Q4 2022 Himax Technologies Inc Earnings Call
The conference will be.
Okay.
Hello, Ladies and gentlemen, welcome to the Hanmi.
Max Technology incorporated fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Mr. Mark Schwab Lundberg from N. C Group. Please go ahead.
Thank you welcome everyone to the IMAX fourth quarter and full year 2022 earnings call joining us from the company are Mr. Jordan will President and Chief Executive Officer, Ms. Jessica Pan Chief Financial Officer, and Mr. Eric Lee Chief IR peer officer.
After the company's prepared comments, we've allocated time for questions in a Q&A session. If you have not yet received a copy of today's results release. Please email H I annex at MZ group Dot U S access the press release on financial portals or download a copy from imax's by the site.
Www Dot IMAX dot com tw.
Before we begin the formal remarks I'd like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth are forward looking statements.
A number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call.
A list of risk factors can be found in the company's SEC filings form 20-F for the year ended December 31 2021.
Entitled Risk factors as may be amended.
Except for the Companys full year of 2021 financials, which were provided in the company's 20-F filed with the SEC on March 23rd 2020 to the financial information included in this conference call is unaudited and consolidated and prepared in accordance with Ifr S accounting such.
Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent auditor to which we subject our annual consolidated financial statements and may vary materially from the audited audited consolidated financial information for the same peer.
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The company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise.
I would now like to turn the call over to Mr. Eric Lee Eric the floor is yours.
Thank you Mark and thank you everyone for joining US My name is Eric Lee Chief <unk> Officer at high Max on today's call I will first review the <unk> consolidated financial performance for the fourth quarter and the full year towards 2022.
Followed by our first quarter 2023 outlook.
Jordan will then give an update on the data of our business.
After which we will tech question.
We will review our financials on both <unk> and <unk> basis.
<unk> financial is good share based compensation acquisition related charges and the cash award.
We pre announced preliminary key financial results for the fourth quarter 2022 on January 12, 2023, where revenues and EPS both exceeded guidance, while gross margin came in moderately below the guidance range issue.
On November 10, 2022 today.
Today, our reported results for revenue gross margin and EPS all in line with the pre announced the result.
Fourth quarter net revenues of $2 $62 $3 million increased 22, 8% sequentially.
Substantially exceeding our guidance of an increase of around 4% to 8% sequentially.
Right the macro headwinds continuing to challenge our business.
The increase the sales momentum what attributes.
Attributed to our continuous effort to deplete inventory, particularly in the small and medium sized for TDI segments.
<unk> gross margin both came in at 35% a decrease from 36% and 36, 3%, respectively last quarter and lower than the guidance range of 31, 5% to 33, 5%.
Also contributing.
Contributing to margin contraction was higher cost of the inventory.
So primary during 2021 and early 2022, when foundry and the backend pricings were higher due to capacity constraints.
Yes.
<unk> profit per diluted ads was <unk> 24.1, exceeding our guidance of $17 eight to 28.
No no.
<unk> profit per diluted ads was 27 point suites in.
Beating our guidance of 21 to 2014.
Revenue from large size large display driver was $43 $5 million in Q4, an increase of four 3% sequentially.
Our prior guidance of flat from last quarter.
Television.
Grew nicely as expected increasing single digit quarter over quarter and appear to have bottomed following several quarters of sharp correction quiet, both monitor and notebooks.
Better than guided.
Large panel driver IC sales accounted for 16, 6% of total revenues for the quarter compared to 19, 3% last quarter and a 27, 7% a year ago.
Moving onto out more in the media side the display driver segment.
Revenue was 177 $4 million.
Increase of 25, 5% sequentially and ahead of our guidance of a single digit increase.
Primarily a result of increasing shipment of TDI in all three sectors, namely smartphone tablet and automotive.
Despite the challenging macro environment, our fourth quarter revenue for the tablet.
It's up more than 100% sequentially.
Thanks to the strong shipment in high end TDI product.
In the illustration of our leading solutions being adopted by more customer for their next generation product supporting large sized high frame rate displays and high precision active pilots features.
Meanwhile, the AML Li total solution sales, including E com and the TD Ics increased mid teens quarter over quarter and accounted for more than 8% of total sales.
Mainly attributable to our table eight am or laid total solution supporting the mass production of premium tabulate models for a global leading customer.
Q4, automotive driver sales increased single digits quarter over quarter better than guided customers restocked, especially for TDI.
Automotive driver business. Once again represented the largest revenue contributor with over 30% of the total sales in the fourth quarter.
<unk> of our comprehensive product coverage and the increasing automotive TDI design wins across Pan Knowhow tier ones and auto brand.
It's worth noting that our automotive TDD ICL.
Search the by more than 170% on a year over year basis boosted posted by the robust adoption of the technology for customers New generation car models.
More intermediate sized the driver IC segment accounted for 67, 6% of total sales for the quarter.
Compared to 66, 2% in the previous quarter, and 61, 2% a year ago.
Fourth quarter non driver sales also beat guidance.
With revenue of.
41, $4 million up 33, 8% a.
A quarter ago.
Our T com business was up a solid double digit sequentially bolstered by higher shipment of large size display drivers automotive driver as well as tablet drivers for ammo late.
For automotive T com, we anticipate this momentum to assess the rate in coming quarters.
By a strong order pipeline and the rapid expanding designs across different continents.
T Com business represented over 8% of total sales in the fourth quarter.
Non driver products in Q4 accounted for 15, 8% of total revenues as compared to 14, 5% in the previous quarter and 11, 1% a year ago.
Our <unk> operating expenses for the fourth quarter.
Were $52 $5 million declined.
A decline of 27, 9% from the previous quarter ended down six 2% a year ago.
