Nanya Technology Corp

TWSE:2408

Earnings Call Transcript 2020-Q3

[Operator]

[Foreign Language]

Welcome to Nanya Technology's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Today's conference will be approximately 60 minutes. Nanya Technology's President, Dr. Pei-Ing Lee, will summarize our operations in the third quarter of 2020, followed by our guidance for the fourth 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 up question-and-answer sessions.

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 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.

Now I would like to turn the call over to Nanya Technology's President, Dr. Pei-Ing Lee, for summary of operations and current quarter guidance. Dr. Lee, you may begin.

[Pei-Ing Lee, executive]

Welcome to Nanya Technology Q3 investor conference. I'm Pei-Ing Lee.

My agenda today will start with the Q3 revenue and result, followed by CapEx and bit shipment, and then market outlook. And finally, conclude with business review and outlook.

First, revenue and result. Our Q3 financial results summary. Net sale at TWD 15.324 billion versus Q2 TWD 16.489 billion is down by 7.1%. Gross profit at TWD 3.962 billion, at 25% of gross margin, down from TWD 5.04 billion from Q2. And operating income at TWD 2.069 billion; operating margin at 13.5%, down from TWD 3.229 billion; and EBITDA at TWD 6.178 billion at 40% -- 40.3%, down from TWD 6.784 billion from last quarter, Q2.

Nonoperating income are unfavorable compared to Q2 at TWD 0.024 billion. And income from -- income tax TWD 481 million, more than Q2. So up to now, we have unfavorable net sale, which is due to price decline and sales volume decline as well as exchange rate from nonoperating income, unfavorable due to interest rate decline and income tax increasing.

So net income comes to TWD 1.613 billion at 10.5% versus Q2 at TWD 3.22 billion. Earnings per share TWD 0.52 per share versus Q2 at TWD 1.05. And book value at 49.91% versus Q2 at 49.63%.

Let's turn to Page 2. The quarterly results, revenue result comparison Q-to-Q and year-to-year. Revenue-wise, Q2 versus Q1. Q3 -- I'm sorry, Q3 versus Q2, down by 7.1% due to shipment decreased by low single-digit and ASP also decreased by low single-digit. Exchange rate, unfavorable 1.5% versus last year Q3, revenue up by 3.5%. Shipment increased by mid-single-digit and ASP increased by a low single digit. However, exchange rate down by 5.5%.

Now on Page 3. The next page, maybe Page 7, I'm sorry, with the Q3 and Q2 result comparison. From the net sales, down by 7.1% due to bit shipment decreased low single-digit, ASP decreased low single-digit and exchange rate impact, 1.5%.

Gross profit, TWD 3.962 billion at 25.9%, down from Q2 by 4.7%. And gross profit decreased by TWD 1.08 billion, mainly due to ASP and shipment and exchange rate negative.

Operating expense, TWD 1.892 billion, which is very similar to Q2 with slight increase in R&D expense. Operating income, TWD 2.069 billion at 13.5% operating margin, and this is due to operating income decrease of TWD 1.16 billion for the same reason, the shipment decreased and ASP exchange rate unfavorable.

The net income comes to TWD 1.613 billion versus last quarter Q2, TWD 3.22 billion. The reason for that is operating income decreased, as is brand just now, plus nonoperating income is also all unfavorable. Interest income decrease because interest rate decreased. And income tax increase due to tax from our repatriated offshore funding. Comes to next page, Page 8, quarterly financial highlights. In Q3 2000 (sic) [ 2020 ], you see in 2 line of gross margin comes down to 25.9% from 30.6% in Q2. Operating income -- operating margin comes down to 13.5% from 19.6% in Q2. And revenue decreased down to TWD 15.324 billion. Net income comes down to TWD 1.613 billion.

From operating expense point of view. On the left chart, SG&A expense for the quarter, TWD 503 million, which is largely similar to previous quarter. On the right-hand side, R&D expense at TWD 1.389 billion, a slight increase, but still largely in average.

For cash flow, in your Page 10, Q3 beginning balance TWD 51.335 billion, end balance for Q3 at TWD 46.933 billion. The difference between beginning and ending mostly due to dividend payable. In Q3, the dividend payout at TWD 4.6 billion at the bottom note, okay, of the left-hand side chart, and also due to exchange rate difference on the translation of foreign funding -- foreign offshore fund, okay? So for the quarter, free cash flow in TWD 2.221 billion.

