Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to Universal displays fourth quarter and full year 2019 earnings Conference call. My name is Jerry and I will be the your conference moderator tip for today's call. At this time, all participants are no listen only mode and the question and answers that she will follow the formal presentation.
If any what's your car operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes I would now like to turn the conference over to three slow <unk> director of Investor Relations. Please proceed.
Thank you good afternoon, everyone welcome to Universal displays fourth quarter earnings Conference call. Joining me on the call to their seat Abramson, President and Chief Executive Officer, and Sid Rosenblatt Executive Vice President Chief Financial Officer before PPS, Let me remind you that today's calls the property of universal display any redistribution.
We transmission or we forecasted any portion of this call. It any <unk> without the expressed written consent of universal display strictly prohibited.
This call is being webcast life and will be made available for a period of time, a universal displays website. This call contains time sensitive information that is accurate only as of the date otherwise webcast Oh This call February 22020.
During this call may make forward looking statements based on the current expectations. These statements are subject to a number significant risks and uncertainties and our actual results may differ materially. These risks and uncertainties are discussed in the Companys periodic reports filed with the FCC and should be reference, but anyway continue making any investments in the company's securities.
Universal display disclaims any obligation to update any of these statements no electrical over to Steve even.
Thanks, Derek and welcome everyone on today's call.
We're pleased to report or fourth quarter, and 20 910 results. So financial results reflect our and the old industries, a strong growth momentum.
2019 revenues were $405 million operating income was $158 million net income was $138 million or $2, a 92 cents per diluted share.
Fourth quarter revenues were $102 million operating income was $34 million and net income was $26 million or 56 cents per diluted share.
They continue proliferation of all its a smartphones Tvs and wearables as well early commercial headway into the I.T. in automotive markets is fueling only capacity investments in installs, which in turn helped us to achieve record results across the board and 29 tea.
As we look to 2020 after a year of significant capacity additions, we expect to see some capacity digestion in.
In addition, there were evolving uncertainties related to the novel Corona virus based on current estimates. We believe 2020 revenues will be the range of 430 million to $470 million seven will provide further detail shortly.
As we looked at 2021 of them beyond as new older capacity comes online new old products are launched and progress continues with our customers commercialization plans, we expect meaningful growth.
Now looking back at 29 PM, we continue to build our leadership position and foundation for growth.
We announced new partnership agreements constructed new state is the or phosphorescent or application labs and offices in Korea, Hong Kong established you do see ventures, our corporate venture arm and achieved a number of internal R&D milestones, including completing the installation of our Threed chamber it would be J.P. pilot.
Just.
In addition, the old industry grew more robust as new old capacity was installed new O <unk> products were introduced and revolutionary Formfactor products like the Samsung Galaxy fold LG. His role TV I don't know goes Foldable PC were announced.
Oh this drove the continued adoption of OLED displays in the consumer electronics market.
During the year, we announced new customer agreements with see our technology and shyness or opto electronics.
We also announced the technical collaboration with Merck kg Hey.
And as we shared in August we are establishing a network of old material partnerships to help enable our customers an accelerated their design pace.
One of the partnership frameworks is cooperating with looked immaterial companies to commercialize host a complimentary to our proprietary phosphorescent emitters.
We now suppose partnership agreements with MTN, China, and LG Chem in Korea, and 29 team.
In research and development, we continue to build on our core competencies, a pioneering work and phosphorescent materials and older technologies.
Testing, a number of strategic old material and technology programs for new and next generation Reds Greens yellows [laughter] with respect to Blue we continue to make excellent progress in our ongoing development work for a commercial phosphorescent emissive system.
We've also made significant progress with our organic vapor jet printing Auvi JP technology for the manufacture of large area or TV.
Yes, I did display week last may we showcased our green folate printed panels for our pilot system with only lifetime data measured over 50000 hours and LT 95 at 1000 nuts.
As we noted during last quarters conference call, we're expanding our footprint Asia to meet our customers growing needs with increased local technical support.