The sequential decrease decrease was caused mainly by.
Decrease the annual bonus and salary expenses, partially offset by an increase in R&D expenses.
As previously mentioned, we typically grant annual bonuses, including cash and ICU to our staff at the end of September each year, which can lead to higher IAA biased operating expenses in the third quarter compared to the other quarters of the.
A year.
The year over year expense.
Decrease was primarily related to the special bonus we awarded our employees at the end of Q4 2021.
Excluding the special bonus paid in Q4 last year. The <unk> operating expenses would have increased 2% year over year during the fourth quarter.
Non <unk> operating expenses were $45 $6 million for the fourth quarter down two 2% from the preceding quarter ended down 6% from a year ago.
Fourth quarter <unk> operating income was 27 $5 million or 10, 5% of sales versus one 8% of sales in last quarter and 39, 4% of sales from a year ago.
Non <unk> operating income was $34 $5 million or 13, 1% of sales compared to 14, 5% last quarter and 41, 1% same quarter last year.
<unk> after tax profit was $42 $2 million or 24, one cents per diluted ads.
Compared to $8 3 million or four eight.
Our diluted as last quarter.
We made we made.
Divestiture of long term asset during Q4, 2022, which resulted in net operating income of a wrong $11 million.
After take that please.
First quarter.
After tax profit was $47 $7 million or 27 three.
Per diluted ads compared to $29 8 million or 17% in the previous quarter.
Now, let's have a quick review on the 2022 full year financial performance.
Revenues totaled $1 $2 billion in 2022, representing a 22, 3% decline compared to 2021.
And expected lockdown in China geographical tension and.
Macroeconomic related factors created a challenging operating environment and the impaired our business performance for the year.
The hot in consumer demand and a significantly reduced the visibility of panel houses and Oems towards the end of first quarter adversely.
Adversely impact IC demand and the consequent consequently, our sales.
Given the nature of wafer production, which usually start months in advance.
<unk> dropped in demand resulted the resulted in a rapid increase in our inventory.
Revenue from large panel display drivers totaled $264 million in 2022 declined 37, 7% year over year, representing 22% of total sales as compared to 25, 7% in two.
<unk> thousand 21.
Small and medium sized driver.
Totaled 700 778.
$8 $9 million, a decrease of 19, 2% year over year, representing 64, 8% of our total revenues as compared to 62, 3% in 2021.
Non driver products sales totaled $158 $4 million a decrease of 14.7.
Percent year over year, representing 13, 2% of our total sales as compared to 12% a year ago.
Our automotive segment continued to see extra ordinary business momentum in 2022.
Automotive sales enjoyed the highest growth among all put on light up more than 50% on top of the remarkable strength in 2021, when sales grew more than 110%.
For the year.
Sales of traditional IC for automotive were up over 30%, while automotive TDD icl's searched by more than 300%.
As we mentioned repeatedly automotive displays continued to be adopted at a rapid rate in number size and the technologists to knowledge 'cause sophistication, implying higher content value of driver IC or vehicles.
As the market share leader in automotive display Ics, we continued to gain ground not only in <unk>, but also in TDI supported by over 200 design wins with the numbers still increasing as we speak.
While our overall annual sales declined due to the user and the ramp demand part.
Several new stealth streams have started to contribute during 2022, including Ics for a male and ultra low power Wi Fi and Smart Butte Montana.
Both personal lines enjoyed higher than corporate average gross margin in 2022.
And we're late we provided aim or Lady the IC and <unk> for automotive in the tablet display. In addition, we are making good progress with leading panel houses for the development of AAM or latest play driver for smartphone TV and notebook vacation.
We anticipate the shipment of smartphone AMOLED driver to start in the second half of 2023, four key customers in China and Korea.
On the Wifi product line, we continue to support deal for its production ramp up in a range of our newest model jewelry using our first generation W. One solution.
In addition.
Cost of leading laptop vendors and the CPU platform players have shown strong interest in broadening AI use cases of future generation smart notebook by adopting our next generation <unk> AI processor.
Jordan will elaborate on this in a few minutes.
Backed by a strong business pipeline and a robust design in activities in numerous Iot application with customer from all over the world. We expect strong sales momentum for Wi Fi in 2023.
<unk> gross margin in 2022 was 45% decrease from 48, 4% in 2021, the decline was largely attributable to a price pressure, resulting from asset inventory level.
Following the southern hot in demand beginning in the second quarter.
In addition.
Charges related to unmet minimum appreciates the odor from contract with foundry and the backend supplier enter during the unprecedented shortage in 2021 also lead to the eroding margin.
No.
<unk> gross margin was 48, 6% in 2022 decreased by 48, 5% in 2021.
<unk> operating expenses in 2022 was $229 $5 million up 12, 8% from 2021. The increase was primarily a result of vast a portion of the annual bonus compensation awarded to employees.
In 2022 as well as.
Previous year.
Along with increased salary and R&D expenses.
Now <unk>.
Now operating.
<unk> expenses were $181 $3 million up five 7% compared to 2021.
2022, <unk> operating income was 257 $6 million or 21, 4% of sales.
Increased from $545 million or 35, 2% of sales in 2021.
Now <unk> operating income was $300.
And the $6 $8 million in contrast to a $578 $3 million in 2021.
Our <unk>.
Net profit for 222 was $237 million or another 36 cents per diluted ads as compared to $436.
$9 million or $2 50 per diluted.
In 2021.
Non <unk> net profit for 2022, plus the $276 $1 million or $1.58 per diluted ads compared to $663 $6 million.
430, $463 $6 million or $2 65 per diluted ads in 2021.
