Ladies and gentlemen, thank you for standing by, and welcome to Hua Hong Semiconductor's first quarter 2020 earnings conference call. Today's call is hosted by Mr. Junjun Tang, President and Executive Director, and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Please be advised that dial-ins are in a listen-only mode. However, at the conclusion of the management presentation, there will be a question and answer session, at which time you will receive instructions on how to participate. The earnings press release and first quarter 2020 summary slides are available to download at our company's website, www.huahonggrace.com. Without further ado, I would now like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you.
Good afternoon. Thank you all for joining our first quarter 2020 earnings conference. Today, we will first Mr. Tang, our Executive Director and President, give some remarks on our first quarter performance. President Tang will address in Chinese, and Kathy, our Deputy Director of Investor Relations, will be the translator. After that, I will discuss our financial results and provide guidance for the next quarter. This will be followed by our question and answer session. I will now turn the call over to our Executive Director, President Mr. Tang.
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Good afternoon, everyone. Thank you for joining our earnings call. Good afternoon, everyone. Thank you for joining our earnings call.
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Confronting the unexpected COVID-19 epidemic in 2020, management has always put the health and safety of our employees as a first priority, taking responsibility for protecting ourselves, protecting family members, protecting Hua Hong people, and protecting Hua Hong. We prepared materials for epidemic prevention and control, adopting effective measures to ensure both the physical and mental health of our employees. While implementing effective measures for epidemic prevention and control, we organized the supply of raw materials and spare parts and communicated frequently with our customers via telephone, email, WeChat, et cetera, to ensure an orderly operation. Our capacity utilization rate was constantly maintained above 90%. We achieved a year-on-year increase of 30.6% in first quarter revenue for analog and power management products.
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Due to the impact of COVID-19, the near-term future of our market is uncertain. Demand for embedded flash memory, discrete device, and logic and RF products have dropped to a certain extent, and the corresponding product shipments have declined to varying degrees. In the first quarter of 2020, our revenue was $202.9 million, a year-on-year decrease of 8.1%, and a quarter-on-quarter decrease of 16.4%. Gross margin was 21%, net profit was $2.7 million.
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In the COVID-19 outbreak, architects, engineers, R&D staff, and management in charge of the 12-inch production line project have stuck to their plans, and thus the project is moving forward steadily. Affected by the overseas pandemic, the arrival time has been postponed for technicians from equipment manufacturers who are responsible for equipment debugging. We are working with our vendors to accelerate the equipment debugging progress. As the COVID-19 situation is turning around, we believe the second stage of equipment commissioning will soon be completed. In addition, 90 nm and 65 nm R&D projects based on the 12-inch line have achieved their expected goals.
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We will continue to implement routine epidemic prevention and control to achieve four protections. We will closely interact with the industrial chain to ensure stable operation of our production line and actively expand markets, especially to obtain more strategic customers, so as to lay a foundation for sustainable development. I am very grateful for the hard work of our team and thank all shareholders for your support.
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Now, I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments.
Thank you, President Tang, for the inspiring comments. Now let me begin with a summary of our financial performance for the first quarter, followed by an outlook on revenue and margin for the second quarter 2020. Then we will move on to the question and answer section. First, let me summarize financial performance as of the first quarter. Revenue was $202.9 million, 8.1% lower than the prior year, primarily due to decreased average selling price. It was 16.4% below Q4 2019, mainly due to decreased wafer shipments and average selling price. Cost of sales was $160.1 million, 6.9% above Q1 2019, mainly due to increased wafer shipments and depreciation expenses. It was 9.4% lower than Q4 2019, primarily due to decreased wafer shipments and year-end bonus accrued in Q4 2019.
Gross margin was 21.1%, 11.1 percentage points below Q1 2019, mainly due to decreased average selling price, increased depreciation expenses, and a change in product mix. It was 6.1 percentage points below Q4 2019, mainly due to decreased average selling price and a change in product mix. Operating expenses were $71.5 million, 125.2% above Q1 2019, largely due to increased labor, engineering wafers, and depreciation expenses for Hua Hong Wuxi Fab. It was flat to Q4. Basically, we moved $19.2 million fixed costs related to the unused capacity from cost of goods sold to operating expenses, including salary, depreciation, and utilities. This is why operating expenses were higher than usual.
