Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Semiconductor's third quarter 2025 earnings conference call. Today's call is hosted by Dr. Peng Bai, Chairman and President, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please be advised that your dial-ins are in the listen-only mode. However, at the conclusion of the management presentation, there will be a question-and-answer session, at which time you'll receive instructions on how to participate. The earnings press release and third quarter 2025 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. Please go ahead.
Good afternoon, everyone. Thank you for joining our Q3 2025 earnings call. Today, we will first have Dr. Bai, our Chairman and President, share some remarks on our third quarter performance. I then take you through our financial results in detail. I offer guidance for the upcoming quarter. We'll then open the floor for a Q&A session. With that, I turn the call over to Dr. Bai.
All right. Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. Third quarter 2025 sales revenue for Hua Hong Semiconductor reached a record high of $635.2 million, in line with guidance. While gross margin stood at 13.5%, above guidance, driven by the recovery in global semiconductor demand and the company's lean management practices. Our capacity utilization remained high. Both sales revenue and gross margin showed year-on-year and quarter-on-quarter growth. The enhancements in our core competencies, including process technology, R&D, market development, and operation, along with the results of our cost reduction and efficiency improvement initiatives, have gradually become evident. Our overall profitability is improving, laying a solid foundation for long-term sustainable development. Hua Hong Semiconductor possesses extensive expertise and exceptional management experience in specialty technologies. Facing the rapidly evolving global semiconductor landscape, the company must continuously advance across multiple core dimensions, such as technology.
Capability, and capacity expansion. The acquisition, which is currently progressing smoothly, will further increase our production capacity and diversify our process platform portfolio while creating synergies with our 12-inch production line in Wuxi to strengthen our profitability. Furthermore, the company is actively engaged in strategic capacity planning, focusing on technological breakthrough and ecosystem development to continuously enhance our core competitiveness amidst global industry transformation. Now, I would like to hand the call back to our CFO, Mr. Daniel Wang, for his comments. Daniel.
Thank you, Dr. Bai, for your exciting remarks. Now, let me walk you through a summary of our financial performance for the third quarter, followed by our revenue and margin outlook for Q4 2025, before opening the floor for the Q&A session. First, let's review our financial results for the third quarter. Revenue reached an all-time high of $635.2 million, 20.7% over Q3 2024 and 12.2% over Q2 2025, primarily driven by increased wafer shipments and improved average selling price. Gross margin was 13.5%, 1.3 percentage points over Q3 2024, primarily driven by improved capacity utilization and average selling price, partially offset by increased depreciation costs, and 2.6 percentage points above Q2 2025, primarily driven by improved average selling price. Operating expenses were $100.4 million, 23.3% over Q3 2024, primarily due to increased engineering wafer costs and depreciation expenses, and 2.6% over Q2 2025.
Other income net was $17.8 million, 61.7% lower than Q3 2024, primarily due to decreased foreign exchange gains and interest income, partially offset by decreased finance costs, and 67.4% over Q2 2024, primarily driven by foreign exchange gains versus foreign exchange losses in Q2 2025. Income tax expense was $10.4 million, 9.6% lower than Q3 2024, primarily due to decreased taxable income. Net loss for the period was $7.2 million, compared to a profit of $22.9 million in Q3 2024 and a loss of $32.8 million in Q2 2025. Net profit attributable to shareholders of the parent company was $25.7 million, 42.6% lower than Q3 2024 and 223.5% above Q2 2025. Basic earnings per share was 1.5%, 42.3% lower than Q3 2024 and 200% over Q2 2025. Annualized ROE was 1.6%, 1.2 percentage points lower than Q3 2024 and 1.2 percentage points above Q2 2025.
