Nanya Technology Corp

TWSE:2408

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to Nanya Technology's First Quarter 2020 Earnings Conference Call. [Operator Instructions] As this conference is being viewed by investors around the world, we will conduct this event in English only. Today's conference will be approximately 60 minutes. Nanya Technology's President, Dr. Pei-Ing Lee, will summarize our operations in the first quarter of 2020, followed by our guidance for the second quarter of 2020 and key messages. Then, Nanya Technology's Executive Vice President, Dr. Lin-Chin Su; Vice President, Mr. Joseph Wu; and Financial Executive, Mr. Philip Jao, will join us as we open our Q&A session. Today's presentation materials are available for download at Nanya Technology's website at www.nanya.com. And as usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our presentation materials. And now I would like to turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee, for the summary of operations and the current quarter guidance. Dr. Lee, please begin.

[Pei-Ing Lee, executive]

Thank you. Thank you, gentlemen. Ladies and gentlemen, welcome to Nanya Technology Investor Teleconference, I'm Pei-Ing Lee. My presentation will include 5 portions: Number one, Q1 '20 revenue and results; and two, CapEx and bit shipment; and additional response to COVID-19; and market outlook; and conclude with business review and outlook. First, the Q1 revenue and results. Please turn to your Page 5. In Q1 2020, our net sale comes to TWD 14.419 billion compared to TWD 13.116 billion, Q-to-Q up by 9.9%; and gross profit, TWD 3.436 billion versus TWD 3.377 billion, up by 1.8%; and operating income, TWD 1.832 billion versus TWD 1.440 billion, up by 27.2%. EBITDA, TWD 5.437 billion versus TWD 5.169 billion, up by 5.2%. And the net income for the quarter comes to TWD 1.928 billion at 13.4% versus TWD 1.286 billion at 9.8%, Q-to-Q up by 49.9%. And our EPS per share, earnings per share, TWD 0.63 per share versus TWD 0.42 per share last quarter. Book value TWD 50.40 versus TWD 49.78 per share. Now comes to next page, for quarter-to-quarter revenue result comparison. Our Q-to-Q revenue up by 9.9% and shipment increased by low teens. ASP stayed flat, and the exchange rate unfavorable was 1.5%. For year-to-year, revenue up by 26.8%. Shipment increased by 90 percentage or so, and ASP decreased low 30%. That's the summary for quarterly revenue comparison. Now comes to result comparison in next page. Net sales TWD 14.419 billion versus TWD 13.116 billion. The reasoning is mostly from the last page, bit shipment increased by low teens, ASP remained flat and exchange rate negative impact 1.5%. Gross profit, TWD 3.436 billion at 23.8% versus TWD 3.377 billion at 25.7%. Gross profit increased by TWD 59 million, although percentage wise was down by 1.9%, mostly due to exchange rate negative impact. Our operating expense TWD 1.604 billion versus last quarter TWD 1.937 billion. The difference comes from mostly R&D expense decrease by TWD 303 million. This is quarter-to-quarter account payable difference is normal in normal range. Operating income TWD 1.832 billion at 12.7% versus TWD 1.440 billion at 11%. This is mostly due to increase in operating income, decrease in operating expense. Net income comes to TWD 1.928 billion at 13.4% versus TWD 1.286 billion at 9.8%. And the reason is net income increased by TWD 642 million, primarily from OP income increase TWD 392 million and gain by exchange rate TWD 342 million favorable and income tax TWD 131 million unfavorable. Please turn to your next page. This is the quarterly financial highlights. For the last few years, our revenue increased from TWD 13.1 billion to TWD 14.4 billion, mostly from the shipment increase and the gross margin 25.7% down to 23.8%, mostly due to exchange rate impact. And the net margin comes to 12.7% and the net profit comes to TWD 1.928 billion, mostly due to shipment increase. For operating expense, our SG&A expense at Q1 TWD 533 million, which is in normal range and our R&D expense TWD 1.071 billion, which is due to the account payable difference in quarter-to-quarter. It's in normal range. We're expecting our R&D expense will remain uptrend for the 10-nanometer technology development. For the cash flow, Q1 beginning balance at TWD 44.149 billion, end balance at TWD 47.007 billion and free cash flow at TWD 2.717 billion. The cash from operating income is TWD 3.555 billion, which is slightly lower than Q4 last year. This is due to shipment increase due to revenue increase, it's normal. So at the end, our end