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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 Semiconductors Third Quarter 2020 Earnings Conference Call. Today's call is hosted by Mr. Danny Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and third quarter 2020 summary slides are available to download at our company's website www.huahonggrace.com.
Without further ado, I would like to introduce you to Mr. Danny Wang, Executive Vice President and Chief Financial Officer. Thank you.
Good afternoon, everyone. Thank you all for joining our third quarter 2020 earnings conference. Unfortunately, Mr. Tang, our President and Executive Director has a meeting at this time, which require his presence. He has asked me to express his disappointment at missing this call and to cover our third quarter performance on his behalf.
Today, I will begin with President's comments on our third quarter performance. After that, I'll discuss our financial results and provide guidance for the next quarter. This will be followed by our question-and-answer session.
We're very pleased with Hua Hong Semiconductor's performance in the third quarter of 2020. The company's sales revenue hit the new high, achieving double-digit quarter-on-quarter growth for 2 consecutive quarters. Although COVID-19 has not been fully controlled worldwide, the prosperity of the semiconductor industry has gradually improved as domestic consumption has rebounded significantly and a robust end-user demand has continued. Driven by strong demand for MCUs, IGBTs, logic chips and other products, the company achieved historical record revenue of $253 million. 8-inch capacity utilization continued to be strong, exceeding 100% for the 3 8-inch plants in the third quarter. 12-inch capacity utilization also increased significantly, benefiting from high capacity utilization. Gross profit margin exceed our guidance, and profitability has been achieved for 39 consecutive quarters. Introduction of new Hua Hong Wuxi 12-inch products is progressing steadily in accordance with our process development plan. Yield improvement production capacity ramping are proceeding much faster than our original plan. Currently, we're in mass production and shipping products from the embedded flash memory, logic and RF and low-voltage part device platforms. In the fourth quarter, more new products will be delivered for customer verification, such as IGBT and super junctions. The focus of our next phase of work will be to accelerate capacity expansion in Wuxi, to alleviate the current limitation of 8-inch capacity and to expedite development and improvement of our process platforms to provide a more comprehensive and better product solutions for our customers. In the face of the second wave of COVID-19, we must firmly maintain the results of our pandemic prevention and control measures, keep close communication with domestic and foreign vendors and customers, actively expand our markets and deepen our cooperation with all stakeholders.
I would like to thank all shareholders, customers and vendors for their support as well as all employees for their relentless efforts. Although the road ahead will always be full of challenges, we're confident we will be victorious with our down-to-earth efforts. We believe we will continue to deliver more outstanding results in the future.
Next, let me begin with a summary of our financial performance for the third quarter followed by an outlook on revenue and margin for the fourth quarter 2020. Then, we will move on to the question-and-answer session.
First, let me summarize our financial performance of the third quarter. Revenue hit an all-time high of $253 million, an increase of 5.9% over the prior year and 12.3% over the prior quarter, mainly driven by increased wafer shipments. Cost of sales was $191.7 million, 16.2% above Q3 2019 and 14.9% over Q2 2020, primarily due to increased wafer shipments and depreciation expenses. Gross margin was 24.2%, 6.8 percentage points below Q3 2019 and 1.8 percentage points below Q2 2020, mainly due to increased depreciation expenses and other fixed costs on the new plant in Wuxi.
Operating expenses were $74.2 million, $84.7 million above Q3 2019, largely due to increased development costs and reclassified fixed costs from the new plant, and 18.7% over Q2 2020, primarily due to increased development costs and labor expenses. Other income net was $24.1 million, 2.3% over Q3 2019, primarily due to increased government subsidies and share of profit of an associate partially offset by decreased fair value gains on financial assets at fair value through profit or loss and interest income, and 100.5% over Q2 2020, mainly due to increased government subsidies and a foreign exchange gain versus a foreign exchange loss in the previous period.
Income tax expense was $10 million, $22.3 million lower than Q3 2019, primarily due to decreased taxable profit. Profit for the period was $1.1 million versus $44.4 million in Q3 2019 and $1.3 million in Q2 2020. Net profit attributable to shareholders of the parent company was $17.7 million compared to $45.2 million in Q3 2019 and $17.8 million in Q2 2020. Basic earnings per share was $0.014 versus $0.035 in Q3 2019 and flat to Q2 2020. Annualized ROE was 3.2%.
Now I'll discuss the operating results of both the Hua Hong 8-inch wafer fab and Hua Hong Wuxi 12-inch wafer fab. First, let's have a look at the Hua Hong 8-inch wafer fabs. Revenue was $236.4 million, 1.1% below Q3 2019 and 9.5% over Q2 2020, mainly due to increased wafer shipments. Gross margin was 27.2%, 3.8 percentage points below Q3 2019, mainly due to increased depreciation expenses, partially offset by improved capacity utilization and a 0.5 percentage point below Q2 2020. Operating expenses were $30.8 million, 14.5% over Q3 2019 and 16.9% above Q2 2020, primarily due to increased labor and depreciation expenses. Profit before tax was $45 million, 23.7% below Q3 2019 and 7.7% over Q2 2020. Now let's have a look at the performance of Hua Hong Wuxi wafer fabs -- wafer fab. Revenue was $16.6 million, 75% over the prior quarter. Operating expenses were $43.4 million compared to $13.3 million in Q3 2019 and $36.2 million in Q2 2020, mainly due to increased development costs. Profit before tax was minus $33.9 million. EBITDA was minus $11.5 million, $7 million more favorable than Q2 2020.