Other income net was $20 million, 267.3% up year-over-year, primarily due to, one, foreign exchange gain versus the loss in Q1 2019, and two, increased government subsidies. It was 17% down quarter-over-quarter, mainly due to, one, decreased share of profit of associate, and two, decreased government subsidies, partially offset by foreign exchange gain after foreign exchange loss in the prior period. Income tax benefit was $11.4 million compared to $1.9 million in Q1 2019, due to a reversal of dividend withholding tax, about $15.8 million, accrued for the prior year. Profit for the period was $2.7 million, compared to $46.6 million in Q1 2019 and $14 million in Q4 2019. Net profit attributable to shareholders of the parent company was $20.3 million, compared to $47.5 million in Q1 2019 and $26.2 million in Q4 2019.
Basic earnings per share was $0.016 , compared to $0.037 in Q1 2019 and $0.02 in Q4 2019. Annualized ROE was 3.6%. Now I will discuss the operating results of each Hua Hong 8-inch and Hua Hong Wuxi. First, let's take a look at Hua Hong 8-inch operations. Revenue was $200.6 million, 9.1% below Q1 2019, primarily due to decreased average selling price. It was 14.8% lower than Q4 2019, mainly due to decreased wafer shipments and average selling price. Gross margin was 21.1%, 11.1 percentage points below Q1 2019, mainly due to decreased average selling price, increased depreciation expenses, and a change in product mix. It was 7.1 percentage points below Q4 2019, mainly due to decreased average selling price and change in product mix. Operating expenses were $29.1 million, 8.5% below Q1 2019, largely due to increased labor and R&D expenses.
23.4% lower than Q4 2019, primarily due to year-end bonus and impairment provisions accrued in Q4 2019. Profit before tax was $27.2 million, compared to $47.1 million in Q1 2019, and $43.6 million in Q4 2019. Hua Hong Wuxi. Now, let's take a look at Hua Hong Wuxi. Revenue was $2.3 million. Operating expenses were $42.4 million, including $19.2 million fixed costs moved from cost of goods sold. Compared to $4.9 million in Q1 2019, and $33.4 million in Q4 2019, mainly due to increased expenses on research and development and depreciation expenses. Profit before tax was -$35.9 million. EBITDA was -$22.8 million. Now, please let me provide you with more details on our revenue from Q1 2020. From geographical perspective, revenue from China was $124.5 million, contributing 61.4% of total revenue at an increase of 6.8% compared to Q1 2019, mainly driven by increased demand for MCU products.
Revenue from Asia was $29.3 million, an increase of 17.1% compared to Q1 2019, mainly driven by increased demand for MCU products. Revenue from the United States was $25.4 million, a decrease of 38.3% compared to Q1 2019, chiefly due to decreased demand for general MOSFET, super junction, logic, and MCU products. Revenue from Europe was $16.2 million, a decrease of 12.2% compared to Q1 2019, chiefly due to decreased demand for smart car ICs. Revenue from Japan was $7.4 million, a decrease of 62.1% compared to Q1 2019, chiefly due to decreased demand for logic, MCU, and super junction products. With respect to technology platform, revenue from embedded non-volatile memory was $73.4 million, a decrease of 13.4% compared to Q1 2019, primarily due to decreased demand for smart car ICs, partially offset by increased demand for MCU products.
Revenue from discrete was $75.8 million, a decrease of 9.6% compared to Q1 2019, mainly due to decreased demand for super junction. Revenue from analog and power management IC was $31 million, an increase of 30.6% compared to Q1 2019, chiefly driven by increased demand for analog, other power management IC, and LED lighting products. Revenue from logic and RF was $19.7 million, a decrease of 19.2% compared to Q1 2019, mainly due to decreased demand for logic products. Revenue from stand-alone non-volatile memory was $2.8 million, a decrease of 29.2% compared to Q1 2019, primarily due to decreased demand for flash products. Let's take a quick look at the cash flow statement.
