Good afternoon, ladies and gentlemen. Welcome to the joint earnings call for the third quarter of 2025, hosted by GlobalWafers. I am Leah Peng, Spokesperson of GlobalWafers. Joining us today is Doris Hsu, the Chairperson of GlobalWafers. Here's how today's event will unfold. Doris will begin with executive comments, providing insights into overall performance and strategic direction. We will then address investor questions received in advance, followed by an open Q&A section. The call will last for 60 minutes and conclude at 5:00 P.M. A quick reminder, please keep your audio on mute. To ensure a smooth and interactive session, we have established two methods for you to post questions during the event: using the Slido feature for the written questions and utilizing the Webex hand-raising function for live spoken inquiries. The first is Slido, which is the text-based questions.
Throughout the meeting, you can input your questions using the Slido feature in Webex. Simply access Slido and type in your questions. Our presenter will monitor Slido regularly to address your written questions. To ensure the efficient use of time, we encourage you to type in your questions as the meeting starts. Toward the end of the meeting, we will open the floor for live voice questions. If you wish to speak directly, please use the Webex raise hand function to indicate your intention. Once you raise your hand, kindly be ready to accept the host's invitation to unmute your microphone when prompted. This will allow you to verbally pose your question to the panel. For time management purposes, we kindly ask each participant to keep to a maximum of two questions. Before we begin, I would like to remind you that today's discussion may contain forward-looking statements.
Please be aware that these statements are subject to various risks and uncertainties, which could cause actual results to differ materially from our expectations. Please refer to the safe harbor notice in our presentation. Now, without further delay, I would like to pass the floor to our Chairperson for the executive comments on GlobalWafers. Doris, please.
Thank you, Leah. Good afternoon, everyone. Thank you very much for joining GlobalWafers Q3 2025 earnings call. Leah Peng, our Spokesperson, will guide you through the presentation and respond to some of the frequently asked questions we have received recently. I will also take some questions during today's section. First of all, let me share some comments on our overall financial results and also provide you an update on our operational progress. Let me walk you through our financial performance, discuss the key drivers behind the results, and share our outlook. 2025 has been both a challenging and pivotal year for GlobalWafers. The external environment remains full of uncertainties, from geopolitical tensions, currency fluctuations, to tariffs and policy shifts, all adding complexity to the global economy. Even so, GlobalWafers continues to move forward with resilience, supported by our global footprint and operational strength.
Now, I'd like to share a few very encouraging updates with everyone. First, in terms of our operational footprint, this year marks a major milestone as our global expansion projects begin to bear fruit. Following the completion of several brownfield expansions last year, in Japan, our new factory in Utsunomiya, Japan, has been successfully ramping up its 12-inch heavy wafer for advanced applications and repeatedly achieving record-high production volumes. Nearly all major customers have already completed qualifications for this new line in Utsunomiya, and additional advanced product evaluations are progressing as originally planned. The project has steadily increased output quarter by quarter, and the local government subsidy was received six months ahead of schedule, further strengthening financial flexibility and supporting future expansion momentum. In Europe, GlobalWafers is expanding its 12-inch wafer capacity through the new Fab 300 in Italy, in Novara, Italy.
Qualification sample shipments are underway, with multiple customers providing positive feedback. Small volume production for key customers will begin from this quarter, followed by a mass production ramp-up in the first quarter next year. Revenue contribution is expected to increase gradually from 2026 as production stabilizes. On the subsidy front, the Italian government is reviewing the first subsidy application now for the project, with the initial disbursement expected in the very near future. Further reviews and payments will continue through 2027 in line with the project's construction and ramp-up schedule. In the U.S., the Missouri facility, which is an SOI facility, is now established as the exclusive domestic site for 12-inch SOI wafer R&D and manufacturing site, forming a very critical pillar in the U.S. semiconductor supply chain. The ramp-up to high-volume manufacturing has begun and will continue throughout 2026.
The site continues to provide numerous samples and now routine orders across multiple SOI applications. Multiple customers' supply agreements have already been signed, and some others are in discussion. On the subsidy front, Missouri state-level grants have already been received, and the first installment of U.S. CHIPS Act funds, CHIPS Act grants, is expected in near 2027. The AMIC, Advanced Manufacturing Investment Credit Investment Tax Credit, will further boost the financials in 2027. In the U.S., we have another site in Texas. The Texas expansion continues to progress steadily and has entered a critical ramp-up stage. Customer engagement has been very encouraging, with several leading global semiconductor and system companies having aligned to use GWA's U.S.-made wafers for their local production. In total, two customers have already achieved the qualification and are in mass production state.
In addition, four more customers are in qualification phase, and other customers are in discussion, which represents up to 90% of the capacity of GWA's full phase one production ramp. On the policy front, we received the first CHIPS Act payment, which is $200 million and a $1 million workforce grant in June. The increase of AMIC, Advanced Manufacturing Investment Credit, to 35% from 25% to 35% in 2026 will further enhance the project economics. Potentially, we are expecting to have some meaningful savings from AMIC. These developments, strong customer alignment, and government support confirm that GWA is now firmly positioned as a key node in the U.S. semiconductor supply chain. Looking ahead, there is another very encouraging development on the subsidy front.
