Nanya Technology Corp
TWSE:2408
Nanya Technology Corp
Nanya Technology Corporation, a titan in the semiconductor arena, has carved a prominent niche for itself as a major player in the dynamic world of DRAM (Dynamic Random-Access Memory). Established in 1995, this Taiwanese giant has masterfully navigated the ever-evolving landscape of memory technology with a focus on innovation and quality. At the heart of Nanya’s operations lies its commitment to the research and development of advanced memory solutions suited for a wide array of applications, from consumer electronics like smartphones and PCs to the sophisticated needs of data centers and automotive systems. The company's robust expertise in DRAM technology, coupled with strategic partnerships and vast intellectual property, enables it to maintain competitive edges in an industry marked by rapid technological shifts and intense global competition.
Nanya’s revenue streams are primarily anchored in the manufacturing and sale of high-performance DRAM products. Leveraging cutting-edge R&D, the company continually advances its product offerings to meet the increasing demands for speed, efficiency, and capacity. By focusing on technological innovation, Nanya effectively taps into key sectors necessitating memory solutions, such as telecommunications, networking, and computing infrastructures. The company has successfully optimized its manufacturing processes to increase yields and reduce production costs, thus enhancing its profitability. Through a well-rounded approach that integrates technological prowess with strategic marketing, Nanya Technology not only sustains its market presence but also positions itself for potential leadership in the global memory industry.
Earnings Calls
In Q1, Nanya Technology's revenue rose 9.3% to TWD 7.188 billion, reflecting improved shipments despite a net loss of TWD 1.941 billion. This loss was primarily driven by ongoing technology migration costs. The company plans to boost bit shipments by 30% year-on-year, revising its previous forecast of 20%. Positive market demand is fueled by AI growth. However, tariff uncertainties pose risks. Looking ahead, Nanya anticipates a gradual recovery in pricing and a potential return to breakeven by Q3 or Q4 2025 as operating efficiencies improve.
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[Foreign Language] Welcome to Nanya Technology's 2025 First Quarter Earnings Conference Call. [Operator Instructions]. The conference will be held only in English for investors around the world. Today's conference will be approximately 60 minutes. Nanya Technology's President, Dr. Pei-Ing Lee will summarize our operations in the first quarter of 2025, followed by our guidance for the next quarter and key messages. And then Nanya Technology's Executive Vice President, Dr. Lin-Chin Su; Vice President, Mr. Joseph Wu; and Financial Executive, Mr. Philip Jao, will join us as we open our Q&A session.
Today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. And as usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause the actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation slides.
Now I'd like to turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee for the summary of operations and current quarter guidance. Dr. Lee, please begin.
Ladies and gentlemen, welcome to Nanya Technology Q1 Investor Conference. I'm, Pei-Ing Lee.
Contents of my presentation today, is first start with our Q1 revenue and results, followed by CapEx and bit shipment, then the market outlook and conclude by business review and outlook.
For the revenue result, Q1 this year, Nanya's net sale comes to TWD 7.188 billion, versus Q4 last year, TWD 6.575 billion, with increase of 9.3%. Gross profit loss of TWD 1.075 billion versus loss of TWD 695 million is slightly worse. Operating income, loss of TWD 3.155 billion versus Q4 last year loss of TWD 2.812 billion. EBITDA for Q1, TWD 797 million. Nonoperating income, TWD 732 million and income tax benefit TWD 483 million. For Q1, net income comes to a loss of TWD 1.941 billion, at margin rate of minus 27% versus last quarter, 23.9%.
Earnings per share loss of TWD 0.63 per share versus a loss of TWD 0.51 per share and book value TWD 52.89 per share.
For quarterly revenue, the Q-to-Q revenue improved by 9.3%. This is the result from increase in shipment for high single-digit and ASP decrease by low single digit with exchange rate help on the low single digits. For a little bit more detailed comparison, net sale TWD 7.188 billion, a Q-to-Q improvement of 9.3% for the reason as explained on the right, which is explained in the last folio and gross profit loss of TWD 1.075 billion versus third quarter loss of TWD 695 million. Increase of gross loss by TWD 380 million. This is mainly due to product mix and we are in the process of going through technology transition. Basically, we are migrating from the existing technology and products into our newly self-developed 1B technology and product. And during those migrations, there's an increase in the cost.
And operating expense TWD 2.081 billion is very similar to last quarter TWD 2.117 billion. And operating income at loss of TWD 3.155 billion versus Q4 TWD 2.812 billion loss, and the operating loss increased by TWD 343 million. This is due to the gross profit loss explained above for the reason of product mix and the technology migration.