Net cash used in operating activities were $6.6 million in Q1 2020, compared to $78.9 million of net cash flows generated from operating activities in Q1 2019, primarily due to decreased receipts from customers, increased payment to suppliers, and increased labor expenses. Capital expenditures were $200.6 million in Q1 2020, including $169.1 million for Wuxi and $31.4 million for the 8-inch operations. Other cash flow generated from investing activities were $251.9 million in Q1 2020, including a payout of $248.8 million in investment in bank products and $3.2 million of interest income. Net cash flow generated from financing activities were $1.7 million in Q1 2020, including $3.8 million proceeds from share option exercise, partially offset by, one, $2 million of lease payments, and two, $100,000 interest expenses for bank borrowings.
Balance sheet cash and cash equivalence was $518.3 million on March 31st, 2020, compared to $476.3 million on December 31st, 2019. Financial assets at fair value through profit or loss decreased from $519.8 million on December 31st, 2019, to $270.2 million on March 31st, due to payout from investment in financial products. Other current assets increased from $122.7 million on December 31st, 2019, to $143.7 million on March 31st, 2020, primarily due to increased VAT deductible tax. Property, plants, and equipment was $1,659,799 on March 31st, 2020, compared to $1,558,283 on March 31st, 2019. Total assets decreased from $3,613,303 on December 31st, 2019, to $3,540,298 on March 31st, 2020. Our total bank borrowings were $25.4 million on March 31st, 2020.
Total liabilities decreased to $498.1 million on March 31st, 2020, from $530.7 million on December 31st, 2019, primarily due to payments of year-end bonus and capital expenditures. Debt ratio decreased to 14.1% on March 31st, 2020, from 14.7% on December 31st, 2019. Finally, let me give you a top-level outlook for the second quarter 2020. We expect revenue to be approximately $220 million, and our gross margin will be expected to be between 22% and 24%. This concludes my financial commentaries. Now, we would like to start the question and answer session. Operator, please help. Thank you.
Sure. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes, thanks a lot. I wanted to ask the first question, if you could give an update on the growth for applications just implied in the high single-digit growth into next quarter. The second part would be if you could talk about the progress on qualifying and ramping applications into the 12-inch Wuxi fab.
Sure, Randy. Just into next quarter, I think on the 8-inch operation, the fabs, I think we're looking at clearly, Randy, let me just tell you, I think we passed lowest point. Q1, as far as we think, it is the lowest point. So we expect Q2 there will be relatively good growth. I think things will start to take off. I think MCU power discrete, I think, will continue. Logic and RF will continue, but I'm going to let Mr. Tang talk about the 12-inch operations.
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Randy, thank you for your question. Since the end of the last year, we are accelerating our R&D progress.
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We have some decent shipment in the fourth quarter last year, and we also have some shipments in the first quarter. Starting from the Q2, the shipment of the Wuxi fab will have a decent growth.
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The ramp-up plan of the 12-inch fab is still with the original plan.
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Thank you.
Okay. One follow-up on that question. If you could give a view by second half with the new applications, the run rate for wafer per month shipments, at least at this stage.
For 12-inch?
It could take. Yeah, for 12-inch.
Okay. Just a second, Randy.
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Randy, in the second quarter, the major two products will be the 90 nm CIS and 90 nm eFlash.
Randy, it's going to be mostly SIM cards for the eFlash, and certainly, Mr. Tang also talked about CIS.
Okay. But in terms of shipment volume, do you have a view what we could expect the shipment, like the wafer per month run rate for shipment volume ramp up?
We expect there will be shipments in thousands. Okay? I think there will be a pretty significant growth compared to the past two quarters, Randy. We would expect a pretty significant growth in revenue for both of these products.
Okay. That is for second quarter, and then also for each quarter through the year.
