Q2 2023 Himax Technologies Inc Earnings Call
Yeah.
Hello, Ladies and gentlemen, welcome to the Hi, Max Technologies, Inc. Second 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 as a reminder, this conference is being record.
I would now like to turn the conference over to your host Mr. Mark Schwarzenberg from MZ Group you may begin.
Thank you.
Welcome everyone to the IMAX second quarter 2023 earnings call joining us from the company are Mr. Jordan, <unk>, 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.
You've not yet received a copy of today's results release.
Please mail H I M X at MZ group that U S access the press release on financial portals or download a copy from imax's website at Www Dot IMAX Dot com tw.
G W.
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 that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this call.
Carl.
A list of factors can be found in the company's SEC filings form 20-F for the year ended December 31, 2022 and.
In the section entitled Risk factors as may be amended.
Except for the Companys full year of 2022 financials, which were provided in the company's 20-F filed with the SEC.
On April six 2023, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with <unk> accounting.
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 consolidated financial information for the same period.
The company undertakes no obligation to publicly update or revise any forward looking statements.
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.
Thank you everyone for joining US my name is Eric Lee Chief IR PR, Sir Yeah, Hi, Max on today's call I will first review IMAX consolidated financial performance for the second quarter 2023.
Followed by our third quarter outlook.
Jordan will then give an update on the status of our business.
After which we will take questions.
I'll review our financial results.
<unk> basis.
Challenging conditions due to ongoing macro headwinds persisted at persistence persistent debt during the second quarter, yes.
We continued to advocate with effectively with gross margin surpassing the guidance range why are both revenues and EPS landed at the operating <unk> guidance range issued it may 11 2023.
Second quarter revenues graduate $235 million, a decrease of 3.58% sequentially.
At the upper end of our guidance range.
This was attributable to improved order momentum, particularly in the automotive P. P. IV large display driver IC and non driver business.
Gross margin came in at 21, 7% a decrease from 28, 1% over last quarter, but above our guidance range of 20% to 21% due to a favorable product mix.
As we previously reported Q2 gross margin was impacted significantly by a one time expense.
Due to the strict teacher termination of certain high cost of foundry capacity agreements. In addition to price erosion related to Destocking.
Q2 profit per diluted ads was <unk> 25 cents at the opera.
The guidance range of minus two nine cents to fix them.
Revenue from large display drivers came in at $45 $4 million, a decrease of 14.3 sequentially yet above our prior guidance.
Good morning to our IC sales.
Surpassed our prior guidance up single digits sequentially, driven by our clients' proactive a pull forward in preparation for the Q2 with film Festival and the recovery of gaming display.
Notebook sales no, notably outperformed our guidance.
Thanks to a strong shipment to key customers.
Television sales declined as expected as customers suspended.
<unk>, having already replenished their inventory all their pie two consecutive quarters.
Large panel driver IC sales accounted for 19, 3% of total revenues for the quarter.
Compared to 21, 7% last quarter, and a 22% a year ago.
Moving on to our small and medium sized display driver segment.
Revenue was $150.3 million.
A slight decline of two 9% sequentially.
Smartphone and tablet driver sales increased mid teens in the single digit respectively.
Second quarter.
We saw a recovery in business momentum, particularly in TDD I paradox.
Q2, automotive driver sales decreased single digit sequentially, but ultra phoned, our guideline guidance of low teens decline a client resumed order replacement replenishment for both the traditional D D E and F T D D I.
Automotive driver business.
Our largest revenue contributor with around 30% of total sales in the second quarter.
We are particularly confident in our automotive TDI growth potential back.
Backed by hundreds of design wings already secured.
Inefficiently ahead of our peers and among these design win only a small portion has commenced the meth production.
With the design win projects under our belt. We believe we can continue to grow our market share in automotive T. D. D. I. In addition to our already dominant position in traditional DDI fees, where we have a 40% global market share.
Small and medium sized driver IC segment accounted for 63, 9% of total sales for the quarter.
Compared to <unk> 63, 3% in previous quarter, and 64, 5% a year ago.
Second quarter non driver sales also exceeded guidance with revenue of $39 $3 million up seven 9% a quarter ago.
The better than expected sales performance was a result of higher shipment for T com and the Cmos image sensor.
Despite the slight sequential decline in telecom sales in second quarter.
<unk> surpassed guidance of a low teens decline bolstered by a better than expected shipment of monitor and automotive T com.
Chicken business represented over 90% of our total sales in second quarter.
Lots of the four W. Oh.
Notably during the quarter, we commenced volume production to one leading north American customer for their new generation VR devices to enable gesture control.
Non driver products accounted for 16, 8% of total revenues as compared to 15% in the previous quarter and 13, 5% a year ago.
Our operating expenses for the second quarter or 53 point too many dollars in it.
