Okay, dear investors, analysts, and the portfolio managers, this is Daniel Wang, CFO of Alchip Technologies. Welcome to our Q4 25 earnings call. Thank you for your patience. We will start the meeting immediately. For this stage, as a routine, it is a safe harbor disclaimer. This meeting will be in English. If you need Chinese presentation slides, you can please go to the MOPS to download the Chinese version. You can write down your questions through Teams message function, and we will answer them accordingly. During the Q&A session, you can use the raise hand function, we will constantly answer your questions. This video and audio content of the meeting will upload to MOPS.
It takes about two to three hours to upload the file. If you want to review the meeting, you can go to MOPS for the video and the audio content about, like, five o'clock. The first part will be the message from our CEO, Johnny Shen. Please.
Right. Good afternoon, ladies and gentlemen. I'm Johnny Shen, CEO and chairman of Alchip Technologies. Thanks for joining our investor conference today. We truly appreciate the opportunity to share our Q4 financial result and provide the update on our business outlook going forward. Our Q1 revenue come in below the plan. Primary reason is due to lower than expected production revenue. However, our service business record modest growth. As a result, the revenue reached $153 million with a net income of $47.8 million and EPS NT$18.29 , which is slightly higher than Q1 and the highest quarterly EPS for the year. The more detailed financial breakdown and analysis will be presented by CFO in the later section.
Now, let me recap few highlight of last year. 2025 was not a present year for us, especially given that most of our major AI-related player deliver exceptional performance in terms of revenue, earning, and share price. In contrast, Alchip's revenue declined significantly with net income and EPS also decreasing by approximately 10%-15% year-over-year. The primary reason is for this decline is due to lack of production revenue as we miss one product generation from our number one customer. The most important highlight for last year is that we successfully regain the position with this customer. The new design was taped out last year, and chip now is ready for high volume production starting from Q2 this year. In addition, design activity for the next generation has already begun.
We expect to complete the design by Q3 this year, positioning us well for the next phase of growth. Another highlight of last year is our automotive business in China. While the design and prototyping stage progressed smoothly, we did encounter some geopolitical-related challenge during the process. These issues has been fully clarified and resolved, and mass production has already begun. In addition, development for next generation product has already started, further strengthen our position in this segment and supporting continuously growth in automotive market. Other than these two high volume production, we have also achieved several important milestone with the emerging AI-related customer, primarily in U.S. market, leveraging the latest technology like N2 or N3. This engagement representing promising opportunity to lay foundation of future growth in advanced AI silicon platform. Another highlight is was improvement of our gross margin.
The revenue declined significantly due to lack of production revenue, but our NRE remain very strong, contributing about 7 percentage points improvement in gross margin compared to the year before, reflecting our different business mix and improve of supplier relationship. Ecosystem partners. Like I mentioned before, starting from N2 process, sorry, the HPC design become very complicated.
Yeah, single design require integrating multiple die and diverse solution. Unlike most of our competitor, follow a captive kind of solution, syncing for higher margin. Alchip is promoting an open ecosystem strategy, collaborating with a broad range of partner to develop comprehensive and efficient solution. Our ecosystem network has expanded substantially in the recent quarter with many partner eager to get in. We firmly believe the future AI industry will rely on ecosystem, instead of a captive solution. Geopolitical risk management, we continuously to diversify our business and design resource beyond China. In 2025, less than 8% of the total revenue contribute from China. Yeah, to strengthen our global engineer capability, we have launched a very aggressive hiring plan, focus the region outside of China.
Now, our Japan office can accommodate more than 250 employee, while our Malaysia and Vietnam office now hosts over 120 engineer combined. In conclusion, we expect Q1 revenue remain a similar level. Beginning in Q2, we anticipate a strong ramp as a key production revenue resumes. For the full year, we have a confidence in delivering significant revenue growth, even compared to our peak year in 2024. Looking ahead, we remain very optimistic in long-term outlook for AI market. From this year to 2029, we expect our growth momentum remain in line with the industry leader and competitors. We are confidence in our ability to outperform the overall market CAGR in high growth HPC and AI market. Thank you very much.
Okay, for this page, this page is the Q4 PNL. The numbers just like Johnny mentioned. For the Q4 last year, we record $152.7 million, which represents 31.5% quarter-on-quarter decrease and a 32.2% year-on-year decrease. Given the improvement of the growth margin, our operating income last quarter was $39.1 million, which is 1% year-on-year, quarter-on-quarter growth and 27.9% year-on-year decline. For the net income, last quarter, we record $47.9 million for the net income, translating into EPS of NT$18.3 , which is 8.1% quarter-on-quarter growth and 16% year-on-year decline.
