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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 Third Quarter 2021 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 third quarter 2021 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. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.
Good afternoon, everyone, and thank you all for joining our third quarter 2021 earnings conference. Today, we will first have Mr. Junjun Tang, our Executive Director and President, make some remarks on our third 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. Please pay attention, the call will be conducted in English. So please ask your questions in English. I will now turn the call over to Mr. Tang.
[Foreign Language]
[Interpreted] Good afternoon, everyone. Thank you for joining our earnings call.
[Foreign Language]
[Interpreted] Q3 2021 was the strongest quarter in company's history. Almost all market segments have strong demand, in particular, MCU, power management IC, IGBT, super junction, CIS and logic and RF. Revenue hit a record high of USD 451.5 million, an increase of 78.5% year-on-year and a quarter-on-quarter increase of 30.4%. Gross profit margin rose steadily to 27.1%, an increase of 2.9 percentage points year-on-year and 2.3 percentage points quarter-on-quarter.
[Foreign Language]
[Interpreted] Such outstanding performance is mainly attributed to the increase in selling prices for virtually all technology platforms and extremely high utilization. Thanks to all employees of Hua Hong Semiconductor for their dedication and unremitting efforts, both of our revenue and gross profit margin has once again surpassed our guidance.
[Foreign Language]
[Interpreted] We are full of confidence in the company's future. Judging from the current market demand, we expect the company to usher in unprecedented opportunities and growth with highest sales ever. In 2022, we will continue to grow at a high rate and make brilliant achievements.
[Foreign Language]
[Interpreted] Therefore, we are advancing the next extension of Wuxi Fab at full speed. We plan to reach a 12-inch monthly production capacity of 95,000 wafers by the end of next year to better fulfill customers' needs and expectations. A further expansion plan is being developed, and we will share with you as soon as it comes ready.
[Foreign Language]
[Interpreted] Now I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments.
Thank you, Mr. Tang for the wonderful comments. Now 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. And then we will move on to the question-and-answer session.
First, let me summarize financial performance as of the third quarter. Revenue reached an all-time high of $451.5 million, 78.5% over the prior year and 30.4% above the prior quarter. Cost of sales was $329.2 million. 71.8% above Q3 2020 and 26.4% over Q2 2021, mainly due to increased wafer shipments and depreciation costs. Gross margin was 27.1%, 2.9 percentage points over Q3 2020 and 2.3 percentage points above Q2 2021, mainly due to improved average selling price, partially offset by increased depreciation costs. Operating expenses were $72.3 million, 2.5% below Q3 2020. It was 57.5% above Q2 2021, mainly due to increased labor expenses and decreased government grants for research and development. Other income net was $7.5 million, 68.9% below Q3 2020 and primarily due to foreign exchange losses versus foreign exchange gains, decreased share of profit of associates, decreased government subsidies and increased finance costs and 37.1% below Q2 2021, primarily due to foreign exchange losses versus foreign exchange gains, partially offset by increased government subsidies.
Income tax expenses was $21.8 million, 117% over Q3 2020 and 50.5% over Q2 2021, primarily due to increased taxable profit, including an intercompany IP transfer transaction of $45.7 million. Profit for the period was $35.6 million, more than 30x over Q3 2020 and 4.2% below Q2 2021 due to tax on a one-off intercompany transaction. Net profit attributable to shareholders of the parent company was $50.8 million, 187.1% over Q3 2020 and 15.3% above Q2 2021. Basic earnings per share was $0.039, $0.025 over Q3 2020 and $0.005 above Q2 2021. Annualized ROE was 7.6%, 4.4 percentage points over Q3 2020 and 0.8 percentage points above Q2 2021.
