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Macronix International Co Ltd
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Ladies and gentlemen, thank you for standing by and welcome to Q1 2018 Macronix International Co., Ltd. Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 26th of April, 2018.
The presentation and discussion contain certain forward-looking statements with respect to the results of operation, financial condition and current expectation. The forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include, but are not limited to the impact of competitive products and pricing, timely design acceptance by our customers, timely introduction of new technologies, ability to ramp new products into volume, industry-wide shifts in supply and demand for semiconductor products, industry overcapacity, availability of manufacturing capacity, financial stability in end markets, and other risks. The forward-looking statements in this release reflect the current belief of Macronix as of the date of this release and Macronix undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such date.
Now I'd like to hand the conference to our speaker for the day, Chairman and CEO, Dr. Wu. Thank you. Please go ahead.
Yes. Thank you. First is, let me welcome everyone to attend our Q1 2018 financial conference. I think, I will be describing our results in Chinese today. [Foreign Language] business update. [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] So far so good. Yes. We have a question from [ Nicholas ], Mr. [ Nicholas Bancroft ]. Why no translation? Well, first is, I have to apologize. This is -- in Taiwan, I think most of people are speaking in Chinese. That's why my presentation will be in Chinese. We don't provide an online translation. I'm sorry for that. But if you do have any question, please ask. I will try to answer in English.
[Foreign Language] Could you please have some color on NOR pricing and NAND pricing for 2Q in the second half? I just answered that question. I think in SLC NAND, we think this year will be remain shortage, and then we are expecting to have growth in the pricing. In the second half of the '18, I believe NOR has a similar situation, but this is only limit to high-quality and high-density area. We believe there will be shortage in that area. [Foreign Language] How big is the micron spaces percentage-wise added? It is very, very, very little. Okay. I don't know whether that answer is good enough for you. [Foreign Language]
Is the China NOR capacity going to win the -- in the midrange NOR flash market segment? [Foreign Language] My answer is this, okay. It could be. They could be moving into 32 megabit to 128 megabit. So I will say is, it really depend on what kind of customer they can get. Again, I'm saying is, we are only focusing ourself in the high-quality market, which is including low density to high density, or high-density market, which is not much competition there. And in the meantime, I think in the Parallel Flash, I think we'll be the only supplier for the -- all the density. So in the Parallel Flash, we have no competition there. [Foreign Language]
What is the factor of the [ TPN ], means...
Gross margin.
Gross margin in -- I don't understand. Do you reckon lower ROM sale in mix should be good for margins? In theory, right now, that's true, okay. But for the -- but I think, they are usually compare the Q4 and the Q1 this year, Q4 last year and this -- I think we also have a significant ROM business though.
Computer and consumer NOR were declined while in 1Q '18. Is it due to the company being more selective? I think, the first is answer is yes. But also, this percentage is also showing that the -- is distribution of our total business. So I will say is, we are just shipping more parts to high-quality segments, and I believe that is also saying that we are trying to be more selective in term of the customer we want to work with.
There seems to acceleration of NOR and SLC NAND design win case come in. Can you show which application are these? Are all these in high-quality application? How much is automotive? Well, I cannot give you a percentage. But I think, you're right. We're seeing a lot of automotive design in for our SLC NAND.
So the -- move back. Okay. Number 4, on Slide 13, the ASP of NOR is up slightly Q-on-Q, but your density by shipment is down 27% Q-on-Q vs your NOR revenue down 21%. So your NOR ASP on the density equivalent basis up 6% Q-on-Q. Is that right? Well, as I said, you don't calculate that way. What you do is, as I mentioned is, we are shipping more unit in the high-density area. So from the density equivalent by shipment that is misleading. That's why you're saying. All I can share with you that is our NOR flash price is not dropping. We are maintaining, and then we are shipping more high density, which we think we have advantage in that area.
Page 12. How much of your NOR price increase in -- due to the product mix change or due to the like-to-like price? I say again that we maintain the price. Some of price maybe with slight increase, but basically we maintain the price.
Number 6. If you NOR flash accelerate migration to 75, this will be positive or negative to gross margin? It's really depend. Okay. All I'm saying is, we are going to produce more devices like 128Mb and 256Mb with 75 nanometer. So we can produce in either 8-inch fab or 12-inch fab, which would we plan to produce more in the 8-inch fab. So the cost will be all different. All I'm saying is, overall, we are confident that we can maintain our gross margins.
Number 7. How much of your 1Q '18 inventory increase is for major game console customer, Nintendo? How much is for NOR? I think for NOR is very normal. I think, that your comment is correct. I think our inventory increase is all for Nintendo.