On the right-hand side of the chart, from Q1, beginning of the year, January 1 to September 30 this year, the cash flow situation beginning of this year is TWD 44.149 billion and comes to TWD 46.933 billion at September 30 are still in a healthy trend. And within this, cash from operating activity is TWD 14.44 billion. CapEx is minus TWD 4.927 billion. And dividend and others is TWD 6.729 billion.

For CapEx and bit shipment. On the left-hand side of the chart, CapEx. Original plan for 2020's CapEx is TWD 15.76 billion, and we have pushed out about TWD 5 billion CapEx into 2021. So the net CapEx forecast for this year is TWD 10.5 billion. On the right-hand side of your chart, bit shipment, we are expecting approximately 20 percentage increase in the bit shipment for the year.

Comes to market outlook, in Page 14 of your material. In the short term, we see that U.S. and China trade dispute and COVID-19 pandemic has affected overall DRAM demand in the first 3 quarters of this year. We are expecting DRAM demand to be stabilized in Q4 2020. For the long-term outlook, COVID-19 vaccine development is key to overall market recovery as well as demand market recovery.

In the long term, we're seeing that data center, 5G, networking, AI, remote work and online learning, et cetera, are the main driver for future long-term demand growth.

For the supply side, DRAM suppliers' inventory level continued to decrease in Q3 2020 as our supplier CapEx plan is conservative, which may limit 2021 first half industrial bit growth.

For the demand side, mobile market, smartphone market were impacted by COVID-19 and international trade tension in the first 3 quarters. For the fourth quarter, our demand to improve due to 5G new model and a new DRAM content increase.

In the server market, enterprise demand weakening in Q3. After Q2 improved, Q3 declined due to high inventory at certain cloud service provider. We are expecting inventory adjustment, a new server CPU with small DRAM channels in Q4 to drive DRAM demand momentum.

For the PC market, commercial notebook and Chromebook demand are supported by remote work and e-learning. Healthy Chromebook demand are expected throughout Q1 2021.

For the consumer market, we've seen the demand recovering gradually, benefit from consumer confidence and new product launch in second half 2020. Digital TV, game consoles, networking and auto segments are showing better demand.

Finally, come to business review and outlook. For Q3 2020 performance affected by COVID-19 pandemic and supply chain inventory normalization. We also halt the shipment to Huawei from September 15, pending approval from the U.S. government -- approval to resume business. Market demand are expected to recover gradually from Q4 2020. For Nanya, first generation 10-nanometer class product is scheduled to be piloted in Q4 2020 as scheduled.

Nanya Technology also rated Prime by ISS ESG Corporate Rating. That concludes my presentation. Thank you.

[Operator]

Thank you, Dr. Lee. [Operator Instructions]

The first to ask questions, Haas Liu from Crédit Suisse.

[Haas Liu, analyst]

So my first question is regarding your pricing outlook and also gross margins. I would like to know what drives your margins down 5% quarter-on-quarter in 3Q, with pricing only down low single digits. And what is your expectation for pricing in 4Q '20? And with that pricing assumption, what is your expectation for the gross margin into fourth quarter?

[Pei-Ing Lee, executive]

The question is the gross margin decline in Q3 and what is expected in Q4 for the gross margin?

[Haas Liu, analyst]

Yes. And also pricing.

[Pei-Ing Lee, executive]

Also pricing, okay. From a pricing point of view, as I described, the DRAM market will be stabilizing in Q4. At this stage, we've seen that certain sector of the market has the price starting to rebound -- rebounding, okay? In certain market sector, many still had slight decrease in pricing, okay? So it's a mixed market situation for Q4, okay? So if there's any change in Q4 pricing situation will be marginally increase or marginally decrease for Q4, okay?

So we are expecting that Q4, the overall -- the pricing will be more stable than Q3. In Q3, basically, all sector market, the price is declining.

And also that, as I reported in the very beginning, in Q3, we're seeing that price decline, shipment decrease, exchange rate unfavorable, and also from a net income point of view, we had the interest rate income decrease. Interest income decreased due to interest rate decline, okay? And we also had the tax higher than Q3. All these 5 unfavorable situation for Q3. We are expecting for Q4, it will be much more stable from those 5 situation.

[Haas Liu, analyst]

Just a quick follow-up to my first question. Do you think the pricing outlook will stay stable into first quarter next year?