For yearly numbers, like Johnny mentioned, due to lower production revenue contribution last year, our revenue for last year is $991.9 million, which is a 39% year-on-year decline. However, given the gross margin improvement, our operating income last year was $160.9 million, which is a 20% year-on-year decline. The net income was $179.5 million, which is an 11% year-on-year decline. The full year EPS for last year, 2025, was NT$69.2. In the next page is the revenue breakdown by applications. You can see that the HPC/AI related revenue still accounts for the majority of our revenue, quarterly or yearly.
Last quarter, the AI/HPC revenue accounts for 67% of our total revenue, while the niche market, networking, and the consumer accounts for 4%, 7%, and 22% respectively. The yearly breakdown, for last year, 83% of our revenue contributed by the HPC/AI category. The other sectors such as the niche market, networking, consumer, accounts for about 15%-16% of our total revenue last year. For the process node, we can still proudly say we are the industry leader in terms of the process node technology. Last quarter, 3- nanometer and the 2 -nanometer combined accounted for 36% of our total revenue, while 5 -nanometer and the 7 -nano accounts for 43% of our total revenue.
Combined with the 3- nanometer, 7 -nanometer total at nearly 80% of our total revenue last quarter. For 2025 as a whole. 3 -nanometer and the 2 -nanometer revenue accounts for 14% of our total revenue, while 7 -nanometer and 5 -nanometer accounts for the majority, which is 73% of all total revenue last year. For the regional breakdown for last quarter, North America is still the major market for us, which accounted for 50% of our total revenue. While the Asia Pacific accounts for 18% of the total revenue, the revenue from Japan account for 6%, the others account for 26% of our total revenue.
For last year as a whole, North America remains the majority, accounting for 78% of our total revenue last year. The other three areas, including Japan, Asia Pacific and the others account for 8%, 8% and 6% respectively. For the number review, for last quarter, like Johnny mentioned, despite the weaker revenue last quarter, the high gross margin made it the most profitable quarter last year. The Q4 revenue declined 31% quarter-on-quarter, due mainly to lack of the production revenue. Although the sales is not strong, the gross margin last quarter reached 42%, which makes our net income the highest among all quarters in 2025.
To us from a number wise, we consider last year is a temporary hiccup prior to returning to a long term growth. Because like I mentioned, we lost a generation of the major product, but we regained the next generation last year. Which makes our revenue has the gap in 2025. Since we kicked off the we already tape out the 3 -nanometer accelerator last year, and then we are targeting to start the shipments in the Q2 this year. We think for this year, the overall revenue, we will enjoy a very good growth. Beyond this year, since we already secured the 2 -nanometer project, which will lead a relatively long term growth outlook for Alchip Technologies in the next four to five years.
This page is for the outlook in the Q1 in 2026. The Q4 , revenue wise, remains sluggish, to be honest. I would say the Q1 this year will be pretty similar to last quarter. Production net revenue is that we don't have too many production revenue. The NRE, although from the full year perspective, the NRE will be strong. However, the Q1 usually is the lowest quarter for our NRE revenue performance. For the Q1 , we are expecting the overall PNL will be pretty similar to the Q4 last year.
For this year as a whole, first of all, we emphasized many times that our 3 -nanometer AI accelerator will start contributing to our revenue in Q2 . The NRE demand and the pipeline projects remained very strong. We see multiple projects in both leading edge process node to kick off this year, starting actually from the Q1 through the whole year. The majority of the projects, those AI HPC related projects, come from the North American market. We do expect multiple 2 -nanometer project to kick in in the following days of this year, which will bring in strong momentum to our NRE growth.
The last one is we are expecting the most important 2- nanometer accelerator project to tape out by the end of this year, which will ensure LSI a pretty good long-term growth outlook. I guess that's our presentation part of today's earnings call. We will go into the Q&A session. You can, like mentioned, you can use the raise hand function for question, for asking questions, or you can ask question through the message board. We will answer those questions accordingly. Thank you. Okay. Curtis Hass , please. You can.
Yeah.
You can unmute.
Thank you so much, Johnny and Daniel, for taking my question. It is great to see the business is coming to the inflection. I would like to start from your major hyperscaler AI acceleration projects. You mentioned we should see significant growth from 2Q this year and also into second half to drive a solid growth this year and also next year. I'm just wondering how should we think about the linearity for the project ramp on a quarterly basis?
Can you slow-...
how should we think about?
Slow down a little bit. Your voice is a little bit breaking down.