Based on the current progress of ongoing applications and government discussions in multiple regions, GlobalWafers is expected to receive additional subsidy disbursements totaling up to around $100 million in 2026, mainly related to our U.S. and European projects. These potential inflows will further strengthen our financial flexibility and support continued investment in capacity expansion and also for the technology advancement. There are also some positive developments on the cost side as well. First, regarding capital expenditures, which have always been very important factors affecting our overall profitability. Our major construction investments, such as the new plant buildings, were largely completed in 2024. Our global expansion CapEx has now entered the consolidation phase, and total spending for the first three quarters of 2025 has declined significantly, down by about one-third compared with the same period last year. It is about one-third down compared with last year's CapEx.
Secondly, the recent interest rate cuts will also help ease GlobalWafers' financial burden as well. The U.S. Federal Reserve reduced policy rates twice this year, with 25 basis point cuts in both September and October. This brought the federal fund rates down to 3.7%-4%. A major portion of GlobalWafers' financial liabilities is denominated in U.S. dollars. Based on the current loan balance, each quarter-point rate cut is resulting in approximately $2.2 million annual interest saving. Overall, lower U.S. yield interest rates will help reduce our financing costs and provide greater flexibility to navigate future challenges. That is a very good support for us as well. In addition, our inventory level has returned to the very healthy range seen in late 2023 and early 2024 now, reflecting solid inventory management and a stable foundation for the next upturn. I'll quickly update the financial highlights in Q3 2025 in the following sections.
Revenue: GlobalWafers reported consolidated revenue of. TWD 14.5 billion in the third quarter of 2025, representing a 9.5% decrease compared to Q2. For the first three quarters of the year, revenue reached TWD 46.1 billion, down 0.4% year-over-year. This is our revenue and performance in NT dollar. In the first half of 2025, the NT dollar appreciated notably against the U.S. dollar and only slightly weakened after August. As most of GlobalWafers' revenue is denominated in U.S. dollar, this currency movement made our reported result in NT dollar appear much softer. In local currency terms, third-quarter revenue declined 9.5% QoQ, and cumulative revenue for the first three quarters was roughly flat year-over-year. However, if I change this to U.S. dollar terms, our business performance remains stable. Our third-quarter revenue reached $0.5 billion. Our Q3 revenue was down only 0.7% YoY if I use U.S.
dollar as the currency. It is YoY 0.7% down, while cumulative revenue for the first three quarters this year grew 2.5% from the same period last year. That is based on U.S. dollar currency. Gross profit and operating income-wise, in the third quarter, our gross margin was 18.4% and operating margin was 8.5%. For the first three quarters of the year, gross margin was 23.6%, while operating margin stood at 13.6%. Our net profit and EPS in the third quarter, our net profit margin was 13.6%, and for the first three quarters of the year, it stood at 11.1% net profit. EPS for Q3 came in at TWD 4.12 per share and TWD 10.68 per share for the first three quarters this year.
The higher net profit compared with operating income was mainly due to the valuation gain from our shareholding in Siltronic, reflecting the recovery of its stock price during the quarter. As of the end of Q3, our prepayments amounted to TWD 26 billion, equivalent to approximately $0.87 million. That is our current prepayment status. Let me explain a little bit about our gross margin. I think you definitely have already noticed that our gross margin in Q3 is lower than the previous quarter. Let me explain. The main reasons behind the lower gross margin in the third quarter can be summarized into three key reasons. Number one is that, first, new production lines across our sites, including those in the U.S., the Texas new site in St. Peter and Missouri, two new sites in the U.S., and one in Italy, Novara, and one in Utsunomiya, Japan.
These new fabs remained in the trial production and customer qualification phase. It is not completely qualified yet, so still working on the qualification and trial round, trial production right now. These fabs are still in the early ramp-up and process optimization stage, where startup, pilot, and related costs continue to be recognized. Each site impacts the overall margin by roughly 2-4 percentage points. That means that these new lines, although revenue contribution is very minimal, but the expenses and all the costs are. We see we have to be recognized. That's the first reason. The first reason why the gross margin is much lower is because of those new lines started ramping, start making the trial rounds and test optimization. That's the first reason.
The second one is that at the Texas fab, our GWA, certain costs that were previously capitalized, by end of June, a lot of costs were capitalized. But those, many of the costs have been expensed from this quarter, from Q3, under accounting standard. These costs are now recorded under COGS, Cost of Goods Sold, instead of OpEx or capitalized, which directly reduced gross margin. Under accounting principles, once a production line enters the trial production phase and is capable of producing wafers that meet customer specification, starting up and the pilot line costs are no longer eligible for capitalization and must be expensed. That's why starting from Q3 this quarter, GWA, all the production costs is recognized as COGS. Even the revenue contribution is very minimal, but that's already been recognized as COGS. That's the second reason. The third reason is the energy costs.