[Pei-Ing Lee, executive]

As I described, that current situation is a mixed situation. And expectation is that it will becoming more favorable from quarter-to-quarter due to 2 major effects, as I described just now, that the CapEx situation being conservative, shipment from a supplier -- bit growth from a supplier likely to be limited, and also the supplier inventory is also decreased, becoming more healthier, okay?

So the key is the demand, okay? And the demand, of course, there are certain uncertainty on COVID-19, okay, regional economic situation. Also U.S. and China trade dispute, certain uncertainty and also election, et cetera. However, overall speaking, the demand and supply has become healthier in compared to first 3 quarters of this year.

[Haas Liu, analyst]

That's very clear. So my second question would be more on your view in 2021. Could you quantify your expectation on the industry supply and demand growth next year? And for your company, could you discuss more in detail why you pushed out the TWD 5 billion CapEx in 2021? So with the CapEx change, how should we think about your bit growth next year and your ramp for 1A?

[Pei-Ing Lee, executive]

As I described, the market situation has some positive trend, okay? All sector of market demand seeing -- getting healthier. However, still also uncertainty in overall economic situation, as I also just reported. The COVID-19 control is actually getting worse in Europe, okay? The U.S. trade conflict could continue and also election situation, okay? So it's very difficult to tell you precisely how the market will become.

But from a demand point of view and supply point of view in DRAM sector, we see inventory becoming healthier, okay? That's positive, okay? And sector of demand is also healthier in comparison quarter-to-quarter. On top of that, DRAM has been a key component for OLED smart devices, electronic devices, that's been announced, that's been built for now and for the future. So we see in this industry, we'll continue to be healthy.

[Haas Liu, analyst]

Okay. So the second part of my second question would be just on your CapEx pushout, the TWD 5 billion pushout into 2021. Could you discuss more detail on that? And what's your expectation of the bit growth for your company in 2021, factoring those CapEx pushout?

[Pei-Ing Lee, executive]

Well, the CapEx is for not only equipment, but also for construction purpose, like we are building a parking tower for the -- parking tower for the employee. We're also building another office building for employee. So those are -- is also part of the CapEx spend, okay?

So that overall speaking, the TWD 5 billion delay is only pushed out slightly in time, okay? We'll continue to make spending for the beginning of next year. The original TWD 15.7 billion CapEx expectation is -- that's the number that is approved by our Board, okay? And due to the situation that I described to you, will slightly delay in time.

[Haas Liu, analyst]

Okay. So what's your expectation on the bit growth for next year?

[Pei-Ing Lee, executive]

Next year, we would have -- still have limited bit growth, okay? We are not expecting a big number in our bit growth.

[Operator]

Next one to ask questions, J.J. Park, JPMorgan.

[J.J. Park, analyst]

Looking at the third quarter, Nanya Tech bit shipment and then ASP trend does clearly describe [ financially ] between the Nanya Tech and then other industry, the average. So I can see the ASP decreased much less than the industry has declined given that's probably to the consumer. And the specialty DRAM [ revenue achieved full at the summer ]. But in terms of the benchmark growth, it's down by low single-digit percent. Is it because of the weak demand from the consumer, the space where you have the limited product growth during the third quarter?

[Pei-Ing Lee, executive]

Okay. Mr. Park, your question is you understand [ ASPC ] trend, and -- but you have a question on the shipment, why shipment has decreased. Shipment has decreased only low single-digit, okay? So it's actually not a big drop from Q-to-Q point of view.

[J.J. Park, analyst]

So you didn't have any production issue or the demand issue during the third quarter? The reason I'm asking that -- if you look at the recent, the micro result and then guidance from the other dealmaker, they are surprised on the upside in terms of the bit shipment growth during the third quarter, driven by the launch order from Huawei and the recovery for the mobile DRAM and the still strong demand -- PC DRAM demand. So I'm just asking that the demand from the consumer and then -- are the products developed [indiscernible] during the third quarter where you have the [ sub-limited ] production up during the third quarter.

[Pei-Ing Lee, executive]

I should not be commenting about one company's demand per se. But I can -- for Nanya point of view, Nanya is not a major player in the main memory of the smartphone area, for Huawei specifically. So the increasing in the -- in those demand before September 15 likely is not impacting Nanya.

[J.J. Park, analyst]

Okay. My second question is that -- I think you mentioned that there's some meaningful CapEx increase next year because of the 10 nano, the class deployment. Are you maintaining the same, the CapEx outlook in the 2021?

