Nanya Technology Corp

TWSE:2408

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to Nanya Technology's 2023 First Quarter Earnings Conference Call. [Operator Instructions] The conference will be held only in English for investors around the world. 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 2023, followed by our guidance for the next quarter and key messages, and then Nanya Technology's Executive Vice President, Dr. Lin-Chin Su; Vice President, Mr. Joseph Wu; and Financial Executive, Mr. Philip Jao, will joining 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. 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 the 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 current quarter guidance. Dr. Lee, please begin.

[Pei-Ing Lee, executive]

Ladies and gentlemen, welcome to Nanya Technology Q1 investor conference. I am Pei-Ing Lee. Before the meeting, a couple of statements, a number of negative factors had influenced global economics and DRAM market. As a result, Nanya's Q1 performance is not so good, okay? However, we have been seeing the ASP decline been slowing down, okay? So, as that as a start, let me begin today's report to you. The content of my report is Q1 revenue and result and then followed by CapEx and bit shipment, market outlook and business review and outlook. First of all, Nanya Q1, net sales comes to TWD 6.425 billion and -- which is down, okay? Gross profit, minus TWD 554 million, okay? And with the remark down below that's including our idle cost. And operating income minus TWD 2.885 billion, minus 44.9%, okay? And EBITDA is at TWD 873 million. Non-operating income is at TWD 773 million. And followed by the income benefit at TWD 428 million. So when it comes to net income for Nanya is minus TWD 1.685 billion at net margin of minus 26.2%. And our earnings per share is minus TWD 0.54 per share. And the book value comes to TWD 55.62 per share. This is already considered the deduction of approximately TWD 2.13 per share cash dividend that's upcoming payable. So for Q-to-Q and year-to-year comparison, our revenue is minus 19.2% compared to Q4 last year. That indicate our shipment decreased by high single-digit and also indicate that our ASP decreased by high single-digit with exchange rate also unfavored by low single-digit. So year-to-year, representing revenue down by 67.8% and mostly due to decrease by high-30s in shipment and low-50s in the ASP. To the next page, our revenue comparison quarter-to-quarter. Our Q1 2023, revenue, TWD 6.425 billion versus Q4 last year, TWD 7.954 billion is down by 19.2%. And the remark on the right-hand side, indicated ASP is down by high single-digit, bit shipment also high single-digit, with the exchange rate also unfavorable by low single-digit, okay? For gross profit, negative TWD 554 million at minus 8.6%, okay? And compared to Q4 last year it is positive at 13% or TWD 1.037 billion. And the gross profit decreased by TWD 1.591 billion, mostly due to the remarks described above, plus, including idle costs, okay? Without considering idle costs, the gross profit still marginally positive. For operating expense, TWD 2.331 billion and -- versus Q4 last year, TWD 2.581 billion is very similar. Operating income at minus TWD 2.885 billion versus Q4 last year, TWD 1.544 billion, and this is mainly due to the ASP decline and bit shipment decline. Net income comes to loss of TWD 1.685 billion versus Q4 last year, loss of TWD 1.146 billion. The net income decreased by TWD 539 million, with operating income decreased by TWD 1.341 billion but exchange rate favorable. The Q1 this year, the exchange rate is still negative, but compared to Q4 last year, the negative at minus TWD 716 million is a smaller number. The income tax favorable by TWD 156 million. For operating expense on the next page, our SG&A expense for this quarter, this past quarter, TWD 551 million is in the ballpark of the range. And on the right-hand side, R&D expense, TWD 1.780 billion, also normal. Cash flow wise, Q1 this year, beginning of the balance, TWD 73.593 billion. And this quarter, we have the cash from operating activity negative by TWD 2.276 billion, mostly for the operating loss. And Q4 last year, we still have a positive of cash from operating activity at TWD 699 million. For capital expenditure, for Q1, TWD 5.817 billion, okay? And for financial activity and others, minus TWD 565 million. At the end, the balance for Q1 is TWD 64.935 billion with free cash flow negative of TWD 8.093 billion. Our CapEx and bit shipment situation on the left-hand side of the chart, the CapEx for this year, we targeted for TWD 18.5 billion. This is about minus 11% year-to-year reduced. And wafer equipment CapEx will be less than 50% of that. The remaining is mostly for non-wafer equipment CapEx. Bit shipment-wise, first half of this year, we're seeing weak demand may continue. Second half likely will be gradually improved and production output reduction targeted for up to 20% dynamically, okay? This will be dynamically adjusted according to customer demand, as well as the market situation. For market outlook, first of all, we're seeing our DRAM demand relatively weak for first half 2023. And this is the result from weak global economics, weak consumer confidence and conservative enterprise spending. Of course, there are a number of negative factors, as most of you already understand, that's including high inflection, interest rate hiking, geopolitical conflict in Europe, bankruptcy in U.S. and European banking industry, also including weak China domestic demands. For the outlook, second point is that, we're seeing output adjustment by DRAM supplier in first half this year, and we're also expecting seasonal demand improvement may favor gradual inventory digestion, and we are expecting marginal DRAM market recovery in second half this year. From the supply side, as the inventory continue to peaking, some suppliers took action on capacity adjustment, slowing down process migration and control of capital spending. So the balance of that will be the outlook for second half this year. Demand, individual application-wise, server market, enterprise cloud customers have been cutting and spending due to sluggish economic. However, penetration of AI and 5G may improve server DRAM demand. For mobile market, U.S. and Korean mobile shipment has been relatively flat or relatively healthy, while Chinese smartphone shipments, relatively sluggish. Second half this year, smartphone shipment may improve seasonally and inventory may be digested. For PC market, annual PC unit shipments may continue to decline. However, maybe already in a low point, second half bit demand may improve due to gradual inventory digestion and average DRAM content increase. For consumer market, rush orders for TV has been received in the first half and overall consumer market may recover in the second half as demand for IP camera, networking, industrial, automotive applications are relatively healthy. For Nanya business review and outlook. For finance on the top, cash dividend of TWD 2.13 per share will be distributed. For Q1, we have a net loss of TWD 1.685 billion with EPS minus TWD 0.54 per share. For operation-wise, we see in flexible approach in adjusting our product mix and production output and CapEx to better response to weaker market demand. And our first 10-nanometer class is already in production and our second 10-nanometer class B product piloting is on schedule. And for the quarter, Nanya has been recognized by Top 100 Global Innovator in 2023. For the market outlook, currently, DRAM demand still relatively weak. However, we are expecting marginal DRAM market recovery in the second half this year. With that, thank you for your attention. And let's begin your question.

