Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Semiconductor fourth 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 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 fourth 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 Q4 2025 earnings conference. Today, we will first have Dr. Peng Bai, our Chairman and President, provide an overview of our fourth quarter and the full year performance. Our Daniel Wang will take you through our financial results in detail and offer guidance for the upcoming quarter. With that, open the floor for a Q&A session. With that, I turn the call over to Dr. Bai.
Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. Fourth quarter 2025 sales revenue for Hua Hong Semiconductor reached an all-time high of $659.9 million, with a gross margin of 13% for the quarter, both in line with our guidance. For the full year of 2025, the company reported sales revenue of $2.4 billion and a gross margin of 11.8%, both achieving year-on-year growth and meeting management expectations.
Against the backdrop of the global semiconductor market being driven by demand for AI, AI and related products, coupled with a recovery in consumer demand led by the domestic market, the company maintained full capacity operations throughout the year at an average capacity utilization rate of 106%, which ranked among the leading levels in the foundry industry. By optimizing product mix, reducing costs, and improving operational efficiency, we achieved strong performance across various specialty technology platforms, especially in standalone NVM and the power management areas, effectively supporting the company's revenue growth and margin expansion. In 2025, the company continued to advance its strategic plan for capacity expansion. The first phase of capacity construction for the second 12-inch production line in Wuxi, we call Fab Nine, exceeded expectations for completion, and the Shanghai 12-inch manufacturing base, Fab Five, acquisition progressed as planned.
Looking ahead, the company will maintain strong focus on developing world-class specialty technology platforms with innovation and through rapid generational iteration, while deepening collaborations with strategic customers, both domestically and internationally. We remain confident in our ability to seize growth opportunities amid changes in the global semiconductor industry and are striving to meet shareholders' long-term expectations. Now, I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments.
Thank you, Dr. Bai, for your inspiring comments. Now, let me walk you through a summary of a financial performance for the fourth quarter, followed by a recap of our full year 2025 results. I then provide our revenue and margin outlook for Q1 2026 before opening the floor for the Q&A session. Now, first, let us review our financial results for the fourth quarter. Revenue reached another all-time high of $659.9 million, 22.4% over Q4 2024, and Q4 2025, and 3.9% over Q3 2025. Primarily driven by increased wafer shipments and improved average selling price.
Gross margin was 13%, 1.6 percentage points over Q4 2024, primarily driven by improved average selling price and a cost reduction efforts, and a 0.5 percentage point dip from Q3 2025, primarily due to increased labor costs. Operating expenses were 132, $130.2 million, 17.7% over Q4 2024, primarily due to increased labor costs and the depreciation expenses, and 29.6% over Q3 2025, mainly due to increased labor costs, costs. Other income net was $34.1 million compared to the loss net of $40.5 million in Q4 2024, primarily due to foreign exchange gains versus foreign exchange losses in Q4 2024, decreased finance costs and increased government subsidies.
It was 92.1% over Q3 2025, mainly due to decreased finance costs. Income tax expense was $8.1 million, 22.3% higher than Q4 2024, primarily due to increased taxable income. Net loss for the period was $18.7 million, narrowed by 80.6% compared to Q4 2024, and the widening of 159.9% in loss from Q3 2025. Net profit attributable to shareholders of the parent company was $17.5 million, compared to a loss of $25.2 million in Q4 2024, and a profit of $25.7 million in Q3 2025. Basic earnings per share was $0.01. Annualized ROE was 1.2%. Now, let's take a closer look at our Q4 2025 revenue performance.
From geographical perspective, revenue from China was $539.3 million, contributing 81.8% of total revenue and an increase of 19.6% compared to Q4 2024, mainly driven by increased demand for power management IC, MCU, Flash, and CIS products. Revenue from North America was $72.8 million, an increase of 51.3% compared to Q2 2024, mainly driven by increased demand for power management IC and MCU products. Revenue from other Asia was $28.4 million, an increase of 9.1% compared to Q4 2024. Revenue from Europe was $19.3 billion, an increase of 35.6% compared to Q4 2024, mainly driven by increased demand for MCU and IGBT products.
With respect to technology platforms, revenue from embedded non-volatile memory was $180.2 million, an increase of 31.3% compared to Q4 2024, mainly driven by increased demand for MCU and the smart car ICs. Revenue from standalone non-volatile memory was $56.6 million, an increase of 22.9% compared to Q4 2024, mainly driven by increased demand for flash products. Revenue from power discrete was $168.9 million, an increase of 2.4% compared to Q4 2024, mainly driven by increased demand for general MOSFET products. Revenue from logic and RF was $80.4 million, an increase of 19.2% over Q4 2024, mainly driven by increased demand for CIS products.