[Pei-Ing Lee, executive]

2020, our CapEx reduced from TWD 15.7 billion, down to about TWD 10.5 billion, with TWD 5 billion pushed to 2021. We would request for more CapEx for 2021 beyond the TWD 5 billion, as I described, which is -- will be needed for our initial ramping for 10-nanometer process technology and new product. So I would say that next year, overall CapEx will be higher than this year's TWD 10.5 billion. And as of how much more, I still don't have a number for you. We're still doing budgeting as we speak.

[Operator]

Now, the line is open to Jeff Ohlweiler, Macquarie.

[Jeffrey Ohlweiler, analyst]

First, can you give us the revenue breakdown for the third quarter, including server?

[Pei-Ing Lee, executive]

Third quarter, our overall shipment still consumer side, maybe slightly increased, okay? Maybe high up to more than 65%, okay? And the mobile, again, is around 10% to 15%, okay? And with the server, 5% to 7%. And our target to -- for the year-end to go to 10% of server, but we still have 2 more months to work on. We are working hard for that, okay? That's still yet to be seen. And with the raise of the -- is in commodity, that's included in the notebook and Chromebook.

[Jeffrey Ohlweiler, analyst]

Okay. Great. And then how -- what is your rough capacity breakdown by technology now, 20-nanometer versus 30-nanometer? What's the capacity?

[Pei-Ing Lee, executive]

30 -- 20-nanometer shipment is beyond 85%. The rates are 30-nanometer and 42-nanometer, mostly 30-nanometer.

[Jeffrey Ohlweiler, analyst]

Okay. And kind of a build-up on J.J.'s question. So shipments down low single-digit in third quarter. Does that mean your inventory's up a little bit end of third quarter?

[Pei-Ing Lee, executive]

Yes.

[Jeffrey Ohlweiler, analyst]

And then final question. Can you just talk about subjectively how your 10-nanometer R&D is going? And what's your latest schedule for real production?

[Pei-Ing Lee, executive]

We are doing 10-nanometer product piloting on Q4 this year as planned, and that is currently on schedule. And we are expecting that we can have sampling towards the end of next year.

[Operator]

[Operator Instructions] Next one, we're having Mark Newman from Bernstein.

[Mark Newman, analyst]

So it sounds like you're quite optimistic that DRAM demand is going to stabilize a little bit this Q4. And you pointed out a few areas. But I'd just like to clarify, which of these areas that you see strengthening is actually like actual orders versus just estimates from the market. So I'd like to see what Nanya is seeing, like where the strength in terms of actual orders for Q4 are versus Q3.

And similarly for pricing, you're suggesting that some prices are up. Could you clarify which areas you're seeing pricing up? And is that just what you're hearing in the market? Or are there actual contracts that have been signed that -- with higher prices for Q4?

[Pei-Ing Lee, executive]

Okay. Mark, your question is Q4 market outlook sector, what is the trend, right?

[Mark Newman, analyst]

Yes. And specifically, the areas that you have a clear data point versus just estimate.

[Pei-Ing Lee, executive]

Okay. I can give you a general feel from our side. On the mobile market, we see in the first 3 quarter actually was very bad. So bad like Q4 couldn't be worse than that, okay? So expecting is that Q4 definitely going to be better than first 3 quarter, okay? Plus, Q4, the 5G new model coming out, new content coming out as well, okay?

So for the server market, it's a little bit peculiar, a little bit up and down, okay? With server market, very bad the end of last year until first quarter this year. And all of a sudden, Q2 becomes very, very good. And then Q3 go down, also very bad. So it's -- server market is a market that is a little bit more up and down situation. And by saying that, we are expecting the market itself will eventually resume their procurement, okay? And that could come in Q4 sometime. At worse, will be Q1 next year. But if it's good, could be beginning of Q4. That's the server market, what we see.

And for the PC market, it's very well known. It's been pretty good, okay? Chromebook likely to continue into Q1 next year and mostly due to e-learning and remote work, okay? And this is also -- the remote work and e-learning will be spread out across the growth, okay? In the beginning, it's more in a developed country, as you know, okay, and that developed country continue to move on, okay? And then look more into more or less developed countries as well, okay? So that's PC situation.

As long as the duration of this PC market going to be, we still need to see it quarter by quarter. So far, it's visible until Q1 next year, okay? And for the consumer market, we've seen, in general, the consumer confidence is improving in Q4. And this actually seeing not only just the -- not just the top, okay, is including the actual procurement activity.