Increased of four 3% from the previous quarter and a one 2% from a year ago.
The sequential increase was mainly a result of increased R&D expenses.
Yet amidst the prevailing macroeconomic headwinds we remain focused on strict cost controls.
Our second quarter operating expenses in crew the amortize the expenses for annual bonus frame.
Made in five years of $6 $4 million compared to $6 $5 million in previous quarter, and seven $4 million a year ago.
As a reminder, we grant annual bonuses to employees at the end of September each year, including ICU and a cash award.
A portion of though with the bonuses is EMEA immediately locked it and are recognized in the third quarter with the remainder equally vast data in three tranches on the first second and the third anniversary of the grant date and are recognized on a straight line basis all.
The vacuum period of each tranche.
Second quarter after tax profit was $9 million or five cents per diluted <unk>.
Compared to $214 $9 million or $8.05 per diluted ads last quarter.
Turning to the balance sheet, we had $219.5 million of cash cash equivalents and other financial assets as of June 32023, compared to $461.6 million at the same time last year and a 220.
$3 $8 million a quarter ago.
Second quarter operating cash inflow was approximately one $7 million.
As compared to an inflow of $66 $4 million in Q1.
Primarily due to a $51 million income tax paid during Q2.
An illustration of our continuous effort to deplete inventory for the past few quarters.
We had a $43 $5 million of long term unsecured long us off the end of second quarter.
Of which $6 million what is the current portion.
During the third quarter, we have made a payment of 80 $783 $7 million for annual dividend to shareholders.
Further we expect to pay out a total of around $30 million for employee bonus awards.
Priced off around $9 $3 million for the EMEA theater leave optic portion of this year's award and the 21 million.
For vast at awards granted over the last three years.
Despite the substantial employee bonus payout, we still expect to guarantee positive.
To generate I'm sorry.
We still expect to generate positive opt.
Operating cash flow in Q3 again due to the ongoing destocking process across managed major part of our lives.
Our quarter end inventories as of June 32023.
Our two $297 $3 million markedly lower than the $335 $2 million last quarter.
Accounts receivable at the end of June 2023 was $239 million down from $252.2 million last quarter and down from $371 million a year ago.
DSO was 90 days at quarter end as compared to 93 days last quarter and a year ago.
Second quarter capital expenditures were $2 $9 million versus.
$8 million last quarter, and a $2 $5 million a year ago.
The second quarter, our Capex was mainly for our IC design business.
As of June 32023 high math has a 174 4 million <unk> outstanding unchanged from last quarter on a fully diluted basis total number of <unk> outstanding for the second quarter was $174 7 million.
Now turning to our third quarter 2022 guidance.
I'm, sorry, 2023 guidance.
We expect third quarter revenues to be flat to declining 7% sequentially.
This margin is expected to be around 35% to 32% depending on the final product mix.
The third quarter profit attributable to shareholders is estimated to be in the range of one five to six cents per fully diluted ads.
Okay.
So we have done historically, we will grant employees annual bonus, including ICU and the Castro Award.
Oh wrong September 30 this year.
The third quarter guidance for profit per diluted ads has taken into account the expected 2023 annual bonuses.
Which subject to board approval is now assumed to be around $10 $5 million out of which $9 $3 million. All 4.2 cents per diluted ads will be vested and expensed immediately on the grant date.
As a reminder, the total annual bonus amount and the immediately vasty portion.
Our current best estimate only.
And the actual amounts could vary.
Materially depends on a mountain.
Other things, our Q4 profit and the final court decision for the total bonus amount and the east vesting scheme.
As is the case for previous year, we expect the annual bonus grant in 2023 to lead to higher third quarter operating expenses compared to other quarters of the year.
In comparison, the annual bonus for 2022, and the 2021 were $39 $6 million and the $74 $7 million respectively.
<unk> $18.5 million and $24 $8 million vested immediately.
I would now turn the call over to Jordan to discuss our Q3 outlook Jordan the floor is yours.
Yeah.
Thank you Eric.
The prevailing sentiment in the consumer electronics market for semiconductor remains sluggish.
Customers continue to exercise caution.
<unk> panel procurements.
Limiting our visibility into the second half for consumer products.
However, we see improving business momentum in the automotive sector, our largest sales contributor.
We're a healthy rebound for the first half weakness appears to be underway.
As a reminder.
The global automotive market.
There is a severe downturn throughout the first half of the year.
The major Chinese automakers Capex production.
The amended strict cost control measures due to intensified price competition.
Adversity.
Our first half sales.
Okay.
Now looking ahead, we see renewed momentum in the automotive market. We believe the stage is set for sales rebound as we approach the end of the year.
Supported by more favorable favorable product mix improved cost structure and normalized inventory level, which should also lead to improved gross margin.