Now, let's take a closer look at our Q3 2025 revenue performance. From a geographical perspective, revenue from China was $522.6 million, contributing 82.3% of total revenue and an increase of 20.3% compared to Q3 2024, mainly driven by increased demand for flash, other power management IC, and MCU products. Revenue from North America was $63.8 million, an increase of 36.7% compared to Q3 2024, mainly driven by increased demand for other power management IC and MCU products. Revenue from other Asia was $30.3 million, an increase of 5.6% compared to Q3 2024. Revenue from Europe was $18.4 million, an increase of 12.6% compared to Q3 2024, mainly driven by increased demand for IGBT and smart car ICs. With respect to technology platforms, revenue from embedded non-volatile memory was $159.7 million, an increase of 20.4% compared to Q3 2024, mainly driven by increased demand for MCU products.
Revenue from standalone non-volatile memory was $60.6 million, an increase of 106.6% compared to Q3 2024, mainly driven by increased demand for flash products. Revenue from power discrete was $169 million, an increase of 3.5% compared to Q3 2024, mainly driven by increased demand for superjunction products. Revenue from logic and RF was $81.1 million, an increase of 5.3% over Q3 2024, mainly driven by increased demand for logic products. Revenue from analog and power management IC was $164.8 million, an increase of 32.8% over Q3 2024, mainly driven by increased demand for other power management IC products. Now, turning to our cash flow statement. Net cash flows generated from operating activities was $184.2 million, compared to net cash flow used in operating activities of $26.8 million, primarily due to increased receipts from customers. Capital expenditures were $261.9 million in Q3 2025, including $230.7 million for Hua Hong Manufacturing.
$19.3 million for Hua Hong A-Inch business. $11.9 million for Hua Hong Wuxi. Other cash flow generated from investing activities was $8.6 million in Q3 2025, mainly including $15.6 million interest income and $7 million receipts of government grants of equipment, partially offset by $14 million investment in equity instruments. Net cash flows used in financing activities was $104.2 million, including $99.9 million proceeds from bank borrowings and $14.4 million proceeds from share option exercises, partially offset by $5 million interest payments, $3.2 million of bank principal repayments, and $1.9 million these payments. Now, let's have a look at the balance sheet. Cash and the cash equivalents was $3.9 billion on September 30th, 2025, compared to $3.85 billion on June 30th, 2025. Other current assets increased from $688.5 million on June 30th, 2025 to $739.7 million on September 30th, 2025, mainly due to increased value-add tax credit.
Property, plant and equipment was $6.2 billion on September 30th, 2025, compared to $6.1 billion on June 30th, 2025. Equity instruments designated at fair value through other comprehensive income increased from $290.5 million on June 30th, 2025, to $381.3 million on September 30th, 2025, mainly due to increased fair value of the equity instruments. Total bank borrowings increased from $2.3 billion on June 30th, 2025, to $2.4 billion on September 30th, 2025, mainly due to withdrawal of bank loans. Total assets increased from $12.2 billion on June 30th, 2025, to $12.5 billion on September 30th, 2025. Total liabilities increased to $3.5 billion on September 30th, 2025, from $3.4 billion on June 30th, 2025. Debt ratio increased to 28% on September 30th, 2025, from 27.5% on June 30th, 2025. Finally, let's discuss our outlook for the fourth quarter of 2025.
We expect revenue to be in the range of $650 million-$660 million, with a projected gross margin of 12%-14%. This concludes my financial remarks. We now begin our Q&A session. Operator, please assist. Thank you.
Thank you. We will now begin the question and answer session. To ask a question, please press star one one and wait for your name to be announced. To cancel a request, please press star one one again. The first question is from the line of Lep ing Huang of Huatai . Please go ahead.
Okay. Thank you for taking my questions. I have two questions to Daniel and one question to Dr. Bai. The first question, I noticed there's a very strong beat on the gross margin this quarter. Also, I think ASP up 5.2% Q2 this quarter. Daniel, can you explain, break down the reason of this strong margin and ASP beat between the product mix improvement and the price adjustment of the existing products? Also, you give the guidance for next quarter. What's your outlook for your ASP in the fourth quarter? Thank you.
