Q1 2023 Himax Technologies Inc Earnings Call

Speaker 2: Hello, ladies and gentlemen. Welcome to the HiMAX Technologies, Inc. first quarter 2023 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.

Speaker 2: To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. As a reminder, this conference call is being recorded. I would not like to hand the conference over to your host, Mr. Mark

Speaker 3: Schwalenberg from MZ Group. Welcome everyone to Hymax first quarter 2023 earnings call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer, Ms. Jessica Pan, Chief Financial Officer, and Mr. Eric Lee, Chief IRPR Officer.

Speaker 3: After the company's prepared comments, we have allocated time for questions in a Q&A session. If you have not yet received a copy of today's results release, please email HIMX at MZgroup.us, access the press release on financial portals, or download a copy from HIMACS' website at www.HIMACS.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 not being provided. If you have not received a copy of today's results release, please email HIMX at MZgroup.us

Speaker 3: forward-looking statements that involve a number of risks and uncertainties that could cause actual events or risks to differ materially from those described in this conference call. A list of factors can be found in the company's SEC filings. Form 20F for the year ended December 31st.

Speaker 3: 2022 in the section entitled risk factors as may be amended.

Speaker 3: except for the company's full year of 2022 financials.

Speaker 3: which were provided in the company's 20F and filed with the SEC on April 6, 2023. The financial information included in this conference call is unannoted and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and is not been subjected to the same review and scrutiny.

Speaker 4: We will review our financials on both IFIs and the NAAIFI spaces. The NAAIFI financials is good, share-based compensation, acquisition related charges, and cash award. Despite the challenges of ongoing macro-heavy wins and seasonal effects, first quarter the RAM News and EPS both fit our guidance. Why course margin was within the guidance range issued on February 9, 2023. First quarter RAM News register, $2244.2 million, a decrease of 6.9% sequentially, but marked better than our guidance of a decrease of 12% to 17% sequentially. The better than guided sales were attributable to increased order momentum, particularly in the large display driver IT business and the smartphone and the tablet TDI segments, as well as our continuous effort to vehes rol bow embassy Japanova and the Guerrilla

Speaker 4: IFI's gross margin came in at 28.1%, a decrease from 30.5% lost quarter. But we think the guidance range of 28% to 30%.

Speaker 4: Gorsmogin was impacted by several factors. First and the primarily, we incurred the high cost of our assets in winteries that were first thought during a period when Foundry and the Beckham Price is picket.

Speaker 4: Second, we had to ride on certain unsolved inventories due to market price decline.

Speaker 4: Finally, there was price erosion, a requisite part of ongoing inventory of loading processes.

Speaker 4: Yet, IFIS profit per diluted ADS was 8.5 cents, surpassing our guidance of 3.5 cents to 7 cents. Now IFIS profit per diluted ADS was 11.5 cents, fitting our guidance of 6.5 cents to 10 cents. Revenue from large display driver was 53 million dollars. An increase of 21.8 cents sequentially and the substantially above our high guidance.

Speaker 4: of up high single digits from last quarter. Monitor IC sales grew remarkably as expected.

Speaker 4: Increasing by a decent double digit quarter of a quarter. This increase the momentum is primarily due to leading customers starting to replenish chip, following several quarters of channel inventory reduction.

Speaker 4: No book sales were also better than guided due to demand from ship replenishment.

Speaker 4: We saw strong sequential growth of TVI DCLs stemming from increasing order from customers preparing for upcoming China shopping festivals.

Speaker 4: Launch panel driver IC sales accounted for 21.7% of total revenues for this quarter compared to 16.6% loss quarter and 26.8% a year ago.

Speaker 4: Moving on to our small and immediate size of the display driver segment.

Speaker 4: Revenue was $154.7 million, a decrease of 12.8% sequentially. Yet, a hand of our guidance due to increasing shimment of smartphone and a tablet, especially TDI products.

Speaker 4: to global leading building brands after lunar new year holidays.

Speaker 4: Q1, automotive driver self-decreased mid-to-chains quarter-over-quarter as guided.

Speaker 4: automotive DDIC sales were better than expected due to customers moderated inventory reduction majors.