In terms of gross margin for the third quarter, we expect substantial improvement from the Q2 trial.
<unk> was primarily.
Related to the one time early termination.
<unk> two foundry partners as we reported last quarter.
I would like to stress again, how this early termination decision was part of a crucial offer this trade issue for us.
By securing pricing module last quarter, we now have the flexibility where newer stores.
Bulk, mainly mindful fuel requirements and higher wood costs set during the severe foundry capacity shortage period.
Furthermore.
We can now leverage diverse funds resources for optimal operational efficiency.
Our improved cost structure there.
Thereby maintaining our product competitiveness.
Favorable product mix shift.
Also a key factor contributing to our expected Q3 gross margin expansion.
This is predominantly driven by increased automotive sales as discussed earlier.
Two a robust recovery in the Chinese automotive market, leading to other read into order reduction.
<unk> customers.
Yes.
Notably.
Automotive sales for traditional TV IC TBD.
<unk> are all set to enjoy decent double digit sequential growth in the third quarter and collectively are expected to represent almost 45% of our total sales.
As a reminder, this automotive products have better have a better than corporate average.
Our margin profile.
Moving on to inventory Destocking.
Our inventory depletion is progressing nicely with Q3 inventory level on track for meaningful reduction.
At this point, we are comfortable in overall inventory levels.
Thanks to our continuous effort to destock for several quarters.
In addition, the remaining stocks are comprised of IC products, which have a solid customer design base, a long expected lifetimes.
We now expect that our inventory will normalize near historical levels by the end of the year.
Okay.
For the.
The macroeconomic environments.
Some headwinds for us.
Given the respective strengths.
Automotive sales.
Operating for this ability and cost structure.
In addition to our commitment to expand our presence in high value added areas such as T Con OLED.
We expect second half sales and gross margin to improve for the first half and believe we are well positioned for long term sustainable revenue growth.
Okay.
We start I will now begin with an update on the large panel driver IC business.
Our third quarter 2023, large display driver IC revenue is projected to be down single digit sequentially.
We expect TV E business to be down high teens quarter over quarter due to leading brands.
Certain jet production control measures amid soft market.
<unk> sales are expected to increase by a decent double digit sequentially predominantly from rush orders from <unk>.
For one.
Leading.
Brent.
Meanwhile, the.
IC sales are set to increase single digit sequentially continuing the customers are restocking momentum we saw last quarter.
Turning to the small and medium sized display driver IC business.
Despite continuing uncertainty in consumer electronics, we improved.
We see improved visibility of demand in the automotive market Q3 revenue is expected to be flat or slightly up sequentially.
Automotive driver IC business is poised to increase pilot.
Double digit sequentially.
So uptake.
In both television and traditional DB IC.
However, smartphone and tablet sales are both projected to decline double digits.
The sequential growth of automotive DD IC business is fueled by resumption of customer orders across the board following several quarters of inventory correction.
Automotive TBD pieces also resumed its growth trajectory.
<unk> trajectory.
Third quarter.
Driven by increasing production of customers' new vehicles.
After an unexpected second quarter disruption.
The automotive recovery has been further bolstered by supportive governmental policies, especially in China, and the U S to incentivize new vehicle purchases.
Given the rapid adoption of the new generation of vehicles.
We have already secured almost 300 design wins in a number of new design in projects you see increasingly as we speak.
We remain confident that we will continue to enjoy strong growth as our leading market share position remains unchanged.
It is worth noting though.
<unk> sales were a council over 30% of total of total automotive sales third quarter and up.
Poised to continue to increase.
Let's move on to <unk>.
<unk>.
Has been a pioneer in the market.
Given the growing global demand for loss for Amit.
This intuitive in car display experiences.
We anticipate accelerating adoption of OTT in the coming years.
The OTI is gaining popularity, particularly among high end car models, with FMC and or larger than the automotive displays.
Our integrated solution of OTT and local dimming T Con has been adopted by many customers.
There are certain.
Platform for higher displays for bleach.
Royalty off large automotive displays will be developed.
This further solidifies our position among customers in the high end automotive display market.
We expect an influx.
<unk>, leading to a growing number of projects slated for mass production starting 2024.
Okay.
As we have mentioned repeatedly permits.
Is the front runner is the front runner position in automotive display IC market.
A comprehensive product portfolio covers the entire spectrum of specifications and technologies to address very design needs, including traditional dvi's TVD and level of immune T Con OTT.
OLED <unk>.
Yes.
Having the broadest.
One stop shop, offering also drives customer loyalty.
As evidenced by years of extensive collaboration with panel makers across the globe.
Worst case with tier ones, and Oems, who deeply trust <unk> expertise for their product roadmap.
We are confident that our automotive business will continue to be our primary sales growth engine moving forward.
Next on smartphone integrity product lines, we continue to see lackluster demand in the market.