Now I would like to provide more details on our revenue from Q3 2020. From a geographical perspective, revenue from China was $165.3 million contributing 65.4% of the total revenue, an increase of 11.2% over Q3 2019, mainly driven by increased demand for logic products. Revenue from United States was $34.1 million, a decrease of 3.4% compared to Q3 2019, mainly due to decreased demand for super junction products, partially offset by increased demand for MCU products.
Revenue from Asia was $30.4 million, an increase of 2.7% compared to Q3 2019, chiefly driven by increased demand for logic products. Revenue from Europe was $16.3 billion, a decrease of 4.9% compared to Q3 2019, mainly due to decreased demand for smart card ICs. Revenue from Japan was $6.7 million, a decrease of 17.2% compared to Q3 2019, mainly due to decreased demand for logic products, partially offset by increased demand for MCU products.
With respect to technology platforms, revenue from embedded non-volatile memory was $87.3 million, a decrease of 0.9% compared to Q3 2019, primarily due to decreased demand for smart card ICs, largely offset by increased demand for MCU products. Revenue from discrete was $96.2 million, an increase of 6.6% over Q3 2019, mainly driven by increased demand for general MOSFET and IGBT products, partially offset by decreased demand for super junction products.
Revenue from analog and power management IC was $33.5 million, a decrease of 8.2% compared to Q3 2019, mainly due to decreased demand for analog products. Revenue from logic and RF was $32.7 million, an increase of 48.5% compared to Q3 2019, largely driven by increased demand for logic products, partially offset by decreased demand for RF products. Revenue from stand-alone non-volatile memory was $2.8 million, an increase of 59.8% compared to Q3 2019, primarily driven by increased demand for flash products. Now let's take a look at the cash flow statement. Net cash flows generated from operating activities were $89.4 million in Q3 2020 compared to $70.7 million in Q3 2019, largely due to receipts of VAT tax return, partially offset by increased payments for labor. Capital expenditures were $403.6 million in Q3 2020, including $351.2 million for the Hua Hong Wuxi fab and $52.4 million for Hua Hong 8-inch fabs.
Other cash flow generated from investing activities were $88.2 million in Q3 2020, including, one, payout of $86.9 million from investment in financial assets at fair value through profit or loss; and two, $1.3 million of interest income. Net cash flows generated from financing activities were $222.1 million in Q3 2020, including, one, $219.5 million of proceeds from bank borrowings; two, $3.7 million proceeds from share option exercise, partially offset by $1 million of lease payments and $1 million of interest expenses for bank borrowings.
Now let's move to the balance sheet. Cash and the cash equivalents was $716.5 million on September 30, 2020, compared to $699 million on June 30, 2020. Financial assets at a fair value through profit or loss decreased from $84.8 million on June 30, 2020, to 0 on September 30, 2020, due to payout from investment in financial products. Inventories increased from $176.9 million on June 30, 2020, to $205.2 million on September 30, 2020, primarily due to increased wafer demand from customers.
Property, plants and equipment was $2,272.5 million on September 30, 2020, compared to $1,790.9 million on June 30, 2020. Total assets increased from $3,575.9 million on June 30, 2020, to $4,022.7 million on September 30, 2020. Our total bank borrowings were $243.7 million on September 30, 2020. Total liabilities increased to $848 million on September 30, 2020, from $526.1 million on June 30, 2020, primarily due to increased bank borrowings and payables for capital expenditures. That ratio increased to 20 -- debt ratio increased to 21.1% on September 30, 2020, from 14.7% on June 30, 2020. Finally, let me give you a top level outlook for the fourth quarter 2020. We expect revenue to be approximately $269 million and our gross margin to be between 21% and 23%.
This concludes my financial remarks. 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 Leping Huang from CICC.
Okay. I have 2 questions. The first question is about your Wuxi fab. So can you share some color on your -- the customer or the ramp-up progress going forward and especially for -- and we see the third quarter, your revenue already grew very strongly, you received that. What are the driver and what, for the future, additional applications?
And the second question is about your 8-inch. So we see that the 8-inch are in shortage status, and I think the market is expecting that the ASP of the 8-inch fab can go up. So what is your status now and if you seen the U.K. also expect the ASP production strip to go up?
Thank you, Leping. Very, very good questions. I've been getting of them lately a lot. First of all, on the Wuxi fab, okay. Now let me just go through with you the technology platforms that we're currently working on. We have, as I said many times in the past, we have virtually 6 different technology platforms that are going through R&D work or customer verification process, okay, or just -- yes, going through that process, okay? So we have the logic and RF, okay? It's the 55-nanometer RFCMOS. Okay, eventually, we get to RF SOI, okay?
