Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WIN Semiconductors' result webcast conference for the second quarter of the year 2021. My name is Joe Tseng, the spokesman and Associate Vice President of Finance in WIN Semiconductors. Joining me on today's call is Steve Chen, the General Manager of Corporate Administration in WIN Semiconductors. Today's call is organized into three sections. First of all, Steve will comment on the company's results and provide brief guidance for the third quarter for 2021. Secondly, I will go through the financials in detail. After that, we will open to the floor for Q&A. Please freely submit your question in the input box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the safe harbor notice on page one of the presentation slides.
Please note that this presentation contains forward-looking statements. These statements are based on our current expectations. Actual results may differ materially from our expectations, and the company undertakes no obligation to update these forward-looking statements going forward. Let me hand over the call to Mr. Steve Chen, the General Manager of WIN Semiconductor.
Thank you, Joe Tseng, and welcome, everyone. After a traditionally slow season in the first quarter, we have seen a gradual take-up of customer demand, and our revenue in the second quarter reached TWD 6.2 billion, an increase of 3% quarter-on-quarter and 2% year-on-year. This was roughly in line with our previous expectation. Driven by changes in the product mix, our gross margin in the second quarter increased by 2.2 percentage points from the previous quarter, recovering to 35.7%. This also leads to a sequential increase of our operating margin by 2.8 percentage points, returning to the level of 22.7%. EPS in the second quarter was TWD 2.32, and EPS for the first half of 2021 was TWD 5.04.
Looking at the product mix in the second quarter, apart from infrastructure revenue being maintained at the level of the first quarter, the double-digit sequential growth in cellular PA revenue was the most phenomenal. Especially the contribution of 5G PA revenue of the total cellular PA revenue recovered to over 20% again. The significant increase in the momentum of Chinese fabless customers was also one of the drivers. After the third quarter of 2020, we could no longer supply to our largest Chinese customer at that time due to the U.S.-China trade conflict. However, as we had previously expected, after the reshuffle of the smartphone end market, our strategy of diversifying customers has served us well again.
Many Chinese customers who have been working with us for many years seized this opportunity to gain market share and chose to work closely with us given our strong support in R&D and production capacity. This was a win-win for our customer and us, strengthening our confidence in delivering continuous revenue growth in 2021. In response to our customers' further future growth and the long-term demand for production capacity, we will adhere to our strategy of investing R&D resources to participate in the next generation of product development for our customers and expanding production capacity. We believe our customers' market share, again, will further reinforce our leading position in the compound semiconductor foundry industry.
Looking ahead to the third quarter of 2021, we expect revenue to grow by high single digits quarter-over-quarter and gross margin to be around the level of mid-30s. I will turn the call back to Joe. Thank you.
Okay. It's my turn. It's our pleasure to present our financial results for the second quarter of year 2021. You can also refer to our presentation slide starting from page four. Page four talks about revenue and the margin. With the continued gaining of share on China's mobile market through our China fabless customer. Our Q2 revenue was at TWD 6.2 billion. QoQ was up 3%, and YoY was up 2%. With the 90% utilization rate as we expected in Q2, driven by some changes in product mix, our gross margin improved by 2.2 percentage points to 35.7%, which is better than our original low -30s expectations. Therefore, the operating margin improved about 2.8 percentage points to 22.7%. We will discuss product mix changes on page seven later. Next page. Please flip to page five. I talk about earnings.
The second quarter net profit was TWD 930 million; QoQ was down 15%. That's mainly because of the impact from foreign exchange loss due to the appreciation of the New Taiwan dollar against U.S. dollar in Q2. Therefore, the EPS came at TWD 2.32, and compared to Q1, it was TWD 2.72. Please flip to the next page, six. Page six talks about free cash flow and the gearing. As of Q2, we have a net outflow for our free cash flow. That's because we continue increasing in CapEx. The Q2 interest-bearing debt and the gearing ratio were maintained at a similar level to the last quarter. Please flip to page seven. We may discuss more about our product mix. In Q2, the product mix, cellular, was between the 50%-55%, which is higher than 45%-50% last quarter.