Currently a small group of peers are still in the midst of Offloading inventory.
Offering aggressive pricing.
In theory losses.
The excess inventory.
As we near the end of our Destocking process, Australia. She is not is to not engage in pricing competition.
Even at the expense of forfeited revenues by Tony away unprofitable projects.
Having said that we have placed wafer starts will select.
Products starting Q2.
Yes.
Next for an update on air molded.
I might offer us both DDI CMT comfortable OLED displays and has commenced production for tablet and automotive applications jointly with global leading panel makers.
For automotive OLED display design activities are going smoothly.
With both conventional carmakers and MTV vendors across different continents.
Currently we will continue to queue up.
For AMOLED driver IC development by strategically partnering.
With a major Korean or Chinese panel makers of various applications covering smartphone tablet notebook and TV.
For smartphone AMOLED display driver amidst a muted.
Smartphone market, we still target to commence production towards the end of 2023.
No 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 Q3 pecan sales to decrease single digit sequentially tempered by reduced shipment for monitors and OLED displays for tablet.
For OLED tablet business, our customers austere in the midst of inventory off loaded.
Due to muted end market demand.
Despite the soft.
In any environment.
Actively working on the next generation IC for OLED tablet.
I mean to broaden our offering and but they pay.
To position us for when demand returns.
Next automotive telecom business, we continue to solidify our leadership position, particularly in local dimming T Con.
<unk>.
Can improve display countries, we're also lowering power consumption.
We are encouraged by the growing validation.
And the widespread deployment in both premium and mainstream car models across the globe.
Automotive telecom business is poised to experience explosive growth with notable sales contribution starting 2024.
We expect it to be.
One of our major growth engines.
Yes.
Switching gears to the <unk> smart image sensor combo solution, which incorporates <unk> proprietary ultra low power AI processor.
On Cmos image sensor and <unk>.
Yeah.
Or either.
We continue to support them up the mass production of sales notebook along with other endpoint AI applications, including video cameras device sure Mike Parkin Boardwalk agriculture.
Good culture among others.
We also focus on strengthening our interior sensing module business.
The effort to further broaden our customer base and application.
The module offering.
Cooperating in Wi Fi technology.
<unk> clients with a series of highly integrated plug and play module pause, which.
User programmable.
But also loaded we saw pre trained AI models for simple system integration.
Sure.
This has effectively short term customers time to market and reduce development costs.
Making it, particularly well suited for market featuring high variety and small quantity.
Through our recent quarters, we have received excellent feedback from customers or seeing loss.
Creases, we'll cross it full.
For various applications.
Building on this momentum we plan to roll out a series of modules that will expand our product offerings to cover more diverse markets.
<unk>.
Six upon the vast opportunities presented in endpoint.
Over the past few quarters, we have witnessed.
The growth in the adoption of Wi Fi products, particularly e-commerce surveillance applications, specifically door lock doorbell.
Battery camera.
Notably we are pleased to report a successful collaboration with a leading door look better in China, the largest market globally.
The project is steady for mass production starting in the second half of this year.
<unk> grills extending to 2024.
Oh why sized solution is also being implemented for commodity reputations.
He can intelligently detect the presence both burnt a pulse share of driver or passenger delivering a broad array of AI use cases inside the vehicle.
Such demand is expanding rapidly with global leading car brands for new car models, primarily in application for car owner recognition and key this axis.
We saw the new use cases also under development.
Thanks for an update of our <unk> AI processor.
We engaged a global network names for the next generation product development.
We have made significant progress in.
Enriching VIP shares or use cases through collaborations with major CPU and Ipso's players for next generation Smart notebook surveillance and the host of other endpoint AI applications.
Okay.
<unk> two processor offers for the advancements.
Speed and ultra low power.
Maintaining superior power efficiency compared to our already industry, leading first generation <unk> processor.
Do you want.
Furthermore.
In context aware AI W. Two enables small detailed computer vision object analysis.
Such as real time.
Fisher them marked.
Hitting the market.
And to impose a skeleton Omar this is extremely low power consumption.
This enables sophisticated <unk> appreciate detection for smart notebook and broader AI applications.
Having established a leading position in ultra low power AI processes.
74 endpoint AI applications, we have.
Firmly committed to the resi product lines ongoing development and growth.
By leveraging our broad ecosystem partners and customers.
To maximize market reach and explore potential applications.
Belief that our <unk> business will serve as a multi year.
Structural growth driver for high mix.
[laughter].
Let's see.
For an update on the optical related product lines.
<unk> is one of the few companies in the world that can offer a diverse range of optical products, including <unk> <unk> and they all calls for the development of immersive technologies.
<unk>.
The man hours.
<unk> is well positioned to capitalize on the growth of this nascent industry.
It's all technologies are vital for facilitating immersive content evidenced by the growing list of AR.