Higher electricity costs during the summer season also increased the overall cost ratio. The third quarter coincided with the summer peak period when electricity and utility expenses rose across most regions. As production volumes remained low during the trial production phase, fixed cost absorption was limited, so further raising the unit cost. Overall, the lower gross margin this quarter mainly reflected the accounting change at GWA from capitalization to COGS, the transition from capitalization to expenses under COGS, together with the expenses recognition from other fabs still in the trial production stage, and the impact of the seasonal cost increases. These are the three key reasons for the gross margin, for the gross margin down. These are temporary pressures during the early ramp-up phase of new capacity. As customers' qualifications are completed and production volumes increase, utilization increase, yield increase, then we will improve.
The utilization will improve and margins are expected to recover progressively. That's for the gross margin. Global inflation. I think global inflation expectations remain broadly stable, allowing major central banks to begin gradually easing policy rates, providing some support for economic growth. However, tariffs and policy uncertainties continue to weigh on consumer sentiment and business investment. We're still very cautious for monitoring the global economy and also we follow very closely with each country's new policies and taxes tariffs. Looking ahead, we believe that global GDP growth is expected to slow slightly between 2024 and 2026. Even so, I think the overall economy remains resilient, supported by strong AI-related investment in the United States. The semiconductor market continued to show strong momentum in AI-related advanced nodes, while demand for mature nodes remained relatively conservative. Also, for a smaller diameter like.
6-inch or 8-inch, the demand is much more conservative than the advanced one. Strong demands for AI and advanced logic chips have supported overall industry growth, driven primarily by high-end wafer demand from cloud computing and hyperscale data center expansions. In contrast, markets related to mature nodes and consumer electronics remain relatively soft. That is what we are seeing on the semiconductor industry current status. Okay, I think that is pretty much the information I want to share with everyone. Next, Leah will present industrial outlook, highlight our competitive strengths, and also review our overall operational performance and address some key investors' concerns, followed by some Q&A. Thank you very much, Leah, please.
Thank you, Doris. I will quickly update GlobalWafers' recent performance and answer questions we received so far. Please turn to page 12.
Rising AI and advanced process demand continue to fuel growth in the wafer fabrication equipment market, projected to expand from $111 billion in 2025 to $122 billion in 2026. Foundry and logic remain key drivers. AI, HPC, power, and sensing applications are now central to new industry investments and advanced node expansions. GlobalWafers' global expansion strategy is fully aligned with this trend, positioning ahead of the demand to capture the structural growth. In page 13, this is a tentative sign of stabilization. Our customers are showing signs of stabilization, so the recovery remains cautious. Early tariff-driven poolings lifted inventories, but by Q2, the levels had fallen to around 135 days, indicating steady digestion. Regionally, performance is mixed. Except Japan, most areas saw modest Q2 growth. Overall, AI demand remains the main driver, while other markets are in a mild stabilization phase with limited visibility for non-AI segments.
In page 14, we can see that the U.S. is rapidly rebuilding its semiconductor ecosystem through large-scale chip reshoring. Over $500 billion in private investments are expected to triple wafer capacity by 2032. In the past decade, U.S. capacity grew only 11%, but now is projected to rise over 200% by 2032, far outpacing the global average. Through our U.S. expansions, GlobalWafers is actively supporting the transformation, strengthening local supply chains, and deepening partnerships with key customers. In page 15, you can see that the U.S. is seeing an unprecedented wave of semiconductor investments, creating strong regional clusters across manufacturing materials and advanced packaging. GlobalWafers is strategically positioned within these hubs. Our Texas fab serves as the flagship 12-inch facility, while Missouri focuses on SOI products. Both align closely with customer localization needs, strengthening supply chain resilience and long-term partnerships.
Our GlobalWafers America, GWA, is moving quickly through product qualifications with strong sampling demand and small shipments. MEMC in Missouri started the pilot round in Q2 2025 and targets mass production in the second half of 2026. Also, under the One Big and Beautiful bill, the advanced manufacturing investment tax credit rate will be increased from the current 25% to 35% starting in 2026. This will further enhance the project's long-term financial flexibility. Next, I would like to highlight an important milestone in Europe, the launch of Fab300 in Novara, Italy. While demand in Europe remains soft, customers are increasingly focused on local supply. As Italy's first and only 12-inch advanced silicon wafer fab, we have received strong feedback from major customers, some already signaling recovery and requesting rush order readiness.
Fab300, inaugurated in October this year, represents a total investment of approximately EUR 450 million, with 25% subsidized under the IPCEI framework. It is equipped with full process capability, producing polished and AP wafers for logic, memory, power, and sensor applications, fully powered by renewable energy and aims to achieve 50% water recycling efficiency during its ramp-up phase. This will fully align with the stringent ESG standards of our European customers. Next, I would like to share our latest progress in next-generation material. We have completed two breakthrough prototypes, the square silicon wafer and the 12-inch SiC wafer, both now in customer sampling and pilot production, marking key advances in wafer size and material innovation. These developments are technically demanding, but with our strong manufacturing experience, we are steadily overcoming challenges and strengthening long-term competitiveness. The key highlights include successful prototype delivery and scaling.