The RFCMOS, it's already in production, okay? We're planning for more new products. Okay, RF SOI, production has now started, but we expect it will start probably sometime next year, most like mid of next year, okay? CIS, 90-nanometer CIS, okay, the French side illumination. We're talking about, it's the 2-meg pixel, okay? This is the main driver now for the Wuxi fab. We're talking about 10,000 wafers loading at this point on a monthly basis. Great demand for cell phone and other consumer applications. Our plant -- I mean, this is -- it's -- it will continue to ramp up for this product in Q4. We expect that there's going to be a huge revenue jump in Q4, just from this product, okay?
And then the other thing was the 65-nanometer backside elimination, okay? This is something we're going to be doing it sometime next year. Probably we'll start Q1 '21 on the 8-meg pixel, okay? Eventually, the 16-meg and 64-meg, okay? And then the other thing is embedded in the MOSFET memory, okay? We have already start production for the SIM cards and some bank cards. Early stage, but we're talking about the 1,000 loadings, mostly for the SIM cards. Eventually, I think this thing will get to about 3,000, okay? We have said in the past, we're going to migrate most of the smart card ICs from the 8-inch to 12-inch. So this is something we definitely will do. It's going to help us, help our customers. It is not the best ASP product, but moving from the 8-inch to the 12-inch back would definitely help the -- it's going to be a win-win situation for us as well as for customers because you'll make the cost more efficient, okay? It should make the ASP more stable. So long-term 12-inch definitely is the thing. And eventually, we're going to do that in a 55-nanometer platform, okay? But this will be something like, I would say, the 55-nanometer where probably we're going to start some new tape-out in Q1. And probably the production will start second half next year.
And then eventually the MCU, but it's still early stage, okay? We're going to start work on a few products now, and then I think the production will really start later because we have a lot of space in our 8-inch fab after we migrate smart card ICs from the 8-inch to the 12-inch. Therefore, we can do a lot of MCUs. And then you all know that MCU is a very, very high-margin product, very, very stable. And the growth has been just tremendous, okay, this year. And when talking about MC itself, it's probably going to be over 20% year-on-year, okay? Many applications.
And then the other thing is non-Flash, non-Flash, 90-nanometer non-Flash, okay? We're going to be probably start production next year, okay? Very solid customer we have in China. Okay. And then you got 16 megabit and eventually 32, okay? So that is something we're going to be doing. And then, of course -- then we eventually will move on to 55 nanometer, okay? So that's going to be the plan, okay?
So -- and then power management IC, okay, 90-nanometer BCD, okay? We have a very good international customer. We have signed a strategic agreement with us. We expect this -- we're starting the risk production now, have already started, okay? We'll start to ramp up really starting, I think, Q2 and Q3, okay? This is for eventually fast chargers, that sort of things, okay? But this is going to be a very major product for us in the future.
And then finally, the power discrete product, okay? We are -- we have -- as a foundry, we have the biggest capacity for power discrete, okay, globally. Nobody has a bigger foundry capacity -- discrete capacity than Hua Hong Semiconductor. So many, many good customers in China. We have already started production. Currently, I think we're going to be doing -- we're doing a lot of DMOS, split-gate trench and then -- the other thing is D trench super junction and eventually we're going to be doing IGBT. I think we're going to be doing mostly the IGBT, the high-voltage stuff in this 12-inch -- the fab, okay? We have about 3,000 a month now in production, already 3,000 power discrete in production. And certainly, it will be more and more, okay?
So I mean, just overall, the strategy is -- I mean, I think our ASP, people were talking to me earlier, had some questions, say, "Oh, your 12-inch fab ASP has gone down." That is absolutely not true. The ASP product -- ASP for 12-inch has not gone down. In fact, very stable, even as a slight increase quarter-over-quarter compared to the past quarter, okay? At this point, it is very important. We're moving very quickly with this fab. We have 20,000 wafers capacity, okay? By end of this year or early next year, it will get to about 40,000 wafer capacity, okay? And then the goal is to get to production. We're loading at this point, even though the utilization rate was, for the Q3, was 50 plus percent, but reality is just -- it's currently already loading about 15,000 wafers out the 20,000. So we're talking about 70% utilization rate, it has already gone up, okay? So we have -- the goal is to get to about 20,000 wafers in production/shipment by end of this year. And at the same time, we're going to be expanding -- we're going to expand the capacity to about 40,000, okay. Hopefully, it get to 40,000 by end of this year and early next year. So we have 40,000 wafer virtually to load, okay? And then the goal is to get the 40,000 wafers completely loaded by end of next year. So this is the capacity loading plan, expansion plan, okay?
So we will quickly load this 12-inch fab. At this point, as I said, we have 6 technology platforms. Three of them are already in production. The key is to make sure to get this capacity loaded very, very fast and almost fully. So make sure the utilization rate is very, very high. So therefore, you can reduce the fixed cost, okay? That is the most important thing. Initially, it is very critical to make sure this fab is loaded. And then from that point on, we can start to -- with the additional technology platform, we're going to improve the customer mix and as well as the product mix, okay?
