AUOTY Q1 2025 Earnings Call

Operator: [Interpreted] Welcome to AU Optronics’ 2025 First Quarter financial results conference. Before the meeting starts, all lines are being placed on mute. After the presentations by the management team, we will proceed with questions and answers. Now I would like to hand over to Jerry Su, AUO’s Senior IR Director.

Jerry Su: Ladies and gentlemen, good afternoon. I'm Jerry from AUO's IR Department. On behalf of the company, I would like to welcome you to participate in our first quarter financial results conference. I'm joined by four executives: Paul Peng, Chairman and Group Chief Strategy Officer; Frank Ko, our CEO and President; James Chen, Senior VP of the Display Strategy Business Group; and David Chang, our CFO. The agenda for today is as follows. First of all, our CFO, David will go over our first quarter financial results and provide you with our guidance for Q2. Paul and Frank will have opened the remarks on behalf of the company. Then we will move onto Q&A session. We have collected questions from analysts before the meeting. For the first part of the Q&A, we will address those questions. Afterwards, if there are still more questions, we will open the line for you to post more questions. So that was our agenda. Before I turn over to David, please allow me to remind you that all forward-looking statements contain risks and uncertainties. Please spend some time to read the safe harbor notice on Slide #2. David, please?

David Chang: Good afternoon, I am David. I would like to go over our first quarter financial results. Our net sales came in at NT$72.1 billion, up by 5% QoQ. Our three pillars saw revenue growth QoQ. Let's first look at the Display segment. As TV benefited from stock replacement and trade-in policy in China, pull-in momentum strengthened. Meanwhile, IT customers accelerated inventory amid tariff-related concerns, the seasonal downswing was smaller than previous years. Thus, the Display segment's performance was better than expected. Mobility Solution benefiting from stronger demand for high-value added products, subsidies from China, and expanded overseas sales posted better than expected performance. Our Vertical Solution buoyed by recovery in demand from industrial and commercial displays and smart vertical applications registered revenue growth that aligns with our expectations. In terms of profitability, due to revenue growth, product mix optimization, and cost improvements, our growth margin improved to 12.2%. OpEx, thanks to our enhanced OpEx control, our OpEx ratio lowered to 10.6%, which was better than our expectation. Our OP profit improved to NT$1.1 billion. We had non-op profit of NT$3.3 billion due to two reasons. Non-op gain of $1.8 billion from the sale of ACC fab in Houli, including related recognition of asset impairment loss of the solar PV business. Secondly, revaluation of a NT$1.2 billion gain based on market value according to IFRS post our resignation of one directorship position in Qisda. Our net profit attributable to owner of the company was NT$3.3 billion, EPS NT$0.43, and our EBITDA was NT$8.8 billion. EBITDA margin improved to 12.2%. Since posting net profit in Q4, in Q1, we returned to the black at the operating level. Moving on to balance sheet, cash and cash equivalents was NT$67.4 billion. Debt was NT$122.2 billion. Gearing ratio 34.5%, up by 3.3%, due to the fact that Q1 is the annual peak of employee compensation payment, and NT$1.8 billion payment of share buyback leading to a slight increase in our bank borrowings. However, we still have a very healthy financial structure. At the end of Q1, inventory decreased slightly. Inventory turnover was 48 days, which is still a very healthy level. Moving on to cash flow. In Q1, we generated from operating activities NT$1.7 billion. Depreciation and amortization was NT$7.7 billion. Outflows from investing activities was NT$5.1 billion, CapEx NT$6.6 billion. The inflows from financing activities was NT$1.5 billion. Net change in debt was NT$3.5 billion. Payments to acquire treasury shares NT$1.8 billion. Moving on to revenue breakdown by our pillar. Our revenue in Q1 was NT$72.1 billion, up by 5% QoQ. With the growth of Vertical Solution, Mobility Solution outperforming that of the Display segment, therefore, Display lost one percentage point to 54%. Vertical Solution increased by one percentage point to 13%, and Mobility Solution staying at 28%. Next our Q2 outlook. Firstly, about the Mobility Solution segment. Due to our customer's project timeline and a higher base period, we anticipate Mobility Solution to post revenue to be down by low single-digit percentage for QoQ. Vertical Solution is anticipated to have revenue up by mid-to-high single-digit percentage QoQ due to demand recovery and new project volume ramp. The Display segment is anticipated to experience a slight decline QoQ in revenue due to the higher base period and tariff-related uncertainties.