Goggle device that you named projects with leading customers across the board.
First on W. W ill update.
We recently commenced volume production of our <unk> technology to a leading north American customer starting in the second quarter for the new generation devices.
Enable street the gesture control.
We expect a decent shipment for this customer in the second half in preparation for the upcoming seasonal shopping sales.
<unk> only owned course sales color sequential from the <unk> micro display technology was.
One of the most high profile thermals.
The display week 2023 may.
And successfully captured the attention of numerous type jobs.
Through years of strenuous development, our color sequential front leader Claus has achieved exceptional industry, leading elimination in full at UV color.
Hello.
Breaking tiny form factor also lightweight and a wide degree field of view.
These features make all contract will display, particularly well suited for the next generation they are goggles.
Outperforming other competing technologies, mainly Michael.
A growing number of engineering engagements.
Preceded nicely with leading tech names.
Im confident our color sequential front leader of course can be one of the most promising technologies that meet the rigorous requirements.
Enable AR goggles.
Okay.
The introduction of the latest mixed reality device over leading tech giant exhibited a significant advancement for the whole my numbers ecosystem.
<unk>, how the may numbers.
Immersive technologies continue to evolve.
Our increasingly accessible.
Gradually become more integral part of our everyday lives in the future.
We believe.
Given our expertise in optical related technologies, including hunches are patterns in a R E D.
Customer.
Can leverage our product suite to develop immersive experiences for a variety of futuristic and mainstream products in EMEA numbers of applications.
We continue to strengthen our optical related technology suite.
Forging partnerships with global technology leaders to.
Strategically secure.
<unk> position in the space.
And create an additional diverse long term revenue stream.
For non driver IC business.
We expect revenues to decline double digits sequentially in the third quarter.
That concludes my report for this quarter. Thank you for your interest in Hi, Max We appreciate Youre, joining todays call and we are now ready to take questions.
Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
One moment for our first question.
Our first question will be coming from Jerry Xu of Credit Suisse. Your line is open.
Thanks for taking my question.
Jordan I just want to ask you.
Yeah.
Yeah.
Previous noted that.
It's likely to improve from the first half so judging from the guidance you provided already on third quarter fourth quarter revenue should recover.
Yes third quarter.
Yeah, Charles and then what are the drivers behind that that's the first question.
And then in terms of the automotive I think I've mentioned.
About.
A lot of the new products in this area, but I wanted to ask about now what is the pricing trend.
For the Automotives driver.
Driver IC or timing controllers, and how does that compare with the other product lines.
Then.
Maybe on the wafer.
Wafer pricing.
Alrighty.
Terminated your long term agreement with our sponsor.
Second quarter, how should we think about wafer cost interested perhaps can you benefit from some of that renegotiation or wafer foundries are priced on a reduction to help the margin.
Those are my two questions. Thank you.
Thank you Jerry.
Yes.
There's a good likelihood.
The the Q4.
Sure.
With where we are.
See a further recovery from this trial in Q3 however.
As a disclaimer you know we are very confident on the.
On the continuous growth of the mortgage sector.
Q4, however.
In the consumer sector. The Q4 visibility theory was quite low so it really depends on the.
The outcome of the of the of how the market is going to develop for the consumer products.
But.
In our current projects.
Protection, Yes, a seat.
Second half is likely to be better than first half and Q4 is hopefully going to recover from the trial in Q3.
That's the first question the second question.
Really there are quite a few questions surrounding automotive sector.
I think you mentioned pricing trend.
And specifically pricing trend for automotive sector compared to lows of ATA.
Markets.
I think.
I mean <unk> doesn't enjoy.
A very nice leading position, we still maintain the market share even though the automotive sector.
Inevitably.
We are seeing.
Competition.
Yeah.
Both.
Internationally, yet coming from China.
<unk>.
And certainly for competitors of the the.
The the approach they will they will take a follow up for this relatively new market for them is to and the cutoff price.
I think certainly I mean.
And are you.
You mentioned you also saw.
US pushing the ball cost structure, I think certainly I'll elaborate a little bit of that in a few.
A few minutes, but certainly we are committed to continue to improve our cost.
Through various means including diversify diversify now country base as we reported as we reported earlier by you.
Yeah.
Terminating certain local agreements.
Not not favorable to us although the competitiveness.
Yes, we were.
Certainly be prepared to compete on pricing.
By improving improving our cost structure vigorously.
Having said that I think.
Automotive sector compared to consumer markets.
Uh huh.
Much higher.
<unk> for newcomers because of this.
Uh huh.
You know very different ecosystem.
Our supply chain here when you talk about not just panel makers and end customers also OEM.
Although tos play a very very important role.
And also we have for our geographical diversity, which is.
Certainly very very different from any of the consumer markets here Youll have four.
