Okay, thank you for you for waiting for our first quarter 2026 earnings call. We are subject to start a meeting at 2:30 P.M. It's about two minutes later, so let's be patient for these two minutes. We will start the meeting accordingly. Thank you. Okay, it's time. Thank you for waiting. Dear analysts, portfolio managers and all the participants, welcome to join our first quarter 2026 earnings call. I'm Daniel, CFO of Alchip Technologies, and our CEO, Johnny Shen, will also be hosting this conference call. Thank you for your patience. We will start. Okay, first page is again, contains the public disclaimer. For this meeting, we will conduct this earnings call in Chinese.
Me and Johnny, we are in English. Johnny and I are Chinese speakers, if you want to ask question in Chinese, please feel free to do so. The Chinese version of presentation slides, I believe right now is on the MOPS already. You can download it from MOPS. For the Q&A session, you can write down your questions through Teams message board. If you want to ask question orally, you can use the raise hand function, we will call your name for your question. This video and audio content of the meeting will upload to MOPS probably after two hours after the meeting.
Probably sometime because the file is too big, you have to wait for a little bit longer. This session is for the message from our CEO, Johnny Shen. Johnny, please.
All right. Good afternoon, ladies and gentlemen. I'm Johnny Shen, Chairman and CEO of Alchip Technologies. Once again, thank you for joining our investor conference meeting today. We truly appreciate the opportunity to share our Q1 financial result and provide an update for our business outlook. For Q1 summary, our first quarter revenue came in slightly below plan. Revenue was lower than last quarter due to the limited production revenue, while our NRE remained very strong. As a result, total revenue reached $132 million, with net income TWD 45.1 million, and EPS TWD 17.55. A detailed financial breakdown and analysis will be presented by Daniel in a later section. There are a few highlight worth to mentioning in Q1.
First, our gross margin reached 50%, driven by strong NRE demand and higher production margin. This demonstrate even during the pre-production transition period, company can remain highly profitable through strong NRE contribution. Second, our N3 design for number one customer is now ready for production. The shipment expected to begin in June timeframe. We successfully secure required capacity across all supplier, including wafer, CoWoS partnering, substrate, cooling, tester, etc., to support on time delivery. At the same time, the next generation design also progressing smoothly and remain on track to tape out by this year. Third, our automotive business enter volume production last quarter. The volume expect to ramp in Q2 and remain stable through the end of the year. We expect automotive business become our number one revenue contribution in the first half, and our second-largest contributor for the whole year.
In parallel, the next generation automotive chips currently under design remain on track to tape out by Q3 this year. Quick update for geopolitical risk management. We continuously to diversify our business and design resource beyond China to mitigate geopolitical risk. In China, we are mainly focused automotive, robotics, and consumer-related product using N3 technology and above. In terms of engineering resource, we have launched a very aggressive hiring plan focused in the region outside China. Now our Japan office can accommodate up to 250 employee, while our Malaysia and Vietnam office can host more than 120 engineer combined. As a result, the majority of our design resource are now located outside China. As for the future business outlook, starting from Q2, particularly from the June timeframe, we expect to regain momentum in production business.
In terms of a revenue trend, we expect Q2 revenue to be higher than Q1, followed by a much stronger ramp in Q3 and Q4, both of which we expect it to be significant higher than Q2. We expect this revenue momentum will continue through the remainder of this year and extended into late next year, followed by the mass production of the next generation chip. In conclusion, we truly believe the most challenging period for the company has already passed. We have confidence to perform a significant revenue growth even compared to our peak year in 2024. Looking ahead, we remain very optimistic about long-term outlook for AI market. For this year through 2029, we expect our growth momentum to remain in line with the industry leaders and competitors.
We are also confident in our ability to outperform overall market CAGR in this high growth HPC and AI market. Thank you.
Okay, thank you, Johnny. For this page, it's a very straightforward quarterly income statement of Alchip. In the first quarter this year, the revenue came in at TWD 132.4 million, which is a 13.3% quarter-on-quarter decline and a 58.5% year-on-year decline. For the operating income part, the operating income for the first quarter reached TWD 43.2 million, which is a 10.5% quarter-on-quarter growth and a 4.8% year-on-year decline.