Oh, okay. Yeah. I just want to be more specific that how should we think about your revenue pattern for first half versus second half this year? Thank you. That's my first question.
Okay. Okay. I would say it will be very imbalanced for the first half. I would say the distribution will be quite, I would say probably 80% of our total revenue this year will be concentrated into the second half. Right?
Yeah. That includes NRE and also production business, right? Both of the business.
Yes. For the total revenue. From the total revenue standpoint of view. Yeah. Since the revenue, production revenue become very big, the NRE become to play a very insignificant role for total revenue.
Okay. Yeah. Just on that, how should we think about the margins profile? Because you are re-ramping your production business quite significantly again. Should we expect that trend to persist into 27, 2027, especially with your customer recently signing a 2 gigawatt computing power supplying to OpenAI powered by the ASIC? Thank you.
I would say our customers' business has nothing to do with our margin. For the margin guidance, our previous guidance remains unchanged. I don't consider 2025 is a good benchmark for 2026, since in 2025 we don't have a very big production. 2024 is actually a better benchmark for 2026. Our guidance remains the same. Our gross margin will be higher than what we have in 2024.
Okay. Yeah, I mean, just on the 2 gigawatt computing power signed between Amazon and also OpenAI, last week or two weeks ago, I was wondering if you are seeing incremental orders from your customer on deck kind of agreement, or on the supply chain side, are you able to mitigate through the supply shortage of 3 -nanometer CoWoS as well as substrates, this year? How are you going to just manage that?
We don't comment on some.
To grab from your meeting notes.
... some news or some actions by those hyperscalers. I can only say for the subject shortage, I would say this way, we communicate frequently and intensively with our supplier, include the substrate supplier. Since this project is very important, a very good application from a very good end customer. The substrate supplier has very high commitment to the project. Even there is a shortage, potential shortage for the substrate, based on the current information we received from those vendors, the impact will be very limited.
Mm-hmm.
Yeah. Also, as you know, the N3 capacity is very, very high. Even though you see some upside from somewhere, I think it unlikely happen in this year. Yeah. Right now, the N3 capacity is fully booked in the industry.
Okay. Yeah. At least that is a good reassuring to 2027 for the incremental demand. Yeah.
Hass, can we go back to you later?
Okay.
Yeah. There's others going to ask later. Okay. Charlie, please. Charlie Chan. Charlie, you can unmute your microphone. Hmm? Charlie, are you there? Okay. these things has a problem-
Sorry about that. Yeah.
Oh, okay. Sorry.
Oh, yes. thanks for your presentation, Johnny and Daniel. My first question is also about this year's revenue trend.
Mm-hmm.
Because you just mentioned that the second half you have, like, 80% revenue concentration. Can I also get another hints whether your single quarter revenue can reach, like, $1 billion in this year?
We cannot give such precise guidance because of the regulation. I would say for this year. Yeah. Maybe that's.
Yeah, I'm not talking.
Yeah. Maybe.
the full year.
Maybe that's a good pocket for us. Yeah, that's possible. Yeah.
Okay. Okay. Yeah. I wanted to provide some more room for you to confirm the potential target, like, quarterly revenue to be $1 billion. I want to follow up whether.
Mm-hmm
... your team can really squeeze out more outputs from your testing program. That's why you see kind of additional revenue from the major 3-nanometer projects.
I would say it is not that related to the testing program because like Johnny mentioned, for this year, actually the wafer capacity is very, very tight.
Mm.
It is also because the turn around time for the production for this 3-nanometer accelerator is very, very long. For now, we already place the wafer orders for, like, November. The room for the expected numbers to change is limited.
Okay. Yeah, because last time you just mentioned that, through your efforts in the testing program, there could be additional outputs per wafer.
Yes. We are still trying because there is last month.
Mm-hmm. Okay.
In the end of this year, revenue for a single month is also quite significant.
Okay. Thank you. Yeah. Thanks for the, the additional color.
Mm-hmm.
Yeah. You mentioned that you're going to tape out a 2 -nanometer by the end of this year, right? I'm not sure, is there any schedule pull-in? I know the demand from your major customer and also your customer's customer, right?
Mm-hmm
... OpenAI deal seems to suggest very long-term demand for data chip. Our checks also suggest that the 2023 system performance is not that ideal, right? I'm not sure if you can, we can, you know, have this kind of a conclusion that 2 -nanometer need to pull in. Also, can we get your confirmation that whether second half next year, we are going to see 2 -nanometer mixed production revenue?
