Hua Hong Rides the AI Wave to Record Revenue, but Its Edge Is Specialty, Not HBM

Revenue +26.8% YoY, margin expansion, and a strategic acquisition signal a new phase for China's second-largest foundry.

1347.HK · Earnings Call · 2026-08-13

A Specialty Foundry Reaches a New Peak

When Hua Hong Semiconductor reported second-quarter revenue of $717.5 million, up 26.8% year over year, it wasn't just another solid quarter for China's second-largest foundry. It was evidence that the AI boom is now flowing through the entire semiconductor supply chain——not only into HBM and advanced logic, but into the memory products and smart card chips that Hua Hong specializes in. The company saw record revenue, gross margin up 5.6 percentage points to 16.5%, and net profit attributable to shareholders of $30.6 million, a 385.9% jump from a year earlier. “Revenue hit a record high of USD 717 million, representing a year-on-year increase of 26.8%.” — Bai Peng, Chairman and President · 2026-08-13 The driver, as Chairman Dr. Bai Peng explained, is a upturn in demand across nearly every technology platform, led by the AI applications that require power management, microcontrollers, and nonvolatile memory. What makes Hua Hong's story distinct is that it is capturing the AI tailwind without directly chasing the most advanced nodes. Instead, it is riding the demand for the supporting cast——the PMICs, MCUs, and power discretes that populate AI servers. The revenue breakdown shows this clearly: stand-alone nonvolatile memory surged 149.3% year over year, and revenue from North America jumped 77%, largely because of AI server power management ICs. As Dr. Bai noted, “The revenue from North America, a large part of it is in the CCD PMIC area and that a lot of the product there happens to be related to AI server boxes.” — Bai Peng, Chairman and President · 2026-08-13 This is a powerful contrast to the global tape, which has been celebrating high bandwidth memory and co-packaged optics moves. Hua Hong is a distinct play: it's not the center of the AI chip, but it's essential to making it work.

Pricing Power and the Demand Overhang

The most telling sign of the shifted market balance is the demand/order ratio. Dr. Bai stated during the call that

The order we are receiving is anywhere between 1.5x to 2x of our capacity.
Bai Peng, Chairman and President · 2026-08-13

With the fabs already at high utilization, the company has begun to raise prices——not everywhere, but notably in MCU and memory areas. “Since the beginning of the year, we have -- we started to see the demand going up and the balance is shifting towards tightness in terms of supply situation. So as a result, that has driven up price increases.” — Bai Peng, Chairman and President · 2026-08-13 Management expects this pricing momentum to continue into the second half and even into 2027, though they're quick to caution they are not a DRAM maker and won't see the same multiple increases. The company is also navigating a strategic inflection point with the acquisition of Huali Microelectronics. The deal has received regulatory approval and is expected to close within a month, bringing a 12-inch fab with 55nm/40nm specialty technology into the fold. “we acquired Fab5... is a 12-inch fab. It has 55-nanometer, 40-nanometer based specialty technology, quite a bit of the technology platform have overlap with what we already have at HHGrace in Wuxi.” — Bai Peng, Chairman and President · 2026-02-12 This acquisition isn't just about adding capacity——it's about achieving scale benefits in R&D and manufacturing, and giving Hua Hong the ability to serve larger customers. Logic foundry collaboration opportunities with memory makers were also discussed as a potential new avenue, reflecting the broader industry trend of separating logic die from memory chips.

Capacity Expansion And The Road Ahead

CFO Daniel Wang guided third-quarter revenue to $770-780 million and gross margin to 16-18%, implying continued sequential growth. “We expect revenue to be in the range of $770 million to $780 million, with the projected gross margin of 16% to 18%.” — Yu-Cheng Wang, Executive Vice President and Chief Financial Officer · 2026-08-13 The top line will be driven by a mix of ASP increases (~60%) and volume (~40%), as Fab 9A reaches full capacity and the company begins ramping its next fab, Fab 9B. Total capital expenditures over the next three years are estimated at $6 billion, roughly $2 billion annually. This is a heavy bet on the secular growth of specialty technology, which Dr. Bai believes will persist even if the cyclicality of AI demand eventually moderates. Prior calls had already flagged capacity expansion as a core strategy. As far back as November 2025, management was emphasizing the strength in flash and MCU: “We see a strong business in Q3 in both, MCU as well as stand-alone flash.” — Bai Peng, Chairman and President · 2025-11-06 That momentum has now accelerated. The capacity expansion is no longer just a plan; it's paying off as utilization remains high and pricing power grows. Yet the real test will be depreciation. As the new fabs come online, depreciation expenses are rising, potentially pressuring margins. The company provided a granular breakdown for the second half of 2026: the 8-inch business will see ~$55M in depreciation, the first 12-inch fab ~$250M, and the second fab ~$210M. Coupled with the Huali integration, which brings its own depreciation but also mature revenue, the margin trajectory will depend on how effectively Hua Hong can keep raising ASPs. In a market where the tape favorites are buzzing on HBM and optical interconnects, Hua Hong's specialty technology angle is a different kind of AI story——less glamorous but deeply tied to the electrification of everything, from AI data centers to electric vehicles. The market demand for these chips is real, and it's showing up in the company's order book and pricing decisions. If the acquisition closes smoothly and capacity expansion stick to schedule, Hua Hong could be one of the more compelling ways to play the AI buildout without chasing the frontier.