[Non-English content] Welcome to Nanya Technology's 2026 third quarter earnings conference call. All lines are in the listen only mode. The conference will be held only in English for the 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 third quarter of 2026, followed by our guidance for next quarter and key messages. Nanya Technology's Executive Vice President Dr. Lin-Chin Su, Senior Vice President Mr. Joseph Wu and Financial Executive Philip Jao will join us as we open our question- and- answer sessions.
Today's presentation materials are available for download in 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 actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation slides. I will now turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee for the summary of operations and the current quarter guidance. Dr. Lee, please begin.
Ladies and gentlemen, welcome to Nanya Technology Q3 2026 investor conference. Today I'd like to present to you our Q3 revenue and result, and followed by CapEx and shipment, then market outlook, and then conclude by business review and outlook. First of all, for Q3 revenue and result. Our Q3 net sale comes to TWD 133.6 billion versus Q2 TWD 82.5 billion, is Q-to-Q increase of 61.9%. Gross profit TWD 114.4 billion versus TWD 65.6 billion, improvement of 74.5%. Operating income TWD 106.8 billion at 80% versus Q2 TWD 60.8 billion, improvement of 75.7%. EBITDA of TWD 110 billion, non-operating income at TWD 2.4 billion and we pay income tax for around TWD 21.7 billion.
This comes to net income for Q3, TWD 87.6 billion at net income rate, net margin rate of 65.6% versus Q2 is an improvement of 74.6%. Earnings per share for Q3 came to TWD 25.4 per share, compared to Q2 as TWD 14.66 per share. Our book value at Q3 is TWD 118.99 per share versus Q2 TWD 93.45 per share. For comparison, our Q-to-Q comparison revenue Q-to-Q up by 61.9% and year-to-year up by 611.7%.
ASP increased by greater than 60% Q-to-Q and year-to-year greater than 500%. Our shipment decreased by mid-single digit due to depletion in inventory. Exchange rate favorable by low single digit. A little bit more detailed explanation for Q2 and Q3 result comparison. The net income, TWD 133.6 billion versus TWD 82.5 billion, increased by 61.9%, mostly due to ASP increase by more than 60%. If you look down to the bottom at the notes, you find that the ASP increase is primarily reflect renewed long-term agreement.
The shipment decreased by single digit as its brand is depleted inventory. Exchange rate favorable, low single digit. For gross profit, TWD 114.4 billion at gross margin of 85.7% compared to Q2 is an improvement of TWD 48.9 billion due to higher ASP. For operating expense, TWD 7.588 billion versus Q2 TWD 4.793 billion. R&D expense increased by TWD 1.9 billion and SG&A expense increased by TWD 0.9 billion. For the note, most of this increase is mainly due to concurrent and future employee compensation.
For operating income, TWD 106.89 billion versus Q2 TWD 60.8 billion. Margin-wise, increased by 6.3%. Operating income increased by TWD 46.1 billion. Net income TWD 87.6 billion versus Q2 of TWD 50.1 billion. The net income increased by TWD 37.4 billion and the income tax also increased by TWD 9.6 billion. For operating expense on the left-hand side of this chart, the SG&A expense for Q3, it comes to TWD 2.443 billion versus Q2 TWD 1.5 billion and Q1 TWD 1.09 billion. A substantial increase mainly due to concurrent and future employee compensation.
On the right-hand side, R&D expense also increased from beginning of the year TWD 2.1 billion to Q2 TWD 3.2 billion and to Q3 at TWD 5.145 billion. This is again increased mainly due to concurrent and future employee compensation. For cash flow situation, our Q3 beginning balance at TWD 217.6 billion and the end balance at TWD 288.5 billion with free cash flow of TWD 75.2 billion. During this quarter, the cash from operating activity TWD 96 billion and capital expenditure TWD 20.7 billion and with financial activity, TWD 4.3 billion. Cash in Q3, the cash activity TWD -4.3 billion mainly due to dividend payout at TWD 4.6 billion.