Okay. Charlie, first of all, I would say our customer is very satisfied with the performance of the 3-nanometer accelerator we designed. I haven't heard any complaint about the performance or design by the customer. For the schedule, I would say the customer always wants the chip to tape out quicker, trying to pull in the project schedule. It is a norm in the industry, which can give our customer more buffer for arrange the timing, the presentation, everything. The quicker, the better. However, it is about engineering, so we try our best to satisfy the customer. For now, I would say we are not committing to do that, to meet the schedule, but we will try our best.
Mm.
For now, everything is on schedule. we are very happy with it. Yeah, that's the current situation-.
Right
... for the 2-nanometer project. Yeah. For N2, even you call 2 -nanometer, but you also contain other tape out in other technology like N3. This design, unlike before, it's very complicated. You require multiple tape out, and also the verification stage will be longer. If we can complete the design by this year, I think that's a must to achieve, but if we can do that, I think the customer will be very happy to achieve.
Mm.
They are shooting for. Yes, you are right. They are shooting for prototyping production schedule by the near the end of next year. That's their current schedule.
That's a proper information.
Thanks, Johnny and Daniel. Last one will be back to the queue. The CPO adoption timing, right? I think Broadcom CEO said that the CPO adoption for ASIC would be very late, but I'm not sure what's your observation. Would that be CPO adoption in your N2 generation or your 1.4 -nanometer generation? What's your take on MediaTek staking your optical I/O die partner, Ayar Labs? I know you want to promote this open ecosystem strategy, right? Why would your industry peer want to stake in this Ayar Labs?
Mm-hmm. Okay. Yeah. For when will be the CPO related product go to production, I think the situation changed a bit. Before, people thinking about whatever the speed over 400 gig, it has to be go to optical. Recently, NVIDIA just announced that this kind of bi-directional SerDes. We can say that still one generation. Like unlikely the N2 related design will adopt, fully adopt a CPO. Yeah, most likely I think will be the next next generation. I think the similar situation to our customer, I think they don't have a current plan yet. In terms of CPO potential, yeah, I still very optimistic. Yeah, it's a de-design dependency, also manufacturing design dependency. Yeah, this is beyond 400 gig.
For beyond 400 gig, I think CPO is a must to adopt. Comment on the MediaTek invest, one of our partner, I don't think there's any competition between us and MediaTek. We still winning. We still we will still doing the tape-out for this particular customer. During the design, I don't think MediaTek has involved for design activity. Probably they have a partnership for other strategic reason.
Got it. Let's say if you continue to win 1.4 -nanometer, and then that one will adopt the optical I/O die for the CPO, it would be Alchip provides the design service.
Charlie, we cannot comment on particular project here. I can only tell you, first of all, you probably can see the press release from Ayar Labs. Not only MediaTek, Alchip Technologies is also the investor for this Series E round. We have been partner with Ayar Labs for long term, and Ayar Labs is our partner and is also our customers. We are working together on some projects. In the future, we think these two company, Alchip and Ayar Labs will keep a close relationship, no matter how. The same thing, I will say the same thing for MediaTek. MediaTek invest in Ayar Labs, and I would say MediaTek will also be a participant in the ecosystem for sure.
Got you. Yeah, that's very fair. Thank you.
Thank you. Thank you. Laura, please. Citigroup.
Yes. Hi, can you hear me?
Yes.
Yeah.
Yes. Hi, good afternoon, Johnny and Daniel. My question is also about the future chip designs. As Johnny mentioned that this becoming more complicated with the different kind of chiplets designs going forward. I'm just wondering that for Alchip, you will still handle the full chips integration in the future, or you might also kind of do the partially design and tape-out and work with other partner, potentially like MediaTek or other peers in the industry?
I think our preference, if we can handle customer has a related resource to prepare on the architecture, I don't think for back-end implementation, we have any limitation. If a customer are willing to adopt the commercially available I/O chiplet, we can also do integration. For right now, the most of the design we are doing for N2 chiplet is all done by us, including back-end. Eventually, if a available solution appear, I think that's also a possible case.
Sure. In the near term, maybe in, like a two years, perspective, so far our project is still fully handled by ourselves, right?
Yes. Yes.
Okay. Thank you.
Even the customer decide to get the I/O chiplet by themself, that will be the consigned die, similar model to HBM. Yeah, we will take the die, do the final integration, and also the production.
Thank you. That's very clear. Also, my second question is that, aside from your biggest customers in U.S. right now, are you also working with other CSPs for the next generation AI accelerators and which we may see potential contribution in two years?
Yes, of course, we talk with everyone.
Right.