The U S market, Japan, Japanese market Korea, European and certainly China market, which all really quite different.
They are dominated by very different players.
And also.
This is very different names, which dominate different markets.
Sure.
They partner, sometimes rather different T O N.
Theres two so youre talking about a much more complex.
Diverse.
Ecosystem players for IC vendors to cover it and I think we do have a very clear about this.
Being the early mover and also joining.
The BB market share and also.
You know you are aware automotive market replacement of any Pos is a lot harder.
Compared to consumer products right. So so we feel yes, they are price competition and.
Customers to try to either cut off price, but that doesn't mean, we are always have to meet their price to meet the competitiveness. We don't we do enjoy.
Better position.
And very very opposite customer was fear.
Hi, Max even you know.
Kevin.
Very aggressive prices on hands.
From our competitors, but I think so we don't take any competition lightly.
But we are still confident.
Across different product segments, multimarket, namely DPI C T D.
Timing controller OLED.
<unk>.
We are going to lead the market.
And.
And this is evidenced by the fact that.
Our.
My engagements and design win projects either all fails.
For last year.
Compared to any of our peers.
So yes, they are price competition, but we remain quite confident in that.
Any foreseeable future for the position to be challenged.
Oil price and cost and then the cost structure.
We are for strategic reasons.
We.
We did and still too high.
A slightly larger inventory.
Inventory level.
Normal, particularly for PD IC.
Products.
But we're not worried about that because.
Okay.
We are secured by a lot of design wins and <unk> and.
And we still see <unk> projects or products.
We expect to enjoy a very long lifetime, but.
We are approaching the end of our.
Inventory destocking process.
EBIT for IC and.
And we.
With our new logo stuff certainly we.
We're certainly negotiate typically spot deals.
Already in full price kind of arrangement that we saw.
With a foundry vendors and so I think you can expect.
Sure.
At least the latest starting from about end of Q1 or Q2 of next year, you'll see our <unk> cost structure with C. A major improvement.
Because of our new wafer starts.
That is likely to.
See better pricing.
And certainly foundry diversification I mentioned earlier.
Yes.
Yes.
Is a key area that we are exploring.
And we are not just diversifying our foundry in Taiwan, we also diversify into China.
Sure.
China as we know it.
This is the biggest market in the world for the multifamily market and.
The country does favor local production and.
For that reason, we are diversifying into China as well.
And although.
Moving to China for foundry.
Uh huh.
Service has been our most world Cup by Chinese foundry.
Sure.
Players because.
They all know.
<unk> is a leading player in this market. So there are.
Various measures that we take we have taken to.
To hopefully low hour.
Our cost and also to strengthen our.
Our supply chain.
Volatile multimarket.
I hope that answers your question Jerry.
Yes, very clear thank you.
Thank you.
Again as a reminder, if you would like to ask a question. Please press star one one on your Touchtone telephone again, Please press star one one for any questions and our next question will come from Donnie Teng of Nomura. Your line is open.
Oh, Thank you management for taking my question.
I have only two questions. The first one is regarding to the automotive driver IC. So I think you'll have made a very clear.
Comment on the.
EV market recovery in China.
The second half and likely customers start to reduce almost automotive driver IC inventory.
The rhythm to ease some of the leading you know.
Total IBM companies or.
IC design companies mentioned above some slowdown in terms of some kind of automotive IC demand into the second half.
So I'm just wondering if you could give us some color on.
In terms of the end market do we have like a majority of the market in China or.
We still have some exposure to the overseas market. So that's the first question.
And second one is that I think you have mentioned about the cost structure will be improved and into the first half next year.
I think we have a very good.
Yes in terms of the gross margin in coffee already in the third quarter.
But in terms of a normalized gross margin considering the cost structure improvement.
Could you kind of give us some idea.
For example.
Where the normalized gross margin is compared with like the coffee PRA in the 'twenty one draw in 2022.
Thank you Tony.
The first question.
Uh huh.
The simple answer is given.
Given our market share you should not be surprised that our customer base in terms of and the Oems covers the whole world.
Is China.
We have mentioned in DD IC, our market share is about 40%.
In TDI, we believe our market share is even higher than that just studies are relatively new markets. So market statistics are not particularly mature. So we are not.
You know talking about that number out, but we believe based on our internal count our market share should be higher than that and then low what immune timing controller, our market share is even higher than <unk>.
Then.
TBD.
Okay and based on our internal call. We believe it is probably 60% or higher so.
We are likely to be the pioneer.
Mass production the first mass production of the whole world are expected to start from this quarter.
So we do enjoy a leading.
Leading market share in literally every single.
Technology area for the Multimarket so.
Our.
Sure.
Our our end customer base this cover the whole world.
All major continents in all major markets now.
You talked about.
When does the view of the second half.
I think.