Thank you. Lep ing. First of all, we had extremely high utilization rate, okay? The three 8-inch fabs were consistently above 110% utilization rate. Our first 12-inch fab with 95,000 wafer capacity, the loading was consistently above 100,000 wafers, okay? The other fab that is currently ramping, it has about 40+ thousand wafer capacity, but the loading is above 35,000. Pretty soon, it is going to get to about 40,000 wafers in loading, okay? In terms of that, it itself helps the margin. Also, I think the most critical thing is the ASP improvement. We start to raise ASP in the second quarter and start to take effect in the third quarter. You said absolutely is correct. Overall, gross margin is about. The price ASP is quarter to quarter, or even compared to last year, was about 5.2%. Basically, the ASP improvement.
Was coming from all technology platforms, all technology platforms, including embedded non-volatile memory, okay? Power discrete and logic and RF, analog and power management IC, okay? It basically came from all technology platforms. I would say, if you want to really look at between product mix and ASP improvement, I would say 80% came from ASP improvement. The other 20% is largely due to product mix. As far as going forward, I think we will continue to improve ASP. I mean, we're looking at every order that comes in. We make sure that if there's any opportunity, we can adjust price, okay? I'm extremely positive about our Q4 in terms of ASP and the gross margin as well.
Okay. The second is also, Daniel. You also mentioned the utilization rate of your fab is very high. It's already 109%. Do you think that the, first, what are the actions you take to improve your factory utilization rate? Also, what do you expect the utilization rate looking forward? It seems you are adding more wafer into your Wuxi fab. Should we expect the utilization rate will further improve in the coming quarters? Thank you.
You know what? Excellent question. I'll let Dr. Bai answer the question.
Okay. Let me try. There's a few factors playing together. It's kind of a, there's some interplay of a few factors. First of all, utilization number, as you know, is based on standard IE calculation, meaning you're supposed to set up certain capacities, and based on that number, if you do better, utilization can be a little bit above 100%. But clearly, you can't be significant above 100%. Otherwise, the number would be incorrect. In our case, Fab 9A capacity continues to come online. There's two benefits. One is, Fab 9A itself started to contribute to revenue. It actually adds more pressure to gross margin because all the depreciation also started to come online. It does provide some avenue to make our existing capacity a little bit more flexible in the sense that now you have a bigger scale when the product mix shifts.
That you can kind of use each other's capacity in each factory. That is how we can get the capacity utilization a little bit better. Above 100% or 100.05%. Let me also add a comment to the gross margin. Gross margin also complex because I already said there is always a balance between how much more depreciation coming online, which is inevitable as the new capacity starts to contribute to revenue. On one hand, on the other hand, you have whether you can manage to increase prices. Daniel already talked about we did manage to increase our prices by about, you already calculated, around 5% in Q3. Another factor was our general cost reduction effort, make our cost structure a little bit better. That effectively balanced out some of the pressure we get from increased depreciation coming online. In the end, the Q3 story was a very good one.
It also exceeded our expectation. I do see that momentum in cost reduction, as well as the price stabilization, if not increase, also start to take a hold. That is a good trend for us. One more add to this is that when the demand is a little bit higher than our supply, which relates to why our utilization is so high, it also gives us a little bit of leeway, a little bit of flexibility in optimizing our product mix. Namely, we can choose to focus on given priority or given capacity priority a little bit more for the product that has a higher margin than the ones that have a lower margin. That also helps our price increases. I know I said a lot of things, but all those factors are there. It is really the end result and the net.
Is an interplay of all those factors that give us the overall Q3 result. Thank you.
Okay. Thank you, Coop. The final question I want to ask is that I noticed that in Daniel's statement that the flash business is one major driver for especially your China business. In the investor community, we are talking about the memory super cycle. Dr. Bai, what's your view on how Hua Hong can benefit from the coming memory cycle and is it an initial sign we see this quarter that your memory business or your flash business is going very strong? Is it an initial sign of this memory super cycle? Thank you.