balance continued to increase by almost TWD 2.8 billion per quarter. For CapEx and bit shipment, our CapEx for Q1 2020 is at TWD 838 million, and our Board has approved CapEx plan for the year at TWD 9.2 billion, which is including 10-nanometer class R&D, piloting and 20-nanometer deferred payment. We will not have any capacity wafer increasing brand. For bit shipment, Q1 2020 bit shipment increased by low teens. And Q2, we are expecting bit shipment to be flat. And for the year, bit shipment growth guideline is approximately in teens. For the next subject, our response to COVID-19, the coronavirus effect. We have implemented epidemic prevention measures complied with government's regulation, but also with additional policies to protect our employees, contractors and visitors. No abnormal cases occurred so far. And our policy included internal epidemic prevention measures, thus including physical separation protocols, work from home, all personnel body temperature measurement, use of surgical masks, catering of health management, et cetera. Our external epidemic prevention measure, including entrance regulation, video and teleconference instead of travel and visit. So far, our production line and subcontractors are all located in Taiwan and not affected by COVID-19. The raw material and equipments are currently not affected. Our shipment and transport of supply chain are normal. And we have increased inventory of material and chemicals. And multiple suppliers to reduce risk. For the customer support, we had support and service to our customers with goal to assist our customers for stable production. And for the future, we continue to monitor future development of COVID-19 and we'll take appropriate measure to assure overall normal operation. For the market outlook, in short term, we've seen demand increase from remote work, virtual learning and online purchasing, and strong demand from server, notebook, tablet, SSD, networking devices, which is offsetting weaker demand of smartphone. For long term, if Europe and U.S. and other countries epidemic under control in Q2, we are expecting market may bounce back from turbulence to stable. However, if the epidemic continue to be tough through Q3, global recession may be expected. On supply side, we're seeing conservative CapEx in 2019, which result in disciplined bit shipment -- bit supply in 2020. And we're seeing COVID-19 has not interrupted DRAM supply. For 2021, the bit supply growth will depend on DRAM suppliers CapEx plan in second half 2020. On demand side, mobile expecting the content continue to grow as the 12-gigabyte adoption increase in Android high-end smartphone. However, COVID-19 has impacted overall smartphone demand. Server market, the hyperscale server market, datacenter are increasing their 2020 CapEx and cloud computing demand to surge due to stay-at-home requirement. On PC markets, notebook also benefit from increasing demand for remote work and study. PC OEM demand is better than expected. Consumer market, we've seen DRAM demand strong in tablet, networking, SSD and game console. However, we're seeing COVID-19 caused short-term production lockdown in Southeast Asia and Mexico, and we're also seeing automotive sector relatively weak worldwide. For next is the review of business and outlook. First, we see strong Q1 bit shipment growth from datacenter, 5G infrastructure, networking and PC segments. And overall COVID-19 impact is still very uncertain. We need to very closely monitor market demand change for the next quarter also. And cash dividend of TWD 4.6 billion will be proposed to our AGM on May 28, 2020. For 10-nanometer class DDR4, low-power DDR4, DDR5 development is on track and scheduled to start piloting on second half 2020. So that concludes my presentation. Thank you.

[Operator]

[Operator Instructions] Now the first to ask question is Haas Liu, Crédit Suisse. Okay, we're moving on to the next one. The next to ask questions is Jeff Ohlweiler, Macquarie.

[Jeffrey Ohlweiler, analyst]

First question, can you talk about your server penetration in the first quarter and the outlook for second quarter and second half? And just generally, how many customers do you have on the server side now? What percent of your sales could you get to? And just overall, how is that going?

[Pei-Ing Lee, executive]

The server development is going on track. We are roughly shipping around 5% of our shipment to server market. We are expecting this to gradually grow to around 10%, hopefully by year-end. And we had a few customers already taking the shipment and few are still on qualification.