In application, the square silicon wafers enable large area design and higher material utilization in 2.5D over 3D packaging, improving design flexibility, while the 12-inch SiC wafer offers superior heat dissipation for AI and high-performance computing. Please refer to page 19 for our Q3 financial overview. Following Doris' remarks, I would like to briefly break down the cost structure behind these changes. Compared with the previous quarter, on a revenue ratio basis, our depreciation increased by about one percentage point as our new fabs entered trial production. Our cost rose about roughly 2 percentage points due to the summer peak season. Labor cost increased by around 2 percentage points, mainly reflecting the annual salary adjustment one-off items. The remaining changes were mainly related to the trial production costs associated with GWA.
Please note that the ratio increases were mainly driven by a lower revenue base in Q3, which magnified the cost percentages rather than a notable rise in absolute expenses. Our operating margin was 8.5%, down 6.7 percentage points. Net profit margin rose by 3.1 percentage points to 13.6%. The EPS amounted to TWD 4.12 per share. Please note that the income tax rate in Q3 decreased to 10% from the previous 27% in Q2. This is mainly due to the tax refunds recognized by our certain subsidiaries following the local regulatory changes and the reversal of previously accrued undistributed earnings tax. Also, some sites recorded lower profits in Q3, so the reduced taxable income led to lower tax expenses, contributing to reduction in the consolidated rate. Our EBITDA margin increased by 2.3 percentage points to 30.2%. This mainly reflects the valuation gains from Siltronic shares we hold.
CapEx totaled TWD 7 billion, and depreciation was TWD 2.5 billion, slightly lower than Q2, but this reflects the foreign exchange translation effects and the completion of depreciation for certain legacy equipment. Please refer to page 20 for the three-quarter financial performance. Revenue for the first three quarters reached TWD 46 billion, representing 0.5% while wipe-down, and gross margin declined by 8.6% to 23.6%. Operating margin was 13.6%, net profit margin 11%, and EPS TWD 10.68 per share. Our EBITDA margin amounted to almost 28%. CapEx totaled TWD 26 billion, significantly lower than last year as most major investments were completed in 2024, and projects have now entered into the final phase. Depreciation was TWD 7 billion and will continue to accumulate as expansion progresses. Okay, so please refer to page 23 for the income statement.
To reflect the true operating performance, we presented the simulated financials, excluding the influence of major expansions and the Siltronic market market valuations. Excluding these factors, our first three-quarter gross margin would have reached 31%, EBITDA margin to 36%, and net profit margin to almost 18%, and EPS would have amounted to TWD 16.7 per share. This was significantly higher than the reported figures now. Please refer to page 24 for our balance sheet. Cash and cash equivalents decreased to TWD 16 billion in Q3, but this mainly reflects the internal fund reallocations to support the subsidiary financing needs, with part of the balance reclassified under other current financial assets. However, if we include all the cash-related items classified under the other assets in accordance with accounting standards, our total cash will amount to TWD 51.3 billion.
Changes in borrowings during the third quarter mainly reflected the funding needs for capacity expansion and debt structure optimization. We issued a corporate bond and a commercial paper to support the global expansion and enhance financial flexibility, while some long-term loans were reclassified as the current portion due to maturity. Now, I would like to address both the questions we have received from investors recently and those we anticipate will be raised. The first is the guideline of gross margin and depreciation. In 2025, the gross margin will continue to be affected by higher depreciation expenses and new fab pilot costs, keeping the overall pressure in the short term. The slight decline in Q3 depreciation, this is the result of NT dollar appreciation and the expiration of older assets.
If we exclude these temporary effects, we forecast that for the full year in 2025, the depreciation will surpass the figure in 2024 and remain at a high level. If government subsidies, such as the U.S. AMIC and Italy's IPCEI programs, are recognized, these will partially offset the impact of higher depreciation and support our margin stability. The second question is that, has the growing U.S. localization demand translated into actual orders or qualification progress? Yes, the answer is yes. With rising concerns over tariff policies and the supply chain resilience, our U.S. customers' demand for local sourcing has become increasingly evident. GlobalWafers has received requests from multiple customers to accelerate sample delivery and the qualification process and to reserve additional capacity for them. This indicates that the localization trend is translating into concrete actions. Looking ahead, the U.S.
market is expected to become our key need to long-term growth driver for GlobalWafers, and we will continue to strengthen its local supply presence. The third question is that, please share with us the progress of your partnership with Apple. In August, we have entered into a new partnership with Apple to strengthen the U.S. semiconductor supply chain. As part of Apple's American manufacturing program, GWA and Apple are working together to build demand for GWA's 300-millimeter wafers throughout the supply chain. We expect this to be a multi-year process. Another one is the status of the Section 232 tariff investigation and our countermeasure. The U.S. Section 232 investigation on semiconductors is still ongoing and has not yet reached any decision phase.
By law, the Department of Commerce must submit its report to the White House by January next year, and the President will have 90 days to decide on any potential actions. In the meantime, semiconductors and related equipment remain tariff-free, and policy discussions continue to emphasize the U.S. supply chain security and the domestic manufacturing. In view of potential policy changes, we continue to closely monitor the government announcement and the industry development, and it's well prepared for the possible tariff on semiconductors and the raw materials. Overall, the U.S. tariff policy is expected to further accelerate the trend toward local supply and the manufacturing replacement. Our localized capacity, I think we will have quite good opportunities because of this. The next question is regarding memory. What is the outlook for memory and the polished wafer market? Do you agree that the worst is behind us?