And then you're going to see -- I mean, from this point, I think the ASP will gradually improve, but a portion of that will be loaded power discrete. So power discrete, because of -- it has less manufacturer layers. So the ASP will be well -- just, in general, smaller, okay? It all depends on mix of ICs versus par discrete. So that is the strategy. But overall, the ASP should only improve. You can see, look at the data, it's about $1,000 at this point, overall, the average ASP, okay? But I think from this point out, it can only go upward. That is -- so that is the plan for the 8-inch -- 12-inch.
As far as the 8-inch, yes, it is -- 8-inch is running very, very full at this point. I mean our 3 8-inch fab is running anywhere between 100% to about 110% for Q3, okay? Extremely high, okay? I think we're able to improve the product mix a bit. The ASP actually has -- did go up in Q3, slightly. We didn't really have a policy that is going out, raise our -- lift our ASP. It's not our strategy, okay? These things will be handled seamlessly when the demand -- if the demand continues to be strong, okay? I think the ASP will get improved anyhow because of customers' requirement and also product mix improvement, okay? So this is something we would do. But I certainly, I will -- I certainly expect that our ASP will go up. I think we should be able to improve in Q4 somehow as well. So let's see how that goes. But overall, we're doing it. It is -- the loading is very, very high, okay? We -- definitely, the second half is much stronger than the first half that we experienced, especially we came out the Q1, which was really on a low note for us. But when we're past that point, we're really in a great shape at this point. I think -- and with the strong demand currently, I think things can only get better.
Your next question comes from the line of Randy Abrams from Crédit Suisse.
Okay, Daniel, a couple of follow-up questions to the prior. Just for the inch running over 100%. Do you have any plans to debottleneck and add capacity at this stage? Or is this solely the Wuxi fab?
For the 8-inch fabs, you're talking about, Randy?
Yes. Yes. If you planned out any -- I think you have room for a bit more, but if you plan to do that or just keep it where it is.
Yes, yes, absolutely. We're spending some money on the -- we have been -- throughout the year, we've been investing. We continue to invest in the 8-inch space, okay? I think the investment is about -- as far as the CapEx is around about over -- slightly over $100 million, which is very, very normal for these 3 8-inch fabs. In fact, it is probably still under sort of the normal level, okay? But you can see our -- actually, our depreciation expense also went up a little bit because similar to what I say, why your gross margin was affected? Because we have been investing. We continue to invest in the 8-inch space, okay, so in Fab 1, Fab 2 as well Fab 3, okay?
So I think with these investments, our -- the 3 8-inch fab will continue to become better and better, okay? It is very important. As we're ramping up in the -- in Wuxi, we need to make sure we have a solid 3 8-inch fabs that are doing well. And then the timing is in our favor because market is very, very strong, okay? As I said earlier, we will continue to do that. We also allocate some money, budget for next year as well. We just had our Board meeting. They're very, very supportive of us doing that. I think the 3 8-inch fabs, I think, we want to eventually get back to this 30-plus percent gross margin. That is important for us.
Okay. And to follow up on that, the net capacity, would that change? Or is that fixed? Like with the -- you're doing like technology upgrades, but would there be any expansion in the actual wafer capacity you can do through these upgrades?
Well, the upgrades we're doing is virtually -- doesn't really change the -- adding the capacity for any of these 3 fabs. But you know what, we do have some space in our fab 3, okay? We can add about -- depending on -- we know what to think about this, okay? At one point, we decided to maybe we should do some -- basically, expand capacity for the power discrete. But we have to make a decision. We still have to think about that. We have about -- we can add about anywhere 20,000 wafers capacity for power, which is -- for regular IC, probably it's going to be around under 10,000, okay? So this is the space we have.
So if the timing -- if we do have that need, if the -- we have strong demand, and then we probably would do that. And we have enough -- certainly, we have enough budget to cover that if we want to do that for next year.
Okay. Great. And for the CapEx, could you maybe just give an update where this year -- I mean for CapEx and then initial view on 2021 as you finish phase 1 and start to consider the next phase, just if there's a view where CapEx could be.
Yes. For -- you're talking about specifically for 8-inch or for Wuxi? Let me just give you an overview, okay? This year, okay, on a cash flow basis, the 8-inch business, we expect for the -- we're basically less than 2 months away from the year-end. So I expect these numbers getting very close to the actual number. So I think we're -- I'm talking about close to $160 million capital expenditure we spent for the 8-inch fabs, okay, 3 8-inch fabs. I think 671 -- probably it's going to be around $70 million expansion, additional capacity. Just to bottleneck tools that sort of upgrades. And then we are also -- about 60 -- $46 million maybe on maintenance, just patent maintenance, okay? That's for the 8-inch.
Now for the Wuxi fab, we have -- it's a $2.5 billion investment this year, I mean, for the project. But this year, I think on a cash flow basis, I think it's going to be around about $1.25 billion, okay? That's probably -- it's going to be the spending. Of that, there's about $100 million, we're building the dorm for the technicians, the employees. So that is that part. But the rest, it's about plus $1.1 billion -- $1.1 plus billion that goes to the -- basically, mostly for the tools, okay?