Now I will discuss the operating results for both the Hua Hong 8-inch wafer fabs and Hua Hong Wuxi 12-inch wafer fab. First, let's have a look at the Hua Hong 8-inch wafer fabs. Revenue reached a record high of $314.8 million, 33.2% over Q3 2020 and 20.2% above Q2 2021. Gross margin was 35.2%, 8 percentage points over Q3 2020 and 3.6 percentage points above Q2 2021, primarily due to improved average selling price. Operating expenses were $42.6 million, 38.4% over Q3 2020 and 104.5% above Q2 2021, primarily due to increased labor expenses and R&D expenses. Profit before tax was $81.6 million, 81.2% over Q3 2020 and 24% over Q2 2021.
Now let's have a look at the performance of the Hua Hong Wuxi wafer fab. Revenue was $136.7 million, 723.3% over Q3 2020 and 62.5% above Q2 2021. Gross margin was 8.5%, 5.2 percentage points above Q2 2021, mainly due to improved average selling price, partially offset by increased depreciation costs. Operating expenses were $29.7 million, 31.5% lower than Q3 2020, mainly due to decreased engineering wafer costs partially offset by increased labor expenses and service expenses and 18.5% above Q2 2021, primarily due to decreased government grants for research and development. EBITDA was $29.9 million, flat compared to Q2 2021 mainly due to increased gross profit, partially offset by foreign exchange losses versus foreign exchange gains in the prior period and increased labor expenses.
Now I will provide more details on our revenue from Q3 2021. From a geographical perspective, revenue from China was $331.3 million contributing 73.4% of total revenue, an increase of 100.5% over Q3 2020, mainly due to increased demand for nearly all platforms. Revenue from United States was $47.9 million, an increase of 40.4% over Q3 2020, mainly due to increased demand for other power management IC and MCU products.
Revenue from Asia was $44.3 million, an increase of 45.5% over Q3 2020, mainly due to increased demand for MCU discrete and logic products. Revenue from Europe was $20.9 million, an increase of 27.1% compared to Q3 2020, mainly due to increased demand for discrete and smart card ICs. Revenue from Japan was $7.1 million, flat compared to Q3 2020.
With respect to technology platforms. Revenue from embedded nonvolatile memory was $126.5 million, an increase of 44.8% over Q3 2020, mainly due to increased demand for MCU and smart card ICs. Revenue from stand-alone nonvolatile memory was $19.9 million, an increase of 611.3% over Q3 2020, primarily due to increased demand for NOR Flash products. Revenue from discrete was $153.1 million, an increase of 59.1% over Q3 2020, mainly due to increased demand for general MOSFET, super junction and IGBT products. Revenue from logic and RF was $80.1 million, an increase of 145.2% over Q3 2020, mainly due to increased demand for CIS and the logic products. Revenue from analog and power management was $71.1 million, an increase of 112.2% over Q3 2020, mainly due to increased demand for other power management IC products.
Now let us have a look at the cash flow statement. Net cash flows generated from operating activities was $151.7 million, 69.7% over Q3 2020, primarily due to stronger collection from customers' receivables, partially offset by increased payments for materials and payables and decreased receipts of VAT refunds. Capital expenditures were $252.8 million in Q3 2021, including $224.5 million for the Wuxi fab and $28.3 million for the Hua Hong 8-inch fabs. Other cash flow used in investing activities was $11 million in Q3 2021, including $6.3 million of investment in the equity instrument and $5.9 million of investment in the associate, offset by $1.2 million of interest income.
Net cash flows generated from financing activities was $584.9 million, including $605 million proceeds from bank borrowings and $300,000 proceeds from share option exercises, partially offset by $19.4 million of repayment of bank borrowings, $700,000 of lease payments and $300,000 of interest expenses for bank borrowings.
