各 位 投 资 界 的 朋 友 们 ， 大 家 午 安 。 欢 迎 您 参 加 南 亚 科 技 二 零 二 二 年 第 四 季 法 人 说 明 会 。 由 于 这 个 法 说 会 是 对 全 球 投 资 人 播 放 ， 我 们 将 全 程 使 用 英 文 ， 请 您 见 谅 。Welcome to Nanya Technology's 2022 Fourth Quarter Earnings Conference Call. All lines are in a listen only mode. The conference will be held only in English for investors around the world. Today's conference will be approximately 60 minutes. Nanya Technology's President Dr. Pei-Ing Lee will summarize our operations in the fourth quarter of 2022 followed by our guidance for the next quarter and key messages. Nanya Technology's Executive Vice President Dr. Lin Chin-Shu, Vice President Mr. Joseph Wu and Financial Executive Mr. Philip Tsao will join us as we open our Q&A sessions.
Today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. As usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause the actual result to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation materials. Now I would like to turn the call over to Nanya Technology's President Dr. Pei-Ing Lee for the summary of operations and current quarter guidance. Dr. Lee, please begin.
Ladies and gentlemen, welcome to Nanya Technology Q4 2022 investor conference. I'm Pei-Ing Lee. For the last quarter, the market demand has been weak. Is much weaker than our expectation. Okay? In my presentation, okay, I will share with you our view on market outlook as well as our business outlook at the end. First of all, let me share with you our Q4 revenue end result and a summary of 2022 yearly revenue end result and our CapEx investment. Okay. As a start, we have experienced weaker DRAM market that we haven't seen for maybe last 10 years. Okay? As a result, Nanya Technology has come into financial loss situation for our Q4 2022 for many years. Okay?
This is our Q1ly financial loss for many years. Let me get into a little bit more numbers of our Q4 result. First of all, our net sale at NTD 7.954 billion versus Q3 at NTD 11.022 billion. That's a reduction of 27.8% quarter-to-quarter . Our gross profit comes to NTD 1.037 billion compared to Q3 at NTD 3.597 billion, which is 13% versus 32.6%. Okay?
Our operating income comes to minus NT dollars 1.544 billion versus last quarter, we're still making NT dollars 922 million. Operating income come down to -19.4%. Our EBITDA comes to NT dollars 2.218 billion versus last quarter, NT dollars 4.717 billion. For the non-operating income, NT dollars 121 million versus Q3 at NT dollars 2.243 billion. This is mostly due to exchange rate unfavorable for NT dollars 2.336 billion, a small loss at the bottom of this table. Okay?
That's accountable for most of the major reason for non-operating incomes. Income tax benefit are at NT dollars 272 million versus last quarter at minus NT dollars 522 million. Our net income comes to minus NT dollars 1.151 billion at -14.5% versus last quarter at NT dollars 2.641 billion at 24%. Earning per share for last quarter, Q4, comes to -$0.37 per share versus Q3 at $0.85 per share, positive. The book value per share $58.41 per share versus last quarter $59.29 per share. It comes to quarterly revenue result, comparison from quarter-to-quarter comparison, Q4 versus Q1, revenue was down by -27.8%.
The key reason is the shipment was declined by low single digit and ASP declined by mid-20%. Exchange rate increased low single digit. For year-to-year comparison compared to Q4 last year, revenue down by 62.8% and shipments down by low 30% and ASP down by low 50s. Okay? This is a summary of quarter-to-quarter comparison. For Q4 and Q3 result comparison in a little bit more detail. The net sale NT dollars 7.954 billion versus NT dollars 11.022 billion, down by 27.8%. This is mostly due to ASP decrease by mid-20s and bit shipment decrease by low single digit, with exchange rate positive low single digit as well. For gross profit, NT dollars 1.037 billion at 13% versus NT dollars 3.597 billion at 32.6%.