We have dividend income also due to Piecemakers stake sale. If you look at the right-hand side, we have beginning balance of the TWD 217 billion, end balance TWD 288 billion. This including all the cash from operating activity, capital expenditure, and financial activity, et c. For net cash situation, Q3, our net cash, which at the bottom notes, comes to TWD 270 billion. This is the cash minus debt. Cash of TWD 288 billion minus debt of TWD 18.5 billion. At least compared to Q2, our net cash is TWD 199.2 billion. It is an improvement of around TWD 70 billion in net cash. Our CapEx and bit shipment report here on the left-hand side.
Our CapEx for this year is target for TWD 69.7 billion. So far, Q1 to Q3 CapEx was TWD 27.6 billion, and this is the timeframe of starting to move in equipment for new fab. This year is planned for TWD 69.7 billion, with wafer CapEx accountable for around 50% of this amount. Our new fab CapEx will be TWD 346 billion for 35,900 wafer start per month. Currently, our inventory level is low, so bit shipment are likely to stay flat from now on for a few quarters. For 2026, bit shipment year-to-year comparison is about up by high-teens percent .
For market outlook, the overall market, the AI computation, that is including GPU, TPU, CPU, ASIC, dominate the DRAM demand growth. Memory supply to smartphone, PC, and general consumer was suppressed. Suppliers' long-term capacity plan based on LTA commitments. For the supply side, the new fab construction, equipment delivery, and process node introduction all require longer lead time. LTA enable efficient product and capacity planning, supporting future market stability. Currently we are seeing lean supply-side inventory.
From demand point of view, AI driven. Expanding AI application are driving the memory demand for higher content, for higher bandwidth, and customized architectures. AI drives DRAM demand beyond HBM and low power DDR5 across networking, storage, and system management. For general application, the supply shortage and higher ASP have result in down specification and extended life cycles. Also, recycled DRAM partially support low-end market. For business review and outlook. For Nanya, our Q3 net profit, TWD 87.6 billion at EPS of TWD 25.4 per share.
Our gross margin at 85.7%, and net margin at 65.6%. Our Q1 to Q3 net profit comes to TWD 163.9 billion, with EPS accumulated to TWD 49.28 per share for nine months. Our shipment may stay flat until new fab wafer output at second half of 2027. Our operational result likely to be sustainable by favorable ASP may continue. For operational update and outlook, AI infrastructure and server contribute to Nanya's more than 20% of our revenue. Fab shipment until new fab wafer output in second half 2027. Our new fab equipment is scheduled for move in Q1 2027. We plan to ramp up to 30,000 by the end of 2028 and target up to 50,000 by the end of 2030.
Generally, the new fab plan and 18A equipment is aligned with future AI project under LTA. 3D wafer packaging and test fab is planned for Pingtung Science Park. Our 1C customer sampling is targeted for Q1 next year. Our 1D, fourth generation, and 1E, fifth generation, SiP develop process technology and EUV development are on track. We continue to provide a broad product portfolio including DDR5, low power DDR5, DDR4, low power DDR4, and DDR3, low power DDR3. Also we will support customized AI wafer-to-wafer bonding product for AI infrastructure solutions. That conclude my report to you. Now, we may move to question- and- answer. Thank you.
Yes. Thank you, Dr. Lee. Now we are moving into the Q&A session. We will begin taking questions from dial-in participants and followed by text questions from webcast. For webcast participants, please message your question with your name and company name to Nanya operator in chat box. Now, for dial-in participants, please press star one on your keypad if you would like to ask questions. To cancel your question, please press star two. As a reminder, to help avoid potential audio echo effects, please ensure you are not on speakerphone mode and stay muted whenever you are not speaking. Thank you. Also, please limit your questions to two at a time to allow all participants an opportunity to ask questions. Thank you for your cooperation. Now our first question will be coming from Charlie Chan, Morgan Stanley. Go ahead, please.