[Operator]

Yes. Thank you, Dr. Lee. [Operator Instructions] The first one to ask questions is J.J. Park from JPMorgan.

[J.J. Park, analyst]

Dr. Lee, I have 2 questions. Number one is looking back to the Q1 result, how much inventory valuation loss did you recognize during the Q1? And then what's the day of inventory by the end of the Q1 and then the allocation?

[Pei-Ing Lee, executive]

Okay. J.J., your question is inventory loss. In Q1, we recognized equipment idle loss. However, we still don't have to recognize the inventory loss due to our inventory value still lower -- still higher than our cost. So Q1 still has no inventory evaluation loss. And as of the day of inventory, day of inventory is high, okay, and hopefully, it's already at peak.

[J.J. Park, analyst]

Okay. Can you quantify how many days of the inventory you have?

[Pei-Ing Lee, executive]

I don't -- we don't publicly disclose our inventory number. However, you may be able to -- as we come out with our financial report to you, we will have a more detailed report later on.

[J.J. Park, analyst]

Okay. Got it. And then looking at your blended ASP, it's down high single-digit percent Q-o-Q in the Q1. It seems to be much better than the mainstream DRAM price. Do you think that the trend that could continue in the second quarter and then probably second half?

[Pei-Ing Lee, executive]

Yes. That, of course, is what we're working hard for, okay? And our ASP decline is slightly better than market average for the last quarter, okay? And our shipments remain steady month by month, okay, which is a good sign that maybe there's a chance of the ASP decline will be gradually reduced, okay, the slowdown, as I indicated in the very beginning and likely that this trend will continue to happen for second half.

[Operator]

[Operator Instructions] Next one to ask questions Julie Tsai from UBS.

[Julie Tsai, analyst]

Dr. Lee, I have 2 questions. First question is, well, there's a lot of discussion regarding to the generated AI. Can you try to give us a little bit of perspective how much more memory can we expect in a sort of generated AI environment? Maybe give us some guidance on that? And if you can quantify, that would be even better. This is the first question.