Now let's move to the balance sheet. Cash and cash equivalents was $1.443 billion on September 30, 2021, compared to $974.5 million on June 30, 2021. Inventories increased from $355.9 million on June 30, 2021, to $395.8 million on September 30, 2021, primarily due to increased customer demand. Other current assets decreased from $175.6 million on June 30, 2021 to $169.3 million on September 30, 2021, primarily due to decreased VAT refund receivables. Property, plant and equipment was $8.26 billion on September 30, 2021, compared to $2.710 billion on June 30, 2021. Total assets increased from $4.991 billion on June 30, 2021, to $5.746 billion on June 30, 2021. Our total bank borrowings increased to $1.343 billion on June 30 -- September 30, 2021, from $754.9 million on June 30, 2021.
Total liabilities increased to $2.389 billion on June 30, 2021 from $1.5394 billion on June 30, 2021, primarily due to increased payables for capital expenditures and bank borrowings. Debt ratio increased to 40.7% on September 30, 2021, from 30.8% on June 30, 2021.
Finally, let me give you a high-level outlook for the fourth quarter of 2021. We expect revenue to be approximately $490 million, and our gross margin to be between 27% and 28%. This concludes my financial remarks.
Now we would like to start the question-and-answer session. Operator, please help. Thank you.
[Operator Instructions] The first question comes from the line of Randy Abrams from Crédit Suisse.
And a good result. I wanted to ask the first question. Just if you could give an update on the Wuxi, the shipment ramp where in the quarter, I think you averaged about 42,000 wafer per month. How do you see that ramping up to the 65,000? And then if you see a bit of limitation actually, like as you hit 65,000, do you need to wait a bit of time to get to the next additional phase, an additional 30,000?
So we currently have 65,000 wafer capacity. The loading at this point, it is at 65,000. So we literally from the beginning of the year, we were at 20,000 in terms of loading. So it has basically been wrapped up from that point to -- we reached 42,000 to 48,000 right around sometime in Q2. In April, we're already at 42,000. In end of June, we are already at 48,000, and then now we're running at 65,000. So basically, we're going to have 65,000 capacity -- monthly capacity for the -- as a base for next year.
Okay. And the follow-up to that, I guess 1 is, if you're at that run rate now, for fourth quarter is there a timing like where we could see actually above seasonal first quarter were some of the -- it's just a timing on shipment, like already reaching 65,000, so you actually see another sequential growth, even though normally first quarter fewer days, but you have more wafer out? And then with it staying 65,000, I guess, from that level through the year, maybe if you could talk to the growth, would you have additional 8-inch debottlenecking and then offer some further mix and ASP expansion?
Well, Randy, basically, I mean, we are the -- we have about close to 180,000 wafer from 3-inch fabs, okay? And the running -- we're pretty much running at close to 115% at this point, okay? So it's extremely high. I mean, it is very difficult to do any further product mix in that sort of tightness. So I think for next year, we continue to expect that the 3-inch fabs will run at the current rate. I mean with 178,000 wafer capacity, we're running at 110% and even above utilization rate percent.
Okay. And could I clarify the 12-inch though, the -- like potentially from the shipment ramp if you're already at 65,000, would there be -- I guess it's a timing, but I'm just trying to think of the growth next year. Is it front-end loaded? And then you need to wait for the new capacity. I know it's coming off a huge base. But is that the profile?
Yes, I can -- I mean it's going to be not easy. I mean it's going to be -- we're talking about 178,000, we're near to about 100% utilization rate throughout the year. And we have the 12-inch at 65,000 running at that rate, even a little bit higher. And then we expect we'll continue to go continued expansion. I can have Mr. Tang talk about expansion plan for next year. And then it will potentially, hopefully, we can get the tools earlier. But basically, we have 65,000 for the entire next year. And if we get equipment early, maybe Q4, we can have some additional capacity. That will be the scenario for next year.
And on the demand outlook, the China business is doubling. So you've had -- I mean, impressive, I think, because you've had a big 12-inch fab to expand into and the localization is really kicking in. When you look at the China customer base, I guess, the 2 elements where -- how you see the demand momentum? And if you see any areas where they've -- like how you're seeing the inventory levels like if they put in place more inventory factoring geopolitical or supply concerns?
