Welcome to Nanya Technology's 2024 Q4 Earnings Conference Call. All lines are in the 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 2024, followed by our guidance for the next quarter and key messages. And then, Nanya Technology's Executive Vice President, Dr. Lin-Chin Su, Vice President, Mr. Joseph Wu, and Financial Executive, Mr. Philip Chao, will join us as we open our Q&A session. Today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. And as usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause the actual results to differ materially from those contained in the forward-looking statement.
Please refer to the Safe Harbor Notice that appears in our presentation materials. Thank you. And 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, I'm Pei-Ing Lee. Welcome to Nanya Technology Q4 2024 Investor Conference. My presentation to you will start with our Q4 revenue and result, followed by 2024, the whole year revenue and result, and then CapEx and business achievement, then followed by market outlook. Finally, conclude by business review and outlook. For Q4 revenue and result, our Q4 2024 net sale comes to TWD 6.575 billion, compared to TWD 8.133 billion in Q3, which is down by 19.2%. The gross profit is negative TWD 695 million, compared to 264 million positive Q3. It's a negative of minus TWD 1.188 billion. Within this, the idle cost accountable for TWD 639 million has been included in Q4. This is due to power outage and some production reduction. The operating income comes to minus TWD 2.812 billion versus Q3 minus TWD 2.503 billion.
It's a marginally more loss of TWD 0.3 billion. EBITDA at TWD 1.185 billion. Non-operating income TWD 900 million and income tax benefit TWD 339 million. The net income comes to minus TWD 1.574 billion. It's marginally worse than Q3. Our earnings per share comes to minus 0.51 per share versus minus 0.48 dollars per share in Q3. That comes to our next page. Our QoQ comparison revenue down by -19.2%. This is due to shipment decrease high single digit and ASP decrease low 10%. Exchange rate around flat. Compared to last year, revenue down by year-to-year, down by Q2 QoQ, down by 24.5%. Shipment decreased by low 30% and ASP increased by low 10%. Exchange rate increase low single digit.
For more detailed comparison, QoQ, our net sales were down QoQ by 19.2%. And this is due to mostly two important factors. One is that ASP decreased by low 10s% and bit shipment decreased by high single digits%. From a market point of view, other than AI and HBM being very promising, the rest of the market has been weak demand for the Q4. And gross profit minus NT$695 million. And as I explained just now that within that, there are around NT$600 million, more than NT$600 million is coming from idle costs. And gross profit decreased by NT$959 million, mainly due to ASP decrease. Operating expense NT$2.118 billion versus Q3 NT$2.769 billion. And this is mostly due to operating expense decreased by NT$650 million, mainly due to R&D expense decrease.
Operating income minus TWD 2.812 billion and operating loss increased by TWD 307 million. Net income minus TWD 1.574 billion and the net loss increased by TWD 87 million and mainly due to ASP and bit shipment decrease. For operating expenses, our SG&A expenses at Q4 last year is TWD 628 million. It's in the average of the quarterly expense. R&D expense comes to TWD 1.489 billion. It's lower in Q4 compared to previous quarter. This is due to the charge into separate quarter and Q4 happened to be less charge on R&D expense. R&D expense will come to normal at about TWD 1.9 billion quarterly in the future. For cash flow situation, beginning of the balance Q4 at beginning is TWD 61.157 billion and the end balance is TWD 61.86 billion.
Cash from operating activity is minus TWD 258 million and CapEx is TWD 3.37 billion, which financial activity positive of TWD 4.33 billion. Free cash flow is the cash flow situation of TWD 3.63 billion. Our net cash, which means that from our cash equivalent minus our short-term debt and the long-term debt, the small notes at the bottom show that we still have net cash of TWD 36.6 billion. Even though our net cash is still positive, financially the company is still relatively okay. However, we are in a cash loss situation. We have to further make improvement on our operation as well as CapEx expenditure need to be more sensible. For 2024, on the right-hand chart, our beginning of the cash in Q1 last year is TWD 58.812 billion. The end of year is TWD 61.86 billion.
The change within the year, cash from operating activity is positive TWD 1.909 billion. CapEx is reported as TWD 16.14 billion. This is almost 50% is for construction purpose and 50% is for our technology migration purpose. Financial activity positive TWD 17.282 billion. Mostly this is the debt increase. For 2024 revenue and result, 2024 our net sale is TWD 34.132 billion versus 2023, TWD 29.892 billion. It's an improvement year to year about 14.2%. With the gross profit in 2024 minus TWD 421 million versus 2023 of minus TWD 4.483 billion, it's some improvement for 2024. Operating income minus TWD 10.555 billion versus minus TWD 14.46 billion in 2023. Non-operating income TWD 3.998 billion is about same similar to 2023. Income tax benefit a lot less than 2023. Net income comes to minus TWD 5.0 billion versus 2023, minus TWD 7.44 billion.
