
Good afternoon, everyone. Thank you all for joining our first quarter 2023 earnings conference. Today, we will first have Mr. Tang, our Executive Director and President, make remarks on our first quarter performance. President Tang will address in Chinese and, Kathy Chien, 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. The call will be conducted in English. So, please ask your questions in English. I will now turn call to Mr. Tang.
[Foreign Language]
[Interpreted] Good afternoon, everyone. Thank you for joining our earnings call. Despite the current downturn in the chip sector and high inventory levels as some customers, the company has been able to maintain high capacity utilization by adjusting our product mix and business strategy to better meet market demand by strengthening business synergies with customers in the industry chain such as new energy vehicles and to expand our supply of the nonvolatile memory and power semiconductor platforms. Revenue for the first quarter of 2023 was $630.8 million, up 6.1% year-over-year and flat quarter-over-quarter. Gross margin for the quarter was 32.1%, up 5.2 percentage points year-over-year and down 6.1 percentage points quarter-over-quarter due to seasonality, annual maintenance and increased depreciation. During 2023, the company's 12-inch production line, Wuxi, will gradually increase the monthly capacity to 95,000 wafers, and we will start construction of new production lines in due course to provide capacity support for the medium and long-term development of the company's specialty processes and to better meet market demand for advanced Specialty IC plus Power Discrete technologies. Relying on our diversified specialty process platform, profound R&D strength and a long-term global costumer base, Hua Hong Semiconductor will build out its brands and reach new heights. Now, I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments.
Thank you, Mr. Tang, for your inspiring comments. Now, let me begin with a summary of our financial performance for the first quarter, followed by the outlook on revenue and margin for the second quarter 2023. And then, we will move on to the question-and-answer session. First, let me summarize financial performance as of the first quarter. Revenue reached $630.8 million, up 6.1% year-over-year and flat to the prior quarter. Gross margin was 32.1%, 5.2 percentage points higher than Q1 2022, primarily due to improved average selling price, partially offset by increased depreciation costs and 6.1 percentage points lower than Q4 2022, primarily due to increased depreciation, material and utility costs. Operating expenses were $76.3 million, flat to Q1 2022 and 28% over Q4 2022, mainly due to decreased government grants for research and development. And income net was $6.1 million, 42.1% below Q1 2022, primarily due to increased finance costs, partially offset by increased foreign exchange gains and interest income and 82.9% below Q4 2022, primarily due to increased finance costs, decreased share of profit of associates and foreign exchange gains. Income tax credit was $8.9 million, 29.6% above Q1 2022, primarily due to a reversal of increased dividend withholding tax accrued for the prior year. Profit for the period was $140.9 million, 38% above Q1 2022 and 24.2% lower than Q2 2022. Net profit attributable to shareholders of the parent company was $152.2 million, 47.9% above Q1 2022 and 4.3% below Q4 2022. Basic earnings per share was $0.116, 46.8% above Q1 2022 and 4.9% below Q4 2022. Annualized ROE was 19.6%, 5.5 percentage points higher than Q1 2022 and 2.4 percentage points below Q4 2022. Now, I will provide more details on our revenue from Q1 2023. From a geographical perspective, revenue from China was $477.2 million, contributing 75.7% of total revenue, an increase of 5.6% over Q1 2022, mainly due to increased demand for MCU, IGBT, smart card ICs and super junction products, partially offset by decreased demand for CIS, NOR flash, logic and other power management IC products. Revenue from North America was $70.8 million, an increase of 21.9% over Q1 2022, mainly due to increased demand for MCU products. Revenue from Asia was $39.1 million, a decrease of 28.8% compared to Q1 2022, mainly due to decreased demand for logic and discrete products. Revenue from Europe was $37.3 million, an increase of 69.1% over Q1 2022, mainly due to increased demand for smart card ICs and IGBT products. Revenue from Japan was $6.5 million, a decrease of 18.3% compared to Q1 2022, primarily due to decreased demand for MCU products. With respect to technology platforms, revenue from 55-nanometer and 65-nanometer technology nodes was $58.5 million, a decrease of 43.2% compared to Q1 2022, mainly due to decreased demand for NOR flash, logic and CIS products, partially offset by increased demand for analog and MCU products. Revenue from 90-nanometer and 95-nanometer technology nodes was $119.3 million, a decrease of 