Just like the scheduling we are talking about for the 3-nanometer or 2-nanometer, for now, actually, if you want to have revenue, production revenue contribution, probably you have to win now.
Yes.
get revenue
Yes.
after Y and a half and two years. I would say this way, the trend I talked to investors two years, three years ago...
Mm-hmm.
Is actually realizing. First of all, we told two years, three years ago that the CSP, the CSPs, especially those big ones, they have very strong incentive to go for ASIC. It is realizing, right?
Mm-hmm.
Another trend I would say we are also seeing the trend is ongoing right now is those CSPs are trying to lower their cost because the CapEx is getting realistically high.
Mm-hmm.
Any saving to them, would be quite significant. We still believe under this trend, as long as we are capable of doing those most leading-edge process node design and then meet the customer's needs, our position is very good.
Yeah. Given that we see various, different kind of, like a inference or training perspective, now, your products are mainly focused on training or big model. The potential projects you are now engaging with your customers, are they like a new market or focus you are looking for, which may contributes in the next two to three years?
We do have some applications from some customers we consider will be a jackpot to us in next two years. We do have those projects.
Okay. Yeah. Yeah, we're looking forward to that. Thank you.
Thank you.
Back to the queue.
Thank you. Okay. Jeffrey. Joey Xu. Joey Xu, please. You can unmute your mic.
Hi. Can you hear me?
Yes.
Yes.
Okay. Thanks, Johnny and Daniel for taking my question. My first question is want to understand that I think for the current ASIC design, the chips are getting more complicated. I think previously, you have discussed that your customer adopting a COT business model, might be, you know, although Alchip do all the design surface, but the actual first start could be a split between you and your customer. Can you give more color on what is you are seeing for this year's project and also perhaps for the N2 as well? How should we expect the allocation on this front? That's my first question.
Okay. Like I said, we are not allowed to talk about a specific project into details. I would say again, like we talked to the investors in previous meeting, we when we talk with the customers, there are many consideration. First of all, the growth margin. Secondly, the scale we can handle for the production revenue because, like I mentioned, the production turn around time is very long, so the working capital requirement is high. We will evaluate every elements of the project in order to talk with the customer for a proper business model. That's what I can push to the boundaries for you for answering your question. The further detail, hopefully I may not be able to share.
Also the allocation thing?
Yeah.
Okay. Mm-hmm. Okay. I got it. Just to follow up on the 2 -nanometer, I think in the prepared remarks, you mentioned that you have multiple other projects. Aside from your largest customer, can you also comment a little bit about those other projects? You know, what are they going, what are the end customers, and when should we expect to see revenue contribution? Thank you.
Actually various type of customers. We understand that the N2 project, the N2 process node will be a very, very extensive process node. Since in the non-volatile market, for some emerging accounts, they are funding very, very well because all the capital in the market flows to the AI sector. As long as they have strong team and the innovative ideas, probably to do a 2-nanometer project is not a problem for them. For our 2-nanometer process node projects, we have emerging accounts, and then we also have some traditional networking companies in North America. For N2, I think obviously, the user are very limited. Either it's AI. It's all AI-related application, either in the networking or in the accelerator side. I hope we answered your question.
Okay. What is the rough timing to see revenue contribution for these emerging accounts for traditional networking companies?
Actually, the revenue was already there. The NRE kick off already.
That means that mass production could happen, you know, after, you know, your main customers take off.
Yes.
Is that the correct interpretation? Okay. Got it.
Yes.
Thank you. Lastly, on the, you know, automotive side, can you also give us some color, how should we expect for revenue this year and also, perhaps, into next year as well? Thank you.
Sorry, because, actually the TSE warned us specifically asking not to say numbers in the earnings call. I can just tell you, Like we described, for this year, we are shooting for record high revenue performance. The potential for AI accelerators growth is quite significant. Our CEO, Johnny, also mentioned we are expecting our growth to match up with the industry growth or even better.
Okay.
Yeah. For auto business, I think, yeah, for sure, that will be our number two customer in terms of revenue this year.
Okay. Okay, thank you. I'll be back to queue.
Charlie, please. Oh, sorry. Hass, please. Sorry. Hass, please. It's Hass Curtis.
Yeah. Thanks, Johnny and Danny. Daniel. Thanks, Johnny and Daniel. I just have two quick follow-up questions. I think the first one is just regarding your value add on the chiplet on 2-nanometer project. It seems that there are going to be multiple tape-outs on different nodes. I understand that-
Yes.