Well, actually, we expect to, certainly if things all assume this pandemic will be contained globally, okay? I think eventually we get to about 20,000 wafers shipment by end of this year.
It's-
That's the revenue.
Okay, that's a 20,000, because you have 20,000 capacity. Is that a 20,000 monthly? You expect to fill the capacity because you have, I think, 20,000 capacity, so based on the orders, you'll be running that type of capacity.
Well, let me just maybe talk about capacity here. We have 10,000 right now by end of last year. We're pretty certain the second 10,000 will be ready by end of this quarter, Q2. That's for sure, thing, because basically 80% of the tools are here, okay, at this point. Just some of them are still waiting for installation. We expect these all be completed by end of this quarter, okay, end of June. We have actually accelerated our capacity expansion plan compared to prior quarter. Basically, we plan to bring the entire 40,000 capacity, have it installed by end of this year. In other words, we'll add another 20,000 by end of this year. Okay? In terms of actually contribution, we're for sure will have 20,000 capacity in production and in shipment by end of this year.
Okay. Yeah, great. Hey, if I could follow up, the revised CapEx then, for the accelerated plan, and if it'll change depreciation or maybe depreciation even next year.
Well, it's not really going to change that much, but the tools will be in. The capacity, so the 8-inch will be for the year on cash basis. It's going to be $150 million. Okay. Now, because we're going to pull all the equipment in, I think I remember in the last quarter, maybe two quarters, last quarter, we had a really pretty bad earnings call because of bad communication. But we talk about $900 million total, $800 million was for Hua Hong Wuxi. But when you look at now, Hua Hong Wuxi is probably going to be $1.4 billion, okay, for the year on cash basis. On cash basis, for the 8-inch, it's going to be $150 million.
Okay. Randy, could you talk about the funding? I think in the past you've talked about bank debt. The STAR listing, like with that filing. But I'm curious how interesting that looks to you for a vehicle. If you're now considering that as an option for Hua Hong.
For this. Randy, I didn't get what you're saying. What option?
Oh, to list. To have a listing on the new STAR board.
Oh. You know what? Maybe I can have Mr. Tang talk about it, and I will talk about it as well.
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Let me just paraphrase here. We are surely aware of the recent policies on public listing at the STAR board in China. Also, we understand announcements by our peers. We are looking into it. However, no decision has been made at this point. Okay? That is the status. Hopefully, we can give you an update in the future.
Okay. Thanks a lot, and I will get back in the queue.
Okay.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from the line of Sunny Lin from UBS. Please ask your question.
Sure. Thank you. Hi, Mr. Tang. Daniel, thank you for taking my question. My first question is also on the Wuxi fab. Number one, just wondering for Q1, given we are still ramping, but the shipment appears to decline in Q1. For gross margin side, despite a smaller scale, Q1 gross margin for this fab was better than Q4. Why is that?
Sunny, let me explain to you. Wuxi, we're still doing a lot of R&D work and qualification, okay? Even for Q1, you guys are all aware that we had a target. We have a hard target by expectation by all of you. Basically, it's a commitment we need to have achieved certain revenue. That was a commitment we made. We made it in Q4. So Q1, in reality, we're still doing a lot of R&D work and qualification process. But we start to have wafers. Q2, there'll be definitely a lot more wafers, okay? Now, the revenue is slightly lower, and as you said, the cost was low because, basically, as I mentioned earlier, a portion of the fixed cost that is basically unused.
According to the accounting principle, we can basically move part of the unused capacity, and the cost of that, we actually moved that into operating expenses, okay? That's why our operating expense went up pretty, a big way. That was the difference. So gross margin certainly looks in a pretty nice fashion. But this is totally legit.
I see. Thank you. That's very helpful. So for gross margin, wondering if you could give us any guidance for next few quarters and also for operating loss of this fab, should we be expecting increasing loss for next few quarters as we continue to ramp?
Well, are you talking about Wuxi fab or overall?
Wuxi fab.