Okay. Thank you for the question. First, I want to clarify the memory business that Hua Hong is engaged in is in the NOR Flash , which is one segment of overall flash business. That NOR Flash business, there is a two part to it. One is a standalone, just a standalone NOR Flash product. Another one is MCU that is basically integrated with the logic circuit. We participate in both MCU as well as flash memory. You're correct. We see strong business in Q3 in both MCU as well as standalone flash. I would say overall, NOR Flash market has a steady growth. It's probably a little bit different than the overall memory business. The other memory business, like the correlation with other memory businesses, is not that strong. For example, the NAND might be doing, has its own dynamics.
DRAM, HBM, DRAM-based HBM, all those related to AI applications, those have their own dynamics. Our part of the business, we do see steady growth. In the NOR Flash business, in both MCU and standalone. If you will, Q3 growth rate clearly is faster than the overall market growth. That probably has more to do with our own situation where our 55 nm NOR Flash started to come into the mass production phase in the last couple of quarters that started to pick up volume. Also, our 55 nm MCU business also is going into the mass production. In the next year or two, we're going to have 40 nm. In next year, 40 nm NOR Flash business is standalone as well as the MCU will come online. That will give us another push. In general, we do see that our flash business has a strong growth over the next.
Few quarters, even next couple of years. Mainly based on our new technology, new technology transitions. I will say the other memory business, their dynamics might be a little bit different. Some of them are also growing strongly. It's probably not correlated with our situation.
Thank you. Thank you very much. I don't have a question. Thank you.
Thank you for the questions. Our next question comes from Ziyuan Wang from CITIC Securities. Please ask your question.
Okay. Thank you for taking my question. I'm going to lay down our continuous performance. My first question is about the AI power output from the kind of power that's related to AI, and how do you view the impact on business? What percentage of companies ramp up at this time of consumer capital? Thank you.
Operator, we could not hear the question clearly. Can you please ask him to repeat it?
Sorry, Ziyuan. Would you be able to dial again or change to another better connection to repeat your question, please?
Sorry? Can you hear me now?
I'm afraid the line is bad. Would you like to dial back? We will take your question next.
Okay.
To move on to the next question. One moment, please. Perfect. The next question is from Ziyuan from Guosen Securities. Please go ahead.
Thank you for taking my question. Bai [Foreign language], Daniel [Foreign language] First, I have a quick follow-up. Just now, Daniel also mentioned the growth drivers for the next few quarters. Some factors like capacity expansion and also the price increases. How about the product structure adjustment for the future growth? Could you give us more details? This is the first question.
All right. In terms of the capacity expansion, we basically were. You will see continued increase from our Fab 9A because we are still in the capacity expansion phase. Earlier, Daniel mentioned that the Fab 9A reached about 30,000 to 40,000 wafer per month. Right now, it's been climbing over the last three, four quarters. That expansion will continue all the way towards till middle of next year. That reached the peak of about, I would say, 60,000 to 65,000. And those capacity will come online, will continue to give us, contribute to the revenue growth. That is on the capacity expansion front. In terms of the product mix, optimizing the product mix, that's really come down to the technology evolution. How our technology platform will evolve over the next few years. There are key technologies that we see that.
Will become better and more competitive. One starting with flash related. I talked about earlier, flash is a growth factor for us. I think with our 55 nm products online and next year, 40 nm products online, that will give an even stronger position in this sector. Hopefully, that will bring the added value of the prices up with it. Another significant technology platform is a BCD platform for power management. We see a strong growth, and we are also purposely expanding capacity for BCD, basically skewing our product mix, capacity mix toward supporting more BCD and BCD technology. BCD platform happens to be one that has a better margin among the technology platforms we offer. That will also give us a better product mix in essence. We continue to strengthen our overall technology development.