For the net income, it comes to loss of TWD 1.941 billion versus Q4 loss of TWD 1.574 billion. The net loss increased by nearly $367 million for the same reason explained above.
For operating expense on the left-hand side of the chart, for Q1 this year, [ TWD 545 million ], unaudited number for SG&A expense, this is pretty much in the normal range. And then on the right-hand side, R&D expense for the Q1, TWD 1.531 billion, also in normal range.
For cash flow situation, beginning of Q1 this year, our beginning balance is TWD 61.903 billion, and end balance is at TWD 62.479 billion. And the free cash flow is minus TWD 8.432 billion. The detailed reason is on the right-hand side of the chart, basically, for Q1, cash from operating activity, minus TWD 1.945 billion, and capital expenditure, minus TWD 6.487 billion with the financial activity and others, positive TWD 9.009 billion and an end balance of TWD 62.479 billion for cash situation.
If you please look at the bottom note, the net cash for Nanya comes to TWD 28.2 billion. This is a result from our cash and equivalent of TWD 62.5 billion minus the short-term debt and long-term debt. We still have a net cash of TWD 28.2 billion.
For the CapEx and bit shipment, Q1 CapEx is TWD 6.5 billion. And for this year CapEx planned up to TWD 19.6 billion. And although this CapEx, 30% will be in the equipment, mostly for the technology migration from current technology into our self-developed second-generation 10-nanometer generation. And for bit shipment, our Q1 bit shipment up by high single digit. And for this year, the plan is to have a better improvement of bit shipment up to 30% year-to-year, and this adjusts up from previous forecast of 20% year-to-year. And major reason behind it, is because the new transition of technology migration, we started to deliver, our self-developed 16-gigabit DDR5 into market. And also the market demand situation has gradually improved.
For market outlook, we're seeing AI drive demand for the cloud center in 2024 and most of the 2025. And from 2026, we're seeing that AI may gradually grow demand in the edge applications. The second point for the outlook is compact language models may expedite applications in edge devices, that means the mobile device, PC device, automotive and robotic may also include AI application. And also, it will trigger customer rise, DRAM specification. And we're also seeing opportunity for DRAM market demand improvement in 2025 due to AI booming and also inventory reduction.
However, tariff conflicts may undermine global economic recovery. And this is something needs to be closely watch out for.
For supply side, we continue to see major DRAM suppliers continue to allocate capacity to HBM and DDR5 and supply for DDR3, DDR4, low-power DDR4 gradually reduce, as the production and inventory reduced in this area.
For demand, our server CapEx remains strong in Q2 for cloud service providers and government agencies. And for mobile, China stimulus policy helped improve local demand in short term. For the long term, edge computation may accelerate the adoption of AI smartphones. For PC, we are seeing encouraging signs of low cost compact language models may trigger demand for AI PC and content per box. From the consumer side, in short term, the China stimulus policy helped improve DRAM demand in consumer and inventory and ASP improvement. And long-term, tariff conflicts may raise global economic concerns.
For business review and outlook. In Q1, Nanya's net loss of TWD 1.941 billion, EPS minus TWD 0.63. And our second generation 1B wafer input reaches 1/3 of our total input capacity in Q2 2025, and we have delivered 16-gigabit DDR5 at 5600 speed in Q1, and we are sampling 6400 speed as we speak.
For the third and fourth-generation 10-nanometer class, 1C and ID generation and customer rise, product developments are on schedule. For ESG recognitions, Nanya has a number of recognition in Q1. We were selected as the Top 100 Innovator by the Clarivate for the third consecutive year. We are ranked second in Taiwan for invention patent application last year. We selected for CDP's Climate Change A list and water security A minus list. We were also selected as S&P Sustainability Yearbook Member for the sixth consecutive year.
With that, I conclude my presentation. Now we may move to Q&A section. Thank you.
[Operator Instructions] The first one to ask question is Charlie Chan from Morgan Stanley.
So first of all, I'm wondering whether the recent tariff uncertainty changed the demand outlook versus 1 to 2 months ago. I think 1 to 2 months ago, we were expecting DRAM price to go up in 2Q and bigger increase in second half. So do you see any kind of change of the pricing outlook? And secondly, given the [ pull-in ] before the tariff, do you see 2Q demand start to decline given the [ pull-in ] is over?
Okay. Is Charlie, your question on tariff impact on DRAM?
Yes, DRAM price in terms of the 2Q DRAM demand?