And I mean that -- let me first address your question on testing the full [ product ]. We want to run a balance to revenue. If you look at our Q3, our -- basically all regions are growing, including the U.S., Europe and also Japan, okay? So at this point, our revenue from the -- from China exceeds 70%. I think we want to keep it at the current level with the 70% and 30% excluding China, that would be always -- it's the ratio we want to have. And you know what, let me pass this to Mr. Tang, and he can talk about customers.
[Foreign Language]
[Interpreted] Thanks to all employees' efforts we achieved 48,000 wafer start in May, and we completed the whole Phase 1 construction plan of Hua Hong Wuxi in the first half. Maybe we can remember in the last year-end earnings call, we mentioned we have capacity expansion to 65,000 wafer per month this year. And through all the efforts for all employees and support from our customers, we achieved this target in October, 2 months faster than the original plan.
[Foreign Language]
[Interpreted] We all know the market demand is very strong this year. We visited some customers in early this year and our customers have very strong demand for our specialty technologies. So in first quarter, we have made a plan to expand our capacity to 94,500 wafer per month. Now it's just in progress.
[Foreign Language]
[Interpreted] Just as what Daniel mentioned just now, the whole next year will be -- our capacity will be above 65,000 and we'll keep at a very high level of the utilization rate.
[Foreign Language]
[Interpreted] According to the capacity expansion plan of 94,500 wafer per month, we will be by the end of fourth quarter next year, we will achieve that target.
[Foreign Language]
[Interpreted] As we all know, we work together and always take challenges through the construction progress. We believe we can give you surprising achievements by the end of next year.
One final question, Daniel. For OpEx, without the grant this quarter, the $72 million, is that the run rate now to think about going forward? Or are we running a bit above? Like -- or just how you think about the OpEx now?
You're talking about the $72 million. I think it is -- I mean, I think it can be lower. This quarter, there are additional engineering wafers that are going into R&D. So I would expect, I think probably a normal rate will be around $60 million to $65 million. I think I expect next quarter should be slightly lower.
Okay. Slightly lower than $72 million?
Yes. But I mean the reality is we need to -- I mean, in order to be comfortable with that capacity, we need to have more tape-outs more. We have to do more engineering wafers in order to qualify product, especially for the 12-inch fab; it is very, very critical. So I mean the -- I mean it is very tight. It is the engineering lots are difficult to get into the fab, but we still expect that we have to do more in order to just to be able to qualify more products.
Okay. No, that's helpful. So that if you have a lot in the quarter, it could take it above $60 million, $65 million?
Right. But the revenue is also going up.
Our next question comes from the line of Andrew Lu from Sinolink Securities.
I have a couple of questions to ask. First 1 is regarding the tax rate. Earlier, Dan, you mentioned some -- because of some intercompany transaction. That's why we have a higher tax. So can we know what the Q4 tax rate we should be factoring into our model in the next year in average?
Andrew, I mean I'm glad you asked that question, and I want to clarify at this point. So there was an intercompany transaction. I mean there was intercompany transaction of IP transfer between Hua Hong Grace, which is HHGrace Shanghai and Hua Hong Wuxi, okay? So the IP is covered basically all the technology platforms that we're doing in Shanghai. Basically, there are 9 technology platforms, which transferred -- which will be transferred from HHGrace to Hua Hong Wuxi, okay? And the value of the transaction was $45.7 million. It is a great value. I mean, you can see the speed we actually have ramped for the Wuxi fab during the past 1.5 years, okay?
Without that sort of IP assisted by the HHGrace in Shanghai, this sort of success will not be accomplished. So the value of the transaction is $45.7 million. And we have -- if there is a transaction, you have to pay for tax, okay, you have paid for tax. So the tax rate is about 15%. So that is about $6.8 million, okay? So if there was no such transaction, our profit will be up by $6.8 million, which will be the -- basically will be the best -- will be much higher, it will probably get to -- and I'm looking at we are at $35.6 million. So we'll add another $7 million of profit it gets to about $42 million to $43 million, okay? So that is what happened. It's a onetime thing, one-off.