[Pei-Ing Lee, executive]

I think overall speaking, in general, introduction of AI and 5G will improve the market demand, overall speaking, versus particular AI application, as you ask about generated AI, that's one of the AI application, okay? There are quite a few AI applications that can be found. That's including also AI application in industry, in enterprise, in many other applications. For instance, Nanya has implemented more than 80 AI application in our factory, in our manufacturing, we're making improvement on our overall efficiency improvement, our [ AI ], improve our quality, et cetera. And with those AI applications, Nanya will need AI memory, okay? And as a result, will help. That's one of the examples, okay? And this enterprise need of AI also happened in many, many other companies as we speak, okay? And this plus the generated AI, as you pointed out, okay, everything combined together is an AI contribution to this industry, okay? And I also mentioned 5G is that, as people using more AI, including the generated AI, they will have more communication happen, okay? They will need more data moving around from cloud to cloud, from cloud to personal computer, from cloud to your mobile phone, et cetera. All this will trigger more demand in DRAM. However, specific number-wise that, as you have asked, I would say, this will happen, gradually happen, will not be a step function happen right away. It will be happening gradually. And all in all, this is a very good price spot, okay, good thing that has happened. But to quantify it right away is a very challenging question. Okay. Julie, I don't know if I answered your question enough, okay?

[Julie Tsai, analyst]

Got it. And then second question is, Dr. Lee, you have seen so many cycles before, right? What are the chances for you guys to make maybe breakeven in the second half?

[Pei-Ing Lee, executive]

We -- of course, we are very hopeful for that, okay? Nanya, as I indicated, Q4 last year, we had lost money. In Q1, we marginally lost TWD 0.54 per share, okay? Percentage-wise is big, but somehow we are able to have a pretty good operational efficiency as well, okay? So we are able to prevent inventory loss so far. So, cycle-wise, I would say this will depend on several major factors. That's including, say, number one is from supplier side, what is capacity output adjustment effect, okay? The second is, as I say, seasonal demand improvement, how much that improvement will be happening. And, of course, that will depend on many factors I indicated in the very beginning. All those negative factors that are impacting global economics are making improvement or not, including geopolitical conflicting in Europe, including the inflation, including bankruptcy in banking industry, including the China domestic demand is making improvement. If any of these negative factors making improvement, we'll be also adding additional demand triggering. So, I am very hopeful for the second half gradual recovery.

[Operator]

Our next call is Jeff Ohlweiler from Macquarie.

[Jeffrey Ohlweiler, analyst]

Dr. Lee, do you think at some point in the second quarter, you'll see an inflection point where ASPs will start going down and maybe even -- or, I guess, worse flatten, but start going up on a monthly basis?

[Pei-Ing Lee, executive]

For Q-to-Q quarterly, we are still expecting ASP maybe going down slightly, okay? And hopefully, the ASP going down will be slower and slower, okay, Q-to-Q wise. However, this dynamically month-to-month maybe even more indicator. There's a good opportunity that by the end of Q2 or Q3 sometime will come to the point that you just asked.

[Jeffrey Ohlweiler, analyst]

Okay. And then my second question, lots been going on with the U.S.-China trade war and semiconductor exports and entity list. Are you less concerned about competition coming from China now that you were maybe 6 months ago? And any thoughts on how things have progressed over the last few months?

[Pei-Ing Lee, executive]

I would say, this is a pro and con, okay? Pro is, as you've indicated that the competitor may be slowing down. However, they will not stop, okay, they will continue on their business for sure. However, they will not be probably as much of the impact. They already not so much impact, not so big impact before. And now, hopefully, not so much impact is not growing, okay? So that's from the supply side. For the entity list point of view, actually some of the entity list is our customer, and that's account side, that's a negative side for us. However, on the other hand, also that in the China market, we also have other customers is developing and there will be newcomers gradually coming up to the speed, okay? So, they are pros, the accounts. All in all, I'm looking this as that this is something that Nanya cannot change. We cannot control or we have to take it and move on with our positive thinking of developing more business, okay, to help Nanya business. Okay? Thank you, Jeff, for your question.

[Operator]

[Operator Instructions] Next one to ask question Simon Woo from Bank of America.

[Simon Woo, analyst]

Dr. Lee, always a great comment. I appreciate it. Number one, when we look at the industry trend, your competitors already reported 20%, 30% price cut December quarter. And then the year-to-date, their point still indicates a quite significant price cut trend. But any key reason why you defended well the customers' price cut pressure? Your reports are saying high single-digit price cut. So any rationale or background or differentiation to see only the single-digit price cut for the March quarter?