Now for the $2.5 billion project, there's still about another $300 million remaining. I think the tools have already been ordered. I think it's just -- the timing is probably going to be next year for those payments, okay? So I think next year, the remaining balance will be another $300 million, again, mostly for the tool, okay? And we -- because of demand is very strong, where -- think about next step, okay? We're thinking about next phase of the expansion. We have built a huge fab. It's a mega fab, as I mentioned in the past. It is -- can potentially -- right now, it is 40,000 for the first initial phase. But the fab itself really can handle about 80,000 wafers. So we already start to think about the next phase, okay? We probably have to start the -- basically, we probably can do this in 2 stages. We can add 20,000 and another 20,000. That will require some additional investment, definitely. So we're looking into that.
Okay. But some -- next year, factoring $300 million, 8-inch probably continues near similar. So next year, it sounds like some work in process, but could still be a decent amount of spend if you move ahead with the second phase.
Yes, yes. Definitely, definitely. Yes, well, it's another 40,000 wafer capacity, which is -- but I think it'll be going to be smaller than the initial phase, okay, the first phase. But now think about this, okay? If we get to -- really, if we have 80,000 wafer capacity, we did the calculation, we did the model, we can -- basically, this well fab will generate about $1 billion revenue, just 1 fact, okay? It's going to be very close to what we have from the 3 8-inch fabs, okay? Currently, the 3 8-inch fabs is getting very close to $1 billion, okay? Hopefully, we can get to that number next year, okay? And that will be fantastic because -- and at the same time, the 12-inch fab will, next year, will also have a target for that, okay, in terms of revenue. So I think it will be fantastic. So I would expect -- we definitely will move forward, continue to expand. So hopefully, in the next 2, 3 years, this fab will generate another additional $1 billion for us.
Okay. Great. And the final question I have is just how are you thinking then about the breakeven on the first phase and then the profitability as you ramp up the second phase. And if you could also provide the depreciation?
Yes. Yes. Definitely, definitely. Well, you look at -- I always said, please focus on the growth on the revenue, the revenue. This year, next year, focus. Just pay attention to the growth of the revenue. That is very key for us. The EBITDA will come with it. I mean look at how well we did this past quarter. Virtually, where I think giving another quarter or 2, I think we should get to EBITDA positive very, very easily, okay? So that is the -- that gap was reduced by about $7 million, $8 million this past quarter. Very, very significant. From -- it was -- the EBITDA was about $22 million negative, okay, for Q2. Now it is reduced by $7 million -- more than $7 million. In fact, it's now negative $13 million. So it is reduced by $9 million, okay?
So I would -- pretty soon, I think in probably another quarter or 2, that we can get to EBITDA positive. And then hopefully by -- we're ramping from 20,000 to 40,000 by end of next year. So that will get us to sometime next -- hopefully, next year, second half, we can achieve that. It is not easy, okay, because we're investing a lot of money in R&D, okay, and also the depreciation expense is going to be very high, okay? So if we can get to that, we're probably going to set a record, okay? But I would -- I'm hoping that by end of next year, we can somehow get very close to that, okay? That is going to be important. So on your next question, what was your next question?
Well, that was just on the depreciation, if you have a rough number for next year.
Yes, definitely. Depreciation expenses. So the depreciation for -- depreciation amortization for the 8-inch fab is expected to be around about $130 million for the 8-inch -- for the 3 8-inch fabs. And then for the 12-inch fab, it is about $81 million. So overall, I would say it is about 220-ish, somewhere $210 million to $220 million. This is the -- how we're going to end the year for depreciation expenses for this year.
Okay. And I guess too early for next year.
No, no. We have to have these numbers. I mean, it may not be accurate, but things may change. It could be more, it could be less. But I certainly have a plan for that. So it is -- if you want to know about maybe just a rough number for next year.
Yes, if you have that.
Okay. Just a second. Give me a few seconds here. Okay. It's right here. I need to take a look at this. So I would expect for the 8-inch business, I think, for next year, it will probably be around pretty close to what they have this year, okay? It's about $130 million to $140 million, okay? But we'd like to keep in that range, $130 million, $140 million. And then for the 12-inch fab, I think that's going to go up, okay? It will be probably -- so this year, I said earlier, it is going to be around $80 million. I think next year, we'll probably have to double that number to about $160 million to $180 million. That would be the number. So overall for next -- so we're looking at, overall, about $300 million to $310 million.
Our next question comes from the line of Ng Szeho from China Renaissance.
Daniel, I have 2 questions. The first one on the balance sheet. And last quarter, actually, you raised roughly USD 220 million, right, exclude bank borrowings. But I noticed that it's a short-term debt. What's the reason behind? Is it because it's an evergreen loan that is subject to review every year?
Overall, for this year, for the past quarter, we borrowed about just overall slightly -- we have a $700 million loan facility. It's -- the $2.5 billion was -- $1.8 billion was equity, okay? We own 51%. The IC fund owns 14 -- 29%. The local government owns 20%. So that's the 8 -- $1.8 billion. Then we have a syndicated loan facility from -- by 5 banks basically. It's -- in total, about $700 million, okay? We're working on that loan. It's going to be signed off, I think, sometime this month. But we need the money, so we basically borrow a bridge loan, okay? There's no issue with that. We withdrew about $200 plus million, maybe slightly under $220 million. It's a combination of just -- it's a bridge loan plus some working capital loan, okay? So that was that.