Thanks for taking my question. Again, very strong results. I think I have two questions. First question is that, very, very strong DDR4 demand scale, right? I am wondering if custom customers like, for example, CSP or NVIDIA, does not reach out for a more supply security. Also, I think it was a news report, right? Talking about Apple may also consider to use a company that low power DDR products. I just want to get a sense of the kind of high profile customers you engage with, and that is my first question. Thank you.
At this point, the DDR4 demands here are quite strong. It could take more than 10% of the overall market demand, and in comparison, Nanya overall market size is in low single digit. Okay? DDR4 demand is quite strong. However, Nanya is flexible on adjusting our DDR4, low power DDR4, with DDR5 and other product we have. Okay? That is including our AI, UltraWIO. Okay? Your comment about Apple potentially using the competitor's DRAM. For Apple, we do not supply their major DRAM, okay? However, we may have supplied their modem DRAM, okay? Those is a specialty DRAM that we do not think that there are other supplier providing those supply to Apple. Okay.
All right. I think that will be for very clear answers. My second question is actually about your kind of wafer-on-wafer kind of technology, because when I see Qualcomm, right, they recently promote a lot for their high bandwidth compute, right? I think there is one way to resolve the bandwidth issue or HBM supply issue for some AI accelerators. I am not sure if there is a potential existing partnership with Qualcomm or, not just Qualcomm, right, but any kind of a progress with the wafer-on-wafer for the AI applications.
Charlie, I cannot comment on specific customer solution. Mostly this is the customer's confidential and market trade secret. We have more than one customer working with us on the AI-related wafer-to-wafer bonding, 3DIC projects. The application will likely be spanned from, say, cloud computation for AI as well as all the way to edge computation and physical AI as well.
Okay. So far so good, right? I mean—
So far it is so good. We already have some revenue. Not big, but it is an important business for Nanya to work on. Currently, even though the contribution is not big, we will continue to engage with customer and support customer.
Got you. Thank you. Do you foresee the end of the DDR4 price up cycle or is there any kind of a selling or comparison in order to gauge when and how this DDR4 price hike will end?
DDR4, as I said, the demand is still quite strong. Everything will depend on the market ecosystem. There are area that are high-end, they will continue with higher ASP. And there are area also they have to balance in between down specification, extension life cycle, as well as some area even using recycled parts, et c. But overall speaking, DDR4 market is still reasonably healthy. Again, DDR4 is not Nanya's only supply. We are flexible to adjusting DDR4 to DDR5 and other product as well.
Okay, great. These are my question. Thank you.
Thank you. Next one, Jay Kwon, JP Morgan. Go ahead, please.
Thank you, Dr. Lee, for taking my question, and also congratulations on great result. My first question is, within your 60% or above ASP increase in last quarter, can you quantify how much of the impact was from the renewed long-term agreements? Is this mainly biannual repricing mechanism that you started reflecting, or did it include also annual or other quarterly contracts? Just trying to see if we can also expect another round of these type of renewed long-term agreement related pricing hike into the next quarter in Q4. Thank you.
That is the mix of all those you mentioned, including renewal of one year or six months LTA. That was mostly negotiated in either first quarter or second quarter last year, or third quarter last year. During those time frame, the ASP was relatively low and Nanya has make our commitment to deliver. So we have fulfilled our obligation on all the delivery at the price we have agreed upon last year. That is the situation for Q3, where most of this LTA, long-term LTA, has expired. On top of that, there are Q2 and Q3 quarterly update as well. But I would say contribution is mostly due to those long-term agreement for those 60%.
Just a small follow-up is, you said large amount is from these renewed, the pricing contract thing. Can we say that is only more than half, maybe even 2/3 or maybe 70% of—
I cannot quantify precisely. I cannot quantify, since I would say more than half. Yes. Yeah.
More than half.
Yeah.