Speaker 4: For automotive TDI, despite the widespread adoption of our products in the EEV.

Speaker 4: sales unexpectedly declined, as panel houses cut back their IC purchases, while experiencing sudden older suspensions from their EV customers.

Speaker 4: The underlying cost is the submitted E.V. Price Commissation, which has led major Chinese automakers to drastically cut production and enforce stringent cost control majors.

Speaker 4: Yet, automotive driver business still represented the largest revenue contributor for us, with 30% of total sales in the first quarter.

Speaker 4: We remain optimistic about our automotive DDIC growth potential in the coming years, as we have secured around 300 design wings a number which is still growing as we speak, which put a significantly ahead of our peers.

Speaker 4: At this moment, only one-third of the acquired design wings have commenced the production, indicating enormous upside potential in the coming years, after the remaining design wings enter mass production.

Speaker 4: Small and media size driver IC segment accounted for 63.3% of total sales for the quarter compared to 67.6% in the previous quarter and the 62.6% a year ago.

Speaker 4: water non-driver sales also extended guidance with revenue of $36.5 million, down 11.8% from a quarter ago. Our income business was up single digit in the first quarter.

Speaker 4: markedly surpassing the guidance of mid-teens declined.

Speaker 4: boasted by decent shipment of automotive T-Comp, as well as better than expected shipment of large-sized display T-Comp. T-Comp business represented over 9% of our total sales in the first quarter.

Speaker 4: It's worth highlighting that our automotive local DIMINTi-com technology was recently awarded gold medal award at Touch Taiwan in 2023. Another illustration of our leading position in cutting-edge technology for automotive display. Jordan will elaborate on this level.

Speaker 4: Or more typically come.

Speaker 4: Backed by strong order type line, we anticipate this is momentum to assess the rate with rapid expanding design winds across the board.

Speaker 4: Now driver product in Q1 accounted for 15%

Speaker 4: of total revenues as compared to 15.8% in the previous quarter and 10.6% a year ago.

Speaker 4: Our IFI is operating expenses for the first quarter were $51 million, a decline of 2.9% from the previous quarter and a down 1% from a year ago.

Speaker 4: amidst the prevary macroeconomy headwinds, we continued to tighten our expense control. Now IFI's operating expenses were $44.5 million for the first quarter, down 2.5% from the preceding quarter and up 1.1% for a year ago.

Speaker 4: First quarter, IFI's operating income was $17.6 million, or 7.2% of sales, versus 10.5% of sales in the last quarter and the 34.5% of sales from a year ago.

Speaker 4: Now IFI's operating income was $24.2 million or 9.9% of sales compared to 13.1% last quarter and the 36.3% same quarter last year. IFI's after tax profit was 14.9 million dollars or 8.5 cents per diluted ADS.

Speaker 4: compared to $42.2 million or $24.1 cents per diluted ABS loss quarter.

Speaker 4: First quarter, now IFI's FFTAX profit was $20.1 million or $11.5 cents per diluted ADS compared to $47.7 million or $27.3 cents in the previous quarter. Turning to the balance sheet, we had $223.8 million of cash, cash equivalence and other financial assets of March 31, 2023.

Speaker 4: Compared to $447.1 million at the same time last year, and the $229.9 million a quarter ago, the decrease in cash was a result of cash off-floor from investing at 50s, which was mainly used to make final payment for a major AMO Lake Opacity Agreement for smartphone.

Speaker 4: that we had signed in 2021, offset by $66.4 million of operating cash inflow in the first quarter.

Speaker 4: We had a $45 million of long-term, unsecured long, less of end of this quarter, end of first quarter, of which $6 million was current portion. The $35.2 million inventory, inflation daily, of, of, of, I would may not have done $ andere, poner funds,

Speaker 4: Squires deal higher than $253.1 million a year ago were monthly lower than $307.9 million last quarter. Accounts receivables at the end of March 2023 was $252.2 million.

Speaker 4: the last quarter.

Speaker 4: First quarter capital expenditure was $2.8 million versus $2.3 million loss quarter and the $3.6 million a year ago. The first quarter capax was managed for our IC design business.