So the Q4, what kind of tax rate should we factor in?
Q4?
Yes.
Q4 would be normal. Q4 will be the 15% tax rate plus 5% accrued for any dividend tax.
So a total of about 20%?
I would say 19% effectively.
Okay. My second question is regarding Q3, you can see the 8-inch, the wafer shipments increased about 14% sequentially. But the catastrophe you reported in Q2 and Q3 is pretty much exactly the same. The utilization revenue reported in Q2 and Q3 is pretty much the same as well. So I wonder how can the company increase 14% shipment without increased capacity, without increased utilization of 8-inch wafer fab?
Andrew, can you repeat the first part of the question? I mean, I was -- I didn't get all the numbers.
Yes. You reported numbers, Q2 and Q3, 8-inch capacity pretty much the same and utilization rate for the whole company, pretty much the same at 110% for Q2 and Q3. But you reported the wafer shipment in 8-inch in Q2 and Q3 increased 14% sequentially. So I wonder how can you increase your wafer shipment without increasing your capacity, without increasing your utilization rate?
Well, it's very simple. I mean, we basically, ASP has gone up from Q2 to Q3 for the 8-inch business.
No, no, no. Daniel, wait. I'm asking the wafer shipment only, not consider the revenue?
Right. The wafer shipment for the -- from the 3-inch fabs was 545,000 wafers in Q2. This time, we got to 622,000, yes. So the shipment actually gone up. Okay. So you're asking why revenue is going up, but without your capacity has...
I'm asking why wafer shipment going up without increasing utilization without increased the capacity?
Right, right. I think some of that still was contribution from the inventory.
[Foreign Language]
[Interpreted] Our 8-inch capacity is about 178,000 per month. It's based on comparatively ideal model. But in the factual progress according to the market demand change and the product mix -- the change of product mix, we will [ wafer ] some certain products more or some certain products fewer according to customers' demand. So our actual capacity will be -- have some certain variance from 178,000 wafer per month.
[Foreign Language]
[Interpreted] The 180 -- 178,000 will be adjusted a bit according to market demand and the product mix optimization going forward.
[Foreign Language]
[Interpreted] So we'll address this number when since ready.
Daniel, can I ask my last question? I actually do a lot of research on your customers. And based on the inventory situation, revenue growth, whatever, all these -- most of these customers combined we see the revenue of your customer was slower than your revenue in Q3 and Q4 guidance. And actually see some of your customers' inventory coming out sharply in Q3 of your CIs customers and some other customers as well. So I think the investors will have a more concern, given your Q4 guidance is strong. While your first quarter come down with sequential coming down just like in the past few years, have some annual maintenance and some customer adjustment based on your current visibility?
Excellent question. Let me be very simple, Andrew. It's an excellent question. But let me -- we are extremely confident in what we're doing, okay? I mean, you may talk to some of our top customers. But you have to remember, we're dealing with more than 400 customers. I mean, literally in production, some are small. I mean we're talking about some of the MCU customers, we have many, okay? So all of them want capacity. I mean, you can't possibly be able to talk to all our customers. That's one thing.
And let me tell you, I think we're very, very confident with this Q4 guidance, okay? And I'm also extremely confident with our gross margin. I think they will continue to improve. I think, as I said, our pricing strategy is very, very different from other people. We do this very consistent. I mean we're doing this on a quarterly basis. You're going to continue to see that trend throughout next year. And I can be pretty very, very confident that our Q1 will be also a strong quarter as well, okay, unlike many other years, okay? So that is what I want to tell you. And in fact, we're going to be doing the maintenance earlier this year. We're going to be doing it in some of fabs -- most of the fabs we get it done in Q4. So that's what we want to do. So that Q1 will be -- all the capacity will be free for production.
I think the only way to explain this is, are we gaining share from our competitor in China?