Although the net income is slightly improved, however, the company is still losing money at earnings per share of -TWD 1.6 versus 2023 of -TWD 2.4. And book value stay about same at TWD 53. The comparison of year to year result compared to 2024 versus 2023, the net summary is from last chart as shown here. And the main reason for net sales improvement is ASP increased by low 10s and bit shipment is about flat. And gross profit improvement of about TWD 4 billion is mainly due to ASP increase and lower idle costs in 2024 versus 2023. And operating expense remains similar at around TWD 10 billion. And operating income -TWD 10.555 billion versus -TWD 14.46 billion. And operating loss decreased by near TWD 4 billion. And the reasoning as explained in the gross profit.
And the net income comes to -TWD 5 billion versus -TWD 7.44 billion. And the net loss decreased mainly due to the ASP increase year to year. And also due to unfavorable income tax impact. For CapEx and bit shipment, in 2024, our Q4 CapEx comes to TWD 3.4 billion. And the whole year 2024 was TWD 16.1 billion. In 2025, we expect the CapEx to TWD 20 billion. This is still subject to board of directors approval. And our bit shipment in 2024 is unchanged year over year. This is due to at the second half of the year, the market for all the market other than AI has been weak. And 2025, bit shipment plan to increase by more than 20% year to year. For market outlook, we're seeing that AI continues to drive even demand in the cloud data center and edge computing.
Edge application spanning from server to PC to smartphone, robotic, and other smart devices. This is the positive side. Demand for the general PC, mobile, and consumer product remain weak for now. But we're seeing that market may be bottomed out in first half 2025, with a potential recovery beginning in second half 2025. This is the market other than AI. AI has been continuing to be good without an issue. It's the market other than AI we are expecting to be improving in second half this year. And this is due to regional economic improvement by stimulation policy and also by inventory improvement over time. From a supply side, demand supply is set to grow in 2025 with most of the expanded capacity mainly for HBM and DDR5. And ongoing reduction of inventory in standard DRAM products such as DDR4, low-power DDR4, and DDR3.
In the server market, market for both AI focus and general server has been some positive growth, likely throughout 2025. And inventory level are normalizing in mobile market and resulting in a better supply-demand balance in first half 2025. PC, we are expecting to enterprise device will upgrade in PC growth. And for the future, we are expecting AI PC will contribute to higher DRAM content. And for consumer, potential recovery from weak demand may be starting from Q2 2025 by regional economic improvement due to stimulation policy, but also due to inventory improvement. For business review and outlook, for Q4 2024, Nanya experienced net loss of TWD 1.574 billion, EPS of minus 0.58. And for the whole year, we have net loss of TWD 5.083 billion, EPS of minus 1.64. Our second-generation 10-nanometer class are ramping up as we speak.
We are expecting peak production exceeding 30% of total output by 2025. Our 16-gigabit DDR5 stack at 5600 has been delivered to market in Q4 2024 in small volume. The volume is expected to be improving quarter to quarter. Our 16-gigabit DDR5 stack at 6400 target to release in first half 2025. We are developing strategic partnership to explore market opportunity driven by growth of demand in AI edge computing and planning to release product by the end of 2026. We also are receiving a number of ESG recognitions, including DJSI World Index for the fourth consecutive year and MSCI ESG rating upgrade to AA. Also for ISS ESG rating for the fifth consecutive year. Also from Taiwan Corporate Sustainability Award for the eighth consecutive years. That concludes my presentation to you. Now we may move to question and answer.
Yes. Thank you, Dr. Lee. And ladies and gentlemen, before we begin the Q&A session, I would like to remind everyone to limit your questions to two at a time to allow all participants an opportunity to ask questions. We'll begin taking questions from dial-ins. And for webcast participants, please message your questions with your name and company name to Nanya Operator in the chat box. And now for dial-in participants, please press star key and one on your keypad if you would like to ask questions. To cancel your question, please press star key and two. As a reminder, it is greatly appreciated that you turn off the speaker phone mode of your device to prevent possible echo effect. We thank you for your cooperation. Now for dial-in participants, please press star key and one on your keypad if you would like to ask questions. Thank you.
We are now in Q&A session. If you would like to ask questions, please press star key and one. Thank you. The first one to ask question, Simon Woo from Bank of America. The line is open now.
Thanks, Dr. Lee. Happy New Year. Number one question is, would you remind us of your DDR5 production volume progress as of January? It's very meaningful. I mean, more than 10% of the total. And then how to achieve, let's say, 30% of the total output? So what do you mean 30% of the output? It is in terms of the total bit for the entire year 2025? And then I will raise a second question. Thank you, sir.