Wuxi, okay. With the way we are making adjustment, I think we should be pretty much at the same level. It should be pretty stable. I think overall, our goal is, if we really have a very nice, quick surge of volume and shipment. Production volume shipment in the second half, I think our gross margin, I am hoping that we can have a positive gross margin for Wuxi even for this year. But let us see how it goes.
Right. My last question is on government subsidy. Could you give us any color for this year?
It would be a pretty significant amount. As I said last year, we only give that number when we actually receive the money. I would expect that would happen in Q4, but my expectation, they were on time last year, so it is going to be paid once a year. I think this will be paid in Q4. I expect it will be a larger amount than last year.
I see. Just to clarify, for the Wuxi fab, we only receive the subsidy once every year, in Q4. Basically, the subsidy in Q1 and Q2 are mainly for the existing 8-inch fab. Is that correct?
Yeah. But that's relatively small. These are subsidies because of the tax, whatever reason. But compared to Wuxi, that's smaller.
Got it. Thank you very much, Daniel and Mr. Tang. Thank you.
Thank you. Your next question comes from the line of Andrew Lu from Sinolink Securities. Please ask your question.
[Non-English content] I have two or three questions here.
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[Non-English content] What will be the change for the depreciation cost?
Andrew, basically, it's not going to be just without. The expectation is to have the entire 40,000 wafer capacity installed by end of this year. That's the plan. The CapEx is going to happen. The cash flow is going to happen. This $1.4 billion for Wuxi accounts for basically all the capital expenditures for the entire 40,000 wafer capacity. However, the depreciation expense really only accounts for the first 20,000 wafers, because these will be the capacity that we're going to be using. The other 20,000, yeah, they're going to be there, it will be installed, but the depreciation will really only kick in next year.
What kind of numbers we should factor into the model?
Well, let me give you a number. I mean, the depreciation expenses for, let me give you a number. These numbers change every quarter, but slightly. I think we have actually-
Because based on first quarter and second quarter numbers, the number will not be too high.
Yeah. No, no, it will not. In fact, we have already adjusted down. For the 8-inch, it is going to be about $130 million. That is the same number I gave a quarter ago.
Yes.
Hua Hong Wuxi is $99 million, maybe. It is going to be around $100 million. That is the last time.
It is still about $230 million.
Yeah. Well, you have to. Hey, we're investing $2.5 billion. It's going to happen.
Your second quarter revenue at about 8%, assume the depreciation up similarly, and that's why it doesn't affect your gross margin. Q3, Q4, the depreciation cost must be jump a lot-
Yeah.
-in order to get to $230 million depreciation cost.
For Wuxi, the depreciation expenses by quarter, it is not that much. Let me just give you the numbers. It's $13.4 million in total, okay? In total. Both including the depreciation, the cost of goods sold, and also within the operating expenses. With $13.4 million in Q1, $20 million in Q2, $25 million, that's expected, according to plan, $25 million, and then $41 million in Q4.
Oh, Q4 will be a big jump.
Yeah, but revenue also-
My second question. Yes. Thank you. My second question is operating expenses. What is our plan for this year, operating expenses for the rest of the year?
For Wuxi or for combined?
For combined.
Well, let me give you a number for the 8-inch operation is about $124 million, $120 million, roughly. Then, for Wuxi, it is going to be around $200 million, but including the charges, the fixed cost we moved from the COGS, total about $200 million.
Combined will be $320 million operating expenses.
Yeah. Part of close to $100 million of that, the $200 million, is going to be the stuff we switched from COGS.
You mean with all minority interest?
No. What? Sorry.
What do you mean? We will switch to what?
No, no, no. I said the operating expense is $ 200 million for Hua Hong Wuxi.
Yes.
Okay?
And your whole 15%-
Nearly half of that was, we basically moved some of the fixed costs. The fixed costs moved from the manufacturing costs.
Oh, okay.
Okay? Normally, it should be about $100 million. The reason we do that
Oh, okay.
Yeah. Yeah.