Revenue from analog and power management IC was $173.8 million, an increase of 40.7% over Q4 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 $246 million, 29.5% lower than Q4 2024, mainly due to increased payment for suppliers and the decreased receipts of government subsidies, partially offset by increased receipts from customers. It was 33.6% over Q3 2025, largely driven by increased receipts of government subsidies. Capital expenditures were $633.5 million in Q4 2025, including $559 million for Hua Hong 12-inch and $74.5 million for Hua Hong 8-inch.
Other cash flow generated from investing activities was $61.7 million in Q4 2024, including $36.6 million receipts of government grants of equipment, $13.6 million interest income, and $1.2 million receipts of disposal of equipment, partially offset by $3.6 million investment in the equity instrument. Net cash flows generated from financing activities was $1,361.1 million, including $919 million proceeds from bank borrowings, $594.6 million from other financing activities, $12.1 million receipts of government grants for finance costs.
and $4.7 million proceeds from share option exercises, partially offset by $136.1 million of bank principal repayments, $32.8 million interest payments, and $0.4 million lease payments. Now let's move to the balance sheet. Cash and cash equivalents was $4,196 million on December 31, 2025, compared to $3,904.7 million on September 30, 2025. Other current assets increased from $739.7 million on September 30, 2025, to $787 million on December 31, 2025, mainly due to increased value-added tax credit.
Property, plant, and equipment was $6.676 billion on December 31, 2025, compared to $6.162 billion on December 30, 2025, primarily due to capacity expansion in Hua Hong manufacturing. Equity instruments designated at fair value through other comprehensive income increased from $381.3 million on September 30, 2025, to $478.8 million on December 30, 2025, primarily due to fair value gains recognizing equity instruments. Interest-bearing bank borrowings increased from $2.3975 billion on September 30, 2025, to $3.1908 billion on December 30, 2025, primarily due to increased drawdowns on bank borrowings.
Total assets increased from $12,511.7 million on September 30, 2025, to $14,453.8 million on December 31, 2025. Total liabilities increased to $5,289.5 million on December 31, 2025, from $3,502.6 million on September 30, 2025. Debt ratio increased to 36.6% on December 31, 2025, from 28% on September 30, 2025. Here's a recap of 2025. Revenue was $2,402.1 million, a growth of 19.9% over the prior year, primarily driven by increased wafer shipments.
Gross margin was 11.8%, 1.6 percentage points over 2024, primarily driven by improved average selling price and cost reduction effort, partially offset by higher depreciation costs. Operating expenses were $425.6 billion, 7.9% over 2024, largely attributable to increased research and development expenses. Other income net was $54.2 million, 146.4% above 2024, primarily due to decreased finance costs and foreign exchange losses, and increased government subsidies, partially offset by decreased interest income. Loss for the year was $110.8 million, narrowed by 21.1% compared to 2024. Net profit, profit attributable to shareholders of the parent company was $54 million, 5.6% dip from 2024.
Basic earnings per share was $0.032. ROE was 0.9%. Finally, let's discuss our outlook for the first quarter of 2026. We expect revenue to be in the range of $650 million-$660 billion, with a project gross margin of 13%-15%. This concludes my financial remarks. We'll now begin the Q&A session. Operator, please assist. Thank you.
Thank you, management. As a reminder, at this time, if you'd like to ask question, you can press star one one on your telephone and wait for your name to be announced. To cancel your request, you can press star one one again. Please hold while we collect the first question. The first question comes from the line of Leping Huang from Huatai Securities. Please go ahead.
Dr. Bai, congratulations for the robust result and the successful acquisition of Huali. So beyond the contribution to Hua Hong's revenue and profit, could you elaborate the strategic results Hua Hong got through this acquisition? And what's your plan to leverage these results to accelerate Hua Hong's future growth? Thank you.
Thank you. First, basically, we acquired Fab Five. What do we call Fab Five within the Hua Hong system is a 12-inch fab. It has 55 nanometers, 40-nanometer-based specialty technology. Quite a bit of the technology platform have overlap with what we already have in HH Grace in Wuxi. I think we look at the acquisition from the following points. We think that's gonna be favorable to our long-term growth. One is that we certainly grow the scale of our company. Through this acquisition, we added about 40K capacity. That's already in production with existing customers. With the scale is one factor.