Okay. Thank you. Just one second question is, about your summary, you have mentioned AI infrastructure and server is now over 20% of the revenue. Does it include mainly DDR5, DDR4 for server customers and also for eSSD solution? Does it have any low power DRAM solution that you are selling to server as well?
It's a mix of everything, okay? Including DDR4, DDR5, and low power DDR as well. Yes. That's including chip that used for communication, for storage and for management, just system management, as well as enterprise SSD, and also RDIMM as well.
Understood. One small follow-up here is, because these customers are very longer term order duration customer, in our understanding. If you have any expectation about how big this segment could grow from currently over 20% to could it even grow to like 25% or 30% or even higher number within next 12 months? If you could give us your high-level thoughts about the mix direction, that would be really great. Thank you.
We plan to increase that percentage, 2027, 2028, and 2029. Okay? Our goal, our target is by 2029 or 2030, we can grow to 40%-50%.
Oh, 40%- 50%?
By 2029 or 2030, yeah. For all the—
Can I interpret? Sorry to interrupt. Can I interpret your message as the firm's strong commitment to allocate increase in capacity, 30,000 by end of 2028, and also 50,000 by end of 2030? Majority will be used for the server application.
AI infrastructure included. Okay? That's including all kind of different AI application that I just described to you.
Okay. Thank you very much, Dr. Lee. Thank you.
Thank you.
If you would like to ask the question, you may press star one on your telephone keypad. Thank you. Next one, Simon Woo, Bank of America. Go ahead, please.
Yeah. Thank you very much, Dr. Lee. Sorry for you may hear some background noise, but sorry for that. But congrats on your great results. Maybe very quickly for your long-term view, your ASP DRAM price has been rising very notably up to Q3, but would you share your view maybe December quarter, still some room to see the double digit increase, and then maybe our consensus indicates very stable or marginal demand increase for next year. Would you share your view? Thank you.
Okay. For December quarter, we expect that the market shortage will continue, and likely ASP may again improve gradually over December quarter. As of next year, the situation will depend on continued shortage in each of different sector. Okay? It is important to continue to observe the continuation of this sector application. For instance, for HBM, the negotiation for next year is about to be completed, okay? It depends on HBM, the ASP situation.
That will likely also change the capacity arrangement distribution around different capacity. Knowing that the new capacity introduction, and the new construction, everything, will take longer lead time, okay, so next year is kind of tough situation for the supplier to improve substantially in their output. Okay? So likely next year will remain tight as well.
Yeah. Very clear, Dr. Lee. Another quick check is DDR4 and below, including the low power. Do you believe still the demand, the volume will grow, or you expect maybe a little bit declining trend of the peak growth? Thank you.
Likely, DDR4 and low-power DDR4, correctly, in terms of the demand size, will continue to get smaller. Okay? Likely will get smaller. However, the remaining demand is still quite strong compared to the supply. Okay? Taking an example, last year, 2025, when the industry has started to end of life DDR4 and low-power DDR4. At that point, the DDR4 and low-power DDR4 in combined, in terms of demand wise, still almost 30% of the market size. Okay? That percentage, even though it is maybe coming down a little bit gradually, okay, still a substantial number.
As I described to you just now, Nanya's overall market share is low single digit. Okay? So that is the reason why we stay in supporting DDR4 and low-power DDR4. Okay? On top of that, I keep on mentioning that Nanya does have flexibility on move to DDR5 as well as other product, if the market were demanding. Okay. If I look into DDR4 and low-power DDR4 market situation, just DDR4 alone today is probably almost over 12%-14% of the demand today. Okay. That number, even though it may be slightly coming down at time, but still substantial big number for suppliers at Nanya.
Yeah. Did you say low tier, 12%-14% of the—
Yeah.
—DDR4?
Yeah.
Low tier. That includes DDR3 or only DDR4, sir?
Just DDR4.
I see. Would you remind us your Q3 revenue mix, maybe DDR5, including low power DDR5 and then DDR4, low power DDR4, and then DDR good power, low—
Our—
—the revenue mix.