Including new corporate and laboratory facilities in Korea, Hong Kong will stay the course folate applications centers for device testing and fabrication.
And the consumer electronics landscape, the adoption of right beautiful brilliant or technology continues to grow.
The introduction of data both was undoubtedly a highly anticipated and game changing event for the small and medium display market and 29 team from the Samsung Galaxy fold to the wall way mate ex real flux pay and Motorola razor. These foldable phones. We believe are just a preview of what's the.
Common this new landscape of consumer products.
The hot topic, a full doubles continued at last month's C. S. In Las Vegas was I T makers Lenovo launch a thinkpad X one fold, which is expected to be the first commercial foldable I.T. product and that is slated to be available in the middle of this year.
13.3, its old display can bend in fold into different configurations of a tablet laptop, whereas a mini desktop.
They'll showcased a flexible laptop with its already concept and Intel showcased a foldable PC concept called the were to bend, which could alternate between a 12 inch lapped up 17.3 inch tablet on the large TV for LG showcase the Bendable OLED TV prototype in addition to their role both.
TV.
The number of Oems adopting owe it to the number of OLED products are increasing.
At this end market growth panel makers have and continued to invest a new over capacity to support their growing OEM customer base. This demand momentum is fueling a multi year old capex growth cycle.
2017 to 2019 install capacity grew significantly primarily driven by new investments in China, including believes new Gen. Six flexible lives in Chengdu and Mianyang LG displays second OLED TV facility in belongs though as we look to the next two years we estimate.
That installed capacity at the end of 2021 will grow by approximately 50% over the install capacity at the end of 2019 as measured in square meters.
With new Oh, yeah, and new old products, new old applications, a new always investments the old industry has a long runway of growth.
Let's take a look at Olin penetration in 2019.
Based on market research figures and the smartphone market approximately 485 million units I love the Tam or total available market. A 1.4 billion units were all that were about one third of the market.
And I take approximately 4 million units Oh, the Tam a 410 million used for old we're only about 1% of the market and then TV is approximately 3.3 million units out of a tale of 240 million units for OLED are only about 1.4% Mark This is really did.
Turning to old adoption and they are the youre wearables and automotive markets as well as the introduction of new consumer applications that are being designed utilizing the conformable bendable enroll benefits of all whats.
In November Samsung display wholesaler or form in Taiwan for I.T. applications, Samsung presented its midsized OLED display technology to an audience of approximately 350, including laptop makers HP Dell Lenovo and other major Oems such as comp how quick.
And with strong highlighting that laptops with OLED displays our thinner lighter and more flexible and design with higher contrast ratio is a more accurate callers.
In mid 2019, Samsung began mass production of 13.3 edge and 15.6 inch OLED panels for laptops. Since then over a dozen laptop models have been commercially launched this year Samsung plants at.
13.3, its full HD model expand this product line up into the mid range I T market.
Last week, Samsung unveiled the galaxies the flip it second foldable phone and its Galaxy S 20 series each with an older age the our plus display that supports 120 hurt refresh rate.
[noise] at Sea, Yes, LG announced 14, new OLED TV, including a 48 inch model I hate to LG displays TV momentum Vizio sharp and Sean They are all expected to enter the older TV market this year.
He is estimated elgindy will ship around 5.5 million to 6 million OLED Tvs in 2020, often approximately 3.3 million units in 20 night.
And then China deal, we technology opened its second Gen six old plant and manufacturing in July when fully ramp. This flexible OLED fab was 48000 substrate starts per month earlier. This month deal. We reaffirmed its 2020 old shipment target of 40 million units up from last years 20.
Million units.
Tianma also held the call earlier this month announcing its target to ship over 20 million OLED displays this year.
And China Star began ramping the first phase of its first Gen. Six flexible OLED fab at the end of last year and plans to continue ramping capacity this year.