Another one is with Fab Five joining Hua Hong Semiconductor, we can do a better job optimizing the distribution of our different specialty technologies across all the capacity, all the manufacturing capacity. This will show up in a higher efficiency for our TD activity, should also show up in a higher efficiency and lower cost for our entire manufacturing base. So basically, we view this as definitely as a strategic acquisition, will accelerate our growth, both in terms of revenue and as well as our ability to profitability, ability to be more profitable. Thank you.
Okay. My second question is about the supply-demand relation of the 8-inch and the 12-inch mature fab business this year. So we noticed some foundry, including the largest one, just recently announced to exit some 8-inch business or sell their some 12-inch fab to the memory makers. So what's your view on this supply-demand balance of the, you know, the 8-inch and the 12-inch business globally this year? And what's your impact, what's the impact on your ASP? So I also noticed that there are some reports that you have some price adjustments in the end of last December. So what's your view on this ASP trend of Hua Hong this year? Thank you.
Okay. We also noticed some of the reports talking about some of our foundry competitors might be selling some of the capacity to other people. If you look, if they just change the ownership from one company to another without actually reducing the capacity, then it doesn't really change the supply-demand situation too much. With respect to some of the logic capacity moving to memory, because the memory is certainly in high demand nowadays. That certainly will reduce the supply in the logic side, but overall is a positive thing for us because we are mostly in the logic foundry business, although we do have some flash memory business as well. But overall, that would be a positive sign.
I think overall, because of the AI, AI-driven, growth in the overall semiconductor, market, we think we view that as the overall positive, or it may show up differently in different market segment. It may show up differently in different technology platform we have our capacity in or our product in. But overall, view that as a positive development for us. In that context, if the supply gets tighter, it does give us more opportunity to increase prices. We have been doing that over the course of last year. Surgically, it's not an across-the-board increase by any means, but surgically, for some certain area where we think we can't really meet the supply, so we take the opportunity to move up the prices a little bit.
That also shows up in some of them already show up in 2025 results, and we expect that, in 2026, we might still have some room to go, especially on the 12-inch side. 8-inch, the supply-demand is more imbalanced compared to the 12-inch. So even if we try to, we would like to increase prices as well in 8-inch, but our room probably is gonna be limited. But overall, we do, we are cautiously optimistic that we may be able to do something in that area as well. Thank you. Thank you very much. Thank you. Very clear.
Our next question comes from the line of Ziyuan Wang of CITIC Securities. Please go ahead.
Okay, thank you for taking my question. Firstly, I would like to wish you all happy Chinese New Year. I have two questions, and first one is, as we can see this quarter, the capacity utilization rate declined slightly, and what are the reasons for that? Are there any uneven or unbalanced on the different platform? And can our capacity be reallocated between different platforms quickly? That's my first question. Thank you.
Oh, that's... The change is fairly small. It's probably almost in the calculation error, but I think the main reason is Fab Nine will rapidly bring the capacity online. There is always a little bit of lag between how fast you get the equipment installed and get the capacity online, versus when you have the loadings and the order for that capacity. So there's always, as you-- That's a typical case in a ramping fab, that especially when you ramp very fast, there is a bit of a lag between the capacity. And because the loading is based on what's the capacity brought online, so that, that's the reason there's a like a couple% decrease.
Got it. Thank you. That's very clear. And my second question is about our future performance drivers on the demand side. How much of driver will the AI-related product be for the company's future revenue growth? And also, as we see the localization trend, do you think which kind of product categories will be the most significant boost by the localization? And could you provide a ranking or a list, priority list for this product? Thank you.
Okay. It's just a, this is a complex question, and let me try to kind of, see what I can answer very clearly. I think if you look at from end market standpoint of view, clearly, AI-related products are increasing fast. What does it mean for us is that AI-related product actually cut across quite a few our technology platform. For example, the AI-related products in power management area is going fast, is increasing. MCU, not so much, but there's also a little bit of impact. And power, discrete power devices also, have some impact, but the power management is, one area we clearly see strong, strong growth related to AI. So in that regard, if you just, if you, stay at this, end market dimension, is now AI is one growth area.
Other areas like autonomous driving, automotive, the car-related, all the new robots, is also growing. All the green energy-related end market also show growth. All those end market, the growth area, do cut across in somewhat a complex manner, cut across different technology platform. So if I look at our technology platform in that different, in that dimension, if you just look at our 2025 results, you already see that the two biggest growth area is power management and MCUs, and the fab. And those two area, plus, in addition to the discrete power devices, constitute the three largest technology platform that we have from the revenue standpoint of view.
So going forward, I expect the power management area, the BCD platform we have, will continue strong growth. MCU or Hua Hong, HH Grace has a great advantage in a very, has a great competitiveness, very competitive in this area. It's also gonna be an area that is gonna grow fast. And there, I will just take this opportunity to do some marketing, is that this we also have new technology platform in 55 nanometer and 45 nanometer, all coming on strong. So that should be also a strong growth area.