This is one of the areas that is definitely a focus for the company. When I talk about how can we further improve our core competencies, really talk about our technology capability and associated marketing capability. All the key specialty technology platform, we basically will continue to invest heavily. Some of the platforms, we're already the best. We're already number one in China, also very competitive worldwide. Some of them, we still have a little bit distance to travel to become world-class, to become the best. In general, we're best in China in most of the technologies we participate in. In some of the areas, we still need to improve a little bit to become really truly world-class. Here, I can also mention that some of the partnerships we have with our mainly European companies.
In the context of China, their China for China strategy is also a way for us to increase our competitiveness. I think I will stop right here in terms of answering your question. I do not know if it clarifies for you.
Thank you. Very clear. My next question is a relatively big one. Driven by the boost from AI, we can see the global semiconductor sales have grown for eight quarters. Compared to the previous cycle, it is a relatively long growth period. How do you see the growth momentum in following quarters?
It is a very big question, a broad question. I think the AI. I give you my personal take on this. AI is still at its infancy. I think the AI will continue to grow. How does the growth manifest in the different semiconductor? That's a little bit complex. The direct benefit, obviously, is for the advanced technology, advanced node, which Hua Hong Semiconductor is not directly participating. But there's a lot of supporting technology that associates with the AI products. We are a big part of those segments, like power management. Because when you have, you make AI systems, you need a lot of power management, either for training or now the industry seems to switch towards more deduction type of applications from training. I think we definitely benefit from overall AI growth through their increased demand for power management, for MCU, for all kinds of.
Power discrete products. They all need those. They need those in order to make the AI system work. We are definitely part of that ecosystem. In fact, some of the power management demand increase, strong demand increase over the last year, and continue, that seems to continue into next year or two, is primarily related to AI. Plus some of the new applications on the horizon, like cars and robots, those type of things. AI definitely is a big factor. That is how I see it. I think AI will continue to grow. The product mix there might go through its own evolution. Overall, I think that brings along all the chips that are needed in the AI system. That is where we get the direct benefit, is all those associate chips in the AI system that we do directly participate.
Yeah. I have a follow-up. How about the power semiconductors? Compared to the last few years, power semiconductors have shown some recovery. Still, besides the AI demand, the rest of the parts, the demand is relatively flat. How do we increase the pricing in the following quarters? How do you see the pricing in this part?
All right. You are a very astute observer. I agree with you. The power discrete platform, amongst our technology platforms that we participate in, probably has the biggest pressure in terms of the growth. I think there are a couple of factors. One is the increased competition, increased capacity in the power discrete, because the power discrete area, the barrier to entry is relatively small. There has been, over the last few years, large capacity coming online. That is one factor that puts some pressure on us. The second factor is technological, because right now, the compound semiconductor, like silicon carbide, mostly silicon carbide, but gallium nitride also starts to become a significant factor. Those compound semiconductor-based devices become a significant factor in the overall power devices market.
That inevitably takes away some of the silicon-based devices. Especially, for example, the superjunction that used to be a Hua Hong, it still is a Hua Hong strength. That is a direct competition for superjunction-based products, silicon superjunction-based products from the silicon carbide. Silicon carbide looks like over there, the people are willing to cut price very, very drastically. They start to have some competition with our superjunction. It is one of the topics we've been inside the company when we talk about our technology roadmap and also talk about our market perspective. It is one of the focus areas that we were coming up with some strategy. We already started gallium nitride development. We have been a big player in the power discrete. We definitely will not give up this market segment.
We will continue to be big and strong there by adding all the, whatever the customer needs. There are a few new initiatives in the power area that we will try to meet the challenge. The challenge is mostly a little bit long-term. Short-term, I do not see a huge problem. The longer term, over the next three or five years, we do need to do something there to make sure that we continue to keep our very strong position historically in this area. Thank you.
Thank you, Dr. Bai. I also agree with you. We also think the gallium nitride on silicon is a good direction for the new power semiconductors. That is all my questions. Looking forward to better performance in next quarters. Thank you.
Thank you.