On the backend side, it is going to be pretty complicated. The reality is that there are going to be more of the chiplets or the tiles coming from the other part of the design service partners or ecosystems. I'm just wondering if you could share the margins profile for the upcoming 2-nanometer project, whether it is going to be as high as the one that you are going to ramp pretty soon in the following quarters. Thank you.
Various type of one is possible for the 2-nanometer process node. In general, we cannot cover a given project. For example, we can do the top die physical design, and we can do the integration for the top die and the I/O die if the I/O die is a consignment type of business model. Of course, we can also do the physical design for the I/O die and do the integration for I/O die and top die. Any kind of the business model, we will be capable of doing so.
Mm-hmm.
Yeah. For IO die, I think so far, like I mentioned before, most of the integration and production are handled by us. Also, in terms of size and the die price, IO die is much cheaper than the C-die, you know, the computer. If in the future we more IO die play more significant role, then the model, I think, will be similar to HBM. We get the IO die, if it happen, we get the IO die in, and we count out this portion of the revenue similar to HBM and maintain our gross margin.
Okay. Yeah, that's pretty clear. Just a follow-up on the CPO, I will be back in the queue with that. I saw that you and Ayar Labs at TSMC's OIP symposium last December, that you actually would provide EIC and also the networking switch.
Mm-hmm.
With Ayar Labs, PIC. Would you be able to comment about this, which nodes that you are running on? Second thing is that, it seems that the networking switch that you are able to provide, to integrate with Ayar Labs, PIC is actually not simple at all, or the die size or... Yeah. I was just wondering regarding the die size for that, networking switch and also the EIC, whether it is actually going to be another significant opportunity for you outside of the core AI accelerator business.
Huss, first of all, your voice is breaking up a little bit. I try my best to guess your question. For Ayar Labs, please consider it is a partnership, just pure partnership. Ayar is our customer, and we do projects with them. As long as for what kind of project, EIC, PIC, whatever, we cannot disclose this kind of information in earnings call. Both companies management committed to each other to the future design for those chips requiring high speed transmission. Yeah, I'm sorry that we cannot disclose into such detail for a given company or a given project. Okay.
Okay. Thank you so much, Johnny and Daniel.
Thank you. Next one will be Charlie. Charlie, please.
Okay. I'm fine if you want to let new caller to ask question or maybe I do it quickly, okay?
Okay, sure.
Yeah. Thank you. First of all, I remember you sort of have some involvement in LPU design, and I think that company recently was so-called acquired higher by NVIDIA. I'm not sure if customers still want to tap out that LPU. I'm wondering because that design include the SRAM, right? I'm not sure, is it the same foundry for the SRAM production? Thank you.
Okay. For the project we are doing with Quark, currently it is on pause. I would say the decision will be made by its new owner, NVIDIA. If they want to continue the business with us, we are more than happy to do so. If they want to do it by themselves, of course, they paid for our work. They already paid, so we cannot say what happens. I cannot give you a firm answer, but the current status is the project is in a pause.
Mm-hmm.
Yeah. As you know, the supplier relationship between us and NVIDIA are different. It's, yeah, it's kind of debating situation who's handling the production if they go some place.
I see. Thank you.
Mm-hmm.
Also, another very, very big U.S. customer opportunity, I'm referring to the 2 -nanometer U.S. alternative, automotive and potential robots.
Mm-hmm
... you know, chip design, right? Is that the reasonable target for Alchip, you know, sometime in 2028 or 2029?
Of course, any big company in U.S. with big volume is our target. We are shooting for, I would say, everyone. Actually, we are engaging with almost everyone in North American market, like Microsoft and Google, those kind of CSPs or other big names. We are happy to do business with them, for sure.
Okay. If you look at the kind of so-called, 3 -nanometer project, I think it's done by your industry, GUC. Do you believe there is a level of so-called level playing ground when you compete for a 2 -nanometer?
I would say, GUC is a respectable competitor and industry peer for us. I think the market is very big and, we compete. Yeah.
Okay. Last one I think is a little bit more strategic discussion. Johnny, wanted to get your view because recently, as you know, that the AI already start to transform or even disrupt the software industry. Some of your EDA partners, like Cadence, Synopsys, they got some doubts from investors whether it's also disrupted by the AI. I'm not sure to Alchip, right? It's a kind of AI automation for design flow, validation, whatsoever.
Mm-hmm
... kind of long-term positive or negative to Alchip? I think, positive argument is that your productivity will increase, but negative is that, whoever, you know, maybe not with a very, long experience, they can use AI tools.
Mm-hmm
... design the chip for customers.