Jerry Su: Thank you, David. Now we would like to hand over to Paul who will provide an opening remark.

Paul Peng: Thank you all for participating in our Q1 financial results conference. Looking back at the Q1, we have experienced a stronger pull-in for the Display products. Besides increases in our shipment, Mobility and Vertical revenue also improved steadily. Our revenue increased by 5% QoQ and up by 21% YoY, better than the first quarter performance in the past years. In terms of profitability, we benefited from our revenue growth, product mix improvements, and stronger performance in our cost control and efficiency improvements. We had a major improvement in our gross margin. Our OpEx amount and ratio both lowered, helping us to return to black at the operating level, generating NT$1.14 billion of OP profit. Moreover, in terms of non-Op gain, we benefited from the profit of the sale of ACC's fab. Our net profit was NT$3.3 billion with an EPS of NT$0.43. We have a relatively robust financial structure with the inventory turnover of 48-days, gearing ratio at 34.5%, maintaining at a healthy level. I think we are all very interested in the topics relating to tariffs. Panels or displays are components. The impact of tariffs on panels is relatively limited, with a bigger impact on end product customers. Based on our current assessment, direct and indirect impacted shipment to the US will account for 10%-15% of our revenue this year. The impact on our US-bound direct shipment this year is less than US$200 million. However, most of our shipments are based on FOB, meaning that the tariffs will be shouldered by the importers, with limited direct impact on AUO ourselves. But we have to recognize that spending or consumption in the US accounts for 25% to 30% of the world total. Considering the fact that our exposure to US-bound shipment is lower than the industry's average, the current 19-day pause on reciprocal tariff, the enforcement of 10% tariff on non-made-in-China goods, exemptions on some goods, and the coverage of USMCA on certain goods, the impact of tariffs on AUO is much lower than what was felt in early April. However, there are still many uncertainties, in the future, we will have to pay close attention to. What we really are concerned about is the inflated tariffs and their impact on the consumption behavior or consumption capability of US consumers, as the US is the world's largest consumer market, and many of the life’s necessities and grocery goods will have to rely on imports in the US. If the higher duty rates will be transferred to the end product prices, then ultimately it will cap the consumption power of US consumers, and it will crowded out their disposable income. This has been inflecting on the changes in the consumer behaviors in the US, and ultimately it will also indirectly impact on the consumption and manufacturing capabilities of other countries as well. So, as demand is anticipated to lower, ultimately the global economic growth will be lowered. That is why IMF recently lowered its forecast on the world GDP growth in 2025. In the beginning of this year, we have anticipated that the industry will have a more balanced supply and demand, and the industry will move toward a healthier direction with a normal seasonal pattern. However, the tariff-related impact will likely upend the seasonal patterns this year. Actually, between Q4 last year to the first quarter this year, we have observed that early holding has occurred in response to restocking demand due to a lower inventory level post-promotions in the year-end, as well as the trading progress in China. At the same time, we are also observing some earlier inventory build-up as customers scramble to get ahead of tariffs. So, in view of the uncertainties of the tariffs on the global economy, we have to be very prudent about how we deal with our Q2 business outlook. In terms of the second half, we will have to work closely with our customers, as our customers will be on their toes, and we are not totally out of the woods yet. We may have to dynamically adjust our utilization of our capacity to mitigate the impact. The impact of the enforcement of tariff rules are changing day by day. We are also working very nimbly internally. We have been implementing response and precautions inside of AUO. We have set up mechanisms in how we deal with the operational risk and how we deal with tariff-related impact. We will be holding meetings regularly and collect market and customer-related information very closely so as to mitigate the possible impact. Now, about our manufacturing footprint. After the acquisition of BHTC, AUO now has a global manufacturing footprint. Besides our original sites in Taiwan, Mainland China, and Vietnam, we now also have our manufacturing sites in Mexico, India, Bulgaria, and Germany. This allows us to dynamically adjust our capacity across the sites according to the policy requirements and our customers' requirements. As we are waiting for tariffs to unfold, we will not discount the possibilities of working with our supply chain partners to evaluate implementing the most appropriate production methods in areas that are more favorable in terms of tariff policies. Of course, the US will also be one of the options we will consider choosing the most appropriate operating model. Moreover, distribution of markets and products will also be another area of our attention. In terms of the tariffs impact and the relationships between China and the US, we don't think that the dust will settle anytime soon. So besides production, we will also be looking at alternative options to distribute our market presence and our product applications. In recent years, we have been advancing our solution portfolio and we have been building a more diverse product portfolio. We are now having a distributed manufacturing and customer base, including in Southeast Asia and Europe, so we are not that solely dependent on the single market like the US In Mainland China, maybe the government will amp up its boost for domestic demand and will also expand its overseas trade. These are opportunities that we hope to capture. Of course, we will also work very hard at strengthening our resilience to deal with the uncertainties in the market. At the same time, we will prepare our materials very prudently and to avoid building up inventory at the same time. Meanwhile, we will also be controlling our CapEx and OpEx very prudently so as to lower our costs as much as possible and to retain the necessary cash position to meet the market changes. We are also paying close attention to financial risks and we are also very concerned about the impact of tariffs on financial market stability, so we will be watching very closely the financial status of our customers and our suppliers, as well as the changes in ForEx. So we hope that tariff issues will be able to unfurl very quickly. However, we still expect the uncertainties to continue and we will implement the necessary precautions to mitigate the changes and to provide necessary measures to deal with the changes. Of course, there are still a lot of changes in the external environment. We have to be very nimble in how we deal with the changes and uncertainties. We will continue to focus on solutions such as Mobility Solution and Vertical Solution. At the same time, we will improve our Display product mix to help us become more immune to the cyclical pattern of the panel industry so as to pursue long-term profitability, stability, and continue improvements of our cost structure and our financial structure to meet the capricious external environment. Now I would like to hand over to Frank, who will be talking about our performance and our business updates in terms of the three pillars.