4% compared to Q1 2022, mainly due to decreased demand for other power management IC and CIS products, partially offset by increased demand for smart card ICs and MCU. Revenue from the 0.11 and 0.13 micron technology nodes was $128.9 million, an increase of 55.6% over Q1 2022, mainly due to increased demand for MCU products. Revenue from the 0.15 and 0.18 micron technology nodes was $43.9 million, a decrease of 9.7% compared to Q1 2022, mainly due to decreased demand for logic products. Revenue from 0.25 micron technology node was $4.1 million, an increase of 9% over Q1 2022. Revenue from the 0.35 micron and above technology nodes was $276 million, an increase of 19% over Q1 2022, mainly due to increased demand for IGBT and super junction products. Now, let's take a look at the cash flow statement. Net cash flows generated from operating activities was $131.9 million in Q1 2023, 32.6% below Q1 2022, primarily due to increased payments for materials and maintenance. Capital expenditures were $216.6 million in Q1 2023, including $191 million for the Wuxi fab and $25.6 million for the 3 8-inch fabs. Other cash flow generated from investing activities was $13.3 million in Q1 2023 from receipts of interest income. Net cash flows generated from financing activities was $263.2 million in Q1 2023, including $296.2 million of capital contribution from noncontrolling interests, $13 million proceeds from bank borrowings and $1.4 million proceeds from share option exercises, partially offset by $42.5 million of bank principal payment, $3.8 million of interest payments, $800,000 of lease payments and $300,000 of listing fees. Now let's move to the balance sheet. Cash and cash equivalents was $2.2185 billion on March 31, 2023 compared to $2.0088 billion on December 31, 2022. Property, plants and equipment was $3.4367 billion on March 31, 2023 compared to $3.3677 billion on December 31, 2022. Total assets increased from $7.0554 billion on December 31, 2022 to $7.3783 billion on March 31, 2023. Our total bank borrowings was $1.9051 billion on March 31, 2023 compared to $1.9083 billion on December 31, 2022. Total liabilities decreased to $2.7477 billion on March 31, 2023 from $2.9199 billion on December 31, 2022, primarily due to the payments for capital expenditures and bonuses paid in Q1 2023. Debt ratio decreased to 37.2% on March 31, 2023 from 41.4% on December 31, 2022. Finally, let me give you a high level outlook for the second quarter 2023. We expect revenue to be approximately $630 million and our gross margin to be between 25% and 27%. This concludes my financial remarks. Now we would like to start the question-and-answer session. Operator, please help. Thank you.
[Operator Instructions] First question comes from the line of Randy Abrams from Credit Suisse.
Yes. The first question, I wanted to ask if you could expand on the gross margin. If you did go through in the first quarter, I think some of the impact was maintenance and bonus, which may come out in the second quarter. So it should be an improvement from those factors. So could you go through then the decline into second quarter just factors between pricing mix and other things like depreciation.
Thank you, Randy. That was -- I guess that would be your first question. So, the overall -- I mean, the overall semiconductor market continues to be weak and slow. Hua Hong Semiconductor has been very resilient, has been very resilient. Are we impacted by the general slowness? Of course, we are. So far, our performance has been strong, stronger and better, thanks to our specialty technology platforms. We have price pressures for some of our segments such as CIS and NOR flash. Price and volume has been challenging for those segments. So, we have to make price concessions for these products in order to get volume and keep the fab loading, okay? So for MCU, we have been able to keep its manufacturing corridor at very high level utilization rate, okay? High voltage products, such as IGBT and super junction, continued to be in high demand and extremely profitable, okay? As for depreciation expenses, I mean, you're very much aware of the fact that we actually put additional 30,000 wafer capacity in 2022. As we have started to release capacity, the depreciation expenses will start to catch up, okay? So, now let me address the drop in gross margin, okay? So basically it is about 6 percentage points. It is a pretty much 50%-50% split between price, concession and additional depreciation expenses. So we expect the depreciation, the capacity will eventually get to 95,000 wafer capacity by end of this year. So, additional depreciation expenses will start to incur, okay? Addressed the other half is pretty much from price concessions, in particular for things like NOR and CIS. There are also some impact on power management IC, MCU -- MCU, I mean, in order to make sure it is an extremely high volume. And MCU has we have to make certain concession. Randy?