Turning to the balance sheet, we had $229 $9 million of cash cash equivalents and other financial assets as of December 30, 30.
<unk> 31, 2022 compared to $364 million at the same time last year, and the $227 $9 million a quarter ago.
The substantial decrease in cash was a result of annual cash dividend payout of $2017 $9 million.
<unk> were offset by $82 $9 million of operating cash inflow in 2022.
We had a $46 $5 million of long term unsecured loan at the end of fourth quarter of which $6 million while current portion.
Our year end inventory.
$379 million down from four $410 $1 million last quarter and up from $198 $6 million a year ago.
Accounts receivable at the end of December 2022 was $261 $1 million up from $253 $3 million last quarter and from $410 $2 million a year ago.
DSO was 79 days at the quarter end as compared to 97 days, a year ago, and 74 days last quarter.
Fourth quarter capital expenditures were $2 3 million.
Versus $3 $4 million last quarter, and a $2 million a year ago.
Fourth quarter Capex was primarily was mainly for R&D related equipment and in house.
<unk> of our IC design business.
Total capital expenditures for 2022.
11, $8 million, mainly for designed tours R&D equipment as well as in house tester of our IC design business as compared to $7 6 million in 2021.
As of December 31, 2013 to IMAX has $174 4 million ads outstanding.
Unchanged from last quarter on a fully diluted basis.
Total number of ads outstanding for the fourth quarter was 175, meaning.
Now turning to our first quarter 2023 guidance, we expect first quarter revenues to decrease 12.
Percent to 17% sequentially.
Gross margin is expected to be around 28% to 3% depending on the final product mix.
The first quarter.
Net profit attributable to shareholders, it's estimated to be in the range of three five to seven per fully diluted ads now.
<unk> profit attributable to shareholder is expected to be in the range of $6 five to 10 cents per fully.
Diluted ads.
To note the EPS guidance already account for certain foreign exchange loss.
Attributable attributable to NT dollar appreciation appreciation against the U S dollar based on the prevailing exchange rate.
A reminder.
<unk> of our loco incurred the expenses, including the bulk of employee salaries of us out.
Outstanding income tax payables are dollar based.
I would now turn the call over to Jordan to discuss our Q1 2023 outlook Jordan the floor is yours.
Thank you Eric.
Historically, the first quarter is seasonally Italy business slows over the year.
Due to the lunar new year holidays.
On the big chunk of sluggish global demand and a social COVID-19 cases in China. Despite the government lifting <unk> sections, many Chinese victories extended their shutdown periods through the lunar new year.
Yes.
This added uncertainty tool and already segment business environment, causing our customers to hesitate.
To place new orders.
While cautiously managing their inventory levels and for the quality in our business visibility.
Uncertainty persists.
Objectives first and foremost is to strictly manage our inventory level.
We have been aggressively.
We have been aggressive in doing so by sacrificing short term gross margin to offload.
Excess stock.
Yes.
We also continue to curtail our wafer starts while striving to win more projects from customers specific because he for the purpose of that just in our excess inventory.
Our inventory position has much improved since its peak during the third quarter last year.
We anticipate you will continue to decrease to near our historical average no later than the third quarter of two to $2 33.
With that said.
Our Q1 gross margin remains under pressure.
As Eric mentioned earlier, the cost of our excess inventory is high from being sourced during high inventory tight capacity constraint in total and by the way.
In foundry and pigment prices were at peak levels.
Another contributing factor to Q1 margin contraction stems from.
Market price decline of certain unsold inventories, which were the assisted take write downs.
However, we believe this effect will gradually diminish throughout the year.
The market has shown signs of recovery across many disease areas.
Notwithstanding the pressure from the Destocking process, we continue to work diligently towards improving our gross margin as a primary objective.
Despite the expected short term margin compression, we remain confident in our <unk>.
Gross margin prospects.
Particularly by several high visibility program areas.
Notably the higher margin automotive <unk> smart image sensing businesses, which looks set to outgrow other businesses.
Okay.
Looking ahead, the semiconductor industry appears to be trending towards the post pandemic era.
Part of the supply chain gradually stabilizes and channel inventory reverse to healthier levels.
We believe a decent recovery is forthcoming.
On the revenue front, we expect the first quarter to be the trial of the year, we sales rebound in the second quarter and business volumes continuing to improve into the second half of $2 for the street.
Yes.
We start I will begin with an update on the large panel driver IC business.
Our first quarter 2023 large display driver IC revenue.
We expect monitor IC business to be on a recovery trajectory as customers have started to replenish replenish chips.
Due to reduced channel inventory after multiple quarters of Destocking.
Monitor IC sales in the first quarter offset to grow biodiesel double digit <unk>.
Panel prices also shows.
Signs of stabilization from restocking demand, particularly for mainstream models.
Will likely strengthen into Q1.
Good luck in the seasonal factor.
We anticipate our sales for <unk> segment to increase single digits sequentially in Q1.
Diversity on notebook segment.
The highly publicized that will trend lingers on.
Further declines from <unk>.
Ice's budget cuts in tandem with customers continues stringent inventory control measures.
Turning to the small and medium sized display driver IC business.
We expect Q1 revenue for this segment to decrease by double digits sequentially.
Q1, automotive IC sales are anticipated to be down mid teens as our customers continue to reduce inventory traditional DPI.
However, we see strong momentum for our automotive <unk> sales, which are poised to grow by single digit.
Thanks, Bye all of solid new design win pipeline, which has been rapidly expanding for many quarters.
Additionally, we anticipate customers' inventory adjustment in DD IC will find equilibrium.
Leading to a strong recovery in the second quarter.
Both smartphone and tablet sales are set to decline double digit quarter over quarter due to seasonality.
And customers continuous destocking measures.