Speaker 4: Just prior to today's call, we announced an annual cash dividend of $0.48 per ADS, totaling approximately $83.7 million and a payable on July 12, 2023.

Speaker 4: The payout ratio is 35.4%.

Speaker 4: We have decided on the relatively low pay-out ratio in light of prevailing macroeconomic uncertainty.

Speaker 4: We are grateful for the continuous support of our shareholders as we continue to ask you our business objectives and strive to deliver sustainable long-term growth, wider maintaining our healthy balance sheet.

Speaker 4: As of March 31, 2023, HIMF has 174.4 million ADS outstanding, unchanged from last quarter. Angusoli diluted basis, total number of ADS outstanding for the first quarter was 174.8 million ADS outstanding for the first quarter.

Speaker 4: Now, turning to our second quarter 2023 guidance, we expect the second quarter remnew to be in the range of flat to down 9% sequentially.

Speaker 4: IFI's course margin is expected to be around 20% to 21%, depending on the final product mix.

Speaker 4: The second quarter IFRS profit attributable to shareholders is estimated to be in the range of minus 2.9 to 0.6 cents per basic ADS.

Speaker 4: Now, I have an ICE profit attributable to shareholders is expected to be in the range of 0.1 to 3.6 cents per fully diluted adf. I will now turn the call over to Jordan to discuss our Q2 outlook.

Speaker 4: Jordan, the floor is yours.

Speaker 4: more is yours. Thank you Eric.

Speaker 5: So consumer consumption coupled with recession fears continue to present challenges to market demand and amplify uncertainty throughout the tech world.

Speaker 5: The semiconductor industry appears to have come to a consensus to some degree with the expectation that inventory digestion will extend longer than previously projected. In a display market, M-Briens remain cautious.

Speaker 5: toward their panel procurement. While panel makers implement stringent upper controls a rigorous procurement scrutiny.

Speaker 5: While panorakers implement stringent, upper controls are rigorous procurement scrutiny.

Speaker 5: Amidst ongoing macroeconomic uncertainty, our visibility remains limited as panel customers continue to shorten the duration of their forecasts.

Speaker 5: However, our inventory has been reduced to a comfortable level after several quarters of aggressive dis-tocking.

Speaker 5: Well, our current level is still somewhat above the historical norm. The good news is that the remaining stocks are comprised of IC products which have a solid customer design base and long expected lifetimes. Moreover, after court is of right downs.

Speaker 5: the book costs of the stocks are at least equal to, in many cases, much lower than the the primary market prices.

Speaker 5: In light of the better than expected inventory uploaded, we stand by our expectation the inventory will revert to historical levels no later than the third or fourth quarter of this year.

Speaker 5: In light of the better than expected inventory offloaded, we stand by our expectation the inventory will revert to historical levels no later than the third or four quarters of this year.

Speaker 5: In an effort to improve our cost structure for new waiver starts and maintain competitiveness.

Speaker 5: We have strategically terminated sudden high cost boundary capacity agreements recently.

Speaker 5: prior to their expiration dates. This, however, has resulted in a significant one-time early termination expense incurred in the second quarter, and hit our Q2 gross margin.

Speaker 5: This however has resulted in a significant one-time early termination expense incurred in the second quarter and hit our Q2 course margin. In fact,

Speaker 5: This is the predominant factor for a second quarter growth margin contraction on top of the price pressure incurred from stock stocking.

Speaker 5: Termination of the aforementioned capacity agreements is a crucial operational strategy for us.

Speaker 5: The mention of the aforementioned capacity agreements is a crucial operational strategy for us. Horrified.

Speaker 5: Making the short-term sacrifice can help us achieve long-term gains. Moving forward, for those terminated contracts, our new waiver starts will not be subject to minimum fulfillment requirements.

Speaker 5: and fixed contractual prices set at a time of severe industry capacity shortage. This also gives us the flexibility to diversify suppliers.

Speaker 5: contractual prices set at a time of severe industry capacity shortage. This also gives us the flexibility to diversify suppliers.

Speaker 5: Given the significant contract termination expense, Q2 will mark the trial of our gross margin with sequential expansion expected throughout the second half of 2023. As an important side note, we have retained necessary capacity to support the growth of our air model business.