The gross profit decreased by NT dollars 2.56 billion, mainly due to ASP and shipment decrease as reported just now. For our operating expense, NT dollars 2.581, which is very close to last quarter's NT dollars 2.677 billion, which is normal range. For operating income, minus NT dollars 1.5 billion versus last quarter NT dollars 920 million. Our operating income decreased by NT dollars 2.464 billion. Our net income comes to minus NT dollars 1.151 billion at -14.5% versus NT dollars 2.641 positive billion positive at 24% last quarter.
The key reason on the remark is that net income decreased by NT dollars 3.792 billion, with operating income decreased by NT dollars 2.464 billion for the last bullet, and exchange rate loss unfavorable by NT dollars 2.336 billion. Interest rate income favorable by NT dollars 281 million, and income tax also favorable by NT dollars 794 million. With that, come to our financial trend chart for quarterly. For the last quarter, it's reported that we've come down to pretty low value, both in our revenue and as well as our gross margin, OP margin, and we have come to the first financial loss quarterly for many quarters.
For operating expense and on the left-hand chart, SG&A expense, for this quarter, for this Q4 quarter, NT dollars 622 million is normal range. Okay? For the year 2022, NT dollars 2.498 billion, which is also normal compared to 2021. For R&D expense, for Q4, NT dollars 1.959 billion is in normal range. For the year 2022, NT dollars 7.841 billion and which is normal range compared to 2021 as well. Our cash flow situation, beginning balance, for Q4 last year is at NT dollars 83 billion, NT dollars 83.012 billion in the beginning. At the end balance comes down to NT dollars 74.3 billion.
This is as a result from three key points. Cash from operating activity is positive by NT dollars 690 million. CapEx is expense by NT dollars 6.651 billion, and also with other expense. Okay? Other expense is mostly due to exchange rate change adjustment. For beginning of 2022, January first, which is at NT dollars 80.7 billion. At the end of the last year, it comes to NT dollars 74.3 billion for cash. Among those, cash in from operating activity is NT dollars 21.072 billion. Capital expenditure is spending, which is negative NT dollars 20.7 billion, with others also explained it just now.
For 2022, whole year, okay. For an audited result, this is the Nanya internal results still yet to be audit by accountants, okay. Net sale for the year is NT dollars 56.952 billion versus 2021 of NT dollars 85.604 billion. year-over-year minus by 33.5% due to market downturn. Okay. It comes to gross margin, NT dollars 21.342 billion versus NT dollars 37.044 billion at 2021, down by 42.4%. This is again, due to down market. Okay. SG&A and R&D spends pretty much in normal range.
Our operating income, NT dollars 11.003 billion for the year 2022 versus NT dollars 27.186 billion at 2021, okay? As a result for down market. The non-operating income, NT dollars 5.87 billion versus the year before, only NT dollars 581 billion. The income before tax, NT dollars 16.873 billion versus 2021, NT dollars 27.767 billion. When it comes to net income for last year whole year, NT dollars 14.61 billion at EPS of $4.72 per share for 2022 versus 2021, we make earning per share $7.40 per share. With the book value, NT dollars 58.41, slightly improved from 2021.
I just explained a bit of those numbers. Net sale comes down by 33.5%, and this is due to bit shipment decrease by 20s, and ASP decreased by low teens year-to-year comparison, with the exchange rate positive by mid-single digits. The gross income down from 37.44 at 2021 to 2022 at 21.342 billion NT dollars. Gross income decrease is due to shipment and ASP decrease. Comes to operating income for year 2022, 11.033 versus 27.186 year-to-year comparison. Again, this is mostly due to market situation.
The net income, NTD 14.614 billion, at 25.7% for the year. With the income remark also summarized on the right-hand side. Basically, it's all due to operating income decrease by NTD 16.184 billion and exchange rate again, favorable, by NTD 3.51 billion. Year-to-year, we had 2022 favor exchange rate and 2021 unfavorable in exchange rate. The interest rate income also increased as a result from interest rate globally has been increasing. Income tax also favorable. For the CapEx and bit shipment. CapEx for 2022, we had originally planned to spend NTD 28.4 billion.