Okay, I understand. If I could follow up then for the pricing, I mean do you view it as a concession that brings volume for the next few quarters? Or now that we have the high inventory and slow demand, what's your view -- initial view for how pricing like whether we might have quarterly discount? And I guess what we're getting at is also margin. Do you think this as kind of a step down to a new level that we maintain or are you nervous about pricing pressure that it may still be challenging in the coming quarters?
I think, at this point, the price impact, it is about 3% to 5% at this point compared to a quarter ago, just overall. I mean, certainly there is a number for a 8-inch there's also number for the 12-inch business. But I think the overall, it is about 3% to 5%. I think, let's see how we're doing throughout the quarter, depending on the mix and also depending on -- there's lot of discussions going on at this point between us and the customers. We continue to be very strong, very strong. We want to make sure that the fab is still fully loaded. As you can see, the 12-inch fab is around -- continue to be very close to 100% in terms of utilization rate. And the 3 8-inch fabs above -- still above 100%. But I mean we have to make sure that as we continue to release the capacity, that we have to make some sort of concession with our customers. But I think, hopefully, this will be something that we will have to go through in the next -- this quarter and next quarter. But as far as the price is concerned, I think this is how much we're willing to let it go. I think we're going to continue to be very strong on loading and on price.
Okay. I'll just ask one final clarification and I'll get back in the queue later. Because you mentioned depreciation about half the impact, if you could give an update how that ramps for the full year? How much we should consider to see the drag on that -- on that side?
I think overall, I think for the -- I mean, you know the story very well. And you're familiar with the company. The 3 8-inch fabs will continue to run around $130 million a year, and for the 12-inch fab, I initially said it's about $380 million for the year, that's what I said $380 million for the year. And yes, around $380 million to $390 million. So I would say, for the year, I think it's going to be probably around $400 million for the 12-inch fab.
Okay. Actually, if I could fit 1 in, sorry, the new fab, is that sensitive on timing for macro as far as I would think later this year, you have to start ordering tools for -- and like to bring that up late next year or is it the sense the demand is there, like it's likely to go forward? I'm just curious, the flexibility in that project if we stay in a bit slower environment for a while.
Well, let me address that first. And I'm going to pass this down to President Tang. I think he will have more to say on that topic. I think, it is important. I mean, if you're familiar, you've been covering this business for a long time. For most of big players in the industry, you want build capacity when you go through a downturn. This happens to TSMC and also the big guys. The demand for our type of business, the special technology platforms, I think we'll continue to be very, very strong, particularly in China. It is that we're just going through a sort of downturn at this point. We still need more capacity. Look at how quickly we loaded our first 12-inch fab. So, it is critical. It is imperative that we will continue to have more capacity going forward. So, this is not going to slow down our progress in terms of building more capacity. So for that next fab, we're going to start sometime in the next few months. I mean, we just have to go through the logistics. And then, we're going to start to build the new fab. I think it's going to take a year to build. And at the same time, we're going to figure out exactly what sort of tools we're going to be acquiring from their standards. So, from now on until sometime second part of next year -- second half next year, we're going to build that fab and hopefully by end of sort of next year, we can start to ramp the second fab.
Our next question comes from the line of Leping Huang from Huatai.
So, the first question is about the supply/demand relationship about major product lines. You did very well in some -- especially the power discrete and MCU product line last few years. Can you share -- then you mentioned the price concession issues in the market. Can you share some color, especially on the power discrete MCU? Do you see some -- is it due to the weakening of the demand or is it due to -- are there any change on the supply/demand in this product line?
[Foreign Language]
[Interpreted] Yes. As a matter of fact, when we built our fab 7, our 12-inch fab in Wuxi, we extend our specialty technology platforms from our 8-inch fabs. Throughout the whole process, all our specialty technology platforms achieved very good R&D research results and build a solid base for our current 60,000 to 70,000 wafer out. We got a decent market share, [ nanometer ] embedded flash, on BCD, or logic, or power discrete. Though the overall market is slow now, even under this situation, our R&D results and our customers' confidence is still very strong. Actually, we are putting more efforts into R&D for the embedded flash and the specialty technology, including power discrete. And this R&D will cause some cost increase. We did some pricing adjustment, but this adjustment is for keeping our marketing share for our specialty technologies and even to increase our market shares.