The cellular revenue for Q2, actually QoQ, was double-digit up , especially 5G. For 5G, cellular was higher than 20% of the total cellular PA. Another one is infrastructure. Actually, infrastructure remained in the same range, between 13% and 20%, which is the same level as Q1, but it's better than our expectations. The 3D sensing in this quarter is down to 14% from 19% last quarter, which is as we expected; when we had the last earnings call, we did mention that the 3D sensing business will be experiencing a product transition period. Our Wi-Fi business also went down a little bit, becoming between 10% and 15% of the total revenue. That's the product mix on this page. The next page is going to talk about the Q3 guidance. I think Steve has mentioned that on his management comment. I just repeat again.
We expect Q3 2021 revenue to grow by high single-digit QoQ. We expect Q3 gross margin to be around the level of the mid-30s. Okay, we can quickly go through the financial statements. We're starting from the income statement for Q2 on page 10. I have to remind you guys, all of the figures below are all based on an unaudited basis. The actual result should wait until the CPA's report. The Q2 net revenue was TWD 6,195 million QoQ, up 3%, and YoY up 2%. The gross profit was TWD 2,212 million, which is up about 10% QoQ.
The gross margin becomes 35.7%, which is an improvement of about 2.2 percentage points. The operating expense becomes TWD 803 million. The OPEX ratio was 13%. The operating income was TWD 1,409 million, which is up 18% QoQ. The operating margin becomes 22.7%, which is an improvement of about 2.8 percentage points.
The non-operating income and expense was a TWD 283 million loss, which is detailed on page 12. The majority was the foreign exchange loss. The income before income tax was TWD 1,126 million. The income tax expense was TWD 197 million. The tax rate is equivalent to 17.5%. The net income was TWD 930 million. The net margin becomes 15%. EPS comes out at TWD 2.32. The ROE for Q2 was 12%. The utilization rate, as I mentioned earlier, in this quarter was 90%, which is an increase from 80% last quarter. The depreciation expense was TWD 1,628 million. It's a little bit higher than last quarter. The CapEx became TWD 2,702 million, which is higher than last quarter. Okay. Please flip to page 11 for the income statement for the first half in 2021. The net revenue was TWD 12,204 million.
YoY was up 1%. The gross profit was TWD 4,224 million. The gross margin becomes 34.6%. The operating expense becomes TWD 1,619 million. The OpEX ratio becomes 13% for the first half. The operating income was TWD 2,605 million. The operating margin becomes 21.3%. The non-op item was a TWD 92 million loss. The income before income tax was TWD 2,513 million, and the income tax expense is about TWD 488 million. The net income becomes TWD 2,025 million, so therefore the net margin becomes 16.6%. The EPS for the accumulated first half becomes TWD 5.04. The ROE for the first half accumulated became 13%, and the approximate utilization rate was 85%. The depreciation for the first half was TWD 2,027 million. The CapEx for the first half was TWD 4,536 million. Okay. That's the first half for the income statement.
The next page will be non-op items. For your own reference, I just let you know that the major item is the foreign exchange loss. Page 13 is the balances. As of June 30th, 2021, the cash and the cash equivalent were TWD 19,899 billion. The total assets were TWD 32,576 billion; the total liability was TWD 37,634 billion. The debt ratio is equivalent to 52%. The total equity was almost TWD 35 billion; the book value per share is about TWD 77.18. Finally, the current ratio was 266% for the first half. This is my presentation. Thank you. We now begin the Q&A. Please submit your question in the input box on the webcast window now. Thank you.
I think here first, I will answer some questions around the Q3 product trend. Q3 is the traditional peak season for smartphones; definitely most of the smartphone-related products now will be stronger in Q2 than in this quarter, such as PA, even Wi-Fi and optical. Yeah. Infrastructure should keep the same level of Q2. Yeah, I think that will be the most likely trend for Q3 product. Okay. Some questions want to know how the margin is; I think we still have guidance the margin will be around the mid-30s level. Yeah. Definitely, although it's in the same kind of margin level compared to Q2,
Because of the revenue growth and the better UT. Yeah, definitely even in the same kind of mid-30s level, but compared to Q3 - Q4, the margin will still be higher than in Q2 and Q3. Q3 margin, that will be still a little better than Q2. The next question is about our capacity plan. I think we have discussed that in a previous conference also : for 2021, our capacity will be maintained at 41K per month in this year. At the same time, right now we are expanding our Guishan space in phase C. We will have some new capacity join the production next year. Okay. There's a question: want to know how the status is right now after we lost a very big customer in China since last year, September, due to the trade war conflict? Yeah.