Thank you for the questions. Once again, we will take the questions from Ziyuan Wang from CITIC Securities. Please go ahead.
Okay. Thank you. Sorry for the poor connection previously. My first question is about the international customer adoption. We can see that this quarter, the proportion of customers in the U.S. and Europe increased. We also know that STMicro previously announced that they plan to produce 40 nm MCU in Hua Hong by the end of 2025. How's it going? Are there any other new developments or new customers that you can share? Thank you.
You're correct that we have a partnership with ST on MCU, 40 nm MCU. That project has been going very smoothly. In fact, it's a little bit ahead of schedule. We already started with production in this quarter, so that's a little bit ahead of schedule. That will continue. It will start to contribute to our revenue in next quarter. In terms of ramp rate, it will take a while to get up to fairly high volume. It's definitely a steady and very robust addition to our product mix. That one is going well. Actually, this is one of the first collaboration projects we have with ST as well as other European companies for their China for China strategy. I think since now that we have worked together for quite a while and with this track record, everybody's confidence level has increased significantly. That's probably going to.
Play a very positive role in terms of expanding our collaboration in the number of the products and also the area of the world we can collaborate with each other. I would say that definitely is a hugely positive start. We will start next year, you will see a multiply of those collaboration projects come to fruition in the next year. In terms of the international portion of our business, we always like to increase our international business because it's one of our strategies. Ever since I started here, we set a strategy to see how can we increase our international business in terms of the percentage of international business. We are right now probably in the 15%-20% range. I haven't looked at the number exactly, but that's the range we are in. I think Europe and North America, both regions.
I do see strong growth going forward. Asia is a little bit more challenging. Our two biggest international regions, North America and Asia, will continue to grow strongly over the next few quarters.
Okay. This kind of customer also benefits from the AI, especially the AI power, right?
Correct. If you look at our business from North America, a big part of it, a part of it is the power management chips. Indeed, those are the ones that get used in the AI systems.
Okay. Thank you. Very clear. My second question is about the CapEx. Is there any outlook for CapEx for next year? As we are continuing to expand our capacity in Fab 9A, will there be any increase compared to this year, or will it be stable? Thank you.
Thank you, Ziyuan. Let me just give you an update on that. Basically, for 2025, the three 8-inch fabs, roughly, it's about $120 million overall on a cash flow basis. That is the CapEx spending for the three 8-inch fabs. The expected CapEx for Fab 9A, it is about $2 billion for this year. We spent about $3+ billion up to the end of last year. We are going to be spending about $2 billion this year. That gets us to about $5+ billion. The overall project, the total investment for the project is $6.7 billion. It will be about $1.3 billion-$1.5 billion for next year for Fab 9. Okay? That is it for basically the CapEx for this year. It would be $120 million for the 8-inch + $2 billion.
Next year, it'd be just about $1.3 billion-$1.5 billion for the remaining of the CapEx spending that we have to spend for this Fab 9. Of course, in the future, we want to continue to grow. We want to continue to expand. We have planned to basically build another fab, but that would be a different story. Okay? When that happens, we'll let you know what will be the total capital expending for that new project.
Okay. Got it. Thank you. Thank you, Dr. Bai and Mr. Wang. That's all my questions.
Thank you.
Thank you for the questions. Our next question comes from the line of Tony Shen of SPDBI . Please go ahead.
Bai [Foreign language] , Wang [Foreign language] . Dear management, this is Tony from SPDB International. I've also got two questions here. The first one. Can we have some color into the semi cycle, especially for Hua Hong, into next year, 2026? We know current stage is very good. The cycle is trading up. We have a little bit of tight supply with high demand. The gross margin is also trading up into third quarter and also into the fourth quarter. Do we still see the tight supply will continue into next year? Can we continue to raise prices for most of our products into next year? This is my first question. Thank you.