Our answer is that the memory market has been gradually improving since the second half, driven by rising demand for HBM, DDR5, and the enterprise storage applications. These are clear signs that the overall industry has emerged from the bottom and entered a recovery phase. We have also observed a modest increase in wafer shipment volumes, indicating that the end market demand is gradually flowing through to the upstream supply chain. Above is our response to the questions. Now, I would like to turn it over to Doris for the Q&A session. Please type in your question in the chat panel or ask questions verbally toward the end of the meetings.
Thank you, Leah. Thank you. Let me start from the first question. What is the current utilization rate for each wafer size? That's a very important question.
For 12-inch, for 12-inch, if I count, if I exclude our newly established 12-inches, which are still under qualification, if I exclude those capacities, based on our original capacity, our utilization rate is over 95%. It's almost full, the existing capacity. If you add the new capacity, just established, just finished construction, Q1 this year, Q2 this year, then of course we have a lot of open capacity, but those are still, those are newly built and under qualification right now. The first answer is over 95% for existing old 12-inch capacity. 8-inch capacity, 8-inch no expansion, but 8-inch capacity right now, utilization is below 80%, slightly lower than 80%. For 6-inch or below, the utilization rate is lower than 70%. That's our silicon wafer capacity status. Compound material, compound utilization. For silicon carbide, compound utilization rate is still low, and market price is still pretty weak.
Our silicon carbide, small diameter, 6-inch and 8-inch silicon carbide now, utilization is below 50% right now. For GaN, it is much more positive. Our GaN utilization rate, gallium nitride GaN on silicon utilization rate is overbooked, is over 100%. We are working on expansion. I think by end of December, we will be receiving new tools, which will be accounting for around 30% capacity up. For GaN, it's fully loaded now. Expansion is on the way. By the way, I just want to add a little bit of comment about silicon carbide. We are seeing some, it seems that we are seeing some upside of silicon carbide, some recovery, rebound of silicon carbide demand. It's not very clear yet, but we are seeing some signals. Some customers are asking for rush orders and small volume, but here and there we are receiving some extra, seeing some new orders now.
I hope that 2026 silicon carbide demand will be a little bit better. That's my answer to the first question. The second question is in terms of 12-inch silicon carbide, any information I can share? I think what we can share is that 12-inch silicon carbide, of course, main application is for better thermal conductivity. There are several different crystallization methods, different crystallization methods are under development right now. We are working with several tool makers to develop special tools for 12-inch silicon carbide wafer. You know that 12-inch silicon carbide wafer, we produce, we have more than, we have more than 1 million wafers, 300 million wafers, silicon wafer, 12-inch silicon wafer, more than 1 million wafers every month, way higher than 3, 1 million wafer every month.
All the tools we're using basically cannot use for silicon carbide because the hardness is different and also the transparency is different. We need to work very closely with our tool makers to develop special tools for 12-inch silicon carbide. We're still working on this and for different crystal crystallization methods. That's what we are doing. All the others are pretty sensitive, so sorry, we cannot disclose too much. Next is with AI driving strong growth and advanced nodes. What is your view on mature node demand and market outlook? Mature node right now. The market demand is very, very, very divided. It's totally different. 300-millimeter and advanced products demand are still strong, but for the mature node or smaller diameter, demand is pretty weak. Right now we think that when we say mature node, it's not only for 12-inch mature node, but also for 8-inch as well.
Right now it's still pretty weak. Yeah, we haven't really seen some big pickup or upside yet for the legacy. Next question is about the fund. The fund, the grants from U.S. or from Europe, how we are going to count that. As we explained several times in the past earnings call, our accounting way is that we will recognize as the fixed asset value, the minus item of the fixed asset. For example, if our fixed assets amount is 100 and we receive 10 from government grant, then we will reduce the fixed assets value down from 100 down to 90. If its depreciation is by 60 months, then the 90 will be divided by 60 months. Every month you will see a little bit lower depreciation cost. That's our standard accounting way for this. Yes, so that's my explanation for the accounting.
If you want to know a little bit more detail, please feel free to reach out to our spokesperson or our accounting team. Next is the new capacity. What's our overall capacity, overall market share for the new capacity? I think you're asking about 12-inch only because our expansion is mainly for 12-inch. I think it's a little bit hard to calculate for two reasons. One is it's very hard to tell how much China capacity is. It's not very clear. You hear a lot of rumors in the market. You don't really know what's their real capacity. When we are talking about capacity, it's not nominate capacity, it's real production capacity. We don't have real solid information. We're monitoring this, but it's not very clear for us yet.
Also, we heard that some other companies maybe have some expansion or just some upgrade from the existing tool and make some upgrade. We don't really know yet. I cannot give you a clear number, but I think it will be somewhere around 20%. That's our view. That's our goal as well. Next question is better transparency. All the three reasons for lower gross margin should be acknowledged by management three months ago. Can we have more color of near-term outlook in the future to avoid surprises? Yeah, we will improve this one. Actually, yeah, you are, Bruce, you are very right that I think we should have been, we should have made it a little bit more clear earlier in our last earnings call. What we didn't expect is that. We didn't expect that. Our customers asking for. Asking us to accelerate our qualification.