On the accounting purpose, for the accounting purpose, the operating expenses will be around $ 220 million.
Yeah.
Okay.
No, it would be $200 million + $120 million. It should be $ 320 million total.
Yeah. Understood. My last question is, based on my check, the U.S. clients in second quarter, kind of guiding down for most of the power device company, your customer in second quarter. Your second quarter actually guiding up by 8%. Is that pretty much coming from the domestic clients?
Hey, Andrew.
Yeah.
I said Q1 is the lowest point. It is the lowest point. Everything should be up. I guess 8%, hopefully it will be up in every segment. Okay?
You do not see the difference between the U.S. clients versus domestic clients?
I think the U.S. and Europe are actually doing very well right now.
In second quarter?
Yes. Even Q1, the orders are actually up for Europe and U.S. So similar to that, we are reflecting Q2.
Okay, so that is possible their fab has been affected. That is why the guidance is coming down, but my placing more orders with you.
Could be.
Thank you.
Thank you. Your next question comes from the lines of Donnie Teng from Nomura. Please ask your question.
Thank you, management, for taking my question. My first question is regarding the ASP decline in the first quarter. May I ask what kind of reasons to drive lower ASP in the first quarter? Because I saw that you specifically mentioned about the slower demand on super junction. Just wondering what kind of ASP trend we are expecting into the coming quarters.
Actually, the ASP drop came pretty much in a lot of major segments that we own. I think it is mostly on super junction. They were pretty high already, so there was adjustment. We expect, hopefully, if the demand comes back, I think things are going to change.
For the gross margin, it sounds like you just mentioned that the depreciation cost for Hua Hong Wuxi fab will jump more into the fourth quarter this year.
Yeah.
Do you still expect the gross margin can improve sequentially in the coming quarters for this year?
We have never really changed our revenue plan. We still, at this point, even though Q1 was a little lower. I think, hopefully, we are on a recovery trajectory. Hopefully, second half, it is going to come back according to our original plan, and then we should have a better margin, g ross margin.
I see. My second question is regarding your Wuxi fab's new product. You just mentioned you have 90- nanometer CMOS image sensor products will be ready in the second quarter. I was surprised because I think we've never done CIS before. How do you manage to have volume on CIS such early in the second quarter? Or we just mentioned about that, maybe that is just paper, not the real production.
I think Mr. Tang will address this question.
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Donnie, as I mentioned before, since we started the mass production in September last year, we invest a lot in the R&D process. We discussed a lot with our marketing people and some strategic partners. We decided to invest in 90- nanometer CIS, and we realized some shipment in the quarter, and in second quarter, the shipment will still go up. As for now, we have already achieved some good results on that.
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It's a good result to show our capability of our R&D team and engineering team, also the cooperation between us and our customers.
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Thank you.
Can I just add one thing? Donnie, we have five to six products or platforms that are undergoing concurrently in Wuxi. We're talking about embedded non-volatile memory, CIS, discrete, logic and RF, and some other things, and NOR. All these things are going to be eventually all will take off. We have customers, old, existing, and new. People are very, as I said before, very excited about this capacity we're building. We have acquired a lot of new customers. We just have to deliver. There's a lot of pressure on our TD, our fab, just to get it going, because we expect this Wuxi fab, it's going to be a very quick sort of ramp-up. This is what we have to do. We're very excited.
There's nothing really we're concerned, but the only thing we have to do is just to make sure we have a very quick ramp-up. Concurrently, there are a lot of products that are currently being qualified and going through R&D process.
I see. Can I have just a quick follow-up? Is it possible you can disclose what kind of capacity you are building for CMOS image sensor or what kind of resolution you are going to manufacture for the CMOS image sensor? Thank you.
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For now, we allocate 8,000 for CIS, and for the plan, it would be 20,000. During the process, we will also have some other new products and process. We will make some adjustments during the process.
Okay. Thank you.
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Thank you.
Thank you. Your next question comes from the line of Szeho Ng from China Renaissance. Please ask your question.