With the additions of the non-operating income and the deduction of income tax, our net income in the first quarter reached $45.1 million, which is a 5.7% quarter-on-quarter decline and 1.6% year-on-year growth. The EPS for the first quarter is TWD 17.55. The last page is for the application breakdown. As always, our number one revenue contributor in terms of the application is HPC. HPC in the first quarter accounted for 70% of our total revenue, we are expecting these numbers to trend up in the following quarters this year. For this page, this is the process node mix.
As you may see that the N3, N2, N5, and N7 combined revenue contribution accounts for more than 80% of our total revenue. I still believe that, based on this product mix, in terms of the process node technology, Alchip's still the leader within the physical design industry.
For this page is the geographic breakdown. For the first quarter, it's a little bit different from the quarters last year. North America used to be our number one market. In the first quarter, the contribution from this region reduced to 23%. This is because we don't have two significant production revenue contribution from this region in the first quarter. For the Asia Pacific, 47% of the revenue goes to this region. That is because of our automotive business. In the following quarters, I expect the regional breakdown will change quite significantly once the N3 accelerator production revenue kicks in.
For the first quarter business review, like Johnny mentioned, the revenue came slow, a little bit below our previous guidance and the plan. However, the profit, the profitability for the first quarter is quite promising. Like I just mentioned for the numbers, the revenue for the first quarter this year declined 58% year-on-year. However, we record year-on-year growth profitability. The first quarter margin surprises on the upside because of the high percentage of our NRE revenue. We believe this kind of a mix will slightly, the high percentage of NRE will slightly go down in the second quarter as we are shooting to kick off the N3 accelerator shipment, and keep on going down in third quarter and the fourth quarter.
The gross margin trend for this year will be trending down because of the significant increase in revenue in the following quarters. For the NRE pipeline, we see the NRE pipeline remain very strong, especially for the North American market. The design demand from North American region is very strong, especially for the AI-related sectors, such as the accelerator, CPU, networking projects, due to the massive CapEx by those hyperscalers in the industry. We do see the process node technology for AI-related chips are moving from N5, N3 to N3, N2. We are expecting this year, the majority of our AI-related project will be in the N3 technology nodes. We do see multiple ASIC design opportunities from North American hyperscalers. Okay, I guess that's conclude the first quarter.
For the outlook this year, as we mentioned many times, we expect the growth momentum to pick up starting from the second quarter 2026, and actually, the production momentum to start in late May or early June. We expect a very strong quarter for the revenue and the profit growth starting from third quarter this year and going forward. The main reason is the N3 AI accelerator shipment to our North American customer. For the revenue distribution, we expect for this year, it is a very back-end loaded distribution for our revenue distribution. Again, that's because of the N3 AI chip shipment starting in June. For the NRE, the NRE revenue will be grow strongly. First of all, the overall demand for design is still good.
Secondly, as Johnny mentioned, our N2 accelerator project is going smoothly. We are shooting to tape out this project by the end of this year. The related revenue will be another reason for our strong NRE revenue performance this year. This conclude the outlook for this year, we are entering the Q&A session. Thank you. If you have questions, please use the Teams raise hand function. We will call you can speak freely. Okay. Gokul, please. You can unmute your speaker.
Thank you. Sure. Thank you. Thank you very much. Great results. For the N3 accelerator projects, it definitely looks like the customer demand seems to be much higher now compared to what people were thinking maybe three, four months back, given they've signed several gigawatt deals. How does Alchip benefit from this? Should we assume that you will benefit proportionately from this? Any updated size of the project during its lifetime, given this demand upside? Lastly, any thoughts on your 3-nanometer and CoWoS wafer allocation given this upside in demand, given that we are hearing many different vendors are trying to enter into the wafer sourcing, or the customer is trying to kind of find various sources for 3 nm wafer sourcing from various kind of fabless companies?
Okay, Gokul. I would say for the Obviously, the customers' demand is really, really strong. For now, for the real revenue contribution, I think there are two factors are very important. First of all, the wafer capacity. How many wafers, extra wafers we can get or the customer can get, is a very important factor to the upside on our plan. Secondly, what is the execution of the production? As you may know that the yield rate is quite critical to these kind of accelerators. As long as we can execute the manufacturing smoothly, there could be upside from the yield improvement. Definitely the increased demand from our customers or the increased demand on our customer's customer is definitely a good thing to us.