The second question is about the progress of your Wuxi fab expansion. So, I noticed that your competitors stay in the 324,000 wafer per month for more than 1 year. And you spend roughly $200,000 to $300,000 per quarter in CapEx. So, what would be the curve of your ramp up process in next few quarters and especially considering this weak market demand? So, do you still expect that you have reached the full capacity, the 95,000 wafer per month by end of this year?
[Foreign Language]
[Interpreted] Yes, we are still undergoing the process to release our 95,000 wafer capacity till the end of the year. Yes. We'll gradually release some capacity in Q2, Q3 and Q4. Yes. As we mentioned earlier, we are escalating our R&D progress for some advanced or for market demand, some technologies. We have mutual understanding with our customers and we are escalating our new tape-outs. It may need some time, but we still keep our plan and target.
Our next question comes from the line of Szeho Ng from China Renaissance.
I have 2 questions. The first one regarding the next phase of capacity expansion. Could you share with us the capacity breakdown by process node?
[Foreign Language]
[Interpreted] As for the Wuxi, the second step in Wuxi, we are undergoing some regular process and achieved mainly the results. We have already got the national approval from the relative government departments, and we also got the environment approval. We will plan to kick off the whole project in mid of this year and all the preparatory work is undergoing according to this target. We will announce to our investors at a suitable time. And if we kick off the project, we will -- we plan to complete the construction of the fab in 1 year. And we will have contributed some capacity in the early 2025. So for the technology platform and applications, we are focusing on the new energy for the solar system and energy of state reserve energy. So, we have the technology road map and will have a good match for the customer demand in the future.
But can I assume that most of the capacity will be focusing on 55-nano, while 40-nano, 45-nano would be a small portion of the overall capacity planning?
That is not even -- look, this is going to be a fab of 40-nanometer and 55-nanometer. So, it's going to be -- of course, we're also going to be allocated a pretty important portion of that to things like IGBT, power discrete, but it's going to be a split between the rest. As far as the IC is concerned, it's going to be a split between 45-nanometer -- 40-nanometer and 55-nanometer.
Okay. All right. Yes. And next question maybe for you, Daniel. Yes. For Q1, actually the company booked a big finance cost. So I'm not sure if something one-off or if it would be recurring going forward?
Finance cost is largely because its the interest expense. We have a pretty large size of debt incurred in Wuxi. So, I mean, certainly are aware of the fact that the U.S. interest rate has been also -- power interest has been going up. So that's the interest expense.
I see. So, just kind of recurring, right, yes, at that level.
Energy storage. Yes. So, what Tang mentioned earlier is the new energy vehicle -- manpower and also energy storage that's going to be the 3 major areas that we're going to be focusing on for the new fab.
Our next question comes from the line of Sunny Lin from UBS.
My first question is on CapEx. So then I just want to follow-up, if you could remind us of your current target for full year? And now, as you are becoming even more committed for the second 12-inch fab expansion into 2024, would you consider raising the CapEx target a bit just to secure more 12-inch tools within this year?
Good question. Sunny. So, basically what I described earlier, the $700 million for the Wuxi fab, that is only for the first fab. Basically the $700 million something that we have to make all the payments complete for the entire 95,000. And for the 8-inch space, I think just overall -- on cash flow basis, it is about $185 million. That's our budget for this year. So, it is basically $700 million for the first 12-inch fab. And then, you have the $185 million for the 3 8-inch fabs. But we're not going to be spending $185 million. We probably will only spend $50 million to $100 million -- not even $100 million. I think we have been very thrifty, careful with our spending on CapEx. But for the next fab, I mean I talked about this before, it's a $6.7 billion investment in the first phase. This is going to be -- I mean, the first phase is going to be approximately 83,000 wafer capacity. This is only half of the overall capacity that eventually we're going to build. Potentially this will -- the CapEx for this entire fab work can exceed $10 billion. But for first phase, it's going to be $6.7 billion, that is the budget. So, it will be [ done ] in 2 stages. The first stage, we're probably around $40 million to $50 million, and then we do another 30,000 to 40,000 -- 40,000 to 50,000, and then the 30,000 to 40,000. So that sort of 2 different stages. So, I would expect this year, we're going to be building the fab, it's going to be a huge fab. It will be anywhere from $700 million to $900 million. We're going to put together a budget for that. Once that is finalized, I'd be very happy to announce to the world.