At the end of 2022. The CapEx has been reduced down to NT dollars 20.7 billion, mostly due to our slowdown in wafer equipment moving. For 2023, our plan to estimate is that our CapEx will be in the range of NT dollars 18.5 billion, subject to board approval again. For the bit shipment point of view on the right-hand side, for 2022, our bit shipment is down by 20%, due to weak demand and due to down market. As a result, we are planning to have production output reduction targeted for 2023, up to 20% dynamically.
This will according to what market and customer demand, making adjustment for the market and for the customer. For CapEx update and forecast, on the left-hand side is 2022, the actual number. As reported that the actual CapEx is 27% less than original budgeted. Okay. We have cut wafer equipment shipment CapEx for almost half for 2022. For 2023, we plan in NT$18.5 billion CapEx, and wafer equipment CapEx will be less than 50% of that. Okay? We're still spending some for some CapEx for the construction, okay? Which will take 3 years to complete. Okay? This will be ongoing for the next 3 years.
For the market outlook, Q1 2023, this quarter, the DRAM market may remain soft. This is due to corporate spending and consumer purchase power decline. Globally, we're seeing economic downturn around the world, triggered by high inflation and high interest rate. Regionally, we see Russia/Ukraine conflict that cause energy crisis and high inflation. We're also seeing China COVID measure impact on supply chain and also impact on China domestic demand. For Q2, some of the global and regional impact may remain uncertain or marginally improve. Q2 is a quarter we need to continue to pay close attention to those key topics. With some improvement, likely, potentially, on the second half of this year, DRAM market may gradually recover from the downturn.
The degree of recovery will depends on how those uncertainty and how those global and regional impact been alleviated. For supply side, Q1 DRAM supplier inventory continue to increase, likely. Some vendors already took actions on CapEx reduction and capacity adjustment and slowing down process migration to alleviate building up of inventory. From a demand point of view, server market, we're seeing enterprise cloud demand remain pretty healthy. However, consumer cloud vendor are reducing investment due to stagnant economic. For second half of this year, as the component supply imbalance issue been resolved and a new CPU platform and DDR5 may stimulate server demand and also largely depends on global economic recovery. Mobile market, we're seeing that U.S. and Korea mobile phone maker shipment are relatively healthy in compared to China brand smartphone is relatively sluggish.
For Q2 2023, inflation and inventory impact may gradually ease, which may trigger more mobile phone consumption. Second half 2023, potentially, smartphone shipment may recover. Again, will be largely rely on globally and regional economic recovery as well. For PC market, annual PC shipment continue to decline and average DRAM content may remain growth. For consumer market, for Q1 2023, TV and general consumer electronics sales remain concerned. 2023 as economic gradually improve. On the other hand, networking, industrial sector and automotive demand relatively healthy in compared to general consumer electronics. For Nanya's business review and outlook, for finance point of view, our Q4 2022 EPS is -$0.37 per share. For the whole year, EPS is +$4.72 per share.
From operation side, we are flexibly adjusting our product mix and production output and CapEx to better respond weaker market demand. Our first generation 10nm-class product is now reaching the stage for small volume production. Our second generation piloting is smooth as our expectation, and we targeted to have small volume production by the end of this year. On the ESG side, Nanya has continuously been selected into DJSI, Dow Jones Sustainability Index, our World Class Index, as well as Emerging Market Index. Nanya also received CDP Water Security A List, the Climate Change Leadership level. For market outlook, Q1, the global economic may continue to be slow, and the DRAM market may remain slow.
For Q2, we need to monitor a few of those economic factors, both regionally and globally, and also the inflation trend. With that, conclude my report to you.
Yes. Thank you, Dr. Lee. Ladies and gentlemen, before we begin the Q&A session, I would like to remind everyone to limit your questions to 2 at a time to allow all participants an opportunity to ask questions. We'll begin taking questions from dial-ins first. For webcast participants, please message your questions with your name and company name to Nanya operator in the chat box. Now for dial-in participants, please press star key and one on your telephone keypad if you would like to ask questions. To cancel your questions, please press star key and two. As a reminder, it is greatly appreciated that you turn off the speakerphone mode of your device to prevent possible echo effect. We thank you for your cooperation. Now for dial-in participants, if you would like to ask questions, please press star key and 1 on your telephone keypad. Thank you.