But for the year, we're going to spend more money now. So for the year, I think in Q4 -- overall, I think this year, we're probably going to be spent -- withdraw about -- take out $500 million loan, okay? It's going to be -- it's a long-term debt. And then another $70 million on working capital. That's the expectation.
Okay. Got you. Right. Yes.
Our overall debt ratio is still very, very low. Debt ratio is still very low.
True. Yes, I just wonder why is that put under the short-term debt. Okay.
Second question on the 8-inch performance last quarter. Actually, it's pretty strong, right, in terms of the top line growth. But the gross margin was still kind of flattish, right, compared with Q2. What's the reason behind?
Well, it is -- for the -- you're talking about specifically the 8-inch business.
Right, right. Yes.
Yes, it was very strong. It was good. I think we had a very good -- the ASP did increase about 2.5% overall. We didn't go out to lift to ASP, I think. That's not something we do because we -- all our products, we have a market price. We basically always sell our products according to our pricing guideline. This is what our marketing salespeople do. And then -- now the gross margin go up largely because the depreciation expense went up a little bit. And also, the labor costs went up slightly because we paid a 6-month, half year bonus. So the labor costs slightly went up and plus depreciation expense went up. Just I said earlier -- look, we had a question on capital investment. We continue to upgrade 8-inch fab. So it actually went up slightly, about $2 million overall. So that probably explains why, basically, the growth model didn't increase significantly or maybe it was sort of compared to Q2. It came down a little bit.
But you know what, these things move so fast. I would expect we -- our margin should be pretty stable. But if the demand continues to be very strong, we have very good chance to gradually improve our ASP, okay? And then I would expect, in long term, I think our gross margin for the 8-inch business will improve over time.
Your next question comes from the line of [ Chen Kwai ] from Orion Securities.
First one is regarding the product breakdown. We can see the revenue from logic and RF products increased to 49% year-over-year and from communications increased to 48% year-over-year. So could you maybe give us more color about the huge increase from these products?
Well, yes, a few things. I think, for us, consumer is a very major important market. Industrial and automotive have gone up -- has gone up very fast because of power discrete recently. Communications and some other segment -- the reason it went up, you're talking about quarter to quarter, right? I think largely because we have this logic product. CIS is treated as under -- it's a logic product. Okay, that's why you see logic has gone up very, very fast. CIS is virtually an important revenue driver for now at this point in our 12-inch fab. I expect it will continue to be a revenue driver for the next few years, okay? So that's why -- that explains why it is -- it has gone up recently.
Okay. Got it. So it's also the driver for the communications?
The driver for communications, is that what you're saying? But that also has something to do with...
Yes, that's right.
Yes.
Okay, got it. The second question is regarding the -- like the gross margin, you have already given a guidance of 21% to 23% in Q4. So maybe can you give us a breakdown of 8-inch and 12-inch? Just now you mentioned the 8-inch gross margin will continuously improve. So maybe give us a guidance in Q4.
Well, I -- sure, sure, I can do that. What I said for the 8-inch business, it was 27.2% in Q3. But I think we should be able to do better next quarter, okay? Despite it's Q4, it's a year-end, there are a lot of elements into it, including bonus, but I think we should be able to have a better gross margin than the prior quarter, okay? I would say it should be somewhere close to 28%. But the Wuxi fab will continue. The depreciation expense will continue to go up, okay? So overall, it would have to depreciate -- the gross margin will probably even be lower, okay, I think, for Wuxi.
So I think that was the primary reason why, overall, we're talking about in the range of 21% to 23%. But you know what, we'll do everything we can. This company, if you look at our results for Q3, we exceeded our guidance on both revenue and the gross margin, okay? So overall, we plan conservatively. We're hoping we can do better in the end.
Our next question comes from the line of [ Kenji Kamasa ] from Nikkei.
I'm [ Kenji ] from Nikkei. I have 2 questions. One, with regard to U.S. sanctions onto your rival SMIC. What sort of impact of the benefit have you had since the sanction was imposed upon your largest rival? And also part of this first question, United States has a new President being elected. Do you think there will be any change in your environment doing business in the tech field with regard to the United States in the upcoming future? That's my first question.
Let me just answer your first question. It is -- we work with new customers on sort of a daily basis, okay? So we -- virtually, we have new customers knocking our door weekly, okay? So we always work with our open arm. I can't specifically answer you that question. But as long as the technology -- there's a technology fit, we work with whoever the customer is, okay? We -- I can tell you that we did get a lot of new traction lately, okay, from both new and existing customers. Our -- for the 12-inch fab, our CIS product is a new customer. Our NOR flash is also a new customer, and we have new customers for other platforms as well for our new 12-inch fab, but we also have a lot of existing customers also working with us on new products, okay? So we look at customers as a whole, okay? We don't really look at where they come from, whether it's TSMC or a neighbor or somewhere else. But we're looking at the customers as a whole. As long as we can serve them, as long as we can provide a better solution, as long as they accept that, we'll work with them. As far as the other question, okay, I think it's still too early to tell, okay, whether -- I mean, what -- can you rephrase that question? Can you perhaps rephrase that question very, very quickly again just on the U.S.?