We have to run a lot of optimization process to make sure that we can reach the volume. That is the main reason. Also, we did not expect that we immediately, starting from Q3, have to transfer. We have to. The whole condition makes that we are not eligible anymore to capitalize. We have to make it an expense at the same time. This, a little bit, we missed this key point. We will make it, we will make it more clear. Thanks for your advice. We will monitor this one as well. Okay. Okay, the last question is. Is this the last one?
Yeah, this is the next of the test questions, and we will switch to the live voice questions. The last question comes from Phelix Lee from Morningstar. You are asking if GlobalWafers could share the outlook of spot and contract wafer pricing.
Since the utilization is over 95% at 12-inch, are there other conditions favorable for GlobalWafers to raise prices? Are the new LTA being negotiated?
Okay. There are no new LTAs under negotiation for existing fab now. All the new LTAs are for new capacity because customers wanted to have advanced one in local supply. What they want is that you have to be in a local supply and your tool, you have to be an advanced supply, advanced wafer supply. As I reported earlier in my executive comment, we have signed multiple supply agreements and also several more are under discussion. The spot and contract wafer, because actually market is still not that strong. It is only AI-related, high-performance-related demand that is a little bit stronger. Actually, current price is pretty tough.
If you want to get more volume, you have to make some special support to our customer, for example, by supplying some additional titan, a lot of spec, or you have to do improve the price or make some special support. Right now, spot price is very low. Even LTA price, LTA price is still there, but customers actually, many of the customers will ask you to delay a little bit of the LTA volume. They want to convert part of the volume to spot purchase. That means that they push out the LTA volume a little bit. Part of the wafers are LTA wafers, but part of the wafer will become the spot wafers. There are many ways to, you have to support your customers. That is the current status.
Okay, ladies and gentlemen, the floor is now open for live questions.
If you have any questions, please use the raise hand function. Once we acknowledge your question, please be ready to accept the host invitation to unmute your microphone and share your thoughts with us. To make sure everyone has the opportunity to participate, please limit yourself to two questions. If you have questions, please use the raise hand function. Hey, Tony, yeah, we are sending you the unmute request. Please accept it and raise your questions.
Oh, thank you, Leah. Can you hear me?
Yes.
Yes.
Please go ahead.
Hello, Tony. Good afternoon.
Oh, good afternoon, Chairlady. Thank you for taking my question. My first question is regarding gross margin. Firstly, is that I'm not sure whether you have recognized $200 million U.S. subsidies in the third quarter result because I think you have announced there has been subsidies from the U.S. government in August.
I'm not sure whether it has been reflected into your third quarter.
No, that's in Q2. We received by end of June. It was in Q2.
Oh, I see. There's no subsidies recognized in third quarter, right?
That's correct.
We have some small subsidy from Japan.
Yeah.
Japan government.
Japan a little bit. Very small money. Yeah, but not the U.S., not the big ones.
Okay, I see. I break down the questions in a more detailed way. When exactly you will be receiving the next big amount of subsidies in the coming quarters? If you can give us some updates on the actual mass production time by different new fabs and when exactly the depreciation costs will reach the peak level in the coming quarters.
The next fund, big fund, I think it will be H1 next year.
It's very hard to provide a very specific date or month or quarter because AMIC, we know that when is the due date to apply, and which we have already applied. I mean, in the U.S., we have already applied for the first AMIC. AMIC credit application. We have already filed the application by end of October. We have already done that. We don't know when we will get the payment yet. Also in Europe, we have also already submitted our application for the first time. We don't know how many months the government will release the payment. We guess that we also checked the related department, and they told us that it should be Q4. It could be Q4 or H1 next year. That's the answer. My best guess is that we should be able to receive some fund from both U.S.
and Europe in the first half of 2026. It's very likely that maybe by end of 2026, we'll be able to receive another one. As I said earlier, our forecast that next year we will be able to receive over $100 million fund from U.S. and Europe. That's our expectation.
Understood. In terms of the mass production timeline of the different new fabs and when exactly the depreciation costs to peak out?
The new mass production, actually, we start ramping up. We are, for example, U.S., we have already had two customers under HBM, high volume manufacturing right now. Some customers are still test monitoring. It is not at which time point that we start mass production. We are already starting mass production. For example, MJL, Japan one, is already mass production and is getting several record high already, the volume record high already.
That is our Japan, already mass production. The production cost is still high. The main reason is that because all the tools are new, depreciation cost is much higher. At least you see very clear that EO is much better and quality is much better and the volume productivity, everything is much better and start ramping up the volume. That is Japan. The second one is U.S. Texas. Texas has already started the mass production for two customers and several more customers will have more and more new customers enter the HBM stage in the U.S. The third one is SOI, Missouri fab. Missouri, actually our LTA coverage for Missouri is highest among all of our sites because key products is for silicon photonics and RF SOI and FD SOI, many advanced SOI material, 300 millimeter. Our LTA already covered over 90% of our capacity.