30% of the output is including all of our second-generation node of process technology. That will include our DDR5 and include our DDR4, as well as low-power DDR4 and low-power DDR5, for instance.
But if you have 30% out of the total annual production, presumably the second half, the penetration ratio must be easily 50% or higher, right?
Likely to be about 30%. Currently, we are already converting around more than 20% as we speak today, as of today.
20% means what? It's a capacity or production volume for now?
Production volume for now.
So 20% of the total production measured in terms of the bit already DDR5 for now?
Yes. Already 1B technology and mostly DDR5, yes.
And then the—sorry. 30% means entire year 2025?
Yes. That's our target, yes.
That means, again, more than maybe 50% for second half 2025.
Second half only. As I say, as of today in January, already 20%. So there's a good chance that we are exceeding 30% for the whole year.
So in that case, automatically, your DDR5 ASP, 30% or 40% higher than DDR4 per bit price premium, we can say, or?
That would depend on the market price trend. I cannot give you an exact number for now. But yes, there are some price premium for DDR5.
Yes, sir. Okay. Very clear, sir. And then to make the OP margin, Q4 was -43%. So any rough idea when the OP margin can be 0% or better than break even? What kind of assumption needed? ASP increase or more cost reduction needed, sir?
That's a very good question is that so far, Nanya's business is on non-AI business. Everything other than AI, Nanya business is mostly concentrated on that so far. Therefore, our margin has been weak. As we introduce more 1B technology and DDR5, and also we are expecting that the general DRAM, that is non-AI DRAM, also is expecting some improvement likely on second half this year, and on top of that is that our cost is going to see some reduction in Q4 this year.
Sorry. You mean the cost reduction will be meaningful only in Q4 or?
Q4. Q4, mostly our depreciation cost will be substantially improved.
You mean that this year?
This year.
December quarter?
December quarter, yes. We have some significant improvement on depreciation.
S o for the short term, in December quarter, the pricing momentum looked good, right? Because you already reported more than 10% ASP decline for December quarter, so March quarter ASP cut should be somewhat similar to the December quarter then, or?
March quarter may still need to digest some of the industrial inventory. So we are expecting likely to be Q2 , we are seeing some recovery starting to happen. And this is due to the regional economy and some stimulus package offered. And also due to inventory level adjustment likely to be much better in Q2 versus Q1.
Okay. Very clear, sir. So I'll leave the other guys raise the question. Thank you very much, Dr. Lee.
Thank you, Simon.
Next one to ask question, Jay Kwong, J.P. Morgan. Line is open to you now.
Thank you, Dr. Lee, for taking my questions and Happy New Year. I also have two questions. Number one, what are your upside and downside factors for 2025 bit growth plan given 2024 a year ago, the firm also anticipated a 20% bit growth, but it turned out to be flat. So I'd like to ask your assumption.
You also mentioned about the inventory, still the clearance and the digestion. Does it mean in the short term in Q1, bit shipment may not actually grow? That's my first question. Then I have one more question. Thank you.
Okay. Your question about bit growth originally we're expecting 2024 to be improved. Yes. That's a target that we did not achieve. And this is due to, as I explained just now, that in the second half this year, the non-AI market has been quite weak. And as a result, we did not have any bit growth in 2024. But 2025, we are looking forward for bit growth. And we are conservatively saying that greater than 20%. And this is due to that we're starting to convert our DDR3, DDR4 capacity into DDR5 and 1B technology. And we will improve our DDR5.
DDR5 is a market really at this point probably one of the only markets that is demand is still relatively okay compared to DDR4 and DDR3. And on top of that, we also expect DDR3 and DDR4 to be improving starting Q2 due to regional economic improvement and overall inventory adjustment. That's the reasoning why bit growth situation changed from 2024 to 2025. I hope that answered your question. Regarding to inventory issue is that as the current situation for the big three, they still have at the end of last year, they still have a bit of DDR4, low-power DDR4. They even tried to fire sale on their DDR3. And those actions have already occurred. And on top of that, they are migrating their capacity focus more on DDR5 as well as HBM.
So we're looking forward that their input and output on the general market, particularly DDR3, low-power DDR4, and low-power DDR4 will be regulated down. So as a result, that may help on the inventory situation in non-AI market. Understood.
Then is it fair to assume that Q1 also considering the Chinese New Year season, that the bit shipment to be somewhat not far different from that of a Q4, and your improvement would happen sequentially and much more back-loaded into the second half? That's fair to say that. But we are still not giving up hope on Q1 yet. There are some signs that Q1 may see some marginal improvement from a shipment point of view compared to Q4 last year.