Okay. Yeah, I think that this is very big question. Actually, personally, I am a AI believer. I think sooner or later, most of the work can be replaced by AI gradually. I think, right now, we are also working with all the EDA vendor very closely, like Synopsys and Cadence. Their tool also improve quite a bit using this kind of inference scheme.
What I understand is that currently AI is still a statistic approach. If you have enough reference on the, on specific process, know, they can anticipate all the timing problem, electrical problem in order to shorten the turnaround time. For most leading-edge technology, there's no database yet. They don't have this kind of a reference. From statistical point of view, AI doesn't work. That's why, including us and also our competitor, when they are doing a leading-edge technology, like N2 plus multiple N3, they need more than 100 people.
Mm-hmm.
If you go back to, like, a 28 -nanometer, 14 -nanometer, or 16 -nanometer, in usual case, within 10 people, we can do most of the work.
Mm-hmm.
I think that step, I think AI's power getting bigger and bigger, maybe ultimately they can do something. Right now, for the most leading-edge technology, including us, including our customer and industry peer, they need more people. That's a reality.
Yeah, that's super helpful. Yeah. I think even back-end design, there are several stages, right? Like, place routing, and as you said, right, there's no database.
Right
... based on customers' PDK, based on your experience. For some, you know, sort of steps, right, like validation, I think is a pretty labor-intensive, very tedious. Will that kind of a chip validation be gradually migrated to the AI?
Mm-hmm. Yeah. I think for some point work, we can see the AI really help. Most of our work is done by using the server type of CPU.
Mm-hmm.
For some specific case, and we are working with the vendor to use the GPU. As you know, the GPU performance for the point task is much, much faster than the CPU. Those kind of improvement can reduce not only the design resource, but the design turnaround time. I think that's also very important. AI is gradually get involved for all design activities almost everywhere.
Got it. Thank you. Thanks for your sharing. Thank you.
Thank you.
Thank you very much.
Okay. Because of the limited time, we answer the next three questions, I would say after that we will conclude our earnings call this time. Mr. Sethanan? Sethanan?
Mm-hmm. Yeah.
Yes.
Yeah. Thanks, thanks for taking my question. I just wanted to clarify, OpenAI and Amazon have signed, like, a 2 gigawatt worth Trainium order, right? 2 gigawatts is a lot of capacity.
Right
... you're saying 2026, there's not a lot of room for orders to change. I want to clarify whether there can be upside to what you guys are forecasting for 2027. Should I interpret this 2 gigawatt upside will come in Trainium 4? Well, that's my first question, yeah.
First of all, I'm sorry that we don't answer the specific project or specific company. I will say this way, for our major product, the 3 -nanometer accelerator chip, even we place the order today, the chip will come out in very late this year. Any incident happens or any upside surprise happens, most likely will be next year, 2027. However, for 2027, I cannot give investor a number because the allocations is a variable, the demand is a variable, and those industry dynamics is not very clear yet. I cannot give you a very firm answer for 2027, but definitely we will enjoy a pretty good growth in 2027 for this project, for sure.
Right. I understand that there'll be growth. What I'm trying to understand is that relative to, like, what you thought like, say, five, I don't know, five days or 10 days back, prior to this announcement, in your mind, is the upside higher in 2027? I think related to that question is, you know, NVIDIA and Broadcom are saying they have locked up all capacity, memory, ABF substrate, front-end capacity, for their requirements till 2028, right? Your peer Marvell is also saying that. I'm just, like, even if there is upside, will you be able to capture it? I just wanted your sense on this.
Okay. Again, we cannot comment on specific news or events. honestly, I would say for your question, you're supposed to ask.
AWS, OpenAI, not us, right?
I know, it really depends on whether you guys will be able to secure the supply necessary, right? You are getting upside in orders, you have to ready the supply chain, right? You have to place orders at TSMC, you have to coordinate the supply chain, right? There is a lot of shortages all across the supply chain, right?
Right.
I'm just trying to figure out whether even if there is upside, will you guys be able to see it? Because every one of your peers is saying they have locked down capacity, they have locked down supply. So I'm trying to understand whether you guys have also done it, and will you be able to enjoy this OpenAI upside, right?
Honestly, I don't think those so-called locked up is a real thing for 2027 or 2028. The current, like I said, the current capacity for 2 -nanometer and the 3 -nanometer will be very, very high in 2027. This is not, the negotiation or the talk between the customer and TSMC is not there yet. How can they lock down the capacity? Joey, I'm sorry, I cannot give you an answer for that. Now I'm sorry, we have to speed up.
Yeah. Cool. Thanks.