SOI is so much more complicated, more difficult than ordinary silicon wafer. The optimization time and learning curve will be a little bit longer. I believe that the mass ramp-up will be about a quarter, will be maybe Q1, maybe Q2 next year, we will see more ramp-up, or Q1. The best case is that maybe starting from Q1, we will see the SOI start mass production as well. The Italy fab also will start mass production very soon from one customer, a small volume though, maybe by end of Q4 this year, we will start seeing start ramping up gradually for mass production.
Understood. Lastly, just depreciation cost. When do you expect it to pick up?
Depreciation cost, I think it is, we will depreciation cost is start, we are still working on, because some tools which have not been qualified yet, it is not, we have not started the depreciation yet. The tool depreciation cost will increase. When the revenue increases at the same time, actually the overall financial performance will be much better. Because the depreciation, the equipment, the building depreciation already started, but the tool depreciation depends on our qualification status and utilization status. That is what we are still working on. We do not have the detailed date yet or schedule. We will have much better plan visibility by end of the year.
Understood.
Thank you, Tony. The next question will come from Bruce. Yeah, Bruce, please accept our request to unmute. Hi, Bruce. We cannot hear you.
Okay, can you hear me?
Yes.
Hello. Hello, Bruce. Good afternoon, Bruce. Hi, yes.
Can you share with us about the 12-inch silicon carbide in terms of your competitive advantage? Why you can win the business, why you believe you can win the business, why we need 12-inch wafers for that? We cannot use 8 or 6-inch. Can you tell us what kind of addressable market we are looking at? I mean, is this just a consumable for process? Is it like you got to do this for every wafer? Can you share anything about that?
You mean 12-inch silicon carbide wafer, right?
Yes.
Okay. For now, I think basically 12-inch silicon carbide wafer, there are several key applications. Number one is for thermal conductivity, especially for AI servers or high-performance applications. Basically, it is not for any device. It is for the thermal, they need thermal dispense, high thermal conductivity material. That is the number one application for that.
The second one for 12-inch silicon carbide wafer is for interposer, but it is not the key purpose now. For now, it is for thermal conductivity. Why interposer? It is good. Silicon carbide wafer is very hard, so it is good for interposer, but two weak points that are not very competitive to be used for interposer. Number one is its price is definitely still much higher than silicon wafer. Number two is that because of the hardness, it is very hard to make a via, a drill, make a via, TSV hole. Some special, if you want to make the thinning process, grinding off the back side, it is very hard to process. That is why interposer looks at that it can be used for interposer, but not now yet. Now current focus is for the thermal conductivity.
Number three application for 12-inch silicon carbide is for AI glasses or AR glasses. Why it is for AI or AR glasses? Because silicon carbide is a good material for as a wave guide, so it is good for that. For AI glasses, you need a big dimension. If you use 8-inch, you can use 8-inch, but 8-inch, you can, one 8-inch wafer, you can get only maybe one pair of glasses, one pair of glasses. It is not the most competitive one. These are the key applications. Right now, it seems that the most promising right now for the process is for thermal conductivity. In China, we know that AR glasses are very popular now. A lot of new projects are under development for 12-inch silicon carbide for AR glasses, AI glasses, wave guide application.
Just quick follow-up for the first application. It is going to be like for every, who needs those? I mean, it is going to like 2 nanometers, 1A16, 16A or anything further. It is like every A16A wafer, you need one wafer for one silicon carbide wafer for thermal conductivities. Is that the right way to think about it?
Yes, it is very close.
I see. What is your competitive advantage in this space? Who are your competitors currently?
I think we are, maybe we are one of the best for 12-inch silicon carbide wafering capability. The reason for that is that if you check all the whole world silicon carbide suppliers, no one has the experience like GWC who process over 1 million wafers a month. For 12-inch wafer.
The only thing, the only technology we have to learn is how to handle a wafer much tougher, harder than silicon. All of our employees, we have thousands of employees, are super familiar with how to handle thin wafer, 12-inch round thin wafer. We know all of this and we know the process. The only difference is that it's much harder. For all the other silicon carbide wafer companies, they have experience for 4-inch, 6-inch, 8-inch, but they don't know 12-inch silicon carbide wafer. Of course, tools are different, but we still, we have a lot of silicon carbide experience and technology, and the IPs can be utilized and upgraded for silicon carbide. Right now, what we are doing now is that we process silicon carbide wafers. We have two different kinds of material sources. One is our own silicon carbide, 12-inch silicon carbide, bore or crystal. That's one source.
We have more businesses that, some companies, they can grow 12-inch bores, but they cannot make a silicon carbide 12-inch silicon carbide wafering process as good as we are. They ask us to do, they consign the crystal to us and ask us to process for them. That's our strength, our competitiveness, our strength is the technology and IPs for 12-inch wafering capability. It's so complicated. It's much more complicated than crystal.
In the longer term, you will do your own crystal, right?
Yes, we are doing our own crystal. Volume-wise, it's not as big as from third parties.