Now for a more detailed update on the automotive segment.
The trend.
For the automotive interior.
Continues to be in favor of more stylish and diverse designs.
Med possible with increasing quantity the size of panels inside the vehicles equipped with advanced interactive display technologies.
We have previously discussed.
As the leader in the automotive display IC market, we provide.
One stops.
One stop shop offering of the most comprehensive product portfolio for automotive display in the industry.
<unk> engine from traditional DD IC, two new technologies, such as TD ti level of immunity from the OTT and OLED.
Our business visibility automotive segment for 2020 story remains much better than those of consumer electronics products.
In addition, we see a favorable trajectory in automotive TDI business back.
<unk> bye.
The expansion of <unk> adoption.
Fast growing new project wins.
The CVR technology.
For large sized interactive stylish curve.
<unk> formed automotive displays required of future generation vehicles.
We believe automotive sales will be one of the primary driving forces for our long term business growth.
Moreover, we anticipate the market share of automotive with the Pos.
<unk>, which has already reached 40% globally.
Okay.
Furthermore, <unk> is also the first in the industry to launched the OTT.
Or less display.
Lost touch and display driver integration.
Multi display solution.
Catering to their needs.
For ever larger screens inside vehicles.
The OTI solution, because even higher levels of integration of display to toss technologies for the next generation typically larger than automotive displays where the solution to cascade up to 30 chips.
In support of Ultra high resolution displays usually more than seven K by Whiting kit and high precision touch sensitivity.
United with a top tier automotive digital platform provider.
Our cutting edge <unk> technology will showcased at CES 2023.
By one of our leading panel customers for a 55, each pillar to pillar in cell touch display that provides seamless intuitive.
Just tactile experience for future generation smart cabinets.
Our LTI is scheduled to start mass production in the second quarter of this year.
Substantially ahead of competition.
More design collaboration in some most of them.
Multis automotive vehicles are underway.
Next for an update on OLED.
We continue to queue up for am OLED driver IC development jointly with major Korea, and Chinese panel makers.
Areas reputations.
For tablets.
We're seeing shipments on the rise for premium models.
<unk> advanced AMOLED displays.
Of which offer us.
Cdi's CMT come and has commenced production to certain leading brands.
Automotive AMOLED display we continue to win projects awards.
Political AMOLED driver and T com, we suppose conventional bankers.
Bakers.
Vendors.
Finally, we are making good progress.
With leading panel houses for the development of AMOLED display drivers for smartphone TV notebook applications.
We expect to commence.
All of that driver production from the second half of 2000 for the industry.
Our AMOLED business.
Included including display driver and Pecan is slated for strong growth in the next few years.
As a reminder, whole smartphone AMOLED display driver, we already have secured meaningful capacity.
Now, let me share some of the progress we've made on the non driver IC businesses.
Starting with an update on timing controller.
We anticipate Q1 sales to decrease by mid teens sequentially.
Tempered by decrease shipment of tablet.
Product for AMOLED displays.
On a positive note.
Our position remains unchanged in automotive T con for local dimming technology.
Not only improved display coverage ratio.
Also drastically reduces display power consumption.
It's critical for us displays at EV models.
With us.
Strenuous work on these high entry barrier.
We have developed comprehensive local dimming telecom product offerings that can support a wide range of designs covering.
Super high frame rate of 241.
Dilution of up to 8-K.
We have won numerous project awards.
Gray areas.
Panel makers.
Tier one common acres for premium new car models with a small number of which or the commence mass production recently.
Local CBT codes.
The robust growth starting 2023.
We anticipate Q1 automotive telecom sales to increase more than 150% year over year.
And it represents over 2% of our total sales.
Okay.
Switching gears to the wife's IAA total solution.
Which incorporates <unk> proprietary ultra low power AI processor, OLED Cmos image sensor.
Basically algorithm.
We continue to support the mass production of sales notebook and other endpoint AI applications, such as automotive automatic automatic meter reading show by pocket video Congress device.
And medical Capshaw Endoscopes.
We are more committed than ever.
To strengthen our Wifi product roadmap and retain our leadership position in ultra low power AI processor.
And image sensor for endpoint applications.
Okay.
At this point this youll see us.
We team up with several industry, leading ecosystem partners and customers to jointly introduce our newer modern ultra low power tiny email solutions.
Areas.
Endpoint AI applications.
<unk>.
<unk> camera with slower take it either is or where the system itself.
As smartphone smart home smart home use.
Useful sensors startup founded by Pete Warden the former.
Google Tensorflow Tech leader.
We also joined forces we cede still deal is smart agriculture, and <unk> technology is small fees, both leading players in their respective areas.
These are just a few examples of real adoption of ultra low power Wifi solution in emerging endpoint, Austria low power image AIE era.
We continue to see increasing development.
Continue to see increasing deployment of our Wifi solution in diverse applications driven by the Mega trend of <unk>.
And cause demand to image AI capability to everyday objects.
To highlight our surveillance camera demonstration.
Hi, Max innovative jointly.
Okay, leading ASO low power Euro AI solution.
And I believe battery operated surveillance camera with comprehensive event recording capability through.
What is call it negative type recorded.
Okay.
The <unk> function.
<unk> video recording operations at the slow spread rates.
Using only single digit mineral us apologize assumption.
Meanwhile.
<unk> AI processor, intelligently sensus super suits emulsion events, such as certain human behavior or suspicious activities.
All these are taking place are the call region process remains.
Pulse.
Once the classified <unk> identified the <unk> process.
The base the core processor push the initiatives.
High resolution recording of the event plus between the pre roll video clips of the WNS processor there too.
This is a substantial improvement compared to what the existing.