On the lighting front, while we're still in the early commercialization stage, we believe that the benefits of old lighting, which include high power efficiency novel innovative form factors beautiful natural colors and cool operating temperatures all quite compelling.
On that note, let me turn call over to said.
Thank you, Steve and again, thank you everyone for joining our call today, Let me review, our 29 team results before commenting on our 2020 guidance.
2019 was a year or record results revenues were $405 million up 64% year over year material sales were $243 million up 59% year over year, and where LTM license revenues were $150 million up 86%.
Year over year.
Under Asti six so five.
2019 revenues would have been $428 million.
2019th operating expense, excluding costs of materials was $171 million up 25% from $137 million in 2018.
Operating income was $158 million compared to operating income of $57 million in 2018.
479% year over here as a result of our strong operating leverage.
Net income was $138 million or $2.92 per diluted share compared to net income of $59 million or $1.24 per diluted share in 2018 up 135% year over year.
Under a assay six so five operating income would have been $181 million and net income would have been $156 million or $3.30 per diluted share.
We ended the year with $646 million in cash cash equivalents and short term investments or $13.74 of cash per diluted share.
Now moving on to fourth quarter results.
Revenues for the fourth quarter of 29 team increased 45% year over year to $102 million from fourth quarter 2018 revenues of $70 million and up from last quarter's $97.5 million under assay six so five fourth quarter revenues would have been a hub.
$9 million.
Our total material sales were $61 million in the fourth quarter.
52% from the comparable year over years quarter of $40 million and up 17% sequentially from last quarter's $52 million.
Green emitter sales, which include or yellow green emitters were $47.5 million up 18% sequentially from third quarters $40.2 million and up 70% from the comparable year over year first quarter of $27.9 billion.
Red emitter sales were $13 million into fourth quarter up 14% from the third quarters $11.4 million and up 10% from the comparable year over year first quarter of $11.8 million.
As we have discussed in the past material buying patterns can vary quarter to quarter. Some of the contributing factors to this kinda include consumer product demand cycle capacity ramp schedules production loading rates device recipes product mix material ordering patterns customer.
Inventory levels and customer production efficiency gains.
That's a number of these factors are moving variables for our customers. They are also moving variables for us.
Before we discuss Q4 royalty and license revenues, we want to remind you that under assay six so six irrespective of one fillings occur we will recognize royalty and license revenues in proportion to corresponding OLED material shifts.
Fourth quarter, 2019 royalty and license fees were $38 million, 46% from the comparable year over year this quarter of $26 million, but down from last quarter's $43 million.
Fourth quarter 2019, a decent revenues were $3.2 million. This compares to $2.7 million in the third quarter of 2019 and $4.4 million into fourth quarter of 2018.
Cost of sales for the fourth quarter or 2019 were $18.2 million. This compares to $17.3 million in the third quarter of 2019 and $18.3 million in the fourth quarter of 2018.
First of all immaterial sales were $16.3 million translating into material gross margins of 73.2%.
This compares to 70.6% in the third quarter of 2019, and the comparable year over years quarter material gross margin of 63%.
For the year or material gross margins were 72.7% inline with our guidance range of 70% to 75%.
Fourth quarter operating expense, excluding cost of sales was $49 million.
Up from last quarter's $39.4 million and from the comparable year over year first quarter of $36.5 million.
Operating income was $34.5 million for the fourth quarter of 29 team.
This compares to last quarter's $40.8 million and a year over year comparable quarters $15.3 million under a assay six so five fourth quarter operating income what had been $41.8 million.
Net income for the fourth quarter 2019 was $26.4 million were 56 cents per diluted share. This compares to last quarter's $37 million or 78 cents per diluted share and they're comparable year over year quarter up $19.2 million were 40 cents per diluted.
Sure.
Under assay six so far our fourth quarter net income would have been $32.1 million or 68 cents per diluted share.
Now to our outlook.
We expect 2020 revenues to be in the range or $430 million to $470 million.