There could be a difference between us and those who are there as the panel maker market in between for us between our sales and the <unk> in their case they may not.
<unk> be the same.
So our our first hub, so I believe our first half.
The first quarter and second quarter.
Sure.
Our automotive.
Revenue proper you were more headroom compared to those and our customers are just coming back and tried to restock.
And catch up for the.
The.
For the full hour supply, which otherwise should have been.
Made in the first half and more specifically.
I'll give you some color.
TDI and T com.
We're positioned to enjoyed very strong growth high.
A very decent double digit growth.
Not just quarter over quarter, but also first half over second half and also this year over last year.
Okay.
I repeat.
For automotive area in TDI and T com both are relatively.
New markets, where we have a leading position.
Very strong.
<unk> stage.
So we expect to enjoy decent.
Double digit growth.
Not just quarter over quarter, but also second half over first half and the year over year for this year.
And.
So I can pretty much stay the same for next year too I think we have good competencies that because they are relatively.
New markets. However.
For TV dicey.
For the second half.
We reported third quarter is likely to see a strong rebound from the second quarter.
Uh huh.
Second half also expired expected to enjoy a double digit growth for the first half however for TD IC.
Year over year, we are likely to see a decline we're going to see a decline DVA IC. Thank.
And given that <unk> is still the biggest component.
Of our overall automotive business.
Yeah.
So.
Fiscal year 'twenty three for overall automotive business we are.
Still likely to see.
Sub decline.
<unk>.
Last year.
I don't know if I'm confusing you guys, but I believe I've made it quite clear so so because TV IC is.
Is being replaced by <unk>.
And also I told the bulk Orlando.
Government policies, so we incentivize new purchase from China, and the U S right and those incentives are provided primarily to evs pushup predominantly new design models and given that given that they are new they tend to use a TBD yet and in many cases.
Lower community count as well so.
So.
The.
The replacement of TDI.
Over traditional DB IC honestly is probably quicker than we anticipated last year.
The replacement of the peso replace these faster.
But that is not bad news for us because that means the autopilot per panel basis, our country's higher.
And as I mentioned earlier, we do enjoy it even stronger market share compared with <unk>.
So so so I think.
Uh huh.
So because of this reason.
<unk> built and T com.
<unk>.
We feel quite confident that.
Our.
Next year automotive pieces, whereas to.
Start to read through to see.
It growth decent growth from this year again, although this year.
Our overall automotive business is likely to see some decline from last year.
Another severe this crime, but some decline.
Yeah.
Okay.
Your second question is about our our cost and.
The margin profile I believe.
Yes.
I think.
I can say.
Right.
In the long term.
I mean, it's.
As a reminder, we are not.
The intention is to provide our long term gross margin guidance right and just give up.
Give a flavor of how we believe our gross margin trend is going to be like.
Sure.
Sweet.
Take a longer term look at.
Longer term horizon.
I think it is probably difficult for us to see the same level of very high gross margin during COVID-19 at its peak where there'll be involved.
Although 50%.
Honestly it is probably difficult to see in the coming years. However, our gross margin returned to the pre COVID-19 period.
We typically.
Had some 24, 25% kind of gross margin.
I don't think so I'm not pessimistic.
Pessimistic either.
And I think they are.
But other reasons to explain that but I'll emphasize on high mix specifically in the oil situation I think we we feel good about our <unk>.
Such a change in terms of our product mix.
And overall company profile.
He said earlier in my prepared remarks.
Our automotive market.
Is likely to account for.
Almost 45% our total sales this quarter.
This was I've heard of.
Whether it's steering Colby pre COVID-19 automd.
Commodity market at a time.
At Best 10, plus percent of our total sales.
No.
This high percentage certainly comes from two factors one automotive has been growing very fast in the automotive market.
Display is slightly to outgrow other markets in the coming years. So that is very good news for us.
Certainly that 45% high number is also a result of the very sluggish consumer.
Market, right, which pushed down other other products' contributions so but.
In any case long term automotive market contribution is likely to.
The much much higher.
Than previously so that is.
What I would say fundamental change.
<unk>.
And although the market market does enjoy not just higher but also more stable and more predictable.
Gross margin compared to other markets. So again.
Dean.
Having a higher much higher exposure to north American market in the next few years I think is a very good news for IMAX.
We are also investing in our <unk>.
<unk> in a few new areas.
Uh huh.
Biodiesel Multimarket covers not just driver IC Basel, having controller right. So.
So I've mentioned.
And also our OSI products is in a.
Very early stage, but we expect to double our revenue for the coming years.
Joyce.
The best gross margin among all our product lines.
And.
For example, I'll give you. Another example, ebay.
<unk> paper.
Turning to color version and.
We saw.
A fast growing market potential we have.
And major exposure over there as well so these new markets are likely to drive our cross gross margin long term.