Speaker 5: which would be this will be a major growth driver in the coming years. That's all that displays get traction in a wide range of applications.

Speaker 5: Next, onto the Q2 sales guidance.

Speaker 5: Southern demand drop in automotive business is among the man-reason causing the sequential sales decline.

Speaker 5: As we have talked about previously, automotive has been our largest business contributor for many quarters.

Speaker 5: accounting for over 30% of total sales. A far greater contribution than our peers.

Speaker 5: The third decline in the automotive depends, therefore, has a heavier impact on our total sales.

Speaker 5: Automotive sales are being adversely impacted.

Speaker 5: by recent price turbulence in Chinese EV market as we reported earlier.

Speaker 5: However, we view the current setback as a temporary and short-term phenomena.

Speaker 5: Our outlook for the automotive business remains positive, given the mega trend of increasing quantity and sophistication of displays is over because...

Speaker 5: and backed by our disputed leading market share as well as new design win pipelines.

Speaker 5: This is particularly true for a commodity DI where we have already achieved a global market share leadership position.

Speaker 5: Our TDDR sales are already on track to resume rapid growth momentum.

Speaker 5: and we remain competent in its potential to be a primary driving force for our long-term business girls.

Speaker 5: Last but not least.

Speaker 5: We remain committed to a strategy of expanding in high-rated areas, including TDI and TKAN, Automotive, OLED and AI.

Speaker 5: of growth, prevent, impact, and in some of these areas we have already achieved a leading market position.

Speaker 5: This now only orange, much higher content value, but also establishes higher barriers of entry for leg commerce. With that said, we are going through a challenge in second quarter in terms of both sales and gross margin, but believe.

Speaker 5: This will be a short term phenomenon with a rebound around the corner starting in the second quarter, in the second half.

Speaker 5: will be a short term phenomenon with a rebound around the corner, starting in the second quarter, in the second half.

Speaker 5: Excuse me. I will now begin with an update on the last panel driver's Or wiggle lunge 8

Speaker 5: Our second quarter, 2023, large display drive IC revenue is projected to be down double digits sequentially.

Speaker 5: We expect TVIC business to decline double digit quarter-over quarter as customers have pulled forward demand in preparation for the upcoming seasonal shopping sales.

Speaker 5: We plan mission trips over the past two quarters.

Speaker 5: Monitor IG sales in the second quarter are set to decline single digit sequentially. Following the strong order repair repairmanagement, we saw last quarter.

Speaker 5: while notebook driver segment is expected to slightly decline. turning to the small and medium size display driver IC pieces

Speaker 5: We expect Q2 revenue for this segment to be down single digit sequentially.

Speaker 5: However, there are indications of this momentum recovery for smartphone and tablet in the second quarter, particularly in TDI products.

Speaker 5: both are projected to increase mid-teens sequentially.

Speaker 5: field by resume customer orders following several quarters of downturn.

Speaker 5: importantly either important degree for smartphone cyberclicious mapping

Speaker 5: is progressing nicely and improving as we speak. As such, we have initiated new-ever stars for select products which will enjoy better the margin starting Q2.

Speaker 5: Automotive IC cells are anticipated to be down, loading sequentially.

Speaker 5: a result of weakening demand in China, which is prompting automotive panel houses to implement cost reduction measures and to recalibrate inventory levels.

Speaker 5: Having said that, our position as the market share leader in both DDI, DDI, CDI for the motives remains intact.

Speaker 5: looking at a longer term perspective. Where only moderate growth is anticipated for automotive DDIC, our TLDDF business is projected to expand its plausibly.

Speaker 5: backed by the first expandability adoption for new generation vehicles and and our dominating new project design with status.

The timing is also continuous to lead in the stream with the launch of this LTTI or LUSD display and LUSD touch and display driver integration.

automotive display solution. A specifically designed for the neck generation extra-large automotive displays, typically 3 inches or larger.

Alcatyn HLTVIA Technology enables ultra-high-redolution displays and high-precision touch sensitivity, catering to the growing demand for large similists and intuitive in-car experiences.

We are scheduled to start mass production this quarter, which is where ahead of the competition. The current is where we are working on several design collaborations for some of the modern automotive vehicles with major panell makers.