As for the various source, looking for various different vendors or sources by customer, I can assure you that for the design parts, there is only one physical design vendor for this N3 and the future N2 projects. It is Alchip Technologies.
Okay, cool.
Okay. Yeah, Gokul, let me also add some comment on this. Yes, I think this is not a secret. It's not a secret news. I think our customer already received the higher demand. To be honestly, now it's already May time frame. If you talk about the upside for this year, I think it will be very limited because wafer turnaround time need about, including CoWoS, need about six months or plus. Even the upside will happen, but it's, for sure it's not gonna be this year. For next year, yes, we are working with the customer very closely, try to get the upside. I think, from the wafer, we all know N3 capacity is the most precious thing in the industry. Very difficult to get additional one.
Yeah, of course, over the year, foundry will have some upside because yield improvement, those kind of stuff. We try to capitalize those kind of gain. Yeah. Again, we are working with the customer very closely. We try to maximize the upside next year.
Got it. Understood. On the N2 project, the follow-on generation, as you mentioned, you are kind of going to complete the tape-out by end of this year, so probably revenue sometime end of next year, very likely could we have some understanding of, like, the value capture for Alchip, given this is a much more complicated design? Is it, like, multiple times, like what we are seeing in some of the other ASIC projects out there in the market?
Like, let's say the 2 nm version versus 3 nm version, your value capture could be multiple times of the 3 nm version. Secondly, there seems to be so many different interconnect technologies or interconnect solutions that are being used. I think NVLink, UALink, and maybe some proprietary stuff as well. How does Alchip get involved in each of these areas, or is that not something that you're kind of involved in because you are largely focusing on the compute die and the overall backend integration?
Okay, Gokul, for your question, for the N2 project, I would say for the NRE total contract value, definitely the N2 project is much, much higher than N3. The same thing for the chip price. The chip price, as you already mentioned, it is a chiplet, there will be multiple part of the chip, the compute die, the I/O die, and then the others. The chip price will be much, much higher than the N3 chip. For the so-called what is our role for the I/O die or the others, I would say we will provide the physical design for the compute and the integration of the whole chip.
For the I/O die part, we will also involve in part of the physical design as well.
Got it. Got it. Understood. Compute die and overall design is still you are the only partner.
Yes.
Understood. Understood. Okay. Maybe last question from me is on any, I think previously you have talked about CPU is probably not something that you want to kind of engage too much in, given it's a lower margin, lower value add project. Any change in thinking on that direction given CPU demand is now growing much faster than what anybody would have thought with the rise of agentic AI? Any thoughts on any potential kind of CPU-related projects that you're working on with some of the hyperscaler customers? Thanks.
Okay. First of all, I have to do some correction. We are not saying that we don't like CPU application. We will be very cautious about taking production-only project.
It is not because of it is a CPU, it is because of it is an production-only project. We consider for the production-only project, the value added from our role is very limited, and the gross margin for this kind of project is relatively low to those so-called PD 1 or PD 2 project, which we provide the design value to the chip. In the future, if there are CPU opportunities, definitely we will compete.
As you know, our company has a long history to do this kind of on-premises server CPU. I think we still have a few customer there. It's just like Daniel mentioned, if any particular customer come to us only for wafer capacity, only for production service, only business, we walk to the upside. We need to provide the value in order to sustain the business. Nowadays, situation is very changing, very dynamic. If for some, the CPU design also getting more complicated. If the customer needs some design resource, needs some need our support, we definitely will take it. Obviously, the CPU design compared to GPU is relatively easier. Because, in terms of size, all the GPU is already full now, and CPU is much smaller.
Nowadays, most of our company go for the COT trend. The first project most of them start to do is the CPU. It has a certain volume, and entry barrier is relatively lower. Yeah, again, it's, there are some few opportunity we are talking on that right now. Just like Daniel mentioned, we are not against to take any CPU businesses. They are very good business.
Got it. Understood. Thank you very much. I'll go back to the queue. Thank you.