We believe our 2020 revenues will be impacted by capacity digestion as some of our customers transition or material purchasing patterns from preproduction rates to more normalized run rate.
As we saw in 2017 and in 2019.
When new capacity comes online, we believe more materials, our purchase for seating and as mass production ramps and customers get more efficient and loading rates become more normalize. We then believed material purchasing patterns will work closely match to running utilization rates.
Additionally, we believe that the novel Corona virus will impact the old that ecosystem and the consumer electronics industry and in turn impact customer purchases of our OLED materials based on what we know today, we believe there could be up to an estimated 40 to 50 million dollar impact to our.
Revenues this year.
In addition, do trade related concerns in the fourth quarter of 2019, one of our Chinese customers requested a shipment of emitters as additional safety stock for Twentytwenty, which includes a right of return that expires in the first quarter of 2020.
To the extent such right of return is not exercise, we will recognize up to $25 million of these shipments as revenues in the first quarter of 2020.
Moving along to gross margins or quarterly material gross margins can vary quarter to quarter. We expect our overall 2020 material gross margins to be in the 70% to 75% range, which is consistent with the past few years.
Operating expenses, the best DNA R&D and patent costs are expected to increase in the aggregate in a range of 10% to 15% year over year, driven primarily by R&D.
We expect the effective tax rate to be approximately 19% give or take a few basis points.
As Steve mentioned earlier, we expecting installed base of OLED square meter capacity to increase by approximately 50% over the next two years as a key enabler and partner in the ultimate ecosystem. These capacity plans mean, new revenue opportunities for us and overall a positive growth through.
Jack to refer the years to come.
And lastly, we are pleased to announce that the board of directors has approved an increase in universal displays cash dividends. It dividend payment of 15 cents per share. We paid on March 31st 2022 stockholders of record as of the close of business on March 17 2020.
The dividend increase reflects the confidence in our robust future growth opportunities expected continued positive cash flow generation and commitment to return capital to our shareholders.
With that I will turn the call back to Steve.
Thanks It.
The growing and dynamic OLED market as bright as a key old innovations partner, we believe we continue to be well positioned to participate in the many exciting opportunities that lie ahead.
We are expanding our global team and broadening our core competencies to fuel our strategic initiatives and increase our first mover competitive edge.
We're working closely with our customers as a map out their new product introductions for the coming years and are building on the breadth of our 25 years of experience and no and continually innovating and developing enabling materials and technologies to support our partners and the industry.
With the ongoing proliferation of OLED displays across a broad array of small medium and large consumer products and the move to advance oleds into the mid ridge market, we see an environment that offers extraordinary and expanding opportunities.
This includes novel applications baseball Conformable Foldable at Robo plastic form factors, which are poised to transform the consumer electronics industry.
In closing 29 team was a your growth for us and another year of strong investment and diversification and the infrastructure over the industry's robust long term growth path.
We are creating adding value for our customers and strengthening our leadership position in industry.
Innovative products services and solutions.
At the corner accompany strength as a global team here at UGC.
I would like to take this opportunity to thank each of our employees for their drive desire dedication and hard and elevating and shaping universal displays accomplishments and investments.
We're committed to being a leader in the old ecosystem, achieving superior long term growth and delivering cutting edge technologies and materials for the industry for our customers for our shareholders and with that operator lets start to two at night.
Thank you Mr. Evensen, if he would like to ask your question. Please press star one and your telephone keypad consummation total indicate your line is in this question.
You May press Star too if you would like to remove your question from the Q.
Since using speaker equipment, and maybe necessary to pick up your handset before pressing the star is our first question is from Sydney.
With Deutsche Bank. Please proceed with your question.
Great. Thank you very much.
My first question as you talk about cut Rona virus outbreak could happen retina impact of up to fit 40 to 59. This year. So is that correct that you take both you at the top and bottom end up your guidance down by that amount. That's my first part, but I'm just a follow up on that how would you characterize.