As we have repeatedly said before, the trend for automotive interiors continues to evolve towards more stylish and diverse designs such as free-form curvature.

with ever improving image quality. Met possible with panels equipped with advanced technologies.

Hi-Mex is the front runner again of a multi-pixel IC market offering a comprehensive product portfolio covering the entire spectrum of specifications and technologies to address varying design means.

including traditional DDIC, TDI, the BODM in T-CAN, LTPDI, and M-OLED. We are encouraged by our progress, having expanded design wind coverage across panomakers and engaging more T-O-Rs and OEMs to incorporate new technologies into their new vehicle models.

This implies we now only have been able to reinforce much higher continuity over per panel bases.

But we also enjoyed the perfect margin. We are committed to the automotive driver business who continue to be our primary sales contributor moving forward.

Next, for an update on Airballet, Hermes offers...

Both DDIC and T-CON for AMOLED display has commenced production for tablets and automotive applications jointly with global DD panel makers.

For automotive AMOLED display, we continue to see robust design in activities as well as increasing product awards, project awards with both conventional carmakers and MEV vendors across different continents. Additionally, we continue to gear up for AMOLED driver IC development.

strategically partnering with major Korean and Chinese panel makers on their applications.

covering smartphone, notebook and TV. For smartphone and all display drivers, we already have secured meaningful capacity and expect to commence production toward the end of 23.

Our AMOLED business, including display driver T-Cut, is stated for strong growth in the next few years. Now let me share some of the progress we made on the non-drive-wise businesses. Starting with an update on timing controller. However, the new Samsung machine in Samsung is Stock manager in the Next two MP series, Exxon Minina Smart Plugout and they include TV, Party phone, Indoor installation, power HOR Night adalah Dad Disease

We anticipate Q2T consoles to decrease by low-teens sequentially, hampered by decreased demand for both slot display panels and AMOLED displays for template.

On a positive note, we continue to solidify our leadership in the automotive TCA market, particularly in local gaming technology.

the gold panel was by Touch Taiwan 2023. Another great recognition by the industry after our years of strenuous work on this high-end trepidry technology.

Let me take a few seconds to elaborate on our award-winning Ultimate T-Con.

The adoption of the local DIMM in T-CON not only dramatically improves contrast ratio of the display, but also provides enhanced power efficiency.

Both of which are crucial, especially for EV displays. Our industry did in the body mint tea can offerings, support super high frame rate and a wide range of resolutions from FHD up to A-K. Additionally, went to tea cards are paired.

the solution can even accommodate up to 16K resolution. We see rapidly increasing adoption by all leading panel makers, T01s and filmmakers.

studying from premium new car models and in some cases extending to mentoring models. Tremendous progress has been made with numerous project awards already.

Similar to that of 3Di for automotive, only a small number of design walls of automotive T-con have comments, mass production, studying last year.

to that of 3Di4 automotive, only a small number of design walls of automotive T-CON have comments, mass production, study last year. We….?.

Therefore, expect a strong growth trajectory for automotive teacups starting 2023 and in the coming years. Switching gears to the wide-sized smart image sensing total solution, which incorporates high-mechanic proprietary ultra-low power AI processor, OS-on CMOS-Imin sensor, and

We continue to support the mass production of Dale's notebook along with other endpoint AI applications, such as video conference device, shared bike parking, door lock, smart agriculture, among others.

We are unwavering in our commitment to wide-side as we look to proliferate our industry-leading ultra-low-power AI solution by fostering innovation in a broad spectrum of endpoint AI applications, a closed-source, and a global-level solution. Thank you.

and wavering in our commitment to why side as we look to predict our industry in the arturo power AI solution by fostering innovation in the broad spectrum of endpoint AI applications across the globe.

Furthermore, we remain dedicated to fostering development in the domain of energy-efficient AI processors and AI image sensors for endpoint AI applications to maintain our top-ranked status in the space.