Thank you, Gokul . Okay, Haas, please, you can unmute your speaker.
Yes. Thank you, Johnny, and also Daniel. Congrats on the great results. I guess two questions from me. First one is probably just regarding the upcoming 3 nm AI accelerator ramp. How should we think about the linearity throughout second half this year? When should we expect it is going to hit the peak, at least the near-term peak, in second half of this year? Related, I think you mentioned there's going to be some upside from the volume perspective, but I was just wondering if the COT business model is going to constrain your sales and also margins upside, even if there is additional volume demand from your customers. Thank you.
Okay. The ramping up speed for this N3 project will be very fast. I would say you will feel the revenue to jump in June, there will be another jump in the second, in the third quarter. For the monthly, we expect the monthly revenue to reach the peak starting from the middle of third quarter. As for your question, for the upside, I would say, like Johnny mentioned, for this year, the upside from extra orders from customer is little bit limited because the turnaround time for this project is very long, six to seven months. You can imagine, if we place the wafer orders today, the chip will come out in December. For this, for this year, I would say it's pretty much that from the orders perspective.
Like I mentioned, there is still another factor to the revenue. It is the yield rate. We will keep on improving the yield rate of the project and to see how much is the upside we can get for this project this year.
Yeah.
Okay. Your question regarding about the when volume start to increase, are we going to lose part of production margin or not? I think, to be honestly, I think that's a problem most of people, major supplier competitor also facing the same situation. When the project used to be a TWD 1 billion, now it's a multi-billion, TWD 20 billion-TWD 30 billion. Can they maintain the same margin? The answer is very difficult. For us, we all know that we are very reasonable. We charge customer a very reasonable price. Yeah. After the volume increase for multiple generation, we are able to maintain the same profit margin. I think it's going to be quite challenging for our competitor. I also consider that's a benefit for us.
If the volume increase so much, yeah, sooner or later, people will go for the COT direction and try to find a more appropriate partners.
Got it. Based on your comment, would you be able to remind us about the contribution from this project this year and also next year? It doesn't seem to be there's going to be like a ceiling, even if the volume hit to a certain level next year, even if your customers are demanding stronger than expected, that you can still recognize a lot of revenue and also profits beyond the original scope that you signed, or you have an agreement with your customers?
Yes, definitely. We are still working on extra orders from customers next year. We do believe, based on the current situation, and we will still enjoy pretty strong growth for the revenue contribution from this project.
Okay. Got it. My second question is just regarding the revenue or profit sharing for the upcoming 2 nm project. I guess since it is going to be on the chip's chiplet structure, are you able to capture the whole content when you put everything together? The other IC design service partners doing some part of the design on different tiles will be able to share the revenue once the chipset enters into mass production. Just wondering how the business model is going to be working for the upcoming projects on 2 nm.
Okay. Yeah, we shouldn't comment too much about customers, architecture, but we honestly, in the future, maybe starting from next generation, maybe it will be more provider, more partner get involved. Current production, I think, is a straightforward. We are pretty much handle everything. Except the HBM, I think is a consignor. The rest of them we are handling, yeah, just like before, even go to the chiplet stage.
Okay.
Yeah, I didn't see any additional partner get involved for the design we are doing now.
Sure, sure. I think just regarding your prepared remarks, that you mentioned that you have visibility through 2029, would you be able to share some of your financial target regarding what kind of the sales CAGR outlook through 2029 we should be thinking about for your company in the next few years, and also your expectation for the overall addressable markets in the next few years? Thanks.
No, we are sorry we cannot provide it. Yeah, first of all, it's a earnings call. It's a quarterly earnings call. We supposed not to give the growth guidance in this meeting.
Okay
For the reason why we are so confident for next four years is because, first of all, we secure the N3 and N2 project. The N2 project definitely will bring the revenue contribution to another scale than the N3. That's the reason why we guided the outsiders, saying we are really, really confident for our growth in the next four years. As for the numbers, I'm afraid we cannot provide further information to you.
Got it. What about just the market forecast? If you have anything in your mind, you can share, through 2029 from the CAGR perspective.
No, I guess that's your job.
Okay. Yes. Thank you so much, Johnny, and also Daniel. I'll be back in the queue.