That's that's impact is it more a supply issue, meaning you have problems shipping to the China or me Oh, well, it's more about the supply chain or is it more demand driven and if it demand driven do you see that coming back late into year on next year or is it mostly gone it won't come back.
Thanks, Sydney, that's a lot of questions. So let me.
First regarding the Corona virus.
Our thoughts or with other people that are being affected directly and indirectly.
Oh by the current a virus and we will all be support and we are supporting our employees partners customers. During its very difficult time, and we have been closely monitoring the situation, including <unk>.
<unk>, including current.
Groups, including current potential delays in production the supply chain and consumer purchases. In addition, we've had ongoing customer discussions feedback from the field teams in Asia and industry peers and as of today, we estimate it could be potentially up to 10% impact of our business in 2020.
[noise], Great and then just just repeat the second part up in the question is that voice supply issue or demand issue and investing in issue do you think that will come back later this year or maybe maybe next year.
Well, we think Sydney supply supply chain and demand. So it's all of those issues and we're going to have to see how how it works out ultimately we think it's highly unlikely that demand will work its way back through the supply chain, but we can't predict the timing of that.
But we've had no issue shipping material to China City.
Okay. Great. My follow up question is I'm looking at these five case Michael ran this year there, it's a pretty good expectation that that five people. So shipped somebody around between 200 and 300 million based on the customers you're working with so far can you show what that's what youve seen in terms of all that adoption.
I'm, particularly interested in your comments whether that hold at adoption has accelerated in the mid range segment as well. Thanks.
Thank you Ed that Act city, that's a difficult question for us to answer since we really are not and the phone business, but we work with you know the panamax makers and we've worked closely with them to ensure that we.
We can't provide them with everything they need so, but I really I don't have an answer for you.
I think everybody anticipate fiveg adoption their premium price well also helped and overall smart market. This year, but I don't know whether any of these other issues are going to impact that.
Okay, great. Thank you.
Thank you.
Our next question is from C.J. Muse Evercore ISI. Please proceed.
Good afternoon. Thank you for taking the question I guess, just a follow up on on the first question around the current a virus.
Talked about 10% of talking just curious how are you derive that number is that bottoms up based on kind of discussion with customers or what you're seeing in projecting for utilization rates or.
Is there something else that kind of sets into a into that estimate.
Well.
As I said, we've been closely monitoring the situation.
And then looking at potential delays from production the supply chain, we're trying to get as much information as we can from our field team and from our customers.
And from published information so the our estimates that we have today. The best we can estimate it will have about a 10% impact on our business for the year.
Okay. Thank you.
Yeah Okay.
Okay great.
I guess it is my as my second question as you think about Sixtym Fivesixty six.
I guess cheap two parts there one what what is a God suggested on 65 basis for a 2020 and then were there any major changes in your assumptions as part of forecasting she derived.
The forecast that you've given us for 2020. Thank you.
There is there's been no major assumption changes I mean, we've been actually constantly monitoring it but for a six so five guidance, we no longer believed that it's meaningful the breakout six so five.
As you've seen in the past few quarters to delta between six so five and six so six has minimized and so based upon that we think that just given GAAP guidance makes the most sense.
Okay. Thank you.
Thank you.
Our next question is from Jim.
With Needham and company. Please proceed.
Hi, Thanks, Good afternoon again the question about the guidance if I look at the Delta that you're providing for 2020, it looks a wider than we've seen in prior years going back to 2017. So I'm. Just wondering is dead wider range also reflect.
Things some of the.
As you've already alluded to including.
The virus in China.
Are there some other factors at play in the wider range.
No I think it there there are so many uncertainties involving the virus, it's difficult to forecast the full potential impact of its going to have 1000 2020.
Based upon what we knew that no today, we think that is the best.
Forecast that we can come up with and you know there's multiple factors that you know impact that.
Okay, and then if you could maybe.
Walk us through.