[Jeffrey Ohlweiler, analyst]

Okay. Great. And then my second question, I guess, can you talk about the ASP trend that you are seeing or expect to see in the second quarter and maybe your outlook for second half?

[Pei-Ing Lee, executive]

Yes. Maybe second quarter is easier to comment on. Second quarter, we're expecting ASP continue to increase, okay? As you can see that Q1 is flat to Q4 last year, which is likely to be the bottom stage of the ASP trend. We expect in Q1 ASP will increasing -- will be increasing. And hopefully, this will continue for the sector like server market, our PC market and networking market. Those markets has had a pretty strong demand for the third -- for the second quarter as well.

[Operator]

The next to ask question is Charlie Chan, Morgan Stanley.

[Charlie Chan, analyst]

Yes, I have 2 questions. One is the first quarter gross margin is -- it cut slightly from last quarter whereas the ASP is flat Q-on-Q, right. So can you give us a -- help us to understand whether there is include the slight gross margin information. And also what do you think about...

[Pei-Ing Lee, executive]

And that's mostly due to exchange rate.

[Charlie Chan, analyst]

Oh, exchange rate? Okay.

[Pei-Ing Lee, executive]

Mostly, yes.

[Charlie Chan, analyst]

Okay. And then do you have any projection for your second quarter gross margin level? Because I remember last few quarters you had some margin impact on the -- both products, the DDR3 3-nanometer product inventory sales. So into second quarter do you expect the gross margin to be improved?

[Pei-Ing Lee, executive]

Yes, we are expecting gross margin to be gradually improved, mostly due to the strong market, as I indicated, of the server market, PC market, networking, also SSD. Those are certain areas of the consumer market as well.

[Charlie Chan, analyst]

Okay. And my second part of question is more about China. No matter from the competition never seen that. So first of all, one Chinese company, the GigaDevice, recently at their earnings call they said they will start to keep the China CXMT at the foundry or have the CXMT to sell some DRAM products, maybe the shipment started from first quarter. This company -- is there any impact from that CXMT shipment in first quarter? And the second question is about the consumer demand. In particular, your end markets, including TV, do you see any incremental strength or weakening over the past months?

[Pei-Ing Lee, executive]

Okay. On China market demand area, we don't see any change, okay. And we are expecting very little change due to competition, okay. We're expecting any change will be due to overall demand or worldwide COVID-19 development, the market demand reason. And for your question about TV, we're seeing TV being, say, mix in information. There are some area TVs to see some encouragement and some area TVs to seeing some downturn, particularly like production in Southeast Asia and Mexico may impact on TV production.

[Charlie Chan, analyst]

Okay. Got it. And lastly, just one more about your cash return to shareholders. I guess it depends on your CapEx plans in the coming 2 years. Do you consider to increase your payout ratio or future share buyback if you don't plan to expand your capacity in the coming 2 years? Can you share your thoughts on the cash return and the CapEx plan maybe beyond this year?

[Pei-Ing Lee, executive]

We still don't have any share buyback plan, okay. For the dividend distribution policy, we have been maintaining around 45% plus/minus as we indicated in shareholder meeting and that will stay the same. Will be our goal, our target proposed for the upcoming years as well.

[Operator]

Right now, we're having Mark Newman, Bernstein.

[Mark Newman, analyst]

Firstly, I have 2 questions. The first question was on your 2020 CapEx and bit growth plans. So both CapEx and bit growth are guided up. And I just wondered, how much flexibility do you have there, especially considering, as you said, in some of your prepared comments that there is some risk to maybe global recession if the pandemic continues longer than expected. And if that does happen, would you potentially lower CapEx and lower bit growth guidance this year? And then the second question was really following on the gross margin decline because when I looked at that number for ASP flat, gross margin down, even adjusting for the exchange rate, looks like your cost was, I believe, still up. And considering that bit growth is up, I'm a little bit confused why the cost was up. So maybe if you could address that second question on why your cost breakeven bit was up slightly this quarter.