Okay. Thank you.
No problem. Charlie, please, Morgan Stanley.
Thanks. Hi, Johnny, Daniel, good afternoon. Also, congratulations for a very strong quarterly results. Maybe not to get your so-called numeric guidance, right? Your major customer announced 5 GW with Anthropic just recently. I'm not sure if you see so-called upward revision from the key customer in the coming years for your order. If you cannot disclose your revenue CAGR, I think your industry peer MediaTek shared their view about 10%. It's industry information, right? Are you okay to comment on both of those? First of all, do you see upward revision recently? Secondly, if you have any view about AI ASIC, no matter for 2028 or 2029. It would be great. Thank you.
Okay. First of all, for the TAM numbers, I would say actually for this number, Our information is most likely from you, to me that, I think MediaTek guided TWD 100 billion next year for the TAM. I think, first of all, it depends on the definition of the AI chip, because some include those networking, some are not. To us, I would say TWD 100 billion for the market TAM is not that I would say it's pretty accurate because we see the number going up every day, every month.
What we know is the demand, the end demand to our customer and our customer's demand to us keeps on increasing for the past at least one to two years. There is always upside request for how many wafers we can get from TSMC.
Thanks. Johnny, do you have anything to add? Also, based on the TAM, any your targets, say, for the market share?
Right. Personally, I, I mentioned so many times is I'm very optimistic for this market. The market TAM, I think, on TSMC event, right, they also mentioned about by 2020, 2030, people think about $1 trillion. This time, TSMC's symposium in U.S., they revised to $1.5 trillion overall TAM size. I think the ASIC among this TAM will play a significant role. For the past, three years, everybody think about ASIC, but in reality, Google, Amazon contribute majority, more than 90% of the ASIC, the revenue in that area. Through that, I think we have a confidence to overachieve the market CAGR.
In fact, we keep receiving some pressure and also additional demand from our end customer for two things. Maximize the capacity, and we are using all kind of channel and influence to try to get a more wafer as much as possible. In addition, we need to tape out on time for the next generation. Yeah, I think We can see customer is so aggressive. Yeah, I think the we should be able to capture this wave, yeah, in the near future.
Great. Thanks, Johnny. Since you mentioned about the tech symposium, I think on your, on your website, you also have a press release, and I think it talked about you highlight the 2 nm ecosystem readiness, 3D IC integration, and also advanced packaging leadership. There were some participant also told us that you showcase your design with the Ayar Labs, which is I/O optical I/O die, by using TSMC COUPE technology, right? May I know that it's going to be used for your 2 nm project already, or the CPO or optical I/O dies for the next generation?
I see. Yeah. Charlie, I'm afraid that we cannot answer your question if it related to our customer's design in the future.
Yeah. No, I can also mention about, I think on the previous few earnings call, I emphasized our ecosystem. The reason Alchip is so different compared to most of our competitor, because we are completely neutral. We didn't make any IP, we didn't make any product. In the other word, everybody, whatever the solution provider is willing to work with us very closely, since we already have a track record and we are neutral. You will see more, more and more this kind of a cooperation or even press release in the future.
I cannot. It's not appropriate to make it which one is going to hit volume. Are we going to have any production design soon?
Yeah, it's not appropriate to comment. Overall, you will see more and more well-known company is willing to work with us very closely.
Sure, sure. I think that's totally reasonable. I think it was great to see you can showcase your technology capability with partner. Last one I will be back to the queue.
Okay
I'm wondering about the competition, right? I think that some is we'll discuss. I think I can call a name. For example, Meta.
2 nm project. There is also another one, I think it's a U.S. automotive or space or robotic customer.
right? I think that is also very important for your foundry partner. Can you comment a little bit about those two project win chance? How do you compare yourself to those, the shortlist, right? Meaning GUC, MediaTek, even Qualcomm, for those project competition?
Okay. Yeah, it's true, the competition getting more intense. If you think about the whole picture, the design opportunities are getting more and more. Before, each of the hyperscaler only have one solution. Now they are thinking about a primary alternative or second source, you know each of these will have a huge volume.