Yes. Yes. I just wanted to know that U.S. would -- United States will have a new president. And how -- since under Donald Trump, the tech -- U.S.-China tension, especially in the tech area, has intensified, has been very stiff. So I was wondering how you feel under the overall environment situation is going to change or not under the new President?
Well, it's -- I think it is really too early to tell at this point, whether there'll be any changes with regards to export control. But Hua Hong Semiconductor, we have always been in compliance with the rules and regulations, our export control. We are one of the few VEU holders, validated end user. We have a very thorough and strict internal control process, including customer screening and good screen in place. So from that perspective, I don't believe it affect us or it will affect us.
Okay. My second question is on the government subsidy. Looking at the number, it was, what, USD 9.217 million that you received during the third quarter, which is almost double compared to the year before and like 1,900% more than a quarter before. Would you please break it down on what subsidies they were? Were they from the central government or from the Shanghai government? Were they from the much lower level of government? Or -- and also, what sort of -- what was the title? I mean, why did you receive so much more during the third quarter?
What's the number you're talking about now? 9...
At your government subsidy. Government subsidy under -- your broken down other income. It says that you have received $9.217 million in the third quarter, which is almost double as much compared to the year before?
Yes. It is -- some of that is -- it's for our new fab in Wuxi, and mostly it was a tax credit, okay, for some deal we negotiate with local government. Most of that. And then they're also positive -- the other -- it's a combination of -- from 2 areas. Well, most of that come from Wuxi and the other small part is from Shanghai, but it's mostly -- it's a tax credit, which we negotiate with the local government when we decide to build a plant there. That is very important, that local -- we get local government support not just in terms of policy, but in terms of actual cash. So that is something we got, okay? It's very important to get this sort of the support, especially the early stage of a fab, so that we can -- you want to have negotiate a good deal. This is not just China. This is global, wherever you try to set up a fab. Even in the U.S., you would get credit as well, okay?
So this was before. And then since you'll be continuing on with your investment in Wuxi, and therefore, the level of government subsidy is going to stay at the quite a high level then? The net upcoming quarter...
We -- I mean, if you're familiar with our company, like other analysts, we now -- we have told people that we have negotiated a fixed amount of subsidies that will help us in the early years, okay? It's a fixed number. I never publicly talk about this number, but we'll get it through the -- basically in the first 6 years. Each year, we get a part of this overall amount. It'll be more initially because of ramping up the depreciation expenses. It really meant to help us to offset some of that stuff. Okay, that's just in general. We have this kind of a subsidy agreement we have signed with local government. But on top of that, there are other things we get from here and there. For example, I said there's a tax credit. There are -- sometimes there are some projects that we work out that will give us some benefits. So that's what they are.
Your next question comes from the line of [ Tanya Ting ] from [ Juren Capital ].
My question is can you share some more specific plans for the capacity ramp-up for Wuxi 12-inch [ tomorrow ]? So I understand it's 40,000 by the end of next year, but can you share more details about the quarter-on-quarter capacity ramp-up and the -- and how we could do to develop our yield? And how -- when is the optimal, like breakeven point that we should have? This is my first question.
Okay. I -- basically, I answered all these questions in the past, but let me just be very brief on that again. It was -- we have about 20,000 wafer capacity, okay? We get to 20,000. We expect we'll be in 20,000 in production or shipment by end of this year, okay? That's the plan. We're already at 15,000. We're running about 15,000 wafers, okay, in our fab right now, okay, a month. So we hopefully get to 20,000 by end of this year. We expect that will happen. And then at the same time, we're also expanding the capacity from 20,000 to 40,000. We hope we get 40,000 capacity by end of this year, early next year, okay? And then with the additional 20,000, we expect -- we have 20,000 by end of year, okay, and then we'll get to 25,000 by end of second quarter. And then we have 35,000 by end of third quarter, the supply, and we'll get 40,000 by the end of next year. This is the manufacturing planning as far as this is the latest planning that I'm aware of. So this is how we plan to proceed. But on the breakeven point, as I said, we're hoping we can achieve by, hopefully, end of next year.
All right. My next question is, what is your plan for Fab 5 and Fab 6? Do we have some additional capacity expansion plan? Or will we get into -- okay.
Well, we don't have a plan yet. But for this fab, we have to first fill this fab first. As I said, the 40,000 will only fill half of the fab space. So the next phase is to make sure we fill the other half of the space. That will take another year or 2, okay? But certainly, as long as the demand and we have the technology to offer to the customers, I think we will in the future build under the new fab, but that will be sometime down the road, not a disappointment. We don't have a plan yet.
You next question comes from the line of [ Yang Lu ] from [ Father Securities ].
First question is about the Wuxi fab's ASP. And you just mentioned a lot of products of Wuxi fab, including smart card ICs and NOR Flash and IGBT. Can you give some color about the fabrication fee of this product, I mean, which is above the ASP and which is under the ASP? And how can we expect the ASP trend of Wuxi fab? And the second question is about the competition. Power discrete seems to be a booming market next 3 years. Well, sometimes like [indiscernible] is ramping up recently. So how can we maintain our current competitive position?