Okay. The tariff situation, as you know, has been changed almost daily, okay. So based on the last week's tariff situation, the impact may be much more severe than today's situation. After last night, that there's 90 days of the basically allowance change for the tariff reduction to 10%, okay? So the tariff impact basically will be changed by tariff scale by itself to some extent. Overall impact on the DRAM demand, as I described in my talk is that we are seeing the demand situation actually, without considering tariff impact is actually gradually improving and is also promising due to AI booming, and also due to inventory reduction. And however -- and also due to you have a regional stimulus policy happening.
However, the tariff situation is making some potential concern. Based on the current assessment for the next 3 months, for instance, during this time frame, maybe a lot of negotiation happened. And during these 3 months, if the 10% tariff situation, for most of the countries, I would say the impact to DRAM demand-supply situation may not be very severe, okay? However, after 3 months, we still have to wait and see for the next move, okay?
And for the Q2 demand immediately, for AI related and also the -- in general, the stimulation package, those are still in effect and the inventory reduction is also happening as expected, okay? So in general speaking, I cannot give you a very firm answer on the tariff impact, but I feel that if it stays on this 90 days situation on the tariff impact to DRAM situation may be acceptable -- direct impact is acceptable. However, looking into that, you have to still look into global economic impact, how severe that development may be. But based on today's 10% assessment, the global impact maybe reasonably okay, too, okay?
Particularly to Nanya's DRAM though, our direct shipment to U.S.A. percentage-wise is not very high. So direct shipment is not -- our impact is not necessarily the direct impact, but mostly is indirect impact, by the economic and by general -- all this tariff conflict among different countries.
Great. So that is very clear. My next question is about your AI opportunity. I think people are developing wafer-on-wafer design. So I'm not sure for Nanya Tech and its strategic partners, do you have any planning toward the memory for wafer-on-wafer edge AI design. When would that start to contribute to the company's strategy. And secondly, regarding your DDR5 products, how much of those are used for the AI servers?
The last question first. So far, our DDR5 basically -- mostly in the PC and the server side will be mostly in low-density server side, okay, at this moment, okay? So maybe a direct shipment into key AI-related has not yet happened.
But your first question is about the AI DRAM, mostly customer rise, okay, the DRAM specification. Let me, Charlie, let me continue to my comment on that. For AI application, mostly you need very high speed and high-density DRAM associated with the GPU, MPU or CPU, okay? And by that means high density such as HBM. HBM basically is using integrated few 16-gigabit DDR5 together to make it HBM stack with the high bandwidth DRAM design, okay. So you need high-density DRAM as a first requirement condition because AI requires a lot of data for a lot of very high computation power with data flow, okay?
So that's the first step for Nanya that we are able to engage application on that. But AI also includes 3D integration, as you indicated, like the TSV 3D integration and could be HBM like bonding, could be wafer-to-wafer bonding, and those activities Nanya is in the process of engaging as well. And when it comes to the next requirement is that AI application like HBM require [ logic-based die ], okay? This is a point where Nanya will need to work with our customers where our customers, they do not have DRAM and Nanya have DRAM, but Nanya does not have logic, so we can cooperate to make this AI application possible.
And on top of that is that customers typically require [ non-JEDEC, non-standard ] DRAM design. And I would also come to a very interesting point that we can work with customers with personalized DRAM for specific customer-required specification. And those projects are ongoing. And I can comment on that is currently, they are very, very promising that several customers -- many customers have approached us for such applications, and we are working on it.
Yes, that's great to hear. So looking forward to the new application. And last one, very quick one, if I may. Based on your full year outlook, 30% shipment growth, pricing expectations, your full year depreciation growth, which quarter do you think Nanya Tech can reach a breakeven at the operating level?
For the technology migration, as I commented in the beginning, so we are going through this technology migration in the existing factory. Now our existing factory means that we have to reduce certain production for the existing technology, migrating the equipment set to the new technology, et cetera. So there is some work, some costs need to be reduced, okay. So that happened with the higher cost for the short term, but also comes with the transition into more output and cost reduction for the future, okay. And that may gradually happen, hopefully, by the end of second quarter or beginning of third quarter that may happen.
And also, you mentioned depreciation wise, okay? Or we will be seeing depreciation situation gradually improve for Nanya starting on Q4 this year, okay. So likely that our operation will be improving, okay. Have a good opportunity of improvement Q3 and Q4, okay. So that -- with that, we're looking, of course, for breakeven as soon as we can, okay, but knowing that the -- without the tariff situation and uncertainty, there's a very high potential that we can breakeven sooner, okay?
But with the tariff, they can bring some uncertainty also, okay? So the pricing situation -- at this point, I'm looking for the pricing situation may continue to improve even with the tariff situation, okay? But the impact could be big or small. It depends on the outcome of the tariff negotiation.