They are going to have a multiple source. I think this trend is unavoidable. If you look at all the competition, maybe just five fingers. I don't think there will be any newcomer, or the hyperscaler, they are ready to use any newcomers. I think at the end, we are only in compete with maybe four of them. Of course, each of them are very respectful competitor. The size are even much bigger than us. I think we have our gift. We have our own DNA. If you talk about the pure ASIC provider, I consider we are still number one. The newcomer, they are doing product in parallel with doing ASIC. By natural, there's a First of all, there will be some company with interest out there, there will be a different DNA, because doing a service and doing a product are totally different. Totally different.
When the market opportunity getting more and more, if we can deliver the design on time with the quality like we used to do, I think we can, for sure, we can capture more project. I don't intend to winning all. For sure, we are going to be continuously to be a very important player in this industry.
Okay, great. Thanks. I'll be back to the queue. Thank you.
Thank you, Charlie. Okay, next one, Jeffrey McCart, please. Jeff? Oh, okay.
Can you hear me okay?
Yes,
Yes.
Okay, great. Yeah, thanks, Johnny, Daniel. Yeah, I guess maybe to follow up on Charlie's question, you know, over the past two quarters, you really said you were focused mainly on your current customers, you know, current generation that you're ramping up now and the next generation 1, and then this time you also add that multiple basic design opportunities for North American CSPs. I guess, you know, are you a lot more confident on getting other major orders in the next year or so now versus a few months ago? Anything's changed there?
Okay. As always, we really don't want to release something like, oh, we have 70% confidence to win or 60% confidence to win because in AI, winning is everything, lose is nothing. I would say we do have opportunity to compete for multiple projects from those North American hyperscalers. As long as we have good results, we will find a proper time to deliver the message to the investors.
Mm-hmm. Mm-hmm. Okay. Thank you.
Yeah, you are right. For the next years, our current customer will be our primary focus. We need to make sure the design tapeout on time and winning their next generation. In that way, in additional to this customer, we do have so many win, yeah, in the North American region for the emerging account. Yeah, if you count number of a tapeout and number of a design win, compare Alchip with any vendor in the industry, I can tell we are one of the best. Yeah. In terms of number of COT tapeout, in terms of a number win, number of project winning, I think we will be the one of the number ones for sure. If you talk about the hyperscaler significant winning, I have to admit, we have a chance to win.
We are in the progress to win another. Right now, I think our current customer, I think, play the most important role. We don't have a other hyperscaler, major hyperscaler in our portfolio yet. I'm not talking about the consumer. For the AI HPC accelerator, we are. Right now, we only have one important account. Unfortunately, this is one of the most important account in the industry.
Great. Understood. One last quick question. You talked about, you know, the top one and top two customers this year. Who do you think emerges as top three customer by next year?
Top three customer I think is very difficult to estimate. Maybe, I think the top one, number one will remain number one for a while. Yeah. Whether we have another account can overachieve our number two, I think is also possible.
If that happens, like the networking company or something else, you'd say within the next year?
Yeah. Few significant account, few good account we already won. We hope they can give volume starting from next year.
Okay. Thank you.
Thank you. Okay, next one is, Gokul, please. Hmm? Oh, so sorry. Laura. Laura, please.
Yes. Hi, Daniel. Hi, Johnny. Good afternoon. I just have a quick ones. We know that Alchip has a very close relationship with TSMC, and also work very closely on the CoWoS ecosystem. We also noted that various different your customers may also looking for other alternatives on the OSAT or a different approach on the advanced packaging. Just wondering that from your experience or your expertise on the back end and also the packaging side, will that be any kind of challenging when you're working with other non-TSMC's packaging partner? Would that have any impact on your project's progress going forward?
No. Actually, first of all, for now, the wafer is the bottleneck, not the packaging, not the CoWoS. Secondly, I would say for this N3 project, TSMC support the capacity pretty well. TSMC has very high commitment to this project. No matter for the wafer or for the CoWoS capacity, we are satisfied with the support by TSMC. However, if there is other vendors who can provide the so-called 2.5D, like packaging, we don't have a problem with that. Okay. Our ground rule is straightforward. I think everybody has a huge dependency on TSMC, we wouldn't provide, we wouldn't propose any non-TSMC solution to our customer if a TSMC can provide related capacity.