The home surveillance application such as doorbell, door lock, and security camera showcases another successful deployment of Agilent Power WISI technology. WISI offers embedded context-aware AI that accurately identifies humans to reduce excessive force triggers.

avoiding unnecessary SoC processing and leading to efficient power usage for the surveillance system. This facilitates the transition of conventional surveillance systems from wired to battery powered ones.

brought them in real-time adoption. Furthermore, Wi-Fi features ultra-low power pre-roll AI.

to enable always-song full-color negative time image recorded before a classified event. Resulting in a complete video stream and pre-road clips of what happened before the set event.

This also illustrates another significant improvement compared to existing surveillance solutions. In March this year at ISC West, the leading security industry's ratio, HIMAC's joint forces with various ecosystem partners and customers to are there abroad array or battery operated home surveillance devices.

like embed or Wi-Sci technology. The adoption of Wi-Sci in surveillance areas is quickly proliferating and we are seeing more active design activities.

and broad inquiries after the event. Moreover, for the upcoming China shopping festivals, Hamas is teaming up with the leading door lock vendor in China, specializing in smart home.

after the event. Moreover, for the upcoming China shopping festivals, Himes is teaming up with a leading door lock window in China, specializing in smart home and security.

to debut a smart door lock solution with advanced security and low power consumption. This is yet another confirmation of the Wi-Sight technology in the rapidly emerging endpoint, also low power Image AI era.

Now, next for an update on our next generation W2A AI processor. Now, next for an update on our next generation W2A AI processor.

which builds upon our industry-leading W1 processor and performs contextual awareness AI, particularly in detecting user engagement levels.

based on more subtle presence or movements. W2 is designed with advanced computing computer vision engines that can recognize images over a longer distance at machine-hands accuracy, speed, power efficiency, and inference in performance.

Based on its superb AI processing capabilities, W2 can enable more comprehensive and detailed types of objects detection, such as facial landmark, hand landmark, and body skeleton.

to perceive complex human body movement, enabling high precision AI detection for a wide range of applications and use cases in real life. It has gained significant traction for next generation Smart Notebook targeting to hit the market starting 2024.

where we are making solid design progress with leading top brands, leading them top brands, as well as CPU and APSOC partners to jointly work on the enrichment of new AI features of notebooks.

The press of business activities is also expanding with IoT players, specializing in various domains to meet different demands that were previously unknown to us. We are thrilled to be at the forefront of this innovative development.

that lie ahead in the near future. Supported by fast expanding customer adoption from various domains, we are committed to the development of the YSI product line, while leveraging broad ecosystem partners to capture the vast endpoint AI opportunities.

We believe our YSI product line will be a significant long-term growth driver for us. Lastly, for an update on our optical-related product lines, including WO3D sensing and Hymex is one of the few companies in the technology industry.

with a wide array of optical-related product lines that play a vital role in immersive technologies development.

and realisation of the metaverse. Our technology leadership and manufacturing expertise are evidenced by the growing list of AR-SKVR-Dog-O device customers.

realization of the metaverse. Our technology leadership and manufacturing expertise are evidenced by the growing list of AR-VR cargo device customers and ongoing engineering projects.

We continue to work on strengthening our optical-related technology suite while collaborating with global technology leaders in the space. Now to review some of our recent progress.

First, on 3D sensing, on 3D gesture control, we are delighted to share that we will commence modern production of our WL technology to one leading North American customer for their next generation VR devices.

starting Q2 this year. Our WO technology is deployed to empower VR devices with 3D perception sensing.

for precise control of free judicial recognition. Separately, we are expanding our 3D processor offerings to offer a time of flight or TR3D.

In addition to socialized 3D decoders.

where we are already a market leader with a proven track record in mass production. This will enable us to meet the diverse use case of 3D sensing, where TOF is more effective for long-range 3D perception.

while structured light excels in high precision 3D detection for shorter distance.

All our 3D processors are equipped with advanced sensor fusion, offering industry-leading physics response rates, a characteristic that makes our processors a perfect fit for high-precision spatial reality applications.

Best on your course

We are delighted to announce that we will unveil our self-deart color sequential front-line air cost technology at the display week.

2023 in LA, one of the world's most renowned display industry symposiums and trade shows.