The increase in asked Chan a was there anything unusual there because I I bought the expectations were for and increase 10% or so gnashing Q4, and obviously a much bigger increase I'm just wondering what drove that.
Yeah and in Q4, there was some higher than expense dissipated compensation accruals. However, if you just you know look take a step back and look at 2018 and 2019, then you look at the group and you look at the average Opex growth that is within our historical guide off.
10% to 15%.
But sometimes for R&D things get pushed back or things get pulled in so it is it isn't our range, but clearly Q4 was probably higher than anyone anticipated.
Okay and looking out.
Oh into 2020, the increase is I think you alluded to is that true that channel.
That type of 10%, 15% increase.
Yeah, we think it's 10% to 15%, we think that R&D will be the larger increase and it'd be weighted towards oh, but yes, it should be in the range.
Okay. Thanks, a lot.
Thank you.
Our next question is from <unk> with <unk>. Please proceed.
Yes. Thanks for taking my question I want to go back to your comment abroad.
Did the 25 million.
Revenue comment related to the trade concern.
The company if the customer to exercise is that 25 million already embedded into 2020 revenue guide would that be additional.
Yeah, if you know the regarding that $25 million that is at a customer.
That has a right of return or that we would recognize up to 25 million that 25 million is in our guidance for 2020.
Okay.
Alright.
And you are assuming that.
Kroner virus.
And the impact.
So if the customer to exercise do be consuming this material.
Well it it would be a we believed that this material is our assumption that it won't be consumed during 2020.
Okay, and then just I, probably just from coming back to this.
Dan not exercise the option.
I was supposed to take 25 million I love the yen guide.
If if they exercised the option and return. It then you would we did reduce it but we but honestly believe that even if they returned it that during the year, they would probably buy buy enough of it to make up for it during the year, because we do believe that the customer well need this mattel.
<unk> for 2020.
Got it got it thanks for all the data and I have one run a follow up on that 50% capacity installed capacity increase from 19 to 2021 campus can you. Please help us understand how that capacity growth is going to play out it by geography, like Korea versus China on how.
Just a defendant that Tony 17 through 2019 through yet.
Well the 2017 to 19 period, it was actually an excess I believe the 50%.
And for this case it is between Korea, and China, and I mean to some extent no I can't really break it down for you because we've got information directly from customers that I can't disclose but.
You look at published information and who you know that who is doing stuff, but you know we think it is primarily going to be driven by China, and Korea and it won't be backend loaded it it's probably mostly in next year versus this year.
Okay. Thank you so much.
Our next question is from Krish Sankar with Cowen and company. Please proceed.
Hi, Thanks for taking my question I have two of them Steve.
Last year, you know you had mentioned that because of the China trade water issues one of your customers actually built up inventory.
Curious now with the whole Vitesse situation do you think there could be a situation with.
Many for customers all of the supply chain tends to build up in new entity, because then I.
And I had gone through this lesson on Didnt want to go through it again and then a follow up.
Oh I I think there are two separate issues.
First we're not seeing any buildup of inventory or other than the 25 million that we've described we're just from the.
The trade issues.
I think right now people are focusing on the current virus and how to get back to normal at this point I don't think that's an inventory related build issue.
Got it and then as a follow up either for Oh, Steve was said you know I think you guys have spoken about all that adoption in the past and I think has spoken about probably like 600 million units. This year smartphone unit. Some kind of curious how was that a progressing has that view change for the overall smartphone model.
Good, but dividers and given that last quarter. If it was gonna come from one or two lot China customer.
Yeah, I mean, those numbers are from I chess and I think a lot of these numbers are going from 45, I think the 600 million for this year I mean, it it is right now, particularly with the environment. The dynamic environment that is going on I'm not so sure.
That those numbers will be met and this these numbers were put out before all of the issues that relate to Corona virus and production slowdowns in China.
So you know I think well you you've heard from a number of a smartphone Oems that they're saying to soft first and second quarter.
Hi, Thank you very much.