If our customer, due to capacity shortage, seeking for a alternative solution, we will, based on the past principle, that will be, we will notice TSMC, because you don't have a capacity. We are seeking for alternative solution. We can working with the other vendor closely. Yeah. In fact, we also. On the previous generation, we also working with that particular vendor, yeah, who support their to support customer project before. I think it's, in terms of technical, I think it's no limitation for us to find another packaging vendor.
Sure. We can actually basically expect for the maybe the next two to three years, the majority of your packagings will still at TSMC. Other than TSMC, if any other alternatives, yeah, you may also try in case of a ny capacity shortage.
That's correct. Mm-hmm.
Okay, that's very clear. Thank you.
The next one will be I guess Gokul raised hands ahead of Lucas. For sure. We maybe can go on. Up to you. Sorry, Gokul. Let's have Lucas ask question first. Lucas, please. Lucas, you can unmute your speaker. Lucas' question is here. The management previously shared some progress on networking application. Could you provide more details regarding the current status and the specific application of your networking ASIC projects? Furthermore, what's your outlook for the networking ASIC market, and what kind of revenue contribution do you expect? For the networking projects, everything goes smoothly. We are doing multiple projects with multiple networking customers in North America. One of them already approaching the production phase.
The other customer, they are trying to do multiple project with us. The N3 project is in design phase, we are going to kick off the N2 project very soon. Those networking projects are actually data center related. I cannot disclose the details for each of the project. I would say, for the networking project with the North American customer, for the N2 and the N3, we do expect they can contribute us meaningful revenue in the following years. The meaningful means, to us it means, projects with revenue exceeding, like, TWD 100 million annually. That's meaningful. That's the definition for meaningful revenue. I guess this answers your question. Lucas, I'll go back to your second question later. Gokul, please.
Gokul, you can unmute your speaker.
Yeah, hi. Thanks for giving me the chance for the follow-up question. Johnny, I think you mentioned the new hyperscaler customers coming in that you are engaging with. Can you talk a little bit about the nature of the engagement? Are they more like COT based largely, like PD 2 or beyond, or they are also mostly PD 0 or PD 1 kind of netlist level or spec-in kind of projects? Could you talk a little bit about what is the nature of these engagements?
Your view on, like, how this COT trend is accelerating and the capability of some of these hyperscaler customers that you're engaging with on their ability to execute COT project themselves?
Okay. Yeah, I think, to be very straight to you, I think, I can say at this moment, all major hyperscaler, they have a huge intention go to COT soon, sooner or later. We are discussing in so many different phases. Yeah. The most simple one is our preferred model is if they have a architecture related capability, we can help them to do the back-end implementation and then doing the packaging testing. I think that's our normal business model. Some customer go even further. They say, "I can handle part of a physical design.
I take the confidential block, more, you take the critical block. We can work together. I think this kind of flexibility we also have. Some might even say, "Do you want to do the production only kind of business?" Even though it's not our preference, but I think is that we also take. But going further, if some of them need some I/O chiplet related design, they don't have a IP, they don't have the resource, we are working with them to find the right IP and implement the I/O chiplet as a KGD to help them out. I think that kind of business model we also start to establish.
If a customer do not have a capability to do anything, they need us to do the design, architecture design, provide the rack and those kind of stuff, I think those kind of business right now, we try not to do by ourselves, but we also have a partner. That's also public announcement. We can, if they are willing to use NVIDIA as a solution, we are NVIDIA NVLink partner, we can provide. This kind of networking rack solution through partners. There's so many different models. Like I mentioned before, now customer has so many different design opportunity. Each of the design has a multiple version, and they really need some help. Sooner or later, their preferred model is to go to pure CoT.
We can, I still believe that some, going that direction will be favor the company like us.
Got it. That is very clear. Secondly, I think, or for your automotive customer project, I think it's already ramped up. How are we thinking about the size of this business for the current generation and maybe for the follow-on generation as well, given there's been quite a bit of ups and downs in the China EV market? Are you seeing any changes in terms of the size of the demand? Some of the other automotive companies are also using some of these chips for non-automotive use cases, including drone or robotics. Are you starting to see some of those things happening with this customer as well?