In the end, I think if you look at our distribution, our revenue distribution, I will still continue to see MCU probably one of the biggest, power management, second, discrete, power devices, probably will be more stable. Growth is not as fast, but it will remain the number three. The other two, in terms of logic and RF, we like that to grow a little bit faster. And standalone, we actually, standalone memory, we also think will go reasonably fast. Some of the memory shortages, mostly in DRAM, it probably gonna have some spillover into—we probably already spillover into the NAND memory area, but I think it's gonna spill a little bit over to the NOR flash area, so that we should also benefit.
That's how I view the market going forward.
Okay. Can I add a little question on that? How, Dr. Bai, how do you view the sustainability of this current memory cycle? And, is there... what’s the impact on Hua Hong? And, what kind of measures will be taken?
That's a good question. In the historic pattern, memory tends to go through boom and bust cycle. Although this time around, a lot of people think because AI is a different beast, that maybe this cyclical nature of the memory market will be a little bit different. I don't have crystal ball, and I do believe that eventually it will be going to a cycle. Maybe this time the boom cycle will last longer. It probably heavily depend on how the AI... It's mostly driven by AI, this latest cycle. AI how long this cycle is gonna last. But I think in the near future, certainly for 2026, there's no sign that's gonna slow down.
Maybe in a year, 2, or 3, that, if you go by historical pattern, it should, start to, calm down somewhat. I should add that right now, because of the AI-related, area, driven up DRAM prices so much, it does have a little bit of a depressing effect on the consumer market, because a lot of the consumer product probably can't afford, this high DRAM prices. Therefore, they might push out their, product refreshment cycle a little bit. So that might or-- will come across as a negative for some of our, our product as well. But overall, I think the growth areas still outweigh the area that's gonna be, somewhat impacted, negatively impacted by this, super memory cycle that, we seems to be in the middle of.
Okay. That's all my questions. Thank you, Dr. Bai.
Thank you.
Provider to ask question, you can press star one, one. Our next question comes from Ziye Zhang from Guosen Securities. Please go ahead.
Thank you for taking my question. I have two questions. The first question is about the price. So, considering the rising cost of the raw material, we also can see some products, such as power device, raise the price. But the demand just now, Dr. Bai mentioned, is structural. So how do you see the sustainability of the price hike? So this is the first question.
Okay. In terms of raw material, by the time it get to us in the fab, we call that direct material or indirect material. We do see a few areas where there is raw material prices start to show up in the semiconductor material that we use. I'm trying to think, like, copper is probably one area that will add a little bit of a cost to the copper cable, if it happens to be building a fab, which is we are. We do see that, and we also see some of the other some other raw material increases affecting a little bit of our the material we buy. But I would say, by and large, I do see I do not see this as a significant factor for our cost structure.
There's gonna be some places that there's gonna be increases, and there's also gonna be some decreases. And overall, I do not think it's gonna be a significant increase. Another factor is that, we over time, we use more and more domestically produced materials, and in general, their costs are better. So overall, I don't think, we're gonna be looking at a situation, the material will be a cost increase for us going forward.
Thank you. Very clear. And my another question is about the utilization. I think we are in good position, but some 12-inch foundries are not yet at full utilization. So how do you see the cycle? So can you give us a little bit of your perspective? So where are we today? And if that possible, maybe there are some potential order shifts of our customers, maybe after we increase the price.
Yeah. So, the fab utilization are affected by a few factors. The two, probably one is, how competitive is your technology offering? That includes how, whether you have a complete offering of the solutions to the customer for what the customer needs. That's one factor. Another one, of course, is pricing. If you price too high, your utilization, you will lose customer, on one hand. On the other hand, you can... There's always, if the prices you are willing to go down on the prices, it does tends to increase your loadings. So, for those two factors, for example, on the technology front, Hua Hong is well-positioned. We are premier foundry in China.
A lot of our technology platform, I would say we are probably number one domestically and very competitive, even internationally. Not all of them, but some of them very clearly. So especially in this specialty technology area, which Hua Hong has, as Grace has been working on for the last three decades, almost. That's one factor. Another factor is that some of our international customers, especially your European ones, and now we start to see American company as well, that have this China-for-China strategy, that they try to move some of their product that originally were manufacturing overseas to be manufacturing inside China. So that's another factor that will help our loading.