The first to ask question is Simon Wu from Bank of America. The line is open to you now.
Okay, great. Thank you, Dr. Lee. All the details, we appreciate. Maybe two questions. Number one, the inventories of Nanya Tech and also the, maybe, some OEM guys who are hyperscalers. Would you update your inventory situation? You already commented your inventory amount getting maybe... I mean, the memory makers' inventories are getting higher these days. Would you update the Nanya specific inventories versus some OEMs or tenors? Thank you.
Nanya inventory also gradually increased, as I reported to you, as the market situation get get weak. Okay. Since that, we have starting to manage our production mix and output control. Also, we also very actively try to encourage more shipment as well. Okay? From the inventory in the market side, okay, the the As I reported that, for the enterprise sector of the cloud center, looks like the inventory is maybe still relatively healthy. And on the other hand, for the consumer side, may have some more inventory than than the enterprise side.
Yeah. Yeah. Great color, sir. The last question is overall the demand outlook. You said maybe Q1 is too weak, Q2 may be sort of stable, second half a decent recovery. You know, number one, the price elasticity, because when we look at the Nanya Tech ASP trend. Maybe current prices should be already 50% to 60% lower than a year ago. You don't see any, you know, demand recovery per box content because 50% to 60% lower price. Also, the overall China smartphone correction period already for 2 years, PC down to more than 1 year, consumer electronic source almost 1 year long correction. Don't you think it's time to see some price elasticity function or some re-replacement demand recovery in the consumer or smartphone PCA areas? Thank you, sir.
Yes. Simon, you have a very good point, is that the price already down substantially for two to three quarter, okay? Also sector-wise, there are some correction already happened for some time, likely maybe experiencing some price elasticity. However, in general speaking, overall that DRAM market still remain, depends on demand and supply balance, as a whole. Good thing is that sector-wise, okay, there are some sector may become, may recover sooner than the other, and there are some sector may be already bottoming up at a very low range, okay? If I may see that, I see that mobile, and the consumer side, and PC side is already probably at its lowest demand, hasn't been seen for many years, okay?
You may say that, possibly that is already bottom up, okay. However, demand and supply still gauge the ASP as a whole. I mean, still, which means that the inventory situation in each of the sector as well as the demand balance could still play a role in terms of the price trend, okay. Likely though, we are expecting that price decline, the range of price decline may narrow down gradually, okay. That's likely to happen starting to Q1. Hopefully, it could be even more positive in Q2.
Yeah. Very clear, sir. Appreciate. Thank you.
Ladies and gentlemen, we are now in dial-in Q&A session. If you would like to ask questions, please press star and one on your telephone keypad. Thank you. Please press star and one on your telephone keypad if you would like to ask questions. Thank you. The questions are coming from Simon Wu from Bank of America. Go ahead, please.
Yeah. Sorry, Pei-Ing Lee. I think other guys maybe are not raising the questions, so maybe let me share the some investors' question if you don't mind.
Oh, no, I don't mind at all. Thank you for your question, Simon. Go ahead.
Yes, sir. Number one, the DDR5. You know, some engineers are saying to use the DDR5 in the data centers to, you know, quality can be the issue because ECC extra module and also suddenly 100% higher, you know, performance, very high-speed thing, it may could be the some concerns for the engineers. There's no issue, I think, LPDDR5 for the mobile, but, and also the DDR5 for the PCA area, no problem. DDR5 can be the challenging thing for the data center cloud area. What's your view on the DDR5 in the cloud area, sir?
I personally think DDR5 will come anyway. However, I don't expect DDR5 to come as a abrupt. A very sudden jump situation. Likely, DDR5 will come in a gradually transition point of view. That not only considering the ECC, but also considering performance as well as the price balance, as well as the system requirement. I would say that DDR5 was starting to gradually move in more and more as we speak by the end of this year. Gradually more and more by next year and the year after.