I think it's already almost one year after that event. You can see , actually, our revenue is still kept in a very stable situation. At the same time, most of our Chinese customers, actually, gain share from this situation. I think right now, no matter which new smartphone maker model, actually, right now, our Chinese customers, actually, they all gain shares in there. Okay. Just some questions: I want to know about some news in the market saying that the 3D sensing digital chip size will become smaller, and how's the impact about WIN Semi? I think WIN Semi has been developing the 3D sensing technology since day one. That product launched to the market. Every year, we are making progress and generation change in our technology process.
Definitely at the same time, we will bring the better performance and also the smaller size of the chip every year. The size will shrink; definitely that will happen along with the technology roadmap keeping changing. At the same time, even the die size is keeping smaller, but at the same time, that will bring the technology barrier to become higher because if you want to size down the chip, you definitely need to base it on the previous technology and make some new progress on that. At the same time, because the technology process has become better and become the new generation, actually, we can leverage those technological capabilities to diversify our optical business, not only in 3D sensing, but other related sensing or optical LiDAR .
I think for a single product, yeah, the size shrink maybe will bring the revenue to become a little lower, but compared to the technology progress, actually, we can gain more business from other optical projects. I think for the whole year to come, I don't think the optical revenue will be going down year-over-year because of the size shrink. Thank you.
Okay. There are a couple questions regarding the depreciation expense for this year. Would you like to know if we will remain the same in our view as the depreciation expense guidance? Yes. Actually, we did provide that early this year. We mentioned that this year, roughly, probably our depreciation expense will increase about between 20% and 30% in this kind of range. Actually, from the result, we see that the first half, on a YoY basis, was increased very close to the lower level and in this range. We believe that even including the second half probably won't be over this range. The whole year, the depreciation expense guidance we probably will keep the same as before. Thank you. There is another question asking about our Q2 OpEx ratio, which is 13% of the OpEx ratio.
Actually, it was lower than Q1 but still a little bit higher than the normal OpEx ratio. When we check into the details, the administration and sales expenses are pretty in line with before. In Q2, the R&D expense looks higher than normal. We gauge that it should be the second quarter; we do more R&D activity with the customers, no matter the new type or the development project for the second half or even next year's project, and it happens at the same time. Making the R&D expense a little bit higher than normal. Normally, for certain quarters, experiencing a higher R&D expense is not abnormal. Especially if we still have the capacity to support the R&D project, then we definitely will do that. I think Q2 is with higher utilization, but we are still not 100% yet. I believe that was the reason. Thank you.
Okay. There is a question: to talk about ASP. Want to know, will WIN Semiconductors raise our ASP at this moment or in the future? I think first, WIN Semiconductors has a very long relationship with our customer for most of the customers. Before the agreement duration comes, actually, and agreement period, actually, we will not raise up the ASP without a reason. Also for the ASP, I think for WIN Semiconductors, compared to other competitors, it's a more complicated situation for WIN Semiconductors because we are not only providing the technology for a single product or single PA. Actually, at WIN Semiconductors, we produce all the tailor-made PAs by different customers with different handset makers. Actually, the ASP was totally different customer to customer and also product to product.
If you check WIN Semiconductors' average ASP for the past few years, I think it's kept at a very good health level. Even because of every time we have a new technology launch, the ASP is going up. For WIN Semiconductors, the ASP is not just compared to the same technology because WIN Semiconductors' technology keeps developing the new generation year by year. The ASP for WIN Semiconductors, definitely. The new technology ASP is better than the old one.
There is another question. Investors still want to know about the 5G PA in WIN Semiconductors , the percentage of the revenue, and the ASP compared to the 5G - 4G, such questions.
I think we started shipping the 5G PA in the second half of 2019, starting from about 10% and gradually up. The highest level in the year 2020, I think maybe in Q1 or Q3, I can't remember; the highest level was about 25%. The average is about between 20%-25%, this kind of level, for the whole year 2020. The recent Q1 was below 20% and came back to above 20%, 20-something, in Q2. You see that, WIN Semiconductors? We developed a 5G PA many years ago and started mass production for our important customer two years ago. Even long before our competitors, not even having the 5G PA recently.