Yeah. Okay. Actually, your question is very similar to the question from Lucas, the message board. I'll say this way, for now, we are doing projects with Li Auto for their first project and the second project, and the first one is in production already, and we are doing the second project. As for the other automakers, for now we are targeting one to two automakers in China. It's not proper for me to speak out the names of them here, but we do consider that some of those China automotive makers are trying to build up their own ASIC, not only for their cars, but also for the future applications such as the robotic.
Yeah. One highlight was to mention for this kind of business. Yeah, we all know the total number of a car. The market is predictable. Nowadays, because of a competition, because of a functionality, and people, all the car industry is planned to put multiple chip into one vehicle. Yeah. The current generation, minimum of two. For the higher end one, they are even thinking about four. Yeah. I think similar situation happened to our customer. I think starting from the next generation this year, we will see multiple chip being implemented per vehicle. I think that increase the volume quite a bit.
Understood. Yeah. Thank you very much. Thanks.
Okay. I guess, we will take the last question from Charlie to conclude this earnings call. Charlie, please.
Oh, great. Thanks for giving this opportunity. Very, very quick follow-up. One is to a follow-up on Haas question about 2 nm generation.
it was about ASP revenue size, but I'm wondering about the gross margin or operating margin profile versus 3 nm. Is that something you can talk about?
I would say the gross margin will be pretty similar with what we have currently.
Yeah.
Okay.
We also negotiate with the customer very closely. I know the revenue getting bigger, but the exact capacity are also getting higher. Yeah, to be honest, we are the most reasonable service provider in the industry. Yeah.
Okay
Yeah. Customer also understand that.
Okay. Next one is a follow-up to Lucas question about U.S. networking project. I remember you have one or two AI accelerators, more kind of start customers as well, right? Can we get a sense about?
The progress? Can either of those be the jackpot for your revenue next year?
Okay, Charlie, I guess I can understand what the project you are mentioning too.
I would say for the 3 nm project, it's going to take off shortly. For the 3 nm one, we expect the production revenue to kick in most likely next year, the first half next year. For the 2 nm, the N2 project, we are going to kicking it off very also shortly. For the production revenue contribution from this N2 project, most likely 2028, I would say.
Okay.
For the scale-
Yeah
Honestly, I don't have a picture for you.
Okay. Last one probably more will be long-term or kind of strategic question to Johnny. In the recent years, you hire several high-profile senior management, including two years ago, your CTO. In the recent month, you hire your Chief Business Officer. I think he was from NVIDIA, right? Just out of curiosity, how do you convince them to join your team? What do you expect them to deliver for you? Especially this CBO, right? Since he comes from NVIDIA, can we interface some partnership with NVIDIA in the future?
Yeah. I think this is NVIDIA is our good partner. I think the different company has a different strategy. I think, with this new CBO on board, I think we really boost our company's relationship and reputation to the next level. I think, to be honestly, I'm also very surprised. He well, very shocked and happy he's joining us.
Last week. Two years ago, I just attend the very important event from TSMC and North America VIP dinner.
Every single one congratulate me to hire the right people. When we talk to hyperscaler people, from the technical side, from the track record side, there's no issue. Every time when we talk, the potential customer always extend the meeting period. They really like our solution. In terms of upper management relationship, we are kind of behind compared to our competitor in U.S. In the future, we will continuously to invest in U.S. and hire more related people on the business side, on technical side, and in order to fulfill the gap and also in order to prepare the solution ahead of competitors.
Got it. Yeah. With those senior customer relationship, we look forward to future major project win.
Yes.
Thank you.
Yeah. We are all very excited that people with Freddy, his name is Freddy Engineer, with Freddy's cliche can join our company. Right. Yeah. Right. Yeah. If you have a chance to look at all his background, his old data center or hyperscaler related on their previous company in NVIDIA and also even more previous company in Xilinx. Okay.
I guess, because of the time limitation, we will end our first quarter earnings call now. If you have further question, I guess you can email to me or just call me. It's really easy for you to have access to our company. Thank you very much, and thank you for you joining our first quarter 2026 earnings call. Thank you.
Thank you very much.
Thank you very much