Sounds good. So, just want to make sure that I understand, so CapEx for the current fab maybe below $1 billion. But if we add the second 12-inch fab that may add up to $700 million to $900 million?
That is correct. But all that, I mean, most of that will be paid probably in 2024.
Got it. But for your CapEx, is that cash-based?
Yes.
Got it. So, perhaps the CapEx increase will not come through until 2024?
That is correct. President Tang has already talked about that earlier. It's going to take about a year to build a fab. We're going to start very, very quickly. And so, that fab will be ready by second half next year. So by end of next year, we can start -- make certain contribution on capacity.
Got it. My second question is somewhat related to the China investment in the overall foundry CapEx. As we could see from the recent comments from the [ Kuma ] vendors like ASML, Lam Research. The industry is seeing a pretty meaningful uptake of the China purchase of the equipment. And so, would you be concerned about the intensifying, industry competition, especially for [indiscernible] foundries within China for next coming few years.
I'm not exactly sure what you're asking, Sunny? Are you talking about the concern or what?
Concern on oversupply by the China mature foundry.
I will let Mr. Tang address your question, how's that?
[Foreign Language]
[Interpreted] Yes. They do have some suppliers, have some restrictions on some certain tools. But from our point of view, those restrictions doesn't have material impact on us. We can procure our tools normally and the tools can be on site on schedule. Yes, all our 8-inch fabs are always on full utilization. And our 12-inch fab wafer level is around 68,000 wafers per month. So, it also reflects the market demand for our specialty technologies, including embedded flash and BCD and power discrete, the demand is still very strong. So when we fix our development plan for the overall Hua Hong Wuxi projects, we also visit and discuss with some customers, including some new customers. And so, from the market feedback, you can see the market demand for our specialty technologies is still very positive and strong. From current market, new energy vehicles, energy storage and wind power, some carbon-neutral and digital economics, the specialty technologies occupies a decent portion in these platforms. Including those new growth potential, the market is still there, and the original market is still very stable. As we mentioned earlier, our R&D work is always adjusting according to the market change and align with those adjustments. Our R&D is also moving forward. Those development on the new technologies is discussed and anticipated with our customers to gather from our more than 20 years' experience in specialty technologies, and it's our anticipating -- on the market. So we are still very confident for the future.
Maybe 1 last question, if I may. So I wonder if any updates on your Asia listing?
Well, so I think, yes, I mean, certainly there is some good news out there. We have been officially invited by the Shanghai Stock Exchange next week for a official hearing for the IPO. So, hopefully we can make this happen within the next few months. I've been talking -- I'm talking about the listing.
Our next question comes from the line of Nicolas Baratte from Macquarie.
So, we have a little bit of margin weakness in 1Q, 2Q. I urge you clearly price concession and DNA. Do you think if we assume that inventories with your customer and our supply chain that inventory level improve in the second half or beginning of next year. Should we expect your pricing to go back up to normalize? Should we expect gross margins to go back up to 30% or 35%? Or is there a risk that it could take a bit of time because of the higher amount of D&A that should also happen after due to the high CapEx over the past few years?
Nicolas, I will let Mr. Tang to address your question. And I will give you my point of view on that later on.
[Foreign Language]
[Interpreted] For the inventory level of customers, I think, for this industry, customer will always build some inventories. From last year -- so it's very common customers will build some inventories to get capacity allocation. Yes, along with domestic economy recovery, we can see our customers increasingly given our new orders from this orders we can see their inventory level is becoming very reasonable. On the overall trend, we believe the market will be better and better. The customer inventory levels will be optimized. And we will have a mutual win situation.
Nicolas, let me just talk about this. So basically, we continue to be very strong in high voltage power discrete such as IGBT and super junction extremely strong, strong price, strong loading and strong demand from our customers. Okay. In fact, I think if the momentum continues, I would expect, we still have room to improve price but some other segments. As I mentioned earlier, for example, CIS, NOR clash and some areas related to LED lighting, power management IC. For these products, I think, we are experiencing some just overall weakness. I think I was hoping that they will recover in the second half. Okay, and then we can go back to the recovery mode. But at this point overall market as you know it is slow and weak. But the good thing is we are very diverse. We have 5 strong technology platforms that have done us wonders in the past years. So, just keep our fingers crossed. I think we're hopeful that second half that a strong recovery, well beyond the way.