All proprietary Eocloss design offers are rivaled, performance and functionality.

featuring a lightweight and compact form factor with a total volume that includes the illumination optics and the air-coated panel of around 0.5 cc.

featuring a lightweight and compact form factor with a total volume that includes the illumination optics and the air-coast panel of around 0.5cc as well as high illumination efficiency.

delivering brightness of up to 100k mits.

These are sending our characteristics, make it the perfect Michael display solution to meet the stringent specifications of the most advanced air glasses, deploying to the exit pupil expansion waveguys that support greater than 50 degrees feel-of-view. We are honored to be invited.

We will provide updates on our progress for this exciting new technology as we as they come about. We remain steadfast to strengthening our optical-related technology suite and forging strong partnerships with the world's leading technology companies. There are deeply committed investing in these developments. As the metaverse, the immersive technology is continued to develop. We believe that Hymnets is world-position to capitalize on its growth with years of research and development, a unique product portfolio, production history, and key partnerships. We will now drive our easy pieces.

we expect very little to remain flatish sequentially in a second quarter. That concludes my report for this quarter. Thank you for interested, Hi Max. We appreciate your journey to this call, and we are now ready to take questions. Thank you.

As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. As a reminder to ask a question, please press star 1-1 on your telephone. Our first question comes from Jerry Sue with Credit Suisse, Cime Proceed.

Thanks for taking my question. Just want to follow up on your previous comment about the second quarter guidance which shows the course margins that was impacted by the termination of the DDWFIRF contracts. Can you give us the idea of what is the impact on the margin?

you know, how much of penalties that you are recognizing is a concord, that's the first question. And certainly, when I look at your large size travel IC, how look, it seems like that you are a little bit different from the industry because I look at the, the panel makers or back in or your travel IC peers or are...

expecting a sequential growth. Can you give us an idea what is the discrepancy between your guidance versus the industry trend? Thank you. Thank you, Jerry. On the first question, what is the difference between a

Our last quarter, gross margin was about 28%, just about 28%. And for this quarter, we are guiding for 22%. 21% to 21%, if we take the midpoint, about 28%. So there's a differential of about 7%.

So the impact of from the termination of long-term contract

the impact is we said in the prepared remastered predominant factor that means far greater than half, right, that means far greater than half, meaning with the 30% differential far greater than half difference actually came from

without determination our margin would have been much closer to that of the previous quarter of 28.2% I think.

our margin would have been much closer to that of the previous quarter of 28.2% I think.

The remaining difference, I think, can primarily from the fact that our, in the second quarter, the automotive business was hit by what we described as certain global turbulence.

in the, especially in the EV market in China. Which actually is related to your second question, right? So, because our automotive market exposure is far greater than those of our peers, at 30 to more than 35%.

historically over the last, I don't know how many quarters, many quarters already. So the impact, especially TDI, which is presumably on the first track of growth, every single quarter, but I mean.

we are expected to be in Q2, we are now seeing some sequential decline, which we believe will be a short term surprise. And we emphasize in our prepared remarks that the growth will resume.

probably strongly in the second half for automotive business, especially for TVTI where we are very, very confident that this temporary setback will be a short-term phenomena. So, because the weighting of sales.

coming from automotive is so high for high mix and there's a short term how we call market turbulence in automotive automotive market so that is why we are probably harder hit than our peers.

during the second quarter. So I think that covers both part of the first question as well as the second question. It's time, the difference, primary comes from automotive. We said earlier, you know, preparing marks.

Actually, if you look at our smartphone, you know, type of TDR, they will be actually growing. And the non-driver will be flattish to certain small growth as some will expect, and others. So I think automotive is the main difference. But again, I think...

amount of applications for display. We are happy, we are betting big on automotives because in a long term I'm talking about this.

several years, automotive is still on track to outgrow the rest in our view. And so having such high exposure to automotive, where it's actually negative things for Q2, I think looking forward it's going to be.

very good news, especially given our dominant position in new project design wins.

good news, especially given our dominant position in new project design wins, covering both PDD and spectrum.

and the low-dimin T-Cons, where I mentioned in my preparing remarks of the WANJER also design-wing process, utility, I only about 1.3, or 300 design-wing process, only about 100, IE-1.3 has come into mass production with the rest.

where stock market production over the next one or two years. Even more so, a lot more so for global demand T-CAN, which is a very high value and high margin. And it has appeared to be becoming a major trend, becoming trend for automotive makers.

and panel makers to adopt our local TMT-CUNT, which is right now still the only choice in the industry. So, study mass production.

in 2023, but only small portion. I think we will expect a very strong growth of the opportunity going forward.