[Pei-Ing Lee, executive]

Gross margin in number wise is slightly increasing, okay. However, as you we see that exchange rate is not favoring by 1.9%, and that's actually the unfavorable from the gross margin point of view as well. So as I explained to you, the gross margin rate is down by 1.5%. Largely, those reason is coming from exchange rate.

[Mark Newman, analyst]

Is there anything else that could be driving it, like something on the cost side, the yield or...

[Pei-Ing Lee, executive]

Our cost side actually slightly improved from last quarter due to manufacturing efficiency improvement.

[Mark Newman, analyst]

I see. Okay. All right. And then the first question I asked was about the CapEx and bit growth. So how much improvement did you have there?

[Pei-Ing Lee, executive]

Okay. So CapEx and bit growth, our CapEx for 2020 will be TWD 9.2 billion, as I indicated, which is mostly will be used for our 10-nanometer development work. We had 2 generations of the 10-nanometer development work going on in parallel, of which we will spend some money, plus we have some 20-nanometer deferred payments. Mostly, those CapEx is for that reason. We don't have plan to increase wafer capacity.

[Mark Newman, analyst]

Okay. So the teens growth that's all technology-driven. There's nothing related to...

[Pei-Ing Lee, executive]

That's mostly from technology-driven efficiency improvement and some portion of inventory depletion.

[Mark Newman, analyst]

Your capacity is expected to be flat for this year versus end of last year?

[Pei-Ing Lee, executive]

Yes, will be similar.

[Mark Newman, analyst]

Is there possibility if demand weakens or stays weaker for longer that you could reduce capacity somewhat?

[Pei-Ing Lee, executive]

No, we don't have plan. We don't have such a plan.

[Mark Newman, analyst]

Sure. Sure. I understand you don't have a plan, but I'm asking just if you have flexibility to do that if the pandemic is worse than expected.

[Pei-Ing Lee, executive]

I -- currently, I don't expect that to happen. I mean even with last year's severe situation, you've seen that Q1 last year, our shipment -- every supplier's shipment is down by severe case, all suppliers, okay. Even under such a circumstance, we don't have any capacity cut situation. We just go through that situation and gradually the market recover and get back to more healthy stage.

[Mark Newman, analyst]

Yes. Also, if I recall about the last year, in the downturn, you reduced utilization slightly a bit or you put some of your capacity towards R&D, as I understand, approximately 10%, I believe?

[Pei-Ing Lee, executive]

5%.

[Mark Newman, analyst]

Is it the same?

[Pei-Ing Lee, executive]

Yes, that's true.

[Mark Newman, analyst]

5%.

[Pei-Ing Lee, executive]

Yes. Well, above 5%.

[Mark Newman, analyst]

Has it changed or I believe if there was any changes there?

[Pei-Ing Lee, executive]

We're doing the same thing today now.

[Mark Newman, analyst]

And so there's no expectation to change that to 5%?

[Pei-Ing Lee, executive]

Yes, we don't expect that to be changed.

[Operator]

Right now, we're having J.J. Park from JPMorgan.

[J.J. Park, analyst]

Just based on your guidance, Q1 bit shipment increased by the low teens percent and then your second quarter bit shipment guidance is flat. But at the same time, full year guidance is only 10%, which means huge impact felt at the fourth quarter bit shipment declined by double-digit percent to get the 10% level of the full year bit shipment growth?

[Pei-Ing Lee, executive]

Yes. If we stayed flat from now on, Q2, Q3, Q4, likely the bit shipment will be over -- will be in the high teens to over 20%, but you are right. So we are expecting our shipment likely for the year will be teens. And if the market uptrend a little more, maybe beyond teens in that range.

[J.J. Park, analyst]

Okay. But you provided the full year guidance of 10% based on the flattish throughout the year?

[Pei-Ing Lee, executive]

Correct.

[J.J. Park, analyst]

Okay. And then there could be some upside if the demand is turned out to be better than Asia?

[Pei-Ing Lee, executive]

Yes, that will change marginally on that number.