Well, I mean, competitors, I mean, I never thought we have competitors because we're the only guy in the town and are doing what we're doing, okay? But let me -- let me say something else. I mean, if you can see how we actually ramp this fab from 20,000 to 48,000 to 65,000, even, at this point, the fab is running at more than 100% on the 12-inch fab, okay? I mean, I think I don't know about market share, but I can see the new customers, there are old customers. I mean we can't get enough basically capacity and customer wants to try -- customers want to try more new tape out basically with us. Mr. Tang can testify it, I mean...
[Foreign Language]
[Interpreted] Thank you for your question. It's a very good question. We accumulated a very strong and solid customer base through our more than 20 years of development history.
[Foreign Language]
[Interpreted]
Both 8-inch platform and 12-inch platform, our customer diversify very reasonable and competitive and easy to back up each other.
[Foreign Language]
[Interpreted] We do not have a dominant customer in either 8-inch or 12-inch fabs. We have very solid customer platforms in our specialty technology platforms. We have plenty of orders to support our customers.
[Foreign Language]
[Interpreted] Yes, our customers may have some inventory, but I think the inventory is very healthy to support their operations.
[Foreign Language]
[Interpreted] And we can see the customer demand is still very strong from the orders.
[Foreign Language]
[Interpreted] I think for our future business, the most important thing is to give our customers more capacity to satisfy customers' demand.
Our next question comes from Sunny Lin from UBS. Sorry, Sunny, your line is distorted. Maybe you can redial. Our next question comes from Szeho Ng from China Renaissance.
My first question regarding the Q4 revenue guidance. How much is driven by ASP and how much is driven by volume?
For the 8-inch?
I think overall, yes, or maybe you can break it down into 8-inch and 12-inch?
Okay. Okay. Okay. Okay. Compared to quarter-to-quarter, right?
Yes.
Well, let me look at the number.
Sure. No problem.
Yes. Okay. I mean just on -- just overall, Q3 compared to Q2? I think it's...
[Foreign Language]
[Interpreted] Yes, the Q4 guidance is a record high guidance for us.
[Foreign Language]
[Interpreted] The first thing come comes from the stable capacity support from 8-inch fabs.
[Foreign Language]
[Interpreted]
And from our capacity -- product mix optimization.
[Foreign Language]
[Interpreted]
And we will keep our 12-inch fab wafer start at 55,000 wafer per month at this level.
[Foreign Language]
[Interpreted] And this capacity support our revenue growth. And at the same time, we have some ASP growth.
Second question on the 8-inch operation. The gross margin actually picked up quite a lot in Q3. I just wonder how much more margin upside we can go from here?
Szeho, good question. I think you're going to see some continued improvement on our gross margin, our margin expansion going forward, okay? This is not it. I think we're going to continue to see some nice ASP increase for both 8-inch and 12-inch in the future quarter, including Q4. And so therefore, our margin should continue to improve over time. We expect Q4, especially 8-inch, I mean, 8-inch, I think we're going to do better. And also for Wuxi, I think we also will see a nice increase.
Definitely. But how, let's say, 40% is realistic target sometime next year for the 8-inch?
I will hand that question to Mr. Tang.
We'll try our best.
Okay. Last question regarding the IP transfer. Daniel mentioned that is one-off. But going forward, would there be some recurring, let's say, the IP and royalty income relating to these IPs?
No, I don't see anything in the near future. It's again, it's a onetime -- it's a one-off intercompany transaction. That is something we have to do. We have to help these Wuxi guys, they need to ramp up quickly with hopefully soon with a complete set of our specialty technology platforms.
Okay. But why did we do it in Q3, but not earlier, because since Wuxi has been in production for over a year, almost 2 years?
Why it's not then instead of now?
Yes, yes, why in Q3 this year, but not earlier? Yes.
Because this is probably a good time because we have done that. We have been doing that in the past 12 months. I think this is a good time to send them a bill.