Our DDR5 remain around 10%. And low power DDR4 and DDR4 combined contribute to likely around, I would say, more than 60% of our product.
You mean the more than 60%?
60%.
DDR4 and low power? That does not include the DDR3, right?
That is not including DDR3.
Not included?
Not included.
Oh, okay. Oh, sorry. One investor, some investor asking any update payout ratio, because very profitable. I know you have to spend a lot of money for the new fab construction, but any rough idea the payout ratio? I finished my questions. Thank you, sir.
Okay. That is the dividend distribution you are talking about. Okay.
Yeah. Dividend.
Considering two factors. One is that we need to spend quite a bit of CapEx for future equipment procurement. Okay. That CapEx could go up to TWD 1.6 billion, I am sorry, TWD 16 billion, right? TWD 16 billion . TWD 16 billion . $16 billion , I am sorry, a little bit missing number. $16 billion just for one fab. Okay, so we need to have a lot of CapEx upcoming. Second, very importantly, Nanya has a consistent dividend distribution policy before. So we will continue to pay out our dividend for next year. Okay, so we will balance between these two factors, CapEx requirement and dividend policy, and we will balance in between. Sorry for the number missing for you. Yeah.
Yeah, very clear, sir. Did you say $16 billion for the one fab?
Yeah, $16 billion for one fab. That is including construction, including clean room, including equipment, as well as some EUV for the future.
That means the 35,000, as you pointed out.
$16 billion is for 50,000.
Oh, five zero.
Yeah.
50,000.
Yeah.
Okay. Thank you so much, sir. Appreciate it. Thank you.
You're welcome, Simon.
Thank you.
If you would like to ask the question, please press star one on your telephone keypad. Thank you. Okay, we thank you for your questions. Let's move on to the webcast questions. Dr. Lee, please begin.
Okay, to come up with the webcast question from Capital Securities, Liyen Chen. He has three questions. First question, what is the CapEx financing plan, production timeline, and potential customer demand for new fab in Pingtung? Let me answer one by one first. The question is a little long. Let me answer one by one first. Our CapEx planning for Pingtung fab is not finalized yet. But we need to go through the first fab of construction, then the equipment move in. Likely, this will be totally up to $10 billion CapEx, in the long run.
And, production timeline, we target equipment move in by second half 2028. And, of course, the planning is mainly for customer demand on AI application. The next question is, how it's mainly for wafer-to-wafer production. How do NTC and FATC collaborate in back-end production? FATC mostly are in the wafer assembly and test. This means that after wafer is finishing processing, finishing what we call wafer level testing, and then, FATC will start with grinding, dicing, packaging, assembly, and then testing. This is more of the very back-end process. It's not wafer-level processing.
The wafer-level processing will be mostly processed by Nanya Technology. The question two is, could AI lead to a long-term structural DRAM shortage, and what's your view on consumer demand? And actually, I have answered some of question in my presentation. AI has been leading to some structure change in DRAM industry. And in the short term, of course, it's in shortage. And in the near short-term, new capacity introduction, new equipment delivery is long lead time. So solution in the near short-term is unlikely, especially in 2027 or early 2028.
And what is your view on consumer demand? At consumer side, the supply has been suppressed, and consumer side, as I described, the high-end consumer will continue. They will persist with high cost. And the low-end consumer may likely to down specification or extend life cycle or even use recycled parts. Q3 from Liyen Chen is that, can double-digit contract price growth be sustained, with growth margin remaining at 80%? You're talking about for the future. This potentially possible. There's another question from Michael Shen, KGI Securities.
Michael's first question is, what is the current LTA coverage rate and proportion of contract with price floors and ceiling? And how to keep customer from backing out if market turns? And the question is, for Nanya, our current LTA is around 50%-70% range. The term is ranging from, say, quarterly all the way to three years contract. Overall speaking, currently three-year contract probably 20% of our output, more than 20% of our output. We plan to increasing this long-term contract according to customer demand.