Next, the fourth question from Randy Abrams from Credit Suisse.
Yes. My follow-up question. I wanted to ask, actually in your filing on the listing. You mentioned that relative to Huali, I think the non-volatile memory standalone flash would be redirected to Hua Hong, and then some of the RF and logic would go to Huali. Could you discuss if there is a timing on that. And if there would be any netting out like a positive or negative impact from that transition.
It's very good. I'm glad you actually went through that -- that is a lot of reading there. So, yes, I mean, basically it is the noncompeting crops. There is a little bit overlap business between us and our brother company Huali Microelectronics, that -- just between 65 to 55-nanometer technology node. On that node basically, nodes -- 65 and 55, that's holiday stock initially. But you have to remember, all along, Huali is focusing on logic products. Their goal, their mission, their overall company mission is to move into the advanced technology nodes. For example, 40-nanometer 20-nanometer. Our products are virtually very different. They are different. They are focusing on pretty much on large products. They do not do specialty technology like we do. But in terms of technology node, there is some overlapping business. We have to be pretty clean and clear about this. So we're going to be doing virtually from now on embedded, they're not going to be having any business in that area. We're arguably touching any things like advanced logic business. That is a commitment we have to make basically to the local stock exchange. Randy?
Is there much shift -- or most of that overlap taken care of?
Not really. I think you can still work on your existing business. That is also an understanding between us and the exchange. As long as we don't, for example, get into the logic business, especially the more advanced node, particularly the advanced node.
Okay. What I was trying to ask, is there a business that you need to transfer where you could get transfer in, like additional embedded flash or is most of that like we probably won't see that much impact either way?
It won't have much impact at all. I mean, it won't. Well, if you look at the paragraph, we also made a commitment that within the next 3 years, that particular fab will be injected into the listing entity, which is Hua Hong Semiconductor.
Okay. And when the fab is injected -- I was just going to say, so when its injected, I assume you spend -- there'll be an incurrence, essentially buy the asset into your group and then it would be -- I don't know if it's early to talk if it will be accretive like the additional revenue and profitable?
Absolutely, absolutely. I think that's -- that is the goal. And the way you make a commitment, that particular fab will be injected into the listing entity and then it's going to be good for Hua Hong Semiconductor.
Great. If I could ask on the 55, 65, because that's the area with NOR, CIS has come down quite a bit since middle of last year. So, for the recovery, is it more we need to get those applications up because your focus, it feels like it's moving toward those nodes like 55. So do you see -- or maybe it's with the price moves, there is some rebound for the 55, or is it new tape-out new application that we'd see driving that part to fill up or start ramping up again.
Well, the 65 and 55-node actually covers many applications. In that first 12-inch fab we just built, we actually built product based on their technology for things like logic, radio frequency -- logic/radio frequency, power management IC, --MCUs as well as smart cards, so -- and CIS. So, many applications rely on 65, 55-nanometer technology node.
Great. And the last one, just to clarify, it sounds like your view, it seems like you're not uncomfortable with inventory or demand that you're still looking at, I guess, sequential ramp in applications and loading. And so, it sounds like at this time, I guess they could change, but directionally revenue improving in margin, we could see similar levels, like could at least hold here rather than a step lower.
Well, Randy, that is certainly not our goal to let it continue to slide. I mean, we -- as I said, the impact is about 3 to 5 percentage point on price. As long as the demand continues, we're also doing a lot of adjustment on product mix. For example, we're doing a lot more with regards to discrete, we're doing a lot more IGBT super junction than the regular DMOS, that actually basically will dampen the impact quite a bit. So, there many things that we're doing. It's good that we're fully -- very much diversed, as I said. Certain area is not doing that well, for example, CIS and NOR and some other areas that we still feel pressure on pricing. But I think in general, I think we are holding well. I mean, our utilization rate is still very high. It is just we have to work very hard to get fab loaded. Sometime we have to make some sort of concessions, as I mentioned earlier. This is something we have to do, get through this period. I mean, we still have not seen the end of the turn, but I'm pretty sure. I mean, you have gone through this so many years. You have gone through this thing and so many different cycles before. I mean it will come back.