Thank you.
As a reminder, if he would like to ask a question.
And your telephone keypad.
Next question.
With Goldman Sachs. Please proceed.
Hey, guys. Thanks for taking my questions I'm, sorry, I hopped in late I'm, sorry, I may be repeating some questions here apologies in advance, but [noise]. The the the 40 million give or take on impacting on 10% that you're assuming for the virus.
Is that a net of the 25, you're getting which was I guess a pull forward. If you will from that customer who is concerned about that the virus impact so.
Said another way if the virus I'm situation wasn't something you had to navigate in your guidance and setting guidance what would your guidance had been 40 million higher versus what's your reporting today or would it have been fortinet and 25.
Yeah, well then Brian there are two separate items, obviously and the 25 million is in our guidance for this year. This was a customer as we stated that wanting to buy safety stock for trade issues and the Corona virus is where we think that.
And then some digestion and.
You know capacity coming online, but that potential is up to $40 million to $50 million is our best estimate today of what impact it will have but they are two separate items.
Got you Okay, Okay fair enough.
And then just I'm on the quarter itself, if I look at the results I'm not sure if you.
You walk through this dynamic a little bit, but the materials revenue was.
Up almost 20% sequentially in the quarter, but royalty and licensing was down sequentially about 10% can you I know a lot of this has to do a customer mix that can you kind of walk us through the dynamics satellite why those diverging trends.
Yeah, I mean, as we talked about the cost you know the licensees or royalties is anywhere from one at a half to two depending on customer mix. So in this case with it with that can't tell you, which you know can't give you a lot more information, but you are correct. Since it is based upon customer mix into fourth quarter.
Okay.
Fair enough. Thanks, a lot guys.
Thank you.
Our next question is from Shannon Cross with Cross Research. Please proceed.
Oh, Thank you very much for taking my call some I guess.
I'm curious what level of communication are you getting from your partners, because I know I've I've talked to Apple another person.
Yeah.
There's a lot of questions out there its regardless of what's going on over in China right. Now so I'm just curious as to how long can you speak with them and then also just I think you addressed it but I'm I just want to clarify going into the current a virus situation now does that Chinese company the biotic stress.
Where would you think your partner inventory levels from where they inside of normalized levels or.
Than anybody else has a more than you would have been anticipating Dan yes. Thank you.
Shannon So we were talking to our our customers our field team.
On a daily basis.
So we're getting updates or communications on a daily basis as you would imagine it's a dynamic a dynamic and evolving and evolving situation, but we're doing our best to try to get real time updates and see what's happening in the various aspects.
In China.
Regarding the second questions.
We believe that material buying patterns were within the norm in the fourth quarter.
Great. Thank you very much.
Thank you.
And our final question is from Andrew Abrams <unk>.
S C. M. R. Please proceed.
Hi, guys. Thanks for taking the questions first on.
That capacity digestion issue I was wondering if you could give us a little focus on whether that's more TV oriented or small panel oriented and also if you could give an update on your progress a with your host partners has.
Has material been developed under that relationship and as it being sold by your partners currently.
Yes, we know.
We saw it across the board we saw it both from small medium and large all what production or some.
Capacity, which is going through a digestion period. So I don't think is related one to one items specifically.
We've seen it across the board its anytime there's new capacity comes online new facilities, we know how that works.
Regarding your second question with hosts.
We have been worked with a number of host companies. We are continuing to work with them, but as of this time, we have no design wins.
Okay and.
Just so I make sure I understand how that relationship works there is no.
Sales that will work through you. These are just these are relationships with your host producers.
That is correct. They they you know we work with them and they will actually make and sell it or when they get a design win we will not be part of that process.
Thanks very much.
Thank you.
Oh so.
Thank you. This concludes the question answer session.
And the program back over.
For any additional or closing remarks.
Thank you everyone for joining the call today enjoy reading thank you.
Thank you. This concludes todays conference call you may disconnect your lines.