From the market standpoint, we do see the momentum will go into next year. We think next year should be better than 2025. There is uncertainties. Just from the pure market standpoint, unless there is something big happening like some of the geopoliticals, otherwise, we do see that the growth will continue into next year. That will give us some opportunity to raise prices or at least keep these prices stable. I think I want to be a little bit cautious in terms of raising too high expectations on how much prices we can raise because we are still in a very competitive industry. There are many, many factors involved. I do see overall, even the demand, just if the demand goes up, if nothing else, you give us a knob, will give us a way to optimize our product mix. I can choose to.
Make more higher margin products than lower ones. I have at least that possibility, that flexibility. Also, with our improved technology offerings, we basically add value to our customers' products. We tend to be able to, in that scenario, we should be able to also share the benefits that come out from those improvements with our customers. Have some kind of win-win situation. In general, I'm cautiously optimistic to use the cliché that 2026 will be better than 2025.
Okay. Perfect. That is very clear. My second question is still related to AI servers. Can I have a basic sense of how much revenue may come from directly or either indirectly from AI servers? How do we see the growth potential, especially into next year? Yeah. This is my second question. Thank you.
For AI server, there's a power management is an obvious product that goes into there. If you look at our power management business, I think it's about 10%-15% there. Not all of them are going to power the AI server, but the bigger growth part is related to power server. If you look at the numbers here, I would say the power management, we put it into analog and power management category, is about 25% of overall revenue. Probably right now, about half of it is related to AI server. So it's about 10%-12% of that. That portion, we believe will continue to grow strongly. Thank you.
Okay. Thank you. Thank you, Dr. Bai.
Thank you for the questions. Once again, if you'd like to ask questions, please dial star one one. One moment for the next question. Our next question comes from the line of Scarlett from BNP Paribas. Please go ahead.
Yeah. Probably on mute.
Hello. Hey, hello. Hello. [Foreign language]. First of all, congratulations on the strong performance. My question is on one of the numbers. So the operating cost is around $100 million. Could you share a bit of a breakdown of the wafer engineering cost and the depreciation? Could you also elaborate a bit on what drives the increase of the wafer engineering cost? Going forward, what do you expect the trend to be for both engineering cost and the depreciation? Thank you.
Out of that $100 million, depreciation cost relates to the R&D. It is about $18 million, $18 million for this quarter, Q3. Okay? We continue to invest in the R&D. We have a lot of new products, tape outs. This number, we expect in the future, will continue to be stable and will probably continue to grow as well. Okay? Basically, you have to realize the more we invest, that number will go a little bit higher. Compared to a year ago, that number is much higher now. That is basically the breakdown. The other, I would say, $80 million is all related to mostly labor, IP, and some other stuff.
Yeah. Thank you.
Thank you for the question. One moment for the next question. Our next question comes from Q ingyuan Lin from Bernstein Research. Please go ahead.
Thanks for taking my question. Thank you, Dr. Bai and Daniel, for sharing. And congratulations on the good results. My first question is around the one segment around the industrial and auto. How much is auto versus industrial? And do we see stronger growth on the auto segment? Because we are indeed seeing the auto demand in China still quite strong.
The industrial and auto, that part, is about overall for that segment. Was about. It's going to be nearly about. For Q3, it was about 22%. Okay? Going forward, I expect that segment will continue to grow. We have a. We expect this segment will grow, have a pretty big. Growth percentage for Q4, quarter- over- quarter. Okay? Out of that 22%, about 16% is related to industrial. About 6% is related to automotive. In fact, industrial has been recovering throughout this year compared to a year ago.
Just add a little bit to Daniel's answer is that the category you call industrial auto, it actually cut across all our product lines. Some of them are in power discrete, some of them are MCU, some of them are power management because those end product, end user product, like auto or industrial, they use all kinds of products. It is not just about, say, power management or MCU or power discrete. It is basically different. The number that Daniel gave you is the correct numbers.
Got it. Got it. Very clear. The second question is around the power discrete, actually. Looks like the percent of revenue from power discrete is coming down a little bit. Is it capacity constraint, or are we actually pushing out a bit of a demand because we do not see sort of enough demand there?