Hi.
Cannot tail.
We saw a similar degree of certainty is consumer market clear really.
There is a poor visibility.
Not just for for the rest of the year, but also into next year.
Uh huh.
Having said is poor visibility doesn't mean, it's necessarily bad boy if it right. So at that point, we certainly hope you'll recover.
But for now I think.
At least for Carmax visibility volatile multimarket is quite good for WSI is quite good as well. So I believe that were improved long term.
Module profile.
Significantly.
I hope that answers your question Tommy.
I think it was almost shoulder surgery.
Thank you.
One moment for our next question.
Okay.
Okay.
And our next question will be coming from Tiffany Yeah of Morgan Stanley . Your line is open Tiffany.
Thank you Thanks management for taking my questions I have three questions.
My first question is relating to the pricing side.
As Ron mentioned earlier in the prepared remark.
Q&A session.
Smartphone and tablet market are seeing some pricing erosion and west loop I'm, just wondering what's the current pricing environment for.
Non alcohol key cause and large display driver IC like like Keybanc.
We think.
Severe pricing competition now in the market.
This is my first question.
Okay. Okay.
A quick answer.
I think with <unk>.
We have seen the worst and now the market is actually stabilizing the worst piece at a time when everybody suffers from overstock.
And we.
We are.
Mirroring I would say nearing the.
The the end of Destocking process throw the whole industry.
Zinc.
Pricing has now become.
Healthier pricing environment.
Certainly that is true and my general comment.
Specifically I think.
Television certainly stabilizing.
The notebook and monitor us although stabilizing.
Sure.
Automotive market also is holding up.
Uh huh.
Tablet I think has stabilized quite nicely I think.
I mean from our point of view the weak spot for now remains to be smartphone.
Sure.
Sure.
As we mentioned in our prepared remarks that there are certain there austere.
A small group of our peers, which tier.
Going through.
Aggressive stock stock price process.
But.
Hopefully you know.
Towards the end of the year or what are the next year.
So.
You know come to an end, but I think.
So I think I saw.
We have gone through the worst because.
Inventory position is healthier, but certainly we are still suffering from low visibility throughout the whole industry.
So.
What is going to detect or.
Our.
Our module profile for non automotive.
Markets I think not just for <unk>, but throughout the whole industry.
The end market demand is still sluggish so the AG customers.
I'll definitely go into demand aggressive pricing from us acquire our foundry partners.
Because of low utilization.
They are not really enjoying the profitability either.
Some of our foundry partners are actually suffering from some losses already.
So.
Can we.
You know get more aggressive pricing from our foundries or can we.
A tool to help us substantially though our cost continue to log costs to support our customers or can the end customers.
Support.
So a more healthy environment because their market.
We have four studies, depending on ROE that is yet to be seen we don't know yet but is it <unk>.
IC design company.
Sure.
Current strategy certainly is not too.
Just for the sake of enlarging our revenue sides too.
You know too.
<unk> sauce.
Now in the new wave of stuffs may not be maybe loss, making business or not profit unprofitable business.
Our our strategy is not to do that and not to compete too aggressively on those markets where.
Some of our peers as vehicles through Destocking process.
So youre right.
Second question.
My second question is I wanted to ask about the fundraising side are we seeing any specific foundry node that is still a shortage right now.
Okay.
No.
Yeah.
No no okay. Thank you.
Don't think Theres any note that is in shortage right now.
Not too familiar with the very very advanced nodes like three.
Three nanometer 40 nanometer five nanometer.
For the space, we were aware of yet so it is now.
Thank you and my last question is regarding the technology side.
Hi, Lee from by US provide you on.
Development of gate.
Driver IC all told in the next few years.
Could you also share the current penetration rate.
GLA driver of ICR. Thank you.
Well.
Driver IC has been a very old thing that's been going around for I don't know maybe more than 10 years well over 10 years. So.
Not exactly the theme of the day still speak because cut.
Customers, who cannot adopt joy technology has already done so.
I'm talking about across different panels deeper applications.
All right.
Great Big ages ago.
I can't even recall point.
Loss.
Was it a pollo time sheet too guys by Timex, because all southern our gate driver market cause disappearing.
But now get driver accounted for very very.
Like magical poses a negligible portion of our business already because of the GLA technology.
Which.
Which has been putting in place for many years. So it is not really.
I assume that we discuss about anymore.
Okay got it.
You for the color.
Thanks again for taking my question.
Thank you Tiffany.
And I'm showing no further questions I would like to hand, the call over to Jordan for closing remarks.
As a final note Eric Lee our chief.
Officers will maintain investor marketing activities and continue to attend investor conferences.
We announced the details as they come about thank you and have a nice day.
Okay.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
Okay.
Okay.
[music] okay.
Okay.
[music].