[Mark Newman, analyst]

Yes. I think the end demand quite clearly picking up in a few areas such as handsets. But part of the problem, I think, in Q3 is the handsets and possibly servers as well has been a bit of inventory digestion on the customer side. So that's why results [ being ] about like actual orders.

And so on the server side, are your orders in servers -- first, just to clarify how much of your revenue is server DRAM again? And within that, is that enterprise or hyperscale mostly?

[Pei-Ing Lee, executive]

Our server shipment is around 5% to 7%. We are not a major player in the market.

[Mark Newman, analyst]

Yes, yes. Is that hyperscale or is that traditional enterprise?

[Pei-Ing Lee, executive]

I'm sorry. I didn't hear you.

[Mark Newman, analyst]

Sounds like cloud service providers -- is that cloud service providers or...

[Pei-Ing Lee, executive]

Mostly cloud sever -- cloud computation, cloud center.

[Mark Newman, analyst]

Okay. Great. And the follow-up question I was asking was about the pricing. So you said some pricing seems to be up. Can you clarify which prices you're seeing trending up for Q4 versus what's down Q4? What you see

[indiscernible]

[Pei-Ing Lee, executive]

Yes, likely will be sector by sector difference, right? And from the quarterly country price point of view, it may still have some price decline in server market, okay? Or even in the PC market slightly, okay, slightly. I'm -- I think I have to emphasize, it's slightly, not the major price decline as some of the report has said it, okay? So I think that those is 2 area may still have price decline, okay? Other area may be seeing -- already seeing some price increasing.

[Mark Newman, analyst]

The server and PC [ to that effect ], you think mobile and consumer may be up in Q4?

[Pei-Ing Lee, executive]

Yes.

[Mark Newman, analyst]

Okay. And then the second question I was going to ask was -- so to clarify on the CapEx reduction. Is that mainly due to delay in the 10-nanometer ramp? Or is that -- meaning, is it delay in the ramp due to technology readiness? Or is it Nanya's efforts to reduce bit supply in the current weak environment?

[Pei-Ing Lee, executive]

This is mostly from a timing point of view. I mean, the CapEx is not only spent for equipment, but also spent for other infrastructure, okay? And as I say, we are planning to build parking tower, another office building for employee, okay? And those activity also had slight delay.

[Mark Newman, analyst]

So has the 10-nanometer ramp been pushed out slightly, '21?

[Pei-Ing Lee, executive]

Well, yes, actually -- actually our piloting schedule at the Q4 this year is our original plan. And so far, it's still on our schedule.

[Mark Newman, analyst]

So is the TWD 5 billion CapEx pushout, you're saying that it's not funds on equipment, that's other infrastructure and office buildings, mostly?

[Pei-Ing Lee, executive]

Mostly -- most of them, okay? Slight -- as I say that we are still, from a process point of view or equipment point of view, we are still doing piloting. We don't need volume production equipment for now.

[Mark Newman, analyst]

But out of that TWD 5 billion pushout, how much of that would be equipment versus...

[Pei-Ing Lee, executive]

I don't have a precise number for that at this point. It may be only a time delay for a quarter, okay?

[Mark Newman, analyst]

Yes.

[Pei-Ing Lee, executive]

Yes.

[Mark Newman, analyst]

Yes, effective pushed out slightly.

[Pei-Ing Lee, executive]

Yes, slightly.

[Mark Newman, analyst]

Before, that was what you're saying. It's not like actually a year pushout because it's been -- CapEx was...

[Pei-Ing Lee, executive]

No. No. It's not a year. Yes.

[Mark Newman, analyst]

Yes, I get it. I understand.

[Operator]

Right now, we're having Simon Woo from Bank of America.

[Simon Woo, analyst]

So question is, technically, your exposure percentage of the revenue would have [ peaked, yes ]? I remember, it should be 20%. But you mentioned that your consumer [ period ] 65%; mobile, 10% to 15%, further neutralizing the business. I wonder how much could there be the [ PC demand ] out of your revenue.

[Pei-Ing Lee, executive]

Your question is PC...

[Unknown Executive]

PC percentage.

[Pei-Ing Lee, executive]

PC percentage?

[Simon Woo, analyst]

Yes, PC. Yes.