Yeah. Yeah. The quick question on behalf of some investors. The China fab, maybe, your competitors which operate the China, mainland China DRAM fab. Do you see the any near-term disruption or issue for the China memory fab with the U.S. control announced October seventh, so or it will take time to see the lower amount of the supply from China fab? Thank you.
Well, I think, China fab, in my personal opinion, they will not stop. Okay? However, they may experiencing some problem in operation and, more and more, okay? However, they will find some solution also, more and more as well, okay? It certainly will not stop China from doing, China fab from going on, okay? Likely will be slowed down.
Yeah. Maybe, given that some analysts are not asking the question this time, but one last question should be the Nanya Tech specific new node migration plan, whether you are a little bit, lower CapEx spend. Would you recap your plan, maybe sub, 20nm node migration trend? In the meanwhile, you think that your customers are okay using continuously 20nm/thirty nano node, legacy DRAM for 2023 or maybe Korean makers promote maybe 1Y node, 1z node even for the consumer electronics. This may hit the Nanya Tech business for 2023. Thank you.
From Nanya point of view, our consumer market, account for 65% or some, at times 70% of our business, okay. In this area is much more diversified in product portfolio, okay. In some of the area we can continue to utilize our 20nm capacity. In some area we will of course gradually move into our future 10nm technology as well over the time, okay. In terms of the market situation as of today, very weak. Also it's given us maybe opportunity to think about how fast we're going to be ramping up, okay. Maybe this is a good opportunity for us to wait a little bit, not ramping up too much in our first generation. Okay.
Not too aggressive in our first generation. Maybe wait for a little bit of time to do more capacity ramping on our second generation and third generation. Okay? That strategy will be discussed, okay? Will be, as we find out that's advantageous to us, we will make adjustment.
Yeah. Yeah. Yeah. Great. Yeah. Thank you, sir. Oh, by the way, so when we can see that your 10nm node class DRAM wafer output, maybe, in mid this year or?
We are targeting by this year end, reaching hopefully 10% to 15% of our output could be in 10nm-class. Okay? Again, that's yet to be decided, depends on what I just described just now.
All clear. Thank you very much, sir.
You're welcome, Simon.
Ladies and gentlemen, if you would like to ask questions, please press star key and one on your telephone keypad. Thank you. We are now in guided Q&A session. Please ask your questions after dialing star key and one on your telephone keypad. Thank you. If you would like to ask questions, please dial star key and one on your telephone keypad. Thank you. There seems to be no further question at this point from dialing participants. We thank you for your questions, and we will now move on to the webcast Q&A session. Dr. Lee, please begin.
We'll have first question comes from Credit Suisse, Thad Hill. He will ask questions through vocal. Thad Hill, you may unmute yourself by now.
Okay. Thank you. Hi, management team. Thanks so much for taking my questions. My first question is to follow up on the inventory trend. You mentioned during market is soft, you will consider to lower the utilization by 20% due to high inventory levels. How much time do you think it will take for your inventory to go back to the normal level? Thank you.
Inventory level will very much also depends on the shipment. Okay. If a shipment as of today is actually quite low, as I reported to you, that our shipment is declining quite a bit compared to beginning of year 2022. As a result from the weak market. If the market can resume to the original stage, the inventory level will be consumed relatively quick. This all depends on the market dynamic situation, as I just reported to you that in Q2, there are some observation point we have to pay attention to. If that those observation point, if it's positive, likely inventory level will get healthy in a much quicker way.
If the market situation remain uncertain beyond Q2 or at Q2 or beyond Q2, likely the inventory level, will be dragging much longer time.
Okay.
In general speaking, I cannot give you specific numbers, okay? This is very market dependent. It's also very dynamic, okay? It also related to our behavior in terms of our output and product mix and our customer demand. That's ongoing situation, okay?
Okay, thank you. I noticed your inventory levels is close to the highest levels in the past decade. Could you share when you will start cutting outputs? Do you think the inventory correction will continue to early 2024?
All the, I just reported that we're doing the product mix and output adjustment, and it's actually already been done, okay? Already been started, okay? We'll continue to dynamically making such an adjustment.