When those companies looking for a partner in China, they clearly want to have somebody who is technology-wise in a good position, as well as they want a more stable company, the bigger company. So we are usually being viewed as a first choice many times, many in many cases, we're the first choice for their Chinese as their Chinese partner. So we do benefit from that factor as well. I think this trend, we're probably gonna continue given the whole world the geopolitical situation and the world semiconductor market is evolving. Thank you.
Thank you. That's all my, all my questions, and looking forward to a better performance in the coming year. Happy Chinese New Year. Thank you.
Thank you.
Next comes from Scarlett Gu from BNPP. Please go ahead. Scarlett, your line is open. You can unmute locally. Okay, otherwise, we'll move on to our next questions. One moment, please. We have follow-up questions from Leping Huang, from Huatai Securities. Please go ahead.
Dr. Bai, I have a follow-up questions. What's the current status of Fab Nine? Is it fully completed? And I noticed the CapEx this year, last year, is $1.8 billion, and which down slightly versus 2024. So how we should model the CapEx for 2026, and when you plan to initiate the next phase of the expansion? And what's your plan on this, the, what should I say, the phase two of the Fab Nine or, yeah, the new fab? Thank you.
Leping, let me address the question. Basically, the total capital expenditures for this project, Fab Nine A, is at $6.7 billion, okay? So by end of last year, by end of last year, we spent about slightly over $5 billion. So we spent another $1.3 billion. Basically, these are the POs, I mean, we have basically issued, not completely spent from cash flow perspective, okay? So I would say basically, there's another about, you know, to get to $6.7 billion, there's probably another $1.2 billion-$1.3 billion on cash flow, you know, from cash flow perspective, okay? So most of the POs have been issued for that project.
So I would expect, you know, the cash will be spent mostly, you know, this year and some probably, you know, remaining in 2020, 2020, 2027.
Mostly this year, because this year we're gonna reach the peak capacity for Fab Nine A, the first half of Fab Nine.
Your second part of the question is on Fab Nine B, which is our next project to fill up the remaining, the other half, the empty half of Fab Nine. That project, we got all the approval, all the necessary paperwork. We plan to start the actual engineering construction work after the Chinese New Year, basically in March.
Oh.
So we should be able to start getting the equipment in by end of this year, probably October timeframe. The spending obviously gonna be mostly in 2027. So we will, so in 2027, we start another capacity ramp on the Fab Nine B, and we hope we can complete that ramp even faster, in a velocity that's even faster than Fab Nine A. Fab Nine A, we ramped very fast. In two years, we pretty much get to the peak. And output will take a little bit longer because, as I said, there's always a little bit of lag between the capacity in place, being in place, versus whether you get the wafers out and turn that into revenue.
But, in terms of the capacity, construction capacity in place, using that as a milestone, Fab Nine B will start in 2027, and we should get that done in less than two years as well.
This year, 2026, the CapEx will be slightly down, and the 2027 will be up significantly. Is my understanding correct?
Correct. That's correct.
Okay. Yeah, thank you. Thank you. Very clear. Thank you. I don't have any further questions.
Thank you for the questions. Our next question comes from Ziyuan Wang of CITIC Securities. Please go ahead.
Okay. I want to have a follow-up question on that. And, in terms of our equipment localization rate, will Fab Nine B have a higher rate than Fab Nine A?
The fab, yeah, you're talking about the fab utilization rate. They are all already a little bit above 100, so it's not gonna be significantly higher.
Sorry, I mean, on the equipment, localization ratio.
Localization. Oh, okay.
Equipment, equipment with tools. Yeah.
Yeah. So the answer is yes, the general direction as the domestic equipment industry become more and more capable every year, that we every new project we have, we tend to have a higher, higher procurement of domestic equipment. We obviously still gonna be making our procurement decision based on what is the best, both technically as well as commercially for the company. That's the decision criteria. But the reality is that the domestically produced equipment are becoming more and more capable, and commercially they tends to be, not across the board, more attractive. A lot of places depend on the its individual equipment, they can be more attractive. Then end result we expect is that the Fab Nine B project, we will end up with a higher domestic equipment content.
Okay, got it. Got it. Thank you, Dr. Peng Bai.
Thank you for the questions. 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, once again, thank you all for the, for joining us today and for your wonderful, valuable questions. The Year of Horse is right around the corner. We would like to take this opportunity to thank you all for all the support and trust you have given to us, and in wishing you and your family a very joyful, joyful holiday season, and a healthy and prosperous New Year. Gong Hei Fat Choy. We look forward to catching up with you very, very soon. Thank you.
Xin nian kuai le. Happy New Year!
Thank you, ladies and gentlemen, that does conclude the conference call. Thank you for your attendance. You may now disconnect.