So again, it's a different from Q2, come to all of the, but we are quite positive on local phenolomter. All right. Thank you. I think my previous question regarding the revenue trend for this quarter was mainly the loss of travel I see because I think you guided that the loss of travel is what declined.

The other one, the automotive, just a follow up. Can you elaborate a little bit about what is your end customer mix for the automotive? Is it more Chinese customers or is it more global customers? Thank you. You mean end customer?

Yeah, end customer, panel end customers if possible. Thank you. Okay, okay, I will probably give you an overview of the customer base. Now, on the first question, I apologize for mis-fantasizing your question.

is the largest sector by far in the largest display space. Now, yes, we do see recovery for TV market and we have actually enjoyed over the past few quarters steady growth for TV driver. And also another good news is panel price through panel makers, various measures has been stabilizing and even going up a little bit going forward. But in this quarter in particular, we don't get a full benefit because of the difference in customer base. Our customer base.

TV panels are supplied primarily by Chinese makers, largely by Chinese makers, and followed by Taiwanese panel makers. Our customer base are much more exposed in China than in Taiwan. But we are through four certain reasons, the DGN customers' panel education decision.

hopefully is a short-term decision but has swung from, you know, bigger focus on China to more focus on Taiwan. And so it's really our end customers' panel location.

causes our probably different direction compared to our peers because we are, our exposure is more towards Chinese panel makers, a lot more than Taiwanese panel makers, where the current trend is, the short-term trend is for the occasion to go to Taiwanese panel makers.

our probably different direction compared to our peers because we are our exposure is more towards Chinese panel makers a lot more than Taiwanese panel makers where the current trend is the short-term trend is what occasion to go to Taiwanese panel makers more.

So I think that is that is the main reason but we are discussing extensively with end customers

who have a very direct technical and business relationship with. I think various measures are on the way.

including our getting into more exposure to southern Taiwanese panel makers and also their longer term strategy towards allocation among these two markets. So hopefully we'll be on track starting on the second half.

for TV panels market. As far as your skin question is concerned about our customer base for...

for automotive. With our market share, every single customer, every single panel maker is our customer. And in most cases we are.

In many cases, we are actually a predominant supplier. In some other cases, we are number one or number two suppliers. So I'm talking about everything of panel makers. That is the easy question. Now, with the panel makers that you have tier one makers and ultimately two end user OEMs, we have...

also very comprehensive global reach. We realize M brand OEMs.

We realize N-brand OEMs.

firstly the number of brands are many and with the global diversification, right, you have North American brands, Korean brands, Japanese, European, Chinese, etc. So we need to, with our market share, we need to cover them all. So there's no focus.

you know, one or the other is such phoenix and detailed for p1s.

or the other as such for Hi-Max and DITO for tier 1s.

There are European, Korean, Japanese, American and Chinese T-1s. There are some crossover, you know, European T-1s were, you know, in addition to European market, we also cover some Chinese market and so on. Chinese T-1s will cover some European market and so on and so forth, but there is still this reach.

global diversification with a lot of global bias.

or T-Wide market. And again, our strategy and we have implemented that quite successfully our strategy is to cover them all and to try to...

get a leadership position to the extent possible with as many of them as possible. So we have major engineering support offices certainly in China, in Japan, in Korea and in India.

And we have for engineering support, it's even in Europe , in the core of Europe and Germany. And even in North America, not just in Bairia, but also in Detroit. And that shows that it's a strength of our efforts to cover truly the Indian, you know, to extend our global footprint.

for automotive market. I hope that answers your question. Yes, that's very clear. Thank you. Thank you.

turn the call back over to CEO Mr. Jordan Wu for any closing remarks.

As a final note, Eric Li, our Chief IRPR Officer will maintain investor marketing activities and continue to attend investor conferences.

We will announce the details and say come about. Thank you and have a nice day. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.