Our next follow up question comes from Leping Huang from Huatai.
I just have 1 question about the -- where is the cycle of the power discrete business in your view, since power discrete was very well for multiple years? We just heard that you also have a price adjustment. So, where is the cycle and where you see the supply/demand change in the coming few quarters?
[Foreign Language]
[Interpreted] And from the applications, the power discrete is everywhere. We accumulate many customers and products, technologies through our more than 20 years' experience in this area. We can see we need IGBT being new energy vehicles, wind powers and many other aspects. As long as we can develop some new technologies to meet some new growth demand for the market, I think the overall lifecycle of these technologies will be extremely long. Our existing customers still have very strong demand, our power discrete technologies. As though some new applications require higher performance, our technology meet the requirement very quickly. From the mutual cooperation and our technology development, our advanced specialty technologies on power discrete is exceeding our original ability. So we can release more capacity along with our new projects and can meet our customers' demand better.
[Operator Instructions] We have a question from the line of Edison Lee from Jefferies.
I've got a question for Daniel, just a simple one. On the interest cost, you mentioned earlier that is just because of rising U.S. rates. So it doesn't mean that you have a floating rate structure. So can you maybe share a little bit more color on how we should forecast interest cost going forward?
It is basically the interest for the dollar loan, it is LIBOR plus a fixed rate. I mean, actually our rate is very, very low compared to a commercial -- a normal commercial rate, it is LIBOR plus something less than 2%. That's something we negotiate very, very hard with the various banks, it is just LIBOR has gone up quite a bit recently, which is difficult to sort of get into fix, right? So, yes, I mean, it is basically LIBOR plus a fixed percentage, Edison.
Okay. Is there any plan to hedge that?
It is very difficult, very difficult. I mean, we have -- overall, the rate is already very low. I mean, we are borrowing a lot of money. And there is only one thing we can do is perhaps instead of borrowing dollars, we can borrow renminbi, RMB. That would be 1 thing we can consider because the overall RMB interest rate is also lower compared to -- just overall, the interest rate for the dollars. That would be something we can consider. We'll definitely look into it.
Maybe a follow-up question on the CapEx. Can you remind us whether you have made any change to the CapEx guidance for 2023? And also, a related question is, the [ lease rate ] of the CMB equipment, because I do think that there is still some talk of delay in the equipment delivery. So I don't know whether that will affect the eventual spending on the equipment this year.
Just on the CapEx, I think I already talked about that earlier. Overall, I think we're going to be spending about $700 million for the first 12-inch fab on cash flow basis. And then the 3-inch fab, it is would be $185 million. So that would be close to $900 million. Now, the other question is about equipment tools, right, in terms of delivery schedule. There is not any delays for us. I mean, we know these vendors for -- we've worked with them for a long time, many, many years. Excellent credibility, excellent reputation, good relationship between us and other peers. I think we definitely have the priority. So, there'll be no delays.
Okay. And on the new fab, when will you actually start having to put down deposits for the equipment?
Yes, making down payment towards the equipment?
Yes.
Not for a while. At least just probably won't happen until 2024. I mean, I would say, first half 2024, we're going to start purchasing issue POs for the equipment, but normally you don't have to pay right away. You pay it normally when the tool is delivered.
Right. Because we heard that some of your peers are putting down a lot of deposits for certain equipment because there's a very long [indiscernible]. And I haven't seen that from your perspective.
Edison, that is our peers, not us.
Okay. Good to know.
[Operator Instructions] I'm showing no further questions. Ladies and gentlemen, this is all the time we have for questions. I will now turn the call back to management for closing remarks.
Thank you all. I think we had a fantastic -- it was a fantastic call. It was a fantastic discussion. I appreciate all. Mr. Tang and I, we really appreciate all your suggestions, your comments and your -- all wonderful remarks, and I look forward to have you talking to us again. Please continue to stay safe and healthy. Finally, for the first time, Mr. Tang and I together, we've kept to visit Hong Kong today. We had a great Board meeting today. We're looking forward to meeting you in person very, very soon. Thank you very much.
Ladies and gentlemen, thank you for your attendance. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]