[Foreign Language]
[Interpreted] So as Mr. Tang said, we are a very, very stable and growing company. So we do that kind of deal. There's no rush. It's just intercompany. So when we become, things are ready. When things are ready, we would do that kind of stuff.
Our next question comes from the line of Leping Huang from Huatai Securities.
The first question is also about the capacity expansion plan in 2022. So I think you have various platforms like MCU, power, NOR Flash, et cetera. So when you plan your capacity in 2022, what will be the focus you plan to expand, considering the current market condition?
Just a second. Just a second.
[Foreign Language]
[Interpreted] For our capacity expansion plan, what we do from 48,000 to 65,000, our capacity expansion covers all major specialty technology platforms.
[Foreign Language]
[Interpreted] We pay special attention to the market demand -- market expectations for our specialty technologies.
[Foreign Language]
[Interpreted] So including our embedded flash, power management ICs and sensors. We communicate very deep and broad with our customers during the progress.
[Foreign Language]
[Interpreted]
So we keep the same strategy to the next step expansion to 94,500 wafer per month. We just further enhance our special technologies.
[Foreign Language]
[Interpreted] So IC plus power discrete will be our ongoing strategy.
[Foreign Language]
[Interpreted] We have a very good communication with our customers. We just satisfy the market demand, and we have very good relationship with our customers. They stick with us.
[Foreign Language]
[Interpreted] They stay with our specialty technologies, and that's the base of our cooperation.
[Foreign Language]
[Interpreted] It's also the base of our further expansion, be stronger and just bigger.
Okay. The second question is about the end demand outlook. So we see a relatively mixed signal about the end demand, some applications very strong, some tend to be very weak. So -- and based on your discussion with your customers, based on this discussion with your customers. So I think you have roughly -- I look at our third quarter numbers, roughly 60% is consumer, 20% smartphone, 20% is industrial and auto. Based on which application, can you share some color on based on the customer type now? And if you look forward 1-year by the end of 2022, so what your mix by customer type will be?
[Foreign Language]
[Interpreted] Actually, all the end markets have very strong demand for our product specialty technologies, no matter NOR Flash -- our eFlash, NOR Flash or the BCD or the sensors.
[Foreign Language]
[Interpreted]
Starts from Q2, we put more efforts on the automotives.
[Foreign Language]
[Interpreted] As you know, many of our products in our specialty technologies can be applied to the automotive, like the new energy vehicles.
[Foreign Language]
[Interpreted] So for us, the first thing is to the -- to do the quality control for the -- to satisfy the requirements of automotive.
[Foreign Language]
[Interpreted] And then we do further communication to the -- with the end customers to know their 3-year to 5-year mid- to long-term plan, so we make our own 3 year to 5 years plan.
Our next question comes from [ Yian Lo from TF Securities ].
The first question is about your selling price. We noted the ASP sequential increase in Q3, both in 8-inch and 12-inch. And so I wonder how much the ASP change contributed by the selling price increase and how much contributed by the product mix improve? Can you share some well about your selling price plan for the next 2 quarters?
Thank you, [ Yian ]. That's an excellent question. We're running extremely tight fab. Utilization rate is the historical high. And we're talking about more than 110%, okay? So there's virtually -- there's very little room to do any significant product mix improvement. So it is mostly because of ASP increase that were driven -- the growth were driven from.
And so how you think the selling price trend for the next 2 quarters?
I think we're extremely positive. I mean I have looked at the forecast for the next few quarters. Demand continues to be extremely strong into Q1 and Q2, even the entire next year. So we expect with that strong demand, we will continue -- we're continuing to improve our product -- ASP and product mix over time.
As I said, we don't want to just all of a sudden, we have a huge increase in ASP. We're going to be doing this quarter-by-quarter. So when you look at the whole year, it is very respectable. It is very significant for the company.