Server solutions offer in terms of security as users receive a thorough video stream complete with pre roll video clips.
Preceded the motion.
Events.
You also significantly reduces the overall power consumption.
<unk> possible for battery powered surveillance system.
With this significant fishes in per euro industrial low power Wifi is gaining traction in various service feels covering the wholesale door lock and dash Cam.
Numerous engagement and design projects.
Yeah.
Further as customers across different customers up to CES.
Also during this year's CES, we debuted our next generation <unk>, two AI processor that over 40% peak power savings.
30 fold.
<unk>.
In our 50 times.
Efficiency on a per invoice basis.
Compared to the first generation Wm processor, which is already in the industry the <unk> processes.
For similar market.
Our target markets.
We see exceptional local.
Brazil capability.
The new <unk> AI processor.
<unk> the phase III Mark detection too.
Identifying facial regions, including ice mouse nose and Shaw.
To enable advanced accurate and precise facial expression recognition.
Such as high pulse estimation case direction.
Peak detection et cetera.
These new features provide additional vital intelligence to a broad array of applications on top of the success of Audi VW on AI processor.
Provides contextual awareness with the ability to visually detect user engagement levels based on presence movements officials direction.
Several leading led top names have shown strong interest in our <unk>.
<unk> two processor.
After witnessing our luck demonstration at CES.
Didn't you.
Falloff at the engineering activities.
Additionally, we continue to partner with leading notebook CPU and AP SLC players with.
With that Anne.
Expanding our engagement with leading global laptop mens and Iot players.
On the enrichment.
Various AI AI is new new AI features and use cases for our next generation smart notebook.
<unk> applications.
Okay.
Even a consistent product roadmap improving product performance and product customer restrictions. So there is still <unk>.
We believe that way side will emerge as a multiyear structural growth driver for amex.
Lastly for an update on our optical related product lines, including <unk> <unk> and <unk>.
IMAX is one of the few companies in the technology industry with a wide array of optical related product lines.
Critical for the realization of bad operators.
Our technology leadership and manufacturing expertise are evidenced by the growing list of AR VR cargo device customers.
Ongoing engineering projects.
We continue to work on strengthening optical related technologies.
Sweet while collaborating with some of the worlds largest technology companies that remain deeply committed to investing in its development.
Now to quickly review some of our recent progress.
First on <unk>.
We see increasing adoption of our optical components and <unk> technologies that enable new ways to interact with AI and VR applications.
2023, we introduced a series of next generation three D vision processes to support a variety of sales the odds <unk> sensing technologies in tumble flight and.
And social light.
Our socialized AI processor.
Yes.
Provides through the tricky functionality to report the effect.
<unk> with the industry.
<unk> response rate a low friction.
To enable high precision is disease free special.
Special reality applications.
We see sure locked demonstration over <unk> naked eye display at CES with our eye tracking technologies, becoming a focus point.
Viewers' experience of <unk>, Hello, graphic view from all angles, we don't need any additional variables too.
Enjoy immersive and advanced visual experience with other side effect of <unk> last year or dizziness.
Moving on to <unk>.
Australia.
Sure sure.
<unk> and Shaw <unk> technology is deployed to empower.
Australia perceptions.
Full precise control of free just shared with initial devices.
Our collaboration with a leading VR player is going smoothly and we.
While the production started mid of this year.
On <unk> scanning for object reconstruction.
Our <unk> sensing technology, which incorporates both our CD protector.
Coulter.
<unk> deployed.
Biodiesel customers <unk> scanning device for the purpose of generating real time digital twins avatars and through these environments around deals that ultimately help users transit connect seamlessly.
Physical and digital worlds.
The collaboration is ongoing with promising progress and we expect it to hit the market next year.
So as I mentioned before maneuvers related deployments our developments are early in the lifecycle, but overall.
<unk> remains an attractive opportunity for us potentially.
<unk> is well positioned we see yourself research and development.
A unique product portfolio.
Production history, and key partnerships to capitalize on this growth as the industry continues to emerge and mature.
For non driver IC business, we expect revenue to decrease mid teens sequentially in the first quarter.
That concludes my report for this quarter. Thank you for your interest in <unk>, we appreciate youre joining todays call.
And we are now ready to take questions.
Yes.
To ask four questions. Please press star one on your telephone and wait.
For your name to be announced.
Karl Your question. Please press star one again.
Please standby, while we compile the Q&A Ross Sir.
Our first question comes from Jerry <unk> of Credit Suisse. Your line is shallow.
Thanks for taking my call.
All my questions.
Hi, Jordan.
Eric.
My first question.
Hum.
The prepared remarks, you mentioned that.
Fourth quarter gross margin.
Despite some charges related to raw wafer foundry.
And also on the back end of Lasalle met minimal loading I wanted to know if there still is this impacting your first quarter.
Second quarter margin.
Thank you Jerry so shall I address the first question first right.
Alright, yes, yes. Please.
Okay.
To give you a R E.
So look more comprehensive story.
Such charges the charges related to.
Our not fulfilling the LTA application volume application.
Neither of the hour.
Foundry Opex.
Partners.
And.
And the resulting penalty incurred.
Such policies in <unk>.
2000, 22 million last year.
Total about 1% of total sales of last year.
Okay.
Andy.
And certainly it is very much backend loaded.
You mentioned because in the first half in the first quarter of last year, there was actually still a shortage of.
Of supply so there was no such issue.
Starting mostly in the second half, but we started to.
Two.
Two.
Two.
Our feedstock issues.
The penalty.
Such penalty.
We are still exists in Q1, this year, which will be a bit larger than.
But for Q4 last year.
But we are disclosing the detail number here because they.
They are not really the predominant factor.