Of course, the wafer pricing, the price for 5G, should be better than 4G, especially 4G PA; it's kind of the legacy product and experiencing price erosion year-over-year, and there was almost no new band, almost no new design. The 5G, it's still early stage for 5G PA
Theoretically, for the new product, the new application, and the pricing, it is better than the old one. That's why the 5G generation is very important for a PA maker. Especially 5G, the frequency band, so far it's still limited to sub-6 GHz, like N41, N77, and N79; we expect there will be more frequency bands coming out, maybe even coming from 4G bands refarming to 5G. For those, it's all new to the 5G PA in the future. We're working on several important customers globally, of course; different customers have different pricing, which we probably cannot discuss it, but definitely we enjoy the better pricing and better margin from 5G PAs over 4G PAs. Yes, exactly. Thank you.
It looks like there is no further question, but we will still keep the online connection for a few minutes, and, if it's still the same, then we're going to finish the conference. If you have any question, please do it as soon as possible. Okay, there is one question that came out asking if we want us to do some kind of comparison between WIN Semiconductors and our competitor. This is really difficult for us to do such a comment because our major competitor is also in Taiwan; they also listed in Taiwan.
They are a listed company in Taiwan. If something will impact their stock price, we are not willing to see that. Of course, I can comment on something about ourselves, including the technology. I think we, first of all, when I mention our technology, mean maybe they are different, but you have to find out how different it is.
We have developed our own technology since day one, and we don't do technology porting from our customers. We keep migrating from 2G, 3G, 4G, and 5G now. Our customers keep using our technology to penetrate into their market they want and also expand their market share, which is quite different from our competitors'. The timing, as I mentioned it, we developed 5G PA technology several years ago and mass production since two years ago. I think we have exceeded our competitor for a long time for this kind of record and also because we input a lot of resources in R&D and capacity, so our customer attracts a lot of Tier 1 customers or players to work with WIN Semi.
We create a lot of number ones in the record, including the 3D sensing, and also when the most important moment happens, then we always the first choice to our customer. That's why making us the no matter the capacity, several times compared to our competitor, our revenue is also several times higher than our competitor's. Our customer base is also several times larger than our customers'. That's exactly what I can say right now. I think even the market share, based on Strategy Analytics , we have already have approaching 80%, 70%-something of the market share. Compared to our competitor, they still probably very low anyway. You guys can check that. That's pretty much all I can describe about how different WIN Semi and our competitor are. Thank you. Okay.
It looks like today's investor here is very shy, and I got to answer one last question and then close the meeting. The last question was asking about the relationship between WIN Semi and our U.S. customer for 3D sensing, anyway. Okay. I think, as I keep talking about WIN Semi input a lot of resources for R&D and capacity, that's approved since in 2017, when U.S. Tier 1 smartphones would like to have the first 3D sensing phone, and our U.S. customers choose outsourcing instead of in-house to produce that VCSEL chip and leverage our 6-inch gallium arsenide and compound semiconductor production experience. We successfully helping our customer become the important supplier to the U.S. Tier 1 smartphone maker. We continually work together for the sequential few years.
Although in between, their every year has a little bit of change in design and process, WIN Semi always supports them and does our best, no matter the process or the capacity support. Even last year, in year 2020, other than the structured light on the front side, the back side, TOF, is the first time launch in the last year's model, and we also successfully supported our customer, becoming probably the only supplier to the model. Even this year, there is a design change. We're still working and supporting our customer and keeping the major source and major market share for this year's 3D sensing for the front -side Face ID. We're keeping the resources all together with our U.S. customer.
We're working very closely, and I think, just like our customer also mentioned on their earnings call, they like to make their customer to remember that even the next generation or even the next and the next generation, when they need them, make sure they're still there. Then we keep the same thought. We also work together with every single customer and make sure that we are there when the customer needs us. We become the best partner to all of our foundry customers, no matter 3D sensing or the RF or anything else. Okay.
This is our last question to answer. Since I have no further questions, thank you for your participation in WIN Semi's conference today, and there will be a webcast replay within hours. Please visit www.winfoundry.com under the investor relations section. Thank you very much, and you may now disconnect, and goodbye.