[J.J. Park, analyst]

Okay. And then you mentioned that you're going to introduce a couple of products for the 10-nano in the second half of this year. In this case, is there any capacity reduction upon the tech migration?

[Pei-Ing Lee, executive]

Not within this year. Yes, that's only product piloting activity.

[J.J. Park, analyst]

Okay. Then related to the -- your -- the tech migration, when do you expect to add the new capacity?

[Pei-Ing Lee, executive]

Not in the short term. As we continue to develop into 2 years beyond, yes, we do need to have some new capacity, but not immediately.

[Operator]

The next one to ask question is Simon Woo, Bank of America.

[Simon Woo, analyst]

Good results, congratulations. So maybe my question broadly your revenue sales shipment mix and also the blended ASP trend. When we look at the overall the memory industry data points for Q1, January, February and March, we do see kind of the blended ASP increase, but your number is showing flattish, which means maybe your consumer memory chip side is still not really rebounding yet, try to recover mainly through this year maybe?

[Pei-Ing Lee, executive]

No. Simon, may I just interrupt you with -- let me respond to this question first, okay?

[Simon Woo, analyst]

Yes.

[Pei-Ing Lee, executive]

Yes. First of all, the ASP, if you look back to Q4, Q4 is October, November and December, it's a very steep decline, right? And now we're seeing yet on January, February, March, yes, it's increasing month by month. And that's including not only server and PC, but also in the consumer market as well. That every sector to see ASP improvement. And as this downtrend Q4 and uptrend Q1 and we take in average of those 2 points, it's about similar, same -- similar situation, okay? And that means that also had to do with which month when the price is high or low you're shipping quantity more or less as a complete weighting average. So ASP improvement also has been seen in consumer market as well. So Simon, sorry for interruption, you may continue for your questions.

[Simon Woo, analyst]

Yes, very great point. Yes, month-on-month basis, yes, January, February, even the March price recovery sequentially, well, month-on-month means maybe back to the fourth quarter average level? Yes, very clear, sir.

[Pei-Ing Lee, executive]

Right.

[Simon Woo, analyst]

And secondly, could you recheck the -- overall the -- your revenue mix in Q1 because you said server account for around 5%, about smartphone, notebook, our DRAM maybe still low teen and then how about the PC? And then the rest should be the consumer and/or industrial players.

[Pei-Ing Lee, executive]

Our consumer is around 65% and commodity and the server is now running around 25% and the balance that is the low power.

[Simon Woo, analyst]

Low power meaning is around...

[Pei-Ing Lee, executive]

Low power means, we have MCP, eMCP, low power DDR3, DDR4, low power DDR2, et cetera. 40...

[Simon Woo, analyst]

Is it 10%?

[Pei-Ing Lee, executive]

Yes. It's approximately. Yes.

[Simon Woo, analyst]

Yes. Yes. And then the overall -- the lastly is the EBIT, you mentioned that the overall macro slowdown or coronavirus issue. Meanwhile, your customers actually accumulated on memory chips and also you're feeling that the second quarter outlook is still okay. But don't you feel your customers, your channels showing higher than lower level in the memory chip inventory for now? And obviously, your own inventory should be very normalized after the very strong Q1 pitching, how about the channel or customers, particularly for the consumer area. We don't worry about PC area, but our concern is mainly consumer electronics and also the low-power smartphone area. It's an area we choose for last in the second quarter with this.

[Pei-Ing Lee, executive]

Okay. As I described in the market outlook, we've seen very -- strength in a datacenter, notebook, tablet, SSD, networking device area. And we don't see any inventory issue in this area. And networking is part of our consumer as well. In terms of other areas like consumer, typically, our customers don't hold inventory in-house. And typically, there's very few channel process in the consumer. It's unlike to server and particularly PC, as there are other channel inventory or channel player. You know that big module house, and channels. Those mostly in PC and server area but not in the consumer area.

[Simon Woo, analyst]

Yes. Okay. Yes. So basically, you are saying most of the inventory level, the normal -- inventory normal level and also the [ line yard all ] inventory or the fill-in normal level?