Number 8. In high-density and high-quality NOR segment, what is the supply-demand dynamic? As I said, we believe in the second half will be shortage.
[Foreign Language]
[Foreign Language] I don't see that, okay.
[Foreign Language] Very little. We have very little participation in the cell phone area.
[Foreign Language] Yes, I think you can see our gross margin drop by 1% as of due to the exchange rate.
[Foreign Language]
[Foreign Language]
[Foreign Language] So far so good [Foreign Language]
How would you compare yourself to Winbond? We don't. We don't compare. We are doing different business.
What are your advantage and disadvantage against Winbond? I have no comment. I think, basically, as I said, we are basically doing business in high-quality and high-density area. That's our main business. We don't drive the price.
[Foreign Language] number that is the true bottom line.
What is the 2Q '18 revenue outlook? How about by different segments? As I mentioned to you, I think in the outlook for the 2Q will be -- the total revenue maybe 0 to minus 5%. Okay. That's our anticipation. I think the NOR and the NAND might be increased, ROM will be lower.
The second question. Chairman mentioned ROM sales turned out to be better than expected in first -- Q1 '18. How about the trend in 2Q '18 and to second half? I will say is, I don't have number for you. But the -- in the second quarter, I already mentioned, will be lower than first quarter but are producing better than last year. For the second half, I -- so far, we anticipate much better growth in the second half.
How much of your NOR product lines today has overlapped with Chinese competitor? Well, the overlap is a lot, as I said, but doesn't matter how much we overlap. We are producing our NOR flash from 2 megabit -- or 1 megabit all the way to 2 gigabit, so the overlap is there. But as I said, we can choose our business. I mean, I don't understand why you guys keep asking the same question. I been explain to you, we are going to working high-quality, high-density application. That's our direction. So in that case is both -- the business point of view have no overlap with those people.
As the free cash flow keep getting strong and you go into net cash, what is Macronix thinking on dividend? I think, I don't have any thinking. It -- this is for the records, responsibility. So whenever -- every year, when we trying to decide that, it will be decided on the board.
[Foreign Language] I don't think so. Okay. I think most likely, we could maintain. Regarding to any of the patent issues, I have no comment. Okay.
Chairman said, 2Q '18 NOR price has been offered to client and that not much pushback so far. Does it mean NOR price will be flat and stable in Q2? Yes. You're probably right on that. And then, I think the -- that is my guess. Yes. So I think that's what I said. And from the third quarter, we think that the shortage maybe will push the price a little bit up.
Might be. The Chairman said SLC NAND will be shortage in 2018. So can we expect SLC NAND price to further rise sequentially in 2Q '18? Might be. Okay. But right now, I think in the first half, we're trying to maintain the price.
[Foreign Language] I already answered that question. I hope you listened. Okay.
[Foreign Language] I have no idea what is this. Okay. [Foreign Language]
[Foreign Language]
[Foreign Language] As I said, we are [Foreign Language]
[Foreign Language]
[Foreign Language]
Sunday.
[Foreign Language]
[Foreign Language]
[Foreign Language] If you were fully loaded in 1Q '18, but shipping declined, does that mean you are piling up inventory for NOR and NAND? I think, we are changing the product mix, so has nothing to do with pile up. If you don't have confidence in Macronix business, please don't cover Macronix.
[Foreign Language] Roughly, yes.
Any color on 2018 bit growth? I think, it's too early. Sorry for that.
So 2 more, give you 2 more minutes. I think so far, we have no more question. One more. Okay. [Foreign Language] I think, you should ask Winbond on this question. Please ask Winbond, okay. We don't do DRAM. I'm sorry.
Depreciation expense for 2018
[Foreign Language]
TWD 2.2 billion.
[Foreign Language] No, I cannot comment on that. [Foreign Language] And I can't comment today with [indiscernible] on this account. Depends on how we will trade, so I don't know. I have no idea.
Okay. One more minute. SLC NAND [Foreign Language] I have no idea.
[Foreign Language]
I don't have a number. I have no idea. But I think the SLC NAND business will be very good for us. So we are expecting the business full loaded.
[Foreign Language] What is the raw wafer shortage impact on margin? Have you secured enough wafer for 2018, 2019? Do we have long-term contract? Yes, we do have a long-term contract coverage. I think so far, we have a full support from the vendor. Of course, the shortage is causing price increase. So we do see a big price increase on our raw wafers though.
Do they have an impact on margin? Yes, so we have to generate margin somewhere else.
So 1 more minute. [Foreign Language] I think we will close at 3:10, which is 2 minutes away, okay. Thank you for your comments.
That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.