We talked about this in one of the earlier questions too, that power management. The power discrete as a percentage of all revenue is going down a little bit because the other has not grown as fast as the other segment. So that's how the number plays out. In absolute numbers, the power discrete business still grows a little bit. But as a percentage, because it hasn't grown as fast as with others. Relatively speaking, you will have a smaller percentage of our overall revenue. That's number one. The second point is that the reason we discussed earlier that this is one segment that we do see more competitive pressure, mostly on pricing. We still have a fully loading, and demand is still strong. The pricing, we won't be able to, we haven't been able to raise price on this area too much.
Going forward, it's probably going to be continued a bit of a pressure just because the entry barrier to this market segment is relatively low. Plus, we talked about earlier, silicon carbide is starting to have a bigger, to larger extent, and gallium nitride to a smaller extent, start to have an added pressure for this market segment.
Very clear. Thank you so much. Maybe last question quickly on any updates on FAST 5 consolidation, timeline, impact, synergy, etc.?
It is being moved along according to schedule. Okay? We had our first announcement. We basically already announced the price for the deal. We are negotiating. Almost close to the completion. Pretty soon, we are going to have our second announcement, second board meeting. We expect that would happen very, very quickly. We expect, literally, we are going to start to take over the operation, start beginning of next year. We expect the transaction will be closed by August next year. Okay? All of that will happen. Even the shareholder meeting will probably happen in December. We are moving according to the schedule. We are working with the shareholders, the other side, very closely to make sure in the end, we are going to have a very fair deal, a fair transaction. Whatever we are going to pay for the value is going to be from a company's perspective.
We're looking out to the interest of all the independent shareholders. Okay? So we want to protect the interest of all shareholders.
Very clear. Wait, wait, wait.
Just to add a comment there that the acquisition deal obviously is moving along at a pace that's commensurate with the regulatory requirement. We're following all the requirements of both exchanges because we're listed in both Hong Kong and in Shanghai. We definitely follow all the regulatory requirements and are taking all the steps. Our goal is to have a good deal for all the shareholders, as well as the seller as well as the buyer side of the shareholders. This obviously requires a lot of work to negotiate, to kind of get the assessment right. Daniel's team has done great work so far. We're getting close to the second milestone of announcing something very quickly. We are set to the deal price, I think. We will follow the regulatory requirement of having all the appropriate approvals that we still need to go through.
We hope that in this process, all the people who support our company, support Hua Hong, please do your part to make this thing go through smoothly. Acquisition is always not an easy thing to do, especially when listing both prices. We are pretty confident that we will have a very good outcome for everybody, for all the stakeholders as well as all the people who have been cheering for Hua Hong. Thank you.
Right. I mean, just one last statement. It's going to be a good acquisition. It's going to basically give us, as I mentioned before to many investors, $600 million-$700 million revenue addition. The company is profitable. Most of the depreciation is behind us. It's going to be good for Hua Hong Semiconductor. Long- term, hey, consolidation is the way.
Yeah. Daniel makes a very important point that this acquisition is strategically definitely a very, very good deal for the company because it has a lot of synergy. Our growth model is both organic, which we have been doing very aggressively over the last few years, as well as inorganic through acquisition. If we think it adds, if the total one plus one is going to be larger than two, we will do that. This is a good example of having a target, having an asset that can significantly add to our growth as well as increase our synergy. It should help our long-term growth and the profitability picture. Thank you.
Also with the.
Thank you so much.
With the additional specialty technology platform under Dr. Bai's leadership, I think it's going to be more profitable.
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.
This concludes our today's call. Once again, thank you all for joining us today. It's been very exciting. Thank you for all your thoughtful questions. We appreciate your continued support and look forward to speaking and seeing you again soon, next quarter. Okay? Thank you.
Ladies and gentlemen, thank you for your attendance. You may all now disconnect.