[Pei-Ing Lee, executive]

Yes. One of the key factor is that, Nanya is no longer a single commodity DRAM supplier, okay? We used to so much concentrate on commodity memory at times that we are more than 90% only to commodity, only to few big players. And we have changed that. We are doing a major adjustment on our business direction that we diversify our application, diversify our customer base. As I keep on mentioning that, we now have hundreds, okay, sometimes 700, sometimes 800 customers that we're constantly dealing with, okay? So customer base is much wider now. And product-wise, we actually only -- many years ago, we only shipped maybe 1 or 2 product at one time. Now we have more than 30 products that are serving many customers at many different market application. And that actually helped us a lot. Basically, it's a product portfolio, customer base. And also Nanya is doing a lot more application service as well that tend to stabilize our business. Probably that's the reason, okay? And we will continue to work on the effort to make even further improvement for our business.

[Simon Woo, analyst]

So yes, great point, Dr. Lee. So maybe follow-up question is that, five-year your Q1 revenue mix, consumer may be [ 60% ] or close to mid-single-digit or any five-year revenue mix.

[Pei-Ing Lee, executive]

Yes, our consumer, general speaking, is staying around 60% to 70%, okay? And so that number, that ratio did not change in a big way, okay? As I indicated in also my report that the impact of economic is in every area, including the server market, the PC market, mobile market, as well as the consumer market that's been impacted by this global economic issue, by consumer confidence coming down issue, all those been making impact to all the sectors, okay? However, our general consumer, that's including so many different areas by itself, okay? So we were able to say using a product portfolio, using different customer base to make adjustment within that.

[Simon Woo, analyst]

So what's the mix ratio consumer, 60% to 70%, PC maybe mid-teen, high-teen or [indiscernible]?

[Pei-Ing Lee, executive]

The server now is mid-single-digit, okay? It's running around mid-single-digit to 10% on and off, okay? And then our mobile is running around 10%, okay? And also in the mobile area, we are serving areas that also with different applications, different -- many different customers, et cetera. That business we're serving in is actually more stable compared to main mobile market in the mobile phone. Yes.

[Simon Woo, analyst]

Is PC about mid-teens or...

[Pei-Ing Lee, executive]

PC is the risk, okay? You mind us probably around PC is around mid-15, yes.

[Simon Woo, analyst]

Mid-teen?

[Pei-Ing Lee, executive]

Yes, mid-teens. Yes.

[Simon Woo, analyst]

Yes. So lastly, given that your competitors, they kept on saying production cut one of the big memory makers or it's a [ compound ] the production [ cut ]. Any update your utilization ratio or a percentage of the wafer input reduction March quarter and then the outlook, if you don't mind?

[Pei-Ing Lee, executive]

Yes. I already reported last quarter and this quarter that Nanya is doing up to 20% production cut, okay? And, of course, this is -- the way we're doing is very dynamic, okay, according to which product that our customers will require more or less, okay? And which market is going more demand or less demand. We're doing dynamic adjustment every week, okay? So I cannot give you a very specific number as a whole. But in general, up to 20% is what we're doing, okay?

[Simon Woo, analyst]

So that's enough to expect the industry more balance to a price recovery in second half then?

[Pei-Ing Lee, executive]

For Nanya, we are relatively small, okay? If you look at the Nanya sites compared to the big supplier -- the biggest supplier is like almost like 22x our size, okay, 22x of our size. So Nanya cutting 20% is a peanut compared to the industry demand.

[Simon Woo, analyst]

Yes. But the competitor is also doing 20%, 30% production cut. So my question is, do you think it's enough to see the -- maybe a stable price in second half or a recovery?

[Pei-Ing Lee, executive]

I think, Simon, you're asking tough question is that, I really cannot comment on a specific competitor, okay? And I also don't know what is their production cut specifically on which product. So demand and supply-wise, it's very difficult for me to comment on which specific market will get better sooner or later. However, average speaking, just average speaking, the overall supplier production adjustment, plus seasonal demand gradual improvement will help digesting the current peaking inventory for sure, okay? That's -- what I'm saying that I'm expecting gradually market recovery. However, how fast will depend on all these quantitative size of how much demand increase, how much supply control and as well as all the negative factors, is there any improvement in, for instance, geopolitical conflict in Europe, is there going to be a peaceful settle. If that happens, will help a lot also.