[Pei-Ing Lee, executive]

Yes. Yes. At this point, I still see overall inventory level in the industry is still healthy. And we are expecting Q2 and Q3, although strong areas I just indicated, may continue to be strong, Q2 and into Q3. However, as the COVID-19 develops, we are not sure the impact of COVID-19 will be. Maybe at the Q3 time frame, we have to be very careful about the impact to overall market development.

[Operator]

The next to ask the question is Jeff Ohlweiler, Macquarie.

[Jeffrey Ohlweiler, analyst]

Can I ask you a follow-up question. Your non-op expenditure -- your non-op gain in the first quarter was TWD 491 million and you had FX of TWD 78 million. What was the other TWD 400 million plus that was positive for non-op?

[Pei-Ing Lee, executive]

Sorry, which non-op you are asking?

[Jeffrey Ohlweiler, analyst]

Nonoperating expenses, nonoperating.

[Pei-Ing Lee, executive]

Nonoperating, yes. Our nonoperating income coming from few areas, thus, including interest income, including our investment on the other company by FATC and also including exchange rate change.

[Jeffrey Ohlweiler, analyst]

Okay. And then just the second follow-up question. Inventory has been pretty flattish for the last 3 quarters. What's your absolute inventory change in the first quarter '20 that we get TWD 18 billion again in the fourth quarter '19?

[Pei-Ing Lee, executive]

First, your shipment increased substantially, right?

[Jeffrey Ohlweiler, analyst]

Yes.

[Pei-Ing Lee, executive]

And the inventory, when you're doing the counting of number of days, it's divided by your shipment. So basically, your denominator is increasing. And also, yes, that's encouraging that also depleting the actual inventory numbers. So that are always there.

[Operator]

Right now, we're having Haas Liu from Crédit Suisse.

[Haas Liu, analyst]

But my first question, I wanted to go back to your comment about the bit shipments where you're implying flat second quarter and then guidance seems to have been flat or even down in second half. Could you guys derive, I guess, the factor why you're not getting some shipment growth, say, out of the remaining finished goods factored in pricing rising, or there's numerous sign on the demand side which is eliminating your growth with regard to bit shipment?

[Pei-Ing Lee, executive]

That's a good question. I mean, as I indicated at the very beginning because of COVID-19 due to seeing the market sector change due to this event, and there are some market sectors become stronger. There are other market sectors become weaker, while automotive become weaker, while mobile phone become weaker. It's this mix situation that there are certain uncertainty, and we need to keep on watching closely. So we're seeing those strong market sectors continue to be strong in Q2. And they may be even strong in Q3 as well. Now to watch how the offset may be happening, the offset means smartphone in the weaker area and some of the consumer, but also, they are stronger sector in the customer as well, how they're offsetting each other.

[Haas Liu, analyst]

Okay. That's great. That's helpful. And the second part of that -- my question, on the competitive landscape, maybe the flip side with server, PC better, are you seeing competitors move a bit of bits away so competitive environment actually in consumer in the area if you compete. Is that changing much for their shifting capacity out to the work from home and PC server?

[Pei-Ing Lee, executive]

Mr. Liu, I'm sorry, I may not be the best person to answer your question on this because I don't know the competitor, how are they shifting their capacity. Maybe other gentlemen in the meeting will know better than I do. But I would know afterward -- after they do something, I may know, yes, by the market response.

[Haas Liu, analyst]

Okay. And if I can ask one last question on the CapEx. Your -- it's an initial expectation since you're developing the 10-nanometer class this year, is there a range if we're -- next year we're back to a relatively big number to migrate to 10-nanometer class? And could you give an estimate on the cost per k, like cost per 1,000 wafer or the cost to make the transition? Or how much you're planning to transition on that as you go through that next year?

[Pei-Ing Lee, executive]

I don't have that number available on hand, okay? And your first question about the CapEx, we'll not be increasing next year or the year after. It's potentially possible once we get our next-generation product and technology ready, we will do some migration. That will increase our CapEx. And that may happen in 2021 or 2022. It depends on either market development situation and our own readiness for next generation.