[Operator Instructions] Next one to ask questions, Simon Woo from Bank of America.
Dr. Lee, thank you very much for today's presentation. My #1 question is, do you expect sort of rush orders, I mean, the DRAM chip order from the OEM because for the next 90 days, should there be a good chance for your OEM customers to ship their product to the U.S., ahead of all the tariff implementation?
That's the only question. That's easy for me. As far as the rush order wise, it's sort of at this moment, a little bit difficult to determine it is a rush order or it's a general order, okay? Nanya is just barely beginning to ship our DDR5, okay? So from a DDR5 point-of view, we're seeing that the market acceptance of our DDR5 5600 and we are gradually moving to 6400 speed. Those acceptance is reasonably well, okay, in the market, okay? So I don't know how to define that as rush order or not. This is -- we are barely making the first step, okay?
And the -- for the general products like DDR3, DDR4, low-power DDR4, we are seeing that the -- in general the overall low power demand is reasonably well. And the DDR3, DDR4 also been helped by the China stimulus policy. And I don't think that's specifically rush order situation.
Yes, Because 90 days delay was just announced last night. So hopefully, you will get more chip orders. But very quickly, sir, do you expect that DDR5 can account for more than 50% or 60% by the end of this year?
You mean for Nanya or for the market?
Nanya Tech, sir, your sales volume or production volume of the DDR5 out of the total demand, when the ratio can show the crossover of more than 50%?
That would depend on DDR5 market demand and also on the value that we can -- the return that we can bring back to the company. So that could be adjustable. So I cannot tell you 1 specific number. But our goal, of course, if the market is promising, we would like to ship more.
So your annual guidance still 40% of the total DRAM for 2025?
30% more total DRAM for 2025, yes. And that goal likely -- yes, that goal is likely to be achievable. We are working on that.
Out of the total sales volume or production basis?
No, that's the year-to-year shipment difference, 30% more.
No, I mean 30% means 30% of your...
There are 2, Simon, there are two 30%, okay? One is our 1B input capacity is 1/3 of our input capacity, okay, that's almost 30%. And the other 30% is for the bit shipment year-to-year, we are looking for 30% more.
So just 30% bit growth rather than 30% penetration ratio.
30% bit shipment.
Bit shipment growth or sorry, out of the total shipments?
This year's bit shipment total, we are expecting to be 30% more than last year's bit shipment. Do I answer your question?
Yes. So 30% bit growth target, I got it. But my question is the percentage of the DDR5 out of the total DRAM their is volume in the 30% as well?
Potentially that's possible. But I don't specifically have some number because that will depend also on the DDR5 demand and the value we can bring into the company compared to other products as well.
Okay. Yes. So in Q1, I remember the DDR5 contribution to your total shipment is still low single digit or mid-single digit?
Yes, very small. Yes, Q1, we are beginning to ship Q1 and Q2 is likely to be more significant, yes.
And then one lastly, sir. I know it's a little bit challenging question, but sorry to ask this, but in the OP margin, Q1 was minus 44%. So how to make this one 0% or some positive number, do you think ASP increase will concern or maybe cost reduction could be better?
They are -- they have to come both. Simon, it's a tough question, but I thank you for asking. It's a very important question that for -- management team had to address, okay? The -- basically, it will have to come from the cost reduction and cost reduction will come from both operational efficiency, okay? I just mentioned that we are going through this technology migration. Basically, some of the equipment are currently running our previous technology, the products have to be transferred into the new technology, okay? And that requires a lot of qualification, setup of the equipment. And we are going through that already. And the impact on that is that your production efficiency will not be as good.
And also in the beginning of technology ramping, you also have to be very careful about your quality and specification. So likely, we're putting in a lot of [indiscernible] to that. So the yield point of view will be more challenging. So with that, we can -- we need to continue to improve our yield as well, okay? And on top of that, the cost also comes from the depreciation, okay? And at this point, we are -- because of introducing new equipment as well, we are at a peak of the depreciation. And that peak depreciation will gradually start to reduce, okay, or significantly start to reduce by Q4 this year, okay? Because we've been using many existing equipment to run both our existing technology and new technology, a lot of those equipment are coming to be depreciated, okay?
So we will be seeing depreciation start to have significant improvement on Q4 this year, and that will continue to improve beyond this year for the existing fab, before we are introducing any equipment into a new fab.
So cost wise, we will be seeing improvement, but also indicating that there's a good opportunity that the price situation will be bottoming up, okay, as we speak now okay? Likely the -- we're already seeing signs that because of the AI booming, because of inventory reduction, okay, we're seeing the general DRAM, the non-AI DRAM also improving in ASP as well.