[Operator]

[Operator Instructions] Next one to ask question is Simon Woo from Bank of America.

[Simon Woo, analyst]

Sorry, no one is asking the questions. So very quickly the financial-related thing. Your income statement shows the positive EBITDA margin, 13.6% is good, seems to be high depreciation costs, which covers the operating loss. But when we look at your statement, Page 9, the cash from the operating activity is minus TWD 2 billion. So that means that you are still spending extra dollars for the working capital? Or would you explain how you manage the cash flow? And then the free cash flow is minus TWD 8 billion. But your cash balance is still $2 billion or TWD 65 billion seems to be big enough to cover the operating loss. Any updated color on your cash flow management while you need any debt financing or equity financing?

[Pei-Ing Lee, executive]

We don't look at this financial number, we don't had the urgency of needing financial -- financing activity yet, okay? But one important point is the CapEx requirement, okay? If you look at this financial number, our operating activity, minus TWD 2.2 billion, but the CapEx is TWD 5.8 billion minus this quarter and TWD 6.6 billion last quarter, okay? That's also the key reason for free cash flow being negative, okay? So that's also one of the factors we have to look into, okay? And that's why we have been gradually reducing our CapEx since last year already, okay? Last year, our spending, 2022 our spending is already lower than our original plan. And this year, our planning is further down from last year at TWD 185 billion, okay? And how much spending there are going to be? Well, also, we have to measure that and making sure that we'll be careful on CapEx as well. But as I indicated also very clearly that our CapEx, less than 50% is in wafer equipment spending, okay? So we are already making quite a bit of the CapEx spending on equipment, we already control that in quite a significant way.

[Simon Woo, analyst]

Okay. Yes. Sure, sir. And one last question. Regarding the China government's potential restriction on the U.S. memory maker. So do you see any impact on this or a potential benefit that you're seeing on Nanya Tech? Or you can also recap what's your revenue exposure or sales exposure to China 20%, 30%?

[Pei-Ing Lee, executive]

Yes. I used to report that. Our sale is around -- yes, around 20% -- between 20% to 30% to Chinese customer. Yes. In terms of U.S. -- in terms of Chinese government action on certain suppliers, I think that I should not comment on other suppliers impacted by all other factors. I don't think that's fair, okay? So for me to comment on that, okay? So in terms of that impact to Nanya, we don't see any significant impact yet. The size of Nanya is not big compared to all these major suppliers, okay? So I -- at this point, I don't see the impact on Nanya.

[Simon Woo, analyst]

Yes. The logistics-wise, once you fabricate wafers in Taiwan, and then the -- all the packaging, testing also done in Taiwan and then the finished goods go to Mainland China, right, by airplane or cargo, that's the logistics, right?

[Pei-Ing Lee, executive]

Why to Chinese customer, of course, that's the way we're doing.

[Simon Woo, analyst]

Yes, you don't rely on the China domestic packaging, testing companies?

[Pei-Ing Lee, executive]

No, we don't do that directly.

[Operator]

[Operator Instructions] There seems to be no further questions at this point. I'm going to -- we are going to move on to the webcast Q&A session. Dr. Lee, please begin.

[Pei-Ing Lee, executive]