Leading to the slight contraction of our gross margin.
Q1 versus Q4.
<unk>.
However, if you look ahead into the rest of the year.
We believe when we.
When we our inventory level, becoming.
More normal.
We will start gradually.
Sure.
Ah normalizes.
They will be certainly be less charges.
All of this nature.
Going forward for this year.
Bear in mind.
Amit.
So all these countries.
When the industry was suffering from <unk>.
As the capacity shortage and we believe.
A number of such contracts, while they may appear to be.
Is problematic in some cases in the short term.
<unk>.
They remain important countries for us.
Going forward or in the long term.
I would point out too.
Our 28 nanometer.
LTA for smartphone OLED.
Certainly equally important for our <unk> IC.
Sure.
And for.
For automotive sector, which is.
Very strong supportive Victor.
Our success in the automotive market.
No.
And they are they.
There are other otas are primarily in the areas of.
No.
Smartphone and tablet TDI.
We are indeed facing demand issues as we see these projects.
When the industry.
Covers.
Overtime.
And.
And also when our inventory level.
<unk> style to a.
More normal position.
Then.
Then there will be.
There'll be a lot less program in MF programmatic.
Meantime, we are certainly in discussion we saw foundry partners.
<unk>.
Trying to achieve some flexibility.
In terms of execution of such contracts. For example, we may agree to extend the duration exchange pause smaller penalty.
Short term oil we may exchange product line.
<unk>.
<unk>.
By load in certain other products to them.
More so than other products, let me change for <unk>.
<unk>.
Our shortage to meet our commitment for the LTA areas. So there are such negotiation discussion going on.
Good progress.
So far so I think.
<unk>.
Susquehanna how much touch panel DDI.
As we mentioned earlier, we believe the market will be recovered throughout the year. So we are not.
Mystic about this going forward.
Okay. Thank you.
Question is regarding the guidance the outlook.
Yes, so for the first quarter, our revenue I think you have got it.
Lifestyle driver IC and also the timing controller towards decline sequentially. This.
This seems to be a little bit different.
I think I think the guidance Paul.
Thank you.
Can you give us some color on what you are seeing an industry trend and why they're different.
And then on the.
Automotive side.
I think last year had a very strong growth up 50% year over year.
How should we think about the gross fall timeframe.
And then also wanted to know whats drops on the team.
In many.
And also the micro display for automotive and how should we think about that would be 10 plus rate pauses automotive business. Thank you.
Okay.
There are a lot of questions.
Let me see to return.
Your first question is about costs.
Large panel display and.
And T com.
Okay.
Okay being different from peers as it goes to Cushing, it's about Holdco multis.
Yes.
Prospects for this year basically.
Right.
Sure.
And third question is Michael.
Great Mike.
Corey.
In EMEA.
EMEA AP.
Yes, correct.
Okay.
Can I Tonight.
Question first automotive I think is appropriate.
The most important among those three questions given our exposure.
Exposures develop a multimarket.
<unk>.
We did suffer from a few quarters of sequential decline.
Bear in mind.
In Q1 last year.
We will see or suffering from shortage with our supply.
Being short of the demand.
But there is a sudden stop of demand.
Disruption in China, particularly because there was a southern lockdown.
Across our peak.
Geographical area.
Especially for example is to fund which is local in nature.
Therefore, the multi manufacturing.
So a lot of our customers are stuck they didn't know how do we add to the overall lockdown.
So, while we shipped but otherwise to them with solid.
Solid demand in hand at the time, they were not able to produce them.
Sure.
Or ship their products because of Lockdowns so inevitably.
The second quarter Ics was shipped to our customers because of their inventory.
The special inventory will then be digested throughout two.
Q3, Q4, and even up to Q1 this year.
Okay. So that explains.
Big picture Wise.
Why.
Sure.
The automotive TD IC, we have suffered some decline sequentially over the last few quarters, However, our TDD automotive.
Even during such period.
Has demonstrated a very strong momentum.
Yes.
Sequentially the year over year shortly.
Because if it's both new.
And also is in hot demand relatively speaking because they are they are newer products.
And which are typically designed for newer models, which are many of which are EV models.
EBIT models.
In difficult times encouraged by the government incentivized by the government. So they are the better demand compared to traditional models.
So therefore, our TDI and full of few factors I've mentioned.
Still enjoy very good momentum.
Momentum and growth.
During these periods these type of peers.
Periodic difficulty.
We believe <unk> IC.
We will rebound strongly from Q2, because after about three quarters of inventory digestion.
I think our.
So while the ecosystem.
Inventory level is back to normal.
However.
We will.
We enjoyed a similar strong growth as we joy over the last two years being mined in the year before we had 10% growth year over year and last year even.
Even the economy, we are facing headwinds, we still enjoy 50% automotive grills.
So in PD IC this year, such similar growth will be unlikely I think for a few reasons one.
Our market share is already close to 40%.
Arguably highest bucket get.
So we are <unk> is now going pretty much in line with the market and the automotive market for a few factors.
Youll notice better.
Unlikely to see a major ups.
Our growth this year. So therefore, we don't think our TD IC, we're enjoying similar growth rates compared to last year.
However.
Our.
PDF automotive.
For HD.
You too.
Very strong growth, we saw high double digit there it is a double digit year over year.
We saw.
<unk>.
Quarter by quarter sequential growth.
Half over half cyclical sequential quarters, I think Barry were expected and that is because we simply enjoy very good.
Our design win pipeline.
My prepared remarks, I talked about more than 2200 projects of design wins actually although which only about 20% are currently in mass production.
They are still a lot of upside.
Not just this year.
Two years.
And.
So for.
For last year, our automotive TDI already accounted for about.
Between.
Paul.