[Pei-Ing Lee, executive]

PC percentage is in the order of the -- our PC plus server is around 20% to 25%. With the server in 5% to 7%.

[Simon Woo, analyst]

Yes, so this should have been mid-teen, high-teen [indiscernible]

[Pei-Ing Lee, executive]

Right. Right. Right.

[Simon Woo, analyst]

Let's see. Some market price has been stronger-than-expected, while recover through the late August and September or even now, quite stable. So you don't benefit from the PC [ identified ] recovery immediately? I mean the December quarter?

[Pei-Ing Lee, executive]

It's possible we will be benefiting, yes, on the PC sector.

[Simon Woo, analyst]

Okay. The -- another [ loan completion ] is maybe your competitor Micron is completing the very big usual effect in Taiwan. So what's the Nanya long-term plan to secure extra clean state? I know you have 70,000 rate from a capacity range. But presumably, you need a extra cleaner space for the 1:1 [indiscernible] migration. So you're -- could you update your overall available cleaning space for the next load migration? Or do you need to [ peel off another fare ]? That's the question.

[Pei-Ing Lee, executive]

Okay, Simon, thank you for your question. Regarding to Micron, I cannot comment on other company's activity, okay, in the business. From Nanya point of view, Nanya currently had 2 clean room. And one of the clean room, we still had some space, some free space open left, okay? So in short term, if we want to increase our capacity, we still have clean room space to do it, okay? And you are right. For the long term, Nanya may need new clean room space in the future, okay? And we will report to you when we have such a plan to do that. Yes. We will make announcement and let you know.

[Simon Woo, analyst]

Yes. Yes, yes. So maybe lastly, could you update the utilization rate you talked for now? Because we wonder why the peak also is so weak, even usually the December quarter high season for the consumer electronics PC. And as you pointed out, server, the demand come back. So why you are providing conservative guidance quarter-on-quarter even after the Q3 negative EBIT growth? Why selective EBIT growth you are targeting for December quarter?

[Pei-Ing Lee, executive]

Well, my comment is that Q4 demand will be stabilizing, okay? It's not pessimistic. Actually, it's slightly optimistic on Q4 demand point of view. However, the whole market situation is a little bit difficult to predict due to worldwide global economic situation, due to COVID-19 situation, due to trade conflict situation, all combined together, okay? And this will not only impact on DRAM business, but overall also impact on global economic. As long as there's an impact on global economic, will impact on the demand industry as well, okay?

So there's certain uncertainty inside that. And so that we still -- we see in the DRAM demand and supply balances going on quite well as we speak. However, these external factors, including COVID-19, including trade conflict, including election, et cetera, those is a little bit mix situation that we have to continue to watch very closely.

[Operator]

Well, ladies and gentlemen, we thank you for all your questions. So right now, we are going to move on to the webcast Q&A session. Dr. Lee, please begin.

[Pei-Ing Lee, executive]

Okay. Okay. This is the question from Charlie from Morgan Stanley. He has 2 questions. The first question is that does the company think Huawei inventory pool in result in a spot price rebound? How sustainable is a spot contract price? My answer to this is no, okay? Spot price is mostly not like consumer-related, not mobile related, not server market-related at all. Spot price mostly is PC related, mostly, okay? It was -- you can say largely is like -- it's PC related, okay? So I don't think that Huawei inventory pool has a very strong link to that, from a market sector point of view, from a product point of view. So I think the spot and contract mostly influenced by the overall market trend.

Second question. Second question from Charlie is that on CXMT. Any of your customer becoming cautious in using CXMT DRAM given the potential lawsuit issue? We don't think that CXMT has much of overlap to our customer, okay, so far, due to several reason. First of all, they are very limited in area. Second of all, they are limited, area by area. I mean the global area. And also limited by market, okay? They are -- application is only in very limited application. So we don't think that so far, we have overlap too much in our market yet, okay? So I don't think that there's so far any influence to Nanya business, okay?

So on top of that, your question is saying that is the potential lawsuit issue on CXMT will impact? My question -- my answer to that is we don't see an impact yet. So lawsuit or not, certainly does not impact Nanya business, okay, moving forward. Does that answer your question, Charlie?

[Operator]

Thank you, Dr. Lee. And 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 on through Nanya Technology's website at www.nanya.com. We hope you will join us again next quarter. We thank you for your participation, and have a wonderful day. You may now disconnect. Thank you, and goodbye.

[Pei-Ing Lee, executive]

Thank you.