Yes. Very, very helpful. My second question would be about your CapEx. You mentioned the CapEx cost for 2022 is mostly for the equipment, and the equipment spending will be less than 50% of your budget in 2023. Does it mean you are slowing down the technology migration? Could you share the breakdown of your CapEx for this year? Thank you.
I also commented on the last question is that for our first generation 10 nanometer class, okay? Maybe we should be not ramping it up as aggressive and waiting a little bit for second generation and third generation for ramping up. That strategy will be is still under discussion and will be finalized as we move on for the next couple quarter.
Thank you so much. I'll be back in the queue.
You're welcome.
Next question.
Okay, let me repeat a question from SinoPac Securities, Stanley. Stanley's first question is, what is the 2023 CapEx allocation by managed WFE? I already reported out the 2023, our CapEx likely to be in the range of NT dollars 18.5 billion, subject to board approval. Among those within that range will be around 50% for wafer equipment. The rest is likely to be the others, including constructions. The second question from Stanley is, could we expect our business will increase in Q1 2023? Q to Q-wise, okay, as I reported, Q1, the markets may still remain weak, okay?
We are working pretty hard every month. Okay. Opportunity for us to have better shipment in Q1. I would say there are some opportunity, but still very dynamic, it depends on every month's performance. Okay. Let me come to the next question, which is coming from Pro Capital, from Vincent. Vincent, your question 1 is that how about our 2023 full year depreciation and SG&A and R&D costs? Likely, our full year depreciation is not going to be-
It will be up.
Just only slightly up, right?
Slightly up.
Yeah.
Single digit.
Single digit. Will be single digit, higher than 2022. Likely, SG&A will be even, R&D will be also within a single digit difference from 2022. If I may go to the next question from Fubon Securities, Richard Hsieh. Richard, your question 1 is that Q1 2023, in Chinese. Next question is that Q1 also in Chinese. In Q1, the inventory evaluation of financial loss, is it possible? This is question regarding to that. Based on our current forecast, Q1, we still had, may still have a slight margin for that. Is it possible? I would say, if the ASP decline narrow down, narrow down, it's very possible.
If ASP decline continue to be as severe as Q4 last year, there's a possibility that may happen. The next question from EDN, Mr. Chung. Your question also in Chinese. 2022, 2023, I think I already reported that. For 2023, Q1, the market may remain soft. Potentially, we need to observe a few critical point for Q2. If those critical points has some indication of improvement, likely second half of this year will have some improvement in the market. Now comes next question. The next question is from Fubon, Ray Yao. What is the difference between... You page away. Stop. What is the difference between consumer cloud and enterprise cloud?
This first question is that for the cloud center, some of cloud centers serve to enterprise customer. That's what we call consumer enterprise cloud. For the cloud center that service to consumer, we call it consumer cloud. In general speaking, you know what I meant in the market. Okay? The second question is Q4 2022 inventory level. It's pretty high. I don't have the number for you. 2023 full year depreciation, as I reported just now, will be single-digit higher than 2022.
That's the last question.
Okay. Okay. We had one question from Mr. Lee from J.P. Morgan. The question is, given loss-making in DRAM, could there be potential inventory evaluation loss in Q1 2023 or Q2 2023? I believe I just answered the exact question just now. Okay? Based on the current outlook, Q1, we still have some margin not to take evaluation loss. Okay? However, it depends on the ASP decline situation. There may be a chance we may take some evaluation loss, if the ASP decline to be continued to be severe, which as our discussion went on just now, likely the ASP decline will be narrowed down due to several factors. First, the market in certain area is already at its bottom.
Very bad. couldn't be worse. Okay? Second, we still have, some margin, for now. Okay. That concludes our Q&A sessions. Thank you for joining.
Yes. Thank you, Dr. Lee. Thank you, ladies and gentlemen. That concludes our conference call today. Please be advised that a replay of the conference will be accessible within three hours from now, which will be available through Nanya Technology's website, www.nanya.com. We hope you will join us again next quarter. Thank you for your participation, and have a wonderful day. You may now disconnect. Thank you.
Thank you. Have a happy Chinese New Year.