Oh, hi. Good evening, gentlemen. Two questions are on the JV fab, the 12-inch fab. Are we still expecting the revenue should be around $ 100 million as the target on track?
Szeho .
Right.
I mean, we have not changed our internal plan. Whatever that is, we know we missed a little bit in Q1.
We will do everything we can, try to basically cover all the whatever it was lost.
Okay, great. The other question on the OpEx side, I think last quarter, you mentioned that the steady- state OpEx for the JV fab will be around $30 million a quarter, right? When should we expect the figure to be stabilized? Because right now it is still very fluid, around, I think, $50 million, $60 million at the quarter, right? Based on what you said earlier.
I think I hope I have explained this very carefully.
Currently, I said to Andrew earlier, Andrew Lu, that it is going to be around $200 million. Okay?
Yep.
But nearly $100 million of that was because, I expect, currently, we were looking at these numbers, right? Because of the utilization is not at the normal rate.
Yeah.
So we move the portion of the fixed cost that has not been used, the idle capacity, unused capacity, to the operating expenses. So that result, the $200 million number. But $100 million of that would be the operating expenses. So it actually came down compared to what we had before. It was more like $30 million. I mean, you said $30 million, but now I am looking at $25 million.
Oh, okay.
It will go up. At the average it is $25 million, but overall it is going to be slightly over $100 million. But I think this will probably go up a little bit each quarter, but not by much.
I see. Okay, good. Okay. Thank you very much.
Thank you. Okay.
Thank you. Your next question comes from the line of Sebastian Hou from CLSA. Please ask your question.
Hey. Thank you, gentlemen, for taking my questions. First, I want to ask about for the second quarter outlook. What is the gross difference between 8-inch and 12-inch?
I think for the inch, we have a nice growth. We are up by $240 million. I would say it is going to be paying. I would say it would be nice to have a split between the 8-inch. It is a tricky question, but it is going to be a split between, hopefully, the 8-inch and the Hua Hong Wuxi fab.
Okay.
Hopefully around that number.
Daniel, what you meant is that you are going to up like $18 million revenue absolute, and $9 million of that absolute terms will be 8-inch, $9 million of that absolute term will be 12-inch. Is that right?
Well, what I had it before was, I think, what was it before? Yes. It is $202 million, right? We had $202.9 million. I was going to get $220 million. Yeah, I think it would be slightly more on the 8-inch, a little bit less on the 12-inch.
Okay. But that might be still like your Wuxi 12-inch, still likely to go back to, if they put into USD, likely to go back to the 4Q 2019 level in the absolute terms. Roughly around that range.
Yeah. But, we're doing a lot of transition. We're still in the transition phase. But you know what? We really want to keep the 8-inch, continue to improve the 8-inch. Right now it is above $90 million. We want to really get it a little even little higher. Hopefully, the demand will support us.
Great. I think besides you share about the new products on Wuxi fab and 90 nm CIS and eFlash will start to ramp in second quarter. Can you share with us what's beyond that? Let's say second half this year, is there any other new products in the pipeline that will ramp?
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Sebastian, for now we have CIS and eFlash, and going forward we will have some new platforms. We have some strategic partners in discussion, but maybe for now it's still too early to mention details. But anyway, in total, no matter it's 8-inch or 12-inch, it's a group. We will try our best to make the business well-balanced. Thank you.
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The acceleration of the capacity ramp-up is mainly due to the cooperation with our strategic partners and the marketing demand.
Okay. Got it. Another question related to this is, there have been some regulatory changes on the U.S. main technology export, I think a few weeks ago. They started to put the semiconductor equipment and EAR tools into the regulatory products. I am not sure how the company will evaluate this, the potential uncertainty or risk of the future access to this equipment.