The first question is from [indiscernible] Venture. The gross margin trend for coming quarters and CapEx plan. The gross margin, likely as I indicated that ASP will be still a slower decline. And hopefully, the decline will be smaller, okay? And also gross margin had another factor on our idle costs, our production cut, okay? And also depends on how much we cut our production in terms of cost increase, okay? And that also will be adjusted dynamically as I said. So trend-wise, I cannot give you a specific number for that, except ASP will be marginally decline still, okay? And CapEx-wise, as I indicated, we targeted for TWD 18.5 billion, okay, for the year. And our second quarter will be on schedule, okay, for that spending. And is there going to be further change? We will also do it dynamically. Second question from [indiscernible]. The question is, 2Q 2023, ASP and shipment outlook. ASP, I already commented that on the last question. And shipment-wise, hopefully, the shipment, if there is some gradual seasonal improvement in the demand. I'm looking forward for gradual shipment improvement. But the extent of how much improvement will depend on all the factors I have discussed over and over again just now. And the next question is [ Richard Tsai ] from Fubon Securities. What would be the R&D and SG&A expense in 2023 and 2024, respectively? And in generally speaking, we are not slowing down our R&D. We'll continue to have the R&D spending, and we'll continue to develop slow generation of technology in parallel, okay? So R&D will be stable, okay? And SG&A expense, we also don't see that to be a major change, okay, for the next couple of years. Stanley Wang next question, SinoPac Securities. And the question is, what would be the depreciation in 2023? Monthly-wise is around TWD 1.2 billion to TWD 1.3 billion. The next question is, what would be the dividend policy in 2023? We're already making announcement just now, okay? The dividend distribution will be TWD 2.13 per share, and that will be distributed in -- likely it will be in Q3 -- likely will be in Q3 this year, okay? Next question from [indiscernible]. Question is, what is your view about Samsung utilization cut? And I'm sorry, I comment on other suppliers' policy. So that, in general speaking, I have made a comment on whole industry as a whole, okay? And following that is by how much is it more for DRAM or NAND? Again, all the question is that, please ask that company specifically. I am not expert for other companies' policy. The next question is Mr. [ Chang Won Yi ] from [indiscernible] Capital. The question is, at the moment, is there any sign of DRAM recovery? Actually, I have been making quite a bit of comment on this over my presentation. Yes, we are potentially seeing some marginal improvement as we speak, okay? And how much improvement is it going to be speeding up? It depends on so many different factors. And I also indicated on those factors already. The next question is from S. K. Kim from Daiwa, right? The question is it looks like demand remain weak and inventory adjustment is prolonged. What is your current DRAM bit demand outlook for 2023 versus early this year? And this question is, in general, I already covered through my presentation and through the question-and-answer as well, okay? Yes, the first half, we are seeing potential weak demand, okay? However, in Q2, likely may have -- maybe some improvement gradually already. And inventory digestion is possible happening from the factor of supplier production adjustment, as well as the market demand improvement due to seasonal recovery. And also, if those negative factors get improved, get better and also will make a good contribution to the market demand. Okay. Then --. Okay. We had some queries to read. The first question is regarding the inventory level. And the comment on current situation in the makers and the supply chain and our inventory is high. Okay? Nanya-specific inventory is high, okay? So, as I indicated, our inventory, yes, is high, but it's widely distributed into many different product portfolio. As I said, we had more than 30 products that we were shipping, okay? And we also had different product costs, as well as the market value for those products, okay? And we were able to prevent inventory evaluation loss, okay? That's for Nanya-specific. And for the industry-wise, the inventory for the major supplier, I think that you already know, okay, and you can study well or on their financial report as well, I think that there are some companies already took action on their output adjustment, okay? And also, there may be some improvement in the market demand upcoming, likely their inventory also be improved as well. Okay. Ask your second question. Okay. Your second question is about inventory write-off, and I've just made that comment just now, okay? And the cash [ cows ] and the -- all the price situation. Yes, our inventory structure is that, our inventory value still higher than their cost, okay? So we did not have inventory write-off in the past quarter. And for the upcoming quarter, we are working hard to prevent that from happening, right, as we speak, okay? And hopefully, we will be successful, okay? And we'll let you know at the end of the next quarter. The third question is idle cost. Idle cost wise, I already reported that it cost us quite a bit of gross margin, okay? And we'll continue to consider up to 20% of the production output depends on customer requirement and also market demand on each of different product area, okay? And that will be done dynamically. And your next question is on the technology migration, quantify how much percentage of production on 1A and my expectation on 1B? Percentage of 1A production is only beginning small -- very small volume. And we are looking forward by end of this year, will be some significant percentage, hopefully, up to 10% or so, okay? And 1B-wise, we are working on piloting and we are looking forward for 1B will be having some small volume next year, hopefully mid-next year, beginning next year, okay? And our next question is that, production output reduced by 20%. And you're saying that bit shipment will be improved Q-to-Q in second quarter. For full year, we expect it to grow year-by-year. Actually, this is already discussed in my presentation, okay? We are expecting year-to-year, this year, that bit shipment may be marginally lower than last year, okay? And then Q-to-Q wise, we are expecting Q2 will be marginally better than Q1. Okay. That concludes my report to us and to all of you.

[Operator]

Thank you, Dr. Lee, and thank you, ladies and gentlemen. That concludes our conference call 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. Thank you for your participation again, and have a wonderful day. You may disconnect now. Thank you, and good-bye.

[Pei-Ing Lee, executive]

Thank you.