Understood. Thank you. And I have one more question. In your later part of the slide, you mentioned about the AI edge computing product plan. Could you elaborate some details? Does it mean Nanya Technology has a plan to develop HBM, or is it referring to LPDDR6? I just want to get some clarity here. Thank you.
Okay. This is a good question is that so far, currently, AI is mostly focused on cloud computing center with the AI computer using a lot of HBM. And the AI application likely to continue to expand into edge application. That's including AI PC, that's including AI mobile phone, also including AI robotic, as well as many other AI electronics could also have more or less of AI function in there. With that, it would require some AI chips, that's including the AI function on the logic side as well as the memory function on the high bandwidth side. And the bandwidth could be different from one to the others.
So that's what Nanya's customers are interested in looking into. And we are working very closely with our customer. And hopefully, we can come up with some product by the end of 2026. Then this product features is more focused on the speed rather than the low power because it requires higher bandwidth memory. They will require on both, low power and high bandwidth. And of course, there's going to be some balance in between. You have to work on certain applications and what customers are required, what customers are more sensitive to power or more sensitive to speed or more sensitive to cost. All these factors are taken into measure for each of different applications.
Thank you very much. I'll go back to the queue.
Thank you.
Ladies and gentlemen, we are still in Q&A session.
If you would like to ask questions, please press star key and one on your keypad. Thank you.
If I may, before the next question, just follow up a little more on this edge AI application and what Nanya plays a role in this area. As you know, the HBM is mostly focused by big three, the big three suppliers. The AI edge application is likely to be mostly a customer design kind of business model. For Nanya, we are able to offer our newly developed process technology and product technology to integrate with customer requests on this customer design AI application. In comparison to more legacy companies, they still don't have high-density DRAM chip for this application. Nanya does have a slight favor compared to more legacy companies. Nanya also a company can service and can do customization for the customer. Nanya will try to develop a differentiation from the market.
Thank you, Dr. Lee.
Please continue. Thank you. To ask a question.
Yes. Thank you, Dr. Lee. And thank you for all your questions. We'll move on to the webcast questions. Dr. Lee, please begin.
Okay. The first question comes from Michael, Yuanta Securities. He has three questions. The first question is, is there any clue or evidence, like longer order visibility, the larger amount of order supporting outlook that seen recovery of consumer demand in second half 2025? And we've seen some sign of encouragement of the consumer market happening. And we've seen some stimulation packages also being introduced by regional economies. And we are looking forward to see that inventory in this non-AI market being improved.
So there's a good opportunity that Q2 this year has a good chance that the non-AI market will start to see some improvement. The second question is, will the company consider using Treasury stock in 2025? And at this moment, we don't have a plan yet. But our finance manager may be able to comment more later. At this point, we don't have any plan yet. And your third question is, what is schedule for 1B node to make low-power DDR5 and 1C mass production? 1B has already started delivering 16 gigabit DDR5 at a speed of 5600 now. And we are qualifying 6400 as we speak. We are expecting to start to deliver Q2 on that DDR5 16 gigabit, which pretty much on par with the market demand for now.
For low-power DDR5, we will start to do some test run in the Q2 , end of Q2 this year. 1C mass production likely we are expecting that the end of 2026. We're looking forward that our 1D will come around hopefully by end of 2027. We try to speed up our technology development. Stanley. Stanley from SinoPac Securities. In a presentation page 18, it developed strategic partnership to explore market opportunity in edge AI computing. Product release by the end of 2026. Could you elaborate more what kind of product is this? This is the product specific is our customers' confidential information. So I have to pardon myself for not being able to release too much detail. We have a few customers interested in working with us in this area.
What type of edge application targeted? This is the application. There is really quite broad. As I described to you just now, AI PC, AI mobile, AI robotic, and general AI electronics. It could also apply to cloud computation as well if it's successful in the long run. Your question is, is our company only supply DRAM die? In general speaking, we focus our business in DRAM. Yes, for now. The next question is from Richard from Fubon Securities. Richard has one question. As DDR3, DDR4 production was reduced by peers, does NTC reduce more order, particularly from industrial customers? W e are expecting this to gradually improve by Q2 this year. Okay. That's the end of the question. Thank you so much for today. Bye-bye now.
Thank you, Dr. Lee. Ladies and gentlemen, that concludes our conference call today. Please be advised that the replay of the conference will be accessible within three hours from now, which will be available through Nanya Technology's website at www.nanya.com. We hope you will join us again next quarter. Thank you for your participation and have a wonderful day. You may disconnect your line now. Thank you and goodbye.