Okay. And my second question is about your material price. And due to the political environment, some material seems to be in short supply in Q3, such as photochemical and the wafer. Do we see any trend of semi-material raising price in Q3? And do you think this will put pressure on Hua Hong's future margin?
Well, if you're in the semiconductor business, rising on cost, it is always something you have to deal with. I think there are some challenges for next year, especially on substrates, electricity, even in direct materials, okay? So we're working extremely closely with our equipment vendors and just in general with vendors. We've done that every year in the past. And we continue to make sure that we're going to get a good deal out of the -- basically, it's going to be a fair price, okay? So we expect the price will continue to go up. And that will offset some of the increase on costs, but that will still give us significant room for margin expansion.
Thank you. Our next question comes from Sunny Lin from UBS.
And congrats on the solid performance. My first question is on your 12-inch fab. So I wonder when your capacity gets to 95,000 wafer per month at the end of next year, how should we think about the spending for OpEx per quarter?
Excellent question, excellent question. I think in terms of operating expenses, I think for the whole year, for the 12-inch fab, I would expect that's going to be pretty much maintained at about $130 million to $140 million a year, okay, just overall, when we get to 95,000, okay? Most of that will be going to R&D. I would say 2/3 will go to R&D and 1/3 will going go to administrative and sales and marketing.
Got it. And I remember previously, you mentioned that for 8-inch normal OpEx for the business. It's also about $140 million per year?
For the 8-inch business, I think we can probably even do better. I'm hoping that the operating expenses for the 8-inch business would definitely be very stable. I think depreciation -- I mean, if we don't invest in CapEx, okay? I mean, the depreciation expense will go down from a manufacturing perspective, okay? Even from operations expense perspective. I think the operating expenses were pretty much very, very stable. It will be around $120 million to $130 million a year, slightly lower than the 12-inch business.
Got it. Another follow-up for 12-inch. As you continue to migrate to 55 nanometer, what kind of ASP should we expect to achieve for Q4 and also 2022?
I mean at this point, the ASP will be between 90 and 55 just we're talking about ICs. It is somewhere -- again, go anywhere from 1,200, 1,300 even to 1,600. A few things [ alter ] the 1,600 for some of the parts are running at 55 nanometer technology. So I think longer term, we really want to see that the ASP for this fab, for the IC, excluding power discrete, it should be anywhere between 1,500 to $18,000 a wafer, okay? So that is something we want to achieve. I think if we have an average ASP at the $1,300 overall, including power discrete, and the power should get to over 1,000 okay? So that will give us a very, very nice model. We can have run around 20% on that, 15% to 20% even with depreciation expenses ASP. We can run around 15% to 20% of operating profit.
Got it. Very helpful. Maybe one last question for your Q4 revenue guidance. Sorry if this has already been asked. But your guidance is for total revenue to grow by 10% quarter-on-quarter. Can you give us a breakdown by 8-inch and 12-inch?
Well, I mean, the 8-inch should be pretty -- overall pretty stable -- should be pretty stable, okay? Maybe with slight growth, because we're really running at its extreme. But I think the 12-inch will continue to grow. I think most of the profit will come out from the 12-inch fab. But you can see the 12 -- the 8-inch, these three 8-inch fabs are doing a fantastic job. If you look at our numbers for the past 3 quarter, plus the guidance for the next quarter, I think we're -- this is a fantastic year for the for the 8-inch -- for the 3-inch fabs. It's a historical -- just incredible achievement.
Great. Thank you. Ladies and gentlemen, that's all the time we have for questions. I'll now hand back to Mr. Daniel Wang for closing remarks.
Well, thank you very, very much. I think we had a great call. We look forward to talk to you again next quarter. We're hoping that things -- again, things will open up. I heard things will open, especially for people that currently live in Hong Kong or other places. Hopefully, soon we can meet. And -- but in the meantime, continue to be very excited about Hua Hong. Thank you.
Ladies and gentlemen, thank you for your attendance. You may all disconnect.