Question-and-Answer Session
Operator
(Operator Instructions) The first question will be given by Mr. Chong Kim from CLSA. Please go ahead, sir.
Chong Kim - CLSA
Hi, Ron. Just a couple of questions. The first one for your guidance in the second quarter; and then, the other question is related to not being able to announce yet what you’ve decided for P8.
For the second quarter guidance, obviously you’re looking for a contraction in margins. Just doing the math on what you’re suggesting for revenue growth where you’re seeing, it looks like very good recovery in volumes. Pricing doesn’t seem that much worse than what you experienced in 1Q. Revenue growth looks pretty robust and, in fact, it’s the best revenue growth I’ve seen in nine quarters.
So I’m a little puzzled as to what’s driving margin contraction in the second quarter to the degree that it is. If I could follow this question up with what I mentioned about P8.
Ron Wirahadiraksa
Thanks for that question. Well actually, the margin contraction is still caused by ongoing price erosion. Even though the quarter-end to quarter-end number you say is relatively modest, it’s still quite high and very impactful on the results. As you know, pricing is the biggest value driver, basically, in the industry.
So we will, as I said, offset that, probably by ongoing cost reduction efforts. We’ve been very successful with that in Q1, not only in the ramp of P7 but also in the other fabs. Operational efficiency and cost down has been very good.
P6, I mentioned it in the remarks, also had a very good performance that quarter. But the main driver of this contraction is basically the price erosion.
Chong Kim - CLSA
Okay. On the P8, at this point, when do you anticipate you’re going to make a final decision? I guess there’s some speculation, obviously, between whether or not you’ll decide to do what they call that super gen 5.5 or whether you’ll do gen 8. Depending on what you choose to do, what do you think the time schedule will be in terms of when this new capacity will come online?
In terms of the decision-making process right now and why you haven’t come to a final decision, can you help us in understanding what the variables are here in terms of your decision making, what the strategies are and how that influences whether you’ll do a smaller fab versus a much larger next generation fab? Thank you.
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