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I think just for Sebastian and also for other analysts that are interested in this question. We are certainly aware of some of the recent changes to certain sections of the Export Administration Regulations published by the U.S. Department of Commerce. As a global semiconductor foundry, we have always been in compliance with the rules and regulations on export control. Hua Hong Semiconductor has a very thorough and strict internal control procedure. You would not believe, we had this for 20 years, including customer screen and good screen. Okay. We have always been in a great communication with the U.S. Department of Commerce, including the Bureau of Industry and Security, and we are definitely a trusted foundry partner to our customers. Hua Hong Semiconductor makes nothing but commercial products.
Okay, thanks for the clarification. Thank you.
Thank you. Your next question comes from the line of Chin Chowson from CICC. Please ask your question.
[Non-English content] My first question is about your 8-inch fab. It seems that your 8-inch fab utilization also dropped a lot in the first quarter. Are you still optimistic on meaningful utilization improvement in the second half? How has COVID-19 changed the demand in the first quarter and in the future, and which application will be most impacted? Thank you.
Actually, our 8-inch utilization has not dropped. Our 8-inch utilization rate has been very stable. Actually, we are doing a lot of qualification product R&D work in the Wuxi fab. Therefore, the Wuxi fab, in terms of production utilization rate, it is low. This also resulted in low revenue. This will change in second quarter. I think, if I want just to remind you, our 8-inch utilization rate has been always above 90%. We hope it can get to even higher, maybe around 98%-100%. If the market demand comes back, I think it will.
Oh, okay. Thank you, Daniel. Could you please also elaborate more about your 8-inch ASP trend for the rest of the year? Are we going to expect a very sharp recovery in the second half? Thanks.
I think so. Q2 is going to be better. Also, just on one condition, if this pandemic will be contained globally, I personally expect a strong recovery. We never change our plan. I think the entire world expect a strong bounce back in the second half. I personally think we need that.
Okay. Thank you. That is pretty clear. Thank you, Daniel.
Thank you.
Thank you. We have one follow-up question from the line of Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes. Thank you. I just wanted to follow up, and it is a clarification, it might have been Szeho 's question, on your target for the full year. I just wondered, was your target to achieve growth this year? I guess just based on the base view now, is that kind of what you are aiming for and what you are seeing from the pipeline, given it could still change?
Randy, very good question. Sure, absolutely. I love to see growth. We love growth. We always been growing. As I said again, as long as the second half, if there is no external factors like the pandemic, hopefully this will be completely contained globally. So far, the U.S. and Europe, actually, we see these quick-turn orders . So second quarter is a good quarter. We have a lot of new capacity in Wuxi. CIS ready, DMOS is ready. Some of the SIM cards are ready to take off. Technology-wise, I think we have a lot of good things to start to do the ramp up, and we have capacity. Why not? There is one condition, is the global. There is going to be a containment on the pandemic.
Yeah, that makes sense. The follow-up on the U.S./Europe, you sense there might be a little bit of disruption in overseas that is driving quick-turn orders. I guess on a bigger picture, U.S./Europe fell and Japan fell last year. I guess in terms of the project activity and base business, are there encouraging things you are seeing or new project activity to kind of lift that beyond these quick- turn orders? How does that overseas business look?
Yeah. Let me just comment on last year. Definitely U.S. came down because some of our major customers, like ON Semiconductor or a few other customers, they had business with Huawei. They got affected. I think in a way, we also helped because the China side picked it up because some of the NCO products actually moved to China. Your second question was?
Oh, yeah. Just now kind of looking ahead to this year, like how you're seeing that overseas base-
Yeah.
-beyond some of the-
U.S., as I said, actually starting from now, second quarter, even from first quarter, we see increased orders, bookings from U.S. and Europe. In fact, we are also acquiring new customers.
Okay. Okay, great. No, those were my follow-up questions. No, thank you.
Thank you. Ladies and gentlemen, that is all the time we have for questions. I will now hand back to Mr. Daniel Wang for closing remarks. Thank you.
Again, thank you all for joining us today. It was a great exchange. We hope you will join us again next quarter. I wish you all have a very happy weekend. Please stay safe and healthy. Thank you.
Thank you. Ladies and gentlemen, thank you for your attendance. You may all now disconnect.