[Operator]

[Operator Instructions] Next, we're taking questions from Charlie Chan, Morgan Stanley.

[Charlie Chan, analyst]

Sorry, I wasn't clear in both the bit shipment and ASP guidance comparison. I remember the guidance for 1Q was bit shipment to grow low single digit, but it turned out to be of low teens. And also ASP, I remember the comment was that ASP should improve quarter-on-quarter and the actual number is flat Q-on-Q. So Dr. Lee, can you help us to explain the difference between the actual results versus guidance?

[Pei-Ing Lee, executive]

Yes. And I probably should comment on this is that the market was impacted under 2 negative impacts: one is, first of all, the trade war between the countries, and that happened mostly last year; and then followed by this COVID-19 case. So this made the market a little bit of fluctuating sector by sector also changing. And luckily, with the strong sector happening in datacenter, in notebook, in SSD and networking, that stabilized the market mostly. And so markets do happen very dynamically recently. And hopefully, those will change. But now comes to COVID-19 in Europe and U.S. become severe also and this is adding a bit uncertainty for the future 2 quarters from now. So if you ask me to predict ASP how accurate will be or shipment how accurate will be, I cannot give you very accurate prediction because all those major factors are on hand.

[Charlie Chan, analyst]

Yes. That's fine. I think no one can be that accurate. I think you even do a better job than us. But does compare your own ASP trend versus the first quarter contract market and the spot price. It look to me overall for the DDR3 contract price and the spot price seems to be going up in 1Q, right? So just want to understand whether it's a theory if you currently see your -- some special deals beginning -- during in 1Q, from that your ASP is kind of slightly below market trend?

[Pei-Ing Lee, executive]

Actually, the ASP was increasing in all sectors, as I indicated, when Simon was asking question. That's including DDR3, DDR4, including all sectors, server, PC and consumer, every sector, that the ASP increased, okay? However, it seems that I need to additional comment on here is that within the ASP also there are contract price. Contract price means quality contract. If for those markets that we had price negotiation happen last year, for this year, for Q1, most likely those portion likely to stay at relatively low because Q4 last year, the price prediction, the price scenario was not as good. And taking that point continuing on for Q2, likely Q2 for the contract pricing as well as the noncontract price overall speaking will be uptrend compared to Q1. That's why I say Q2 should be better than Q1, and the confidence level for being higher is quite good. But if you want me to tell you exactly what percentage, I would say we have to wait because this is a month, there are some month-to-month deals as well.

[Charlie Chan, analyst]

Okay. So maybe it could be very helpful if you can discuss your more detail for assets for Server DRAM type of chain, but also what about consumer, networking, PC, mobile, what is going to break out for first quarter?

[Pei-Ing Lee, executive]

All consumers are around 65%. That's consumer including networking, including TV and including automotive, SSD, so many different areas that will now mean to as a consumer. That's around 65% to 70%, right?

[Charlie Chan, analyst]

Okay. Okay. And mobile and PC.

[Pei-Ing Lee, executive]

Mobile is -- PC is around 20% and the server is around 5% and the balance is mobile. Mobile is a little bit weak now.

[Operator]

Ladies and gentlemen, that concludes our Q&A session for dial-in participants, and we'll move on to WebEx Q&A session now. Dr. Lee, please proceed.

[Pei-Ing Lee, executive]

Okay. Guidance for annual depreciation and amortization. Mr. Wu, can you comment on this?

[Zhi Xiang Wu, executive]

This is Joseph Wu. Our yearly depreciation may be very similar to the last year. So the amount repaid maybe TWD 1.2 billion around.

[Pei-Ing Lee, executive]

Okay. Is that answer your question? Is it?

[Operator]

Okay. Ladies and gentlemen, we thank you for all your questions. And that concludes our conference call for today. Please be advised that the replay of the conference will be accessible within 3 hours from now, which will be available through Nanya Technology's website at www.nanya.com. We hope you will join us again next quarter, and thank you for your participation, and have a wonderful day. You may disconnect now. Thank you, and goodbye.

[Pei-Ing Lee, executive]

Thank you.