I see. Thank you. Lastly, for the profitability, I mean, for the fourth quarter, the depreciation you just mentioned, I think it's still going to be the case, but the utility costs are supposed to be slightly lower in the fourth quarter.
That's correct.
Can we see a clear bottoming for the gross margin in the near term?
Yes, I think so. I think Q4 should be, I mean, Q4, the only uncertainty, some concern is that how about 232 investigation, any special tax? Those are totally uncontrollable. If I assume that no impact from tariff or any 232 or any other factors, then we should be, I think Q4 should be better than Q3 from gross margins viewpoint because that no more, I don't think that we will have more depreciation in Q4 because all the tools, pretty much we know that what we have now. I believe that our EO definitely will be getting better month by month, and energy costs will be lower and EO performance higher. I expect that we expect that our revenue from new lines should be a little bit better than what we're doing in Q4.
That's our expectation.
Thank you.
Okay. I think. Yeah, can we have the last one?
Okay. Then Has, please. Can you hear us? Please accept our request to unmute yourself.
Yes. Thanks for the detailed presentation, Doris and Leah. I just have one question on the demand and also the overall supply demand outlook. In the near term, as you just mentioned, you are seeing strong demand on advanced logic and also memory. Given memory is around 50% of the raw wafer consumption and advanced logic is another 10%-15% of the raw wafer consumption. How should we think about the supply and demand landscape for the overall industry right now? I think you mentioned that your 12-inch utilization is running above 95%. Just from your perspective, what is it like for the industry? Separately, are you seeing pricing trends stabilizing?
Or you could even pass on the material cost hike to your customers by raising your like-for-like pricing? Thanks.
Thank you, Has, for excellent, great questions and very hard to answer the question. Yeah, let me try my best to make it very clear. Yes. First of all, price, let me answer the price issue first. I think we see some upside. From demand's viewpoint. We see some upside from, I just answered a little bit earlier, that gallium nitride demand is super strong. I think we see that this should be. Demand is increasing and. Yield is improving. This is price should be stabilized a little bit. We see the second recovery. It seems that some rebound, not 100% sure, but it seems that we see the light. That is silicon carbide. I'm not talking about 12-inch silicon carbide. I'm talking about 8-inch, 6-inch, 8-inch silicon carbide.
It seems that the demand is picking up a little bit. We think that the price should be stabilized as well. Not increased, but should be stabilized. Number three, which is more encouraging, is memory. We are seeing some memory demand improving. It seems that maybe Q1 or Q2, we'll see some price improvement from memory. The demand is that because of the strong demand of the reason is because the demand is strong for memory and for advanced one, including the package. Actually, memory needs more wafer. Same capacity needs more wafer. That's part of the reason that this will be increasing. We expect that memory price now is stabilizing, but it should be improved. Starting from next year, either end of H1 or H2, I think price should be stabilized and even improved for memory.
Capacity, when I say 95%, I mean that our existing capacity only, not including our newly expanded capacity. If we include the newly expanded capacity, of course, the total utilization rate is much lower than that. If we are talking about the whole industry utilization rate, I think it's overcapacity right now. Because when we say capacity, I think we cannot ignore China capacity. China has quite a lot of capacity, which we do not really know what is the capacity now in China, but we believe that China capacity is. China has very good capacity now. Yeah. I think in general, for now, capacity is a little bit higher than demand. We think that based on all the semi forecasts and a lot of market forecasts, semiconductor demand keeps growing in the next several years in a very significant way.
If that is the case, actually, based on our forecast, I think it is very likely that starting from 2027, it will be another super cycle increase. Because no one, right now, the past two years, business is very low. Basically, no further expansion for wafer companies. Basically, everyone just finished what they have already announced or already started expansion. Wafer companies, especially memory and advanced AI-related applications, will continue, will keep expanding more and more. We are seeing quite a lot of customers planning to expand further capacity. Our forecast is that starting from 2027, capacity will become very tight again. That is our forecast. There are still a lot of uncertainties, including taxes, tariffs, and also currency development. Currency has a lot of impact as well. That is our view. Sorry, that is all I can answer now.
If you need more detail, you are very welcome to have further contact with us.
Yes, thanks, Doris. That is actually super helpful. Just a quick follow-up before you can wrap up, the colleagues that, on pricing, could you also share about the EPI wafer pricing trend? I know that is probably the part you are doing more for the logic customers. Then just on the overcapacity, would it be fair to say that the current overcapacity situation is probably only like 5%-10% of the oversupply versus like 10%-20% a year ago? Or is it still like 10% oversupply at this stage? Thanks.
Yeah, I think it is about 5%-10% overcapacity right now. It is not that much, especially for advanced ones. Price-wise, EPI price is stable. I think it will take a little bit of time to really increase.
Of course, depends on if we are talking about advanced, real advanced ones and very tight spec, I think the price definitely will, the cost will increase a lot as well. We are still working on the price negotiation with our partners, customers now.
Okay. Yes, thanks so much, Doris, and also Leah.
Thank you, Has. Thank you very much.
Thank you, ladies and gentlemen. We would like to express our sincere appreciation to all of you for your valuable participation today. The earnings call concludes now. Thank you and have a wonderful evening.
Thank you.