Well, for your first question, we're running around $1,000 for the 12-inch fab. At this point, we're talking about these are high-volume stuff, not necessarily the most lucrative product, okay? Not most -- they're high volume, but not necessarily the high margin. So I think early stage, still early stage, we have to get the fab filled first, and we expect in the future we will start to do embedded non-volatile memory, BCD and NOR Flash. I think the product mix should improve over time. We should -- therefore, our ASP will also go up, okay? So I would hope that within a year, we should be able to get to $1,100, $1,200. That would be a nice, I would say, trend, okay? And then the other thing is -- your second question. What was the second question?
The competition with [indiscernible]?
Well, that -- on that one, we are -- there is -- I mean, we're not concerned at all. I mean, why? We -- Hua Hong Semiconductor has the biggest foundry -- I mean, discrete capacity as a foundry, okay? We've been doing this for so many years. We start with the most -- the general MOSFET, low-voltage MOSFET business. We've been doing this for a long time, okay? So we are as superior to any other foundry in power discrete. We're even better than, I think, the like of TSMC, okay? So we're not concerned. I mean, yes, I mean it is -- there's a lot of demand for semiconductor. But to be able to do what we're doing, for example, just the IGBT super junction, you need to take time. You have -- you probably will have to do it for a long time. You ought to get to that stage, okay? So the -- it's a big market. The -- most of that high-end stuff, the high-voltage stuff were imported from U.S., Europe in the past. IGBT was virtually new in China, okay? So we expect this thing will continue to have great demand. And there are more and more design -- houses are doing it. For IGBT, we're probably the only supplier right now, okay? Nobody else can get into the market because -- I mean, into this business because we're so good at it. So it takes a long time for other people to get into -- be able to develop a good product. And you know what, whether it's international customers or if it's a local customer or local Chinese customers, they all know us. When it comes to power discrete, they come to us, okay?
Your last question comes from the line of Sunny Lin from UBS.
Sorry, I know it's a bit late, so I will try to be quick. So my first question is related to the question from the last person. It's on the ASP for Wuxi fab. I remember last time, you mentioned that by maybe second quarter of next year, you expect ASP to get to maybe $1,500, but now it sounds like the ASP improvement will be more gradual. Is my understanding correct?
It is the product mix. I never said -- we're doing many things there, okay? So if you look at our 8-inch fab, it goes -- the power discrete, in general, it's about $350 average to go from $250 to always to about $500 or more for like super junction. So the mix of about $350 to $400, okay? And then you have the things like embedded. This goes anywhere $500 for the smart cards to $700-plus for the MCUs. So $1,500 is definitely achievable for similar products we're doing. And then the power discrete, it is -- if you take roughly $350 times 2.25, it will be about around maybe $700 plus, okay? So it's going to be somewhere in between that range, okay? But for some of the stuff we're going to be doing at this point, still a lot of that is 90 nanometer. But once we get to 70 -- 55-nanometer technology, $1,500 is a very achievable price for some of the products, yes. So all depending on the product mix that where you're going to be. Things are changing, but at least they're changing for the better, okay? We are ramping up very, very quickly. I mean, I know all of you can't wait for us to get to $1,200, $1,300, eventually $1,500, but we're certainly just like everybody else. We're working very hard. We expect Q4 will be a great quarter for Wuxi. The fab is -- you heard what I said. We're looking to expand the capacity there very quickly, okay? So we have a lot of demand that we're seeing. We're talking to -- working on a lot of products with some very high-rated customers, okay, both in China and globally. So just work with us, be patient. We're moving very, very quickly on this, focus on the revenue. Don't think margin too much. Think about the good things like EBITDA margin. It's going to get better and better as we ramp up the fab, okay, about the capacity.
Yes, that's helpful. My second question is on the depreciation for 12-inch fab. What's the depreciation period for this fab? I would suppose that going to 2021, as you ramp to full capacity, potentially, you would need to depreciate on 40,000 wafer per month capacity basis. But based on the number you just provided, it seems a bit low if I divide like $2.5 billion by 6. I'm not sure if that's the right way to think about it.
No, you're on track. I mean, you're doing very well. This is how you do it because -- but you have to remember, we ramp from 20,000 to 40,000. We're not on a full 40,000 year, okay? If we do 40,000 in full, it will be around -- get close to $250 million to $300 million on depreciation just for Wuxi. Yes?
Got it. So...
So it's average number that we're talking about. I would expect $170 million next year. That's what I said earlier, I think. It is still -- yes, it's the 20,000, and it's still -- get to 40,000 by the end of next year. It's mostly going to be average, maybe it's around 20, 30 -- 25 to 30. So the depreciation is not in its full scale. But the year after, I think we'll get to that number.
Ladies and gentlemen, that's all the time we have for questions. I will now hand back to Mr. Danny Wang for closing remarks.
Well, again, thank you all for joining us today. Thank you for your support and the lots of enthusiasm. I look forward to talk to you again next quarter. Please continue to stay safe and healthy. Thank you.
Thank you. Ladies and gentlemen, thank you for your attendance. You may now all disconnect.