If you have further question, please welcome to mail me or call me anytime you want. Okay, next one is Jennifer Shin, please.
Yeah. Thanks, Tony and Daniel, for taking my question. I have two questions. First of all, about the CPU projects for the CSPs. They are now becoming quite large in size, even though the margin could be possibly lower. Do you think at this large scale, it makes sense for Alchip to start engaging in some of these CPU projects? Do we have any potential progress on this? This is my first question.
Honestly, we are not ruling out to take this kind of so-called production only project. We do worry about the margin can go very, very low. It is not a very easy equation because we have to consider a lot of the elements into it. For example, if we want to take project with such low margin, the purpose is not trying to make money. The purpose is trying to break through into the supply chain. We still think that through providing value, it is the best way to secure a customer. To do the production only business is not that valuable to customer, it usually ends up with a pricing war. I cannot give you a firm answer, I can only say we are not ruling out taking those projects.
It will be a lot of consideration into it.
Yeah, understood. Another follow-up is on the networking customer. You have the 2- nanometer project with the U.S. networking customer you've mentioned before. Could it be possible?
Yeah.
to become the second biggest customer of yours in say, 2027 or 2028, once that 2 -nanometer tape out goes into production? Can you give us some color on that side?
Yeah, it's hard to judge.
Yeah.
It's hard to judge because we do have high expectations for this project because the customer is a quite big name. We also don't rule out the possibility for some virtual account to become very big. In the AI era, as long as your product is very innovative and being very efficient, suddenly the sales could be go up very quickly. Of course, we consider the contribution from a networking project we are currently doing can bring us some revenue.
Yeah, sure. Will the like, larger revenue mainly happen in 2028 or maybe, 2029 in your, in your view?
Oh, sorry.
For the 2 -nanometer production, do you think it will mainly come, possibly come in 2028 or maybe, longer in 2029?
Yeah, 2028, definitely. The 2 -nanometer project will be in production in 2028 for sure.
Understood. Okay, thank you.
Thank you. Thank you. The last one will be for Laura, Citigroup.
Yeah. Thank you very much for taking my question. Yeah, thank you very much for taking my questions again. Just a quick one. Actually, quick two. I'm not sure if Alchip has done some study of Intel's EMIB packagings. As we see that some of the U.S. CSP, they kind of have been asked or encouraged to do more of the production in United States. We see some of the CSP, they are also kind of working with Intel on the EMIB packaging. I'm not sure if there's also the possibility that Alchip to work with Intel on their advanced packaging process.
Yes, it is possible. It, it depends on customer's decision, and actually we did an EMIB for the Wafer ID packaging before. Actually, we are familiar with the this EMIB.
Yeah. Do you see any, like, progress or any schedule you potentially aiming for?
Yeah. The previous design we use in the EMIB, I think is already in production for couple two years ago. Yeah.
Okay.
Two years ago.
Yeah, yeah. Yeah, We familiar with the, with the team. As you know, the, you can consider Intel is our customer, right? They acquired one of our customer. We've been working with them, the entire infrastructure team, very closely.
Mm-hmm.
All right.
Again, the decision is still, it's made by customer, not us.
Correct.
We don't feel a thing. We are okay to work with Intel for the EMIB.
Yeah.
So, and-
As long as the TSMC CoWoS capacity is not an issue, I think the not too many customer decide the big portion using EMIB. Yeah.
Yeah, understood. Thank you. Yeah. The next question is more like housekeeping. We understand you already kind of explained that Q1 will be similar to Q4 in terms of the revenue, and there will be less NRE in Q1. Can you give us kind of indication about, like, the gross margin? Because Q4 was really strong in gross margin. Should we expect that the Q1 or first half margin to back to, like, a Q3 level last year? How should we think about that, this year's gross margin?
I would say the Q1 will be very similar, the gross margin will be also high, I think.
Yes.
I would say for the Q1 this year, last quarter will be a very good benchmark. For the Q2 , it is kind of a mix because the revenue is picking up because of.
Right
the contribution from the 3-nanometer production.
Yes.
The growth is mainly because of the production, which is lower growth margin business comparing to our NRE.
Right. Okay.
Obviously the Q2 's gross margin will be lower to the Q1 , however, still higher than the Q3 or the second half. Yeah, that's what we see. I cannot give you the numbers.
Okay. Very clear. Thank you very much.
Thank you.
Thank you. Thank you, Laura. I guess it conclude today's earnings call. Thank you very much for participating into our Q4 2025 earnings call, and see you next time.
All right.
Thank you.
Thank you very much. Thank you.