70%.
Although automotive sales.
Hey, Matt industry averages is single digit so we already 70% and we expect by year 2025, or $2 46. This number will be more than 40% so that explains.
Our confidence that demonstrates our confidence that we will promote cdti.
We continue to enjoy very good growth going forward not just this year, but also next few years and on top of that there are a few things that are very exciting equally excited.
In our prepared remarks, we talked about the timing.
Timing controller.
B cell level of immune Fisher.
Fisher.
Clearly industry leader arguably the only company, providing the solution right now in the marketplace.
We need very good.
We are getting very good project wins.
Across the board.
We saw with customer studying from.
Premium models and now southern customers, even thinking of the fall.
More into a mainstream model. So this I think this year, you'll be at very high double digit growth.
And.
Strong growth for the next few years as well.
The LTI.
Lost display.
<unk>.
Tushar and driver IC integration.
Likewise, we talked about our early mover advantage.
And C is stable.
The second quarter this year commenced.
Commencement of production ahead of the industry.
Ken.
This will be long term growth engine as well.
And finally.
OLED.
OLED.
Our view will continue to be a premium niche market.
All of our multi but we already have a few customers.
Putting a polite to mass production, we are denying asics collaborating with certain leading customers for all the players.
And so I think this is a long term looking good as well so I think.
We sell automotive business.
Thank you.
Our overall market share.
Is set to further growth from the existing or the very high level of close to 40%.
And.
This visibility is the strongest.
All sectors. So this I think oil will continue to revisit.
Our single biggest.
Revenue contribute there over the years.
As for.
Good morning.
Lost display.
I think our view for the whole year is going to enjoy growth.
And.
Q1 versus Q4 to us is seasonality.
We have seen we have seen TV market stabilizing prices rebounding.
All indications.
Basically, saying telling us that.
TV market, especially at the high end.
Our point of view Paul interface.
Full atvs I think where we have presence.
Directly.
In partnership with leading brand name customers I think.
Starting from second quarter, and so the second half.
Two the Joseph growth.
Monitor notebook a prospect a more pushing that Paul.
They do.
We do have limited visibility, although we are starting to hear from end customers.
Estimates.
That's a good likelihood.
<unk>.
The destocking process will be coming to a conclusion, probably towards the end of second quarter with hopefully the third quarter a cardboard.
Slowly and gradually picking up the restocking process.
But again.
I think we are watching the.
Market closely, especially for monitor and high molecule, where we enjoy a very good.
Market position, but I have to say.
Yeah.
This prospect is.
It's not very good so it would have been a visibility.
And.
Michael Rowe.
<unk>.
We believe we.
We haven't talked about this.
In public.
Our prepared remarks, a lot, but we are actually doing a lot of work or Michael.
Sure.
A lot more focus on offshore lost display Michael.
We are developing.
Very comprehensive solutions covering display driver timing controller, <unk> and others.
Paul.
For certain <unk>.
Strategic partners and also with various leading panel makers. We are working on for example, ASIC timing controller designs et cetera.
But in the next.
Year or two this remains a very very small niche market is that emerging market only and that is why in Asia.
We have decided not to talk about it too much.
Our view on.
On.
Almost very small displays for example, AI VR.
Related.
Michael Rowe easy application, our view is a lot more in equities.
A lot of technical reasons that is our view. So we are putting a lot less resources into that although there are inquiries from our customers.
For development, but we are a lot more hesitant and conservative in our recall so for Michael.
Yes.
Our focus will be in ultra large displays.
And.
Sure. The next few quarters, we will give people a lot more updates.
Our developments unfold into a more mature stage, but we are not.
Very much into our.
A small sized.
Kind of my hero.
Because we are not talking about <unk> prospects.
Okay.
Absolutely. Thank you. Thank you for your answer.
Thank you Jerry.
As a reminder to ask a question. Please press star one line.
Please standby for our next question.
Okay.
Our next question comes from Jason Zhang with CLSA. Your line is now open.
Hello can you hear me.
Yes, yes.
Yes, Thank you for taking my questions.
My first question is.
Can you give us some details on your pricing trend in coming quarters.
We plan to.
No word maybe wave wafer price or packaging clients.
In coming quarters or in Q1, I mean, maybe for your non LTA shipments. Thank you.
Okay.
Whether it's <unk> I think.
Our foundry partners have method rather public.
They are not the bulk tool.
In any meaningful way lower.
This is price in this year and I think the the.
The reason is quite simple.
They have seen.
High inventory levels across the port, which they are customer design houses so.
No.
The price.
They are unlikely to stimulate the demand so why bother.
<unk>.
So whether it's LTE regulated price or <unk>.
By the price.
We are not anticipated.
The listed price province too.
<unk>.
In any meaningful way this year.
However, when it comes to you.
New orders.
I think therefore are always open for.
Specific.
Do you have idea case by case.
<unk> right so that is.
That is first pointed the bulk of the supply side.
On the demand side there.
I would say three three points I want to mention one.
They are indeed overall price pressure upon us.
Because.
The economy, the overall economy the macro factor.
Larry.
Bearish.
And.
We have all seen our panel customers are losing money right.
In a in a rather meaningful way. So I think there are a lot of cost pressure as well so.
Such pressure where to some extent be transferred to us and certainly.
I mean, we are not.
<unk>.
Agreed to all the price demands and there'll be a lot of negotiations but.
There are some into some price pressure, but it's my first point.
<unk>.
My second point is.
Yes.
The.
The the products.
Inventory.
I'm talking about mainly.
Smartphone TDI.
<unk> bye.
Pepperidge PTSD yet.
Primarily in these two areas were across the board we are seeing.
Sure.
Our peers are.