Customer is very proactive in terms of getting longer term supply. So we are working with customers to extend it, our LTA, to longer term supply. There were discussion of the full price, ceiling price, for the upcoming new contract as well. And of course, there will be some liability from both sides. From the supplier side, we will commit to our CapEx. We'll commit to our future capacity growth and equipment purchase. From a customer side, they would likely to commit to some degree, on their secure of the long-term supply.
Michael's second question is, can the potential supply-demand gap be quantified based on DRAM silicon area requirement for AI chip? This is actually excellent question. I think it's a good idea, and we have been doing that. Based on the result from the analysis, likely our DRAM supply shortage will persist for a long time, especially for AI application. A key indicator, key index that we have to pay attention to is the long term, the AI investment. Is the return of those investment sustainable? That's key question and key index to pay attention to.
Such that if you look into the key investment from all U.S. CSP provider, as well as the AI large language developer, including Anthropic, OpenAI and many others. Also another regional AI development in Mainland China. All these things combined, if the return of investment is making sense, then this likely to continue. This shortage is likely to continue for some time. Next question is from online security by [Iwa Lu]. [Iwa] has three questions. Question one, what percentage of NTC shipment are wafers, package, and modules?
We ship around 20% or so as a high quality, what we call known good die, high quality wafer that customer can take the wafer directly dice and apply to their multi-chip package. That's around 20%. The rest of 80% is either device or module. Which product are primarily required for private placement customer? That's already described in previous investor conference. The product could include enterprise SSD, could include KV cache, or high bandwidth flash, and also include communication, switch, and management chip as well.
Given recent share buyback by Kioxia and SK Hynix, does Nanya have any buyback plans? The answer is so far we don't have any buyback plan. Question three is how could GlobalWafers is a company, a wafer supplier. Wafer price increase impact Nanya's cost and margin? Overall speaking, we have multiple supplier for wafers, including our sister company. So overall speaking, this wafer price increasing is not only topic. Overall speaking, all the supply side, including equipment, material, construction, labors, cost is also been increased.
Not just wafer. There will be some impact on the cost side, but so is ASP of the DRAM as well. So the balance between that for the margin. Yuanta Security from Becky Wang. Becky has two questions. Question one, with AI-related revenue accounting for over 20%, what is Q3 revenue breakdown across other application? The other application, including our low power application for automotive, for industrial, as well as for general consumer application, all together and also with the PC as well. But PC mostly using DDR5.
What is the growth outlook for AI-related business in late 2026 and 2027? So as I described just now to other question that Nanya plan to increase our AI infrastructure business from currently more than 20% to more than 40% or even 50% year- by- year gradually, by 2029 or 2030. With the demand shipping from DDR4 to DDR5, what's the DDR4 outlook, supply, demand dynamic, and pricing for 2027? I think I have commented this question just now over Charlie's question as well as Simon's question as well.
As I said, DDR4 shipping to DDR5 is gradually, but so far DDR4 demand is still quite big and supply is still quite in shortage, okay? For certain sector, of course, PC sector, they do not use DDR4 as much, okay? It is not representative for this common on DDR4. The next question from E.Sun Securities by Echen Shu. Two questions from him. Question one, what is the company's current order fulfillment rate? For the long-term order that we committed to, our fulfillment rate, of course, we will maintain 100%, okay? That is the commitment, that is the signed contract, okay? Of course, there are many other inquiry for different supply.
The fulfillment there usually is quite low, okay? Question two is, what is the company's bit shipment growth guidance for 2027? That is a interesting question, and actually that is the embarrassing question for Nanya Technology. We do not have much big growth in the beginning of 2027. Plus, we have a very depleted inventory, so likely our bit shipment will remain flat for a few quarter until second half of 2027. Thank you. That ends up all question asked online.
Yes. Thank you, Dr. Lee. 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 at this time. Thank you again. Goodbye.
Thank you. Goodbye.