Very quickly, sir, do you believe the price recovery soon because the spot market price recently recovered well. And then the -- I think the overall -- your competitor is cutting the legacy DRAM production. So do you expect the price recovery soon?
Well, as I say, we are already seeing a sign happening, okay? And the recovery actually would -- is -- without considering tariff conflicts, actually recovery confidence levels are quite high, okay. However, with this tariff conflict and that tariff conflict could be gentle, could be severe, okay? So that tariff conflict impact is yet to be assessed.
Based on my assessment for today, if the tariff remains at 10% as the first 90 days, likely the global economic impact will be reasonable, okay. However, if tariffs become worse or much worse, then we have to be very concerned on global economic and also as a result, in general, DRAM demand as well as not just DRAM, everything else, everything else will be a concern as well.
Thank you for your questions. We will now move on to the webcast questions. Dr. Lee, please begin.
Okay. We have the First question -- we have 6 questions from [ Michael, Yuanta Security ]. What is the reason for lifting the 2025 bit-shipment guidance?
Okay. I answered that in my presentation. Basically, this is because we have a new technology, we have a shipment on our DDR5 into the market, okay? And also, we're seeing the overall inventory reduction in the market.
Your second question, current DDR4, DDR3 inventory location?
Inventory has been improving, as I indicated, in general, that because shipment is increasing, as indicated already and also because production is reduced from the general supplier, okay? So the inventory is gradually being improved.
Question 3, is ASP shipment outlook for -- versus Q1, Q2 ASP and shipment outlook.
And ASP, as I say, is in the process of bottoming up, recovering, okay? And the shipment outlook is likely to be encouraging for Q2 versus Q1. Well, I also have to indicate that the tariff situation if it's very severe, then it could impact. However, based on the 90-day grace period that Mr. Trump announced, if this continues for 90 days, what I say about Q2 shipment and ASP likely to continue to be improved.
Question 4, has management seen early pull-in demand for client due to [ US tariff ]?
And that question has been asked by Simon just now, and I already commented just now.
Question five, any order shift increase from clients due to political issue?
Okay. This is very similar to tariff, okay? And the political issue that's including BIS or et cetera, we don't see specifically very significant situation happening there. Not very noticeable at this point.
How much is the idle cost and inventory write-down -- write-off costs in Q1. Will this cost be lower in Q2?
Yes. We had some idle costs, okay? And that's not very big, okay, maybe a few million dollars, okay? And will that be better in Q2? Yes, that will be better in Q2.
Now we have the next question coming from [ Kevin, Grand Fortune ]. Your question is, what is the current capacity utilization rate for DDR3, DDR4 and DDR5?
And our current capacity from Q1 is running around 90%, and this is likely to be going to be better in Q2.
Is ASP -- I'm sorry, this is 2 questions coming from [ Richard, Fubon Securities ]. Your first question is, is the ASP of DDR4, the same for 1B and 20-nanometer nodes?
It depends, DDR4 can be shipped to various products and also at various quality level, also may be different specification as well, okay? So the pricing for ASP is -- not depends on which technology it is coming from. But mostly, I should say, less dependent on technology, but mostly depends on their application, shipment and customer base, yes. And yes, for 1B that you have a smaller die, you may have certain specific applications that allow you to get better value.
And your question 2 is how much higher is the profit margin for 1B DDR4 compared to 20-nanometer DDR4?
And then I just mostly answered that question. It depends on their specification, their application. There are some differences, okay? 1B may give you more market application in certain specific areas. And so how much profit margin? That will also depend on how tough is the specification and the market demand situation as well.
Then we have a question coming from [ Stanley, SinoPac Securities]. You have 2 questions. Question one, what percentage of your current revenue comes from server application. All percentage for server application now is in single digit, okay. We are yet to make much improvement, okay. And hopefully, that will come better towards beginning of next year.
And second question is, for AI customer DRAM product, will the company be handling 3D integration part as well?
Answer is yes. Or would it only provide DRAM die and DRAM TSV integration to other OSD providers. This will depend on customer requirement. But mostly, we will be interested in doing TSV in house. And our equipment set is already installed in house.
And this is end of the questions. That's all the questions for today. Thank you for joining us.
Thank you, Dr. Lee, and thank you, ladies and gentlemen. That concludes our conference call today. Please be advised that a replay of the conference will be accessible within 3 hours from now, which will be available through Nanya Technology's website at www.nanya.com. We hope you will join us again next quarter.
Thank you for your participation, and have a wonderful day. You may disconnect your lines now. Thank you and goodbye.
Thank you. Bye-bye.