Kevin.
Certainly pretty meaningful excess inventory so.
And the demand is the demand visibility is not is not is not positive right. So.
So there will be price competition.
In order to offload everybody's inventory level.
So that is certainly.
Price pressure.
And we are taking a similar position right.
Not to mention the <unk>.
Our costs were.
So the gross margin over here.
Pete.
Pretty.
In the foreseeable future.
So the all of this has have been factored in to our guidance or our outlook.
Our prospect for the whole year.
So that is the second second question.
And.
And however, there are other there are other areas where.
Sure.
The price environment.
It's a lot more healthy.
For example, all hold up automotive sector polka Paul.
Those demands and our revenue decline over the last few quarters by even during those quarters the price erosion.
The extent of price erosion that was nothing to compare with.
The same for both smartphone and tablet.
Our smartphone.
Multiples.
More stable.
And.
And.
We are we have seen a sense throughout this year the rest of this year.
We anticipate as I said earlier.
Rebel cycle in the second quarter, and so the second half versus the first hubs.
And <unk> certainly.
We are we are seeing very strong demand. So so they are in this year, so the sectors, where the pricing environment is relatively healthy.
Our unique timing controller.
<unk> certainly is a unique product areas.
Some other things as well.
More stable.
Compared to so so I would say.
Last year, we suffer quite a bit for large display driver because the market was just not very good.
The detail for smartphone.
Tablet TBD.
And.
The parish environment.
Ingersoll for smartphone and tablet.
While large panel has been a stabilizing I would say.
Does that address your question Jason.
Okay. Thank you and my second question is.
During this down cycle, especially.
That weakness that we have.
So let's see.
Mark had competitions I mean, maybe.
Market share pressures for our largest play or small display side.
I think.
The pressure caused primarily.
Unless displayed first.
Our strategy has been I cannot say there is no such pressure coming from competition.
Our strategy.
For TV has been up to.
Two forms a strong partnership directly.
The end customer.
With a leading brand customer.
For the year.
Relatively high end models and.
Certainly even we start we are still subject to fluctuations, but I think the.
<unk>.
The competition is.
Less.
<unk> to the mainstream.
Sure.
TV models vis vis <unk>.
General panel maker customers.
Or.
Mainstream monitor.
Sure.
For notebook models.
For monitor and notebook what's interesting to note.
Is that.
Dean.
Southern leading end customers.
And Americans.
Sure.
In the.
The struggle in between the U S and China.
Sure.
Hedging their bets by asking there.
Supply chain too.
<unk>.
To be.
To be away from China.
And.
Certainly.
Benefits us somehow but certainly we are also.
Sure.
Working very hard with our Chinese ecosystem suppliers, but this seems to be although panel makers are still predominantly Chinese but when it comes through component, especially IC components.
As such our discussion so I think our sustained we will shift our focus.
From.
More towards.
Dean.
Non China customers.
Although we are all dealing with mainly Chinese panel makers, but leading non China and customers.
And less on.
On.
On Chinese end customers I'm talking about large panel, whether it's TV notebook.
Monitor I'm talking about large panel.
So I think the other appears to be this trend and actually.
It's not coincidence, but.
We.
Even before the.
Sure.
The two governments.
Struggle becomes apparent.
Before that we have actually shredded touch.
<unk> all sales as such.
By focusing facing shortage. So we can make a choice based on solid customers.
Sure.
Okay.
And then other customers.
We have been shedding types at our sales by.
Forming partnerships.
In.
International end customers so susser.
Such strategy kind of placed well.
When it comes to this new development in between China, and the U S.
Got it.
And my last question is.
I know that.
L TPS LCD and Alex migrate.
Is improving.
On the automotive applications. So do we can we expect that this kind of migration can boost the adoption rates.
On the automotive TDI.
Yes, indeed as the <unk>.
As the.
The reduction becomes higher end.
Refresh rate because higher touch panel.
<unk> panels I think the.
<unk>.
Ohio since the panel there is a trend towards low temp poly panels as opposed to.
I mean.
The traditional Oklahoma silicon panels.
Joey cost advantage, but when it comes to higher and higher resolution.
Higher refresh rate panels, but it probably does enjoy advantaged and we have seen in all.
Let me such projects together, we saw.
Sure.
<unk> solutions.
Go ahead.
Yes.
Okay.
I wanted to follow up wanted to have a follow up questions.
Do we have the.
Penetration rates.
Automotive TDI.
Some kind of.
Kind of number.
For the avoidance of St. I don't have the number in hand.
Did mention early year.
But.
For IMAX alone.
Last year.
Sure.
Automotive cdti.
Counted for about 17% of our total automotive sales.
And certainly automotive TCE items, our ASP a bit higher.
Digital IC, but in terms of revenue.
Percentage that give me an idea however bear in mind our.
Our.
Number is substantially higher than the industry average, which we believe you saw were below 10%.
Okay.
Okay.
Yes.
Yes, so I would say.
Such potential number is probably.
Kind of double the industry average.
And certainly we expect this number to steadily increase is not going to be as dramatic as always saw in smartphone and tablet.
The last few years, but.
I mentioned four high mix our sales.
We expect the number to be up from around 70% last year to about 40% of our pumps.
By 2035 2006.
So that is certainly a major business for us yes.
Got it that's all my question. Thank you.
Thank you Jason.
I show no further questions at this time.
I'd now like turn the conference back to Jordan for closing remarks.
As a final note Eric Lee, our Chief our plc Sir.
Maintain investor marketing activities and continue to invest.
The investor conferences, we will announce the details as they come about thank you.
Nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
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Okay.
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Okay.
Yes.
Okay.
[music].
<unk>.
Yes.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
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Yes.
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