Frank Ko: Thank you, Paul. Ladies and gentlemen, good afternoon. I'm Frank. Paul just went over our anticipated impact from tariffs and our countermeasures. I will take some time to talk to you about our recent developments and the business updates on our three pillars. Let me start by sharing with you some of the highlights that we had at Touch Taiwan, which concluded two weeks ago. This is an extension of what we have shared with you in February. I would like to elaborate on our operating model going forward under the three pillars. At Touch Taiwan this year, we demonstrated our latest Display technology. At the same time, we showcased our transformation framework. We joined hands with our group subsidiaries and our ecosystem partners to demonstrate our latest thoughts, innovations in terms of Display Technology, Smart Mobility, and Vertical Solutions. On the show floor, we have exhibitions on Smart Mobility. This year, we joined the CES Exhibition and demonstrated a concept car on Smart Cockpit, which won the attention of all the visitors. And this year, we also brought that concept car to demonstrate at Touch Taiwan. This concept car combines our display technology and the Tier 1 design concepts from BHTC to showcase a slew of automotives, computing and algorithms as well as solutions based on Micro LED. So this concept car is used to demonstrate the Micro LED applications inside the cab, including high transparent and flexible feed natures of Micro LED applied in the cockpit, including the sky roof, side window, center control cluster, and steering wheel. We build with Micro LED applications for the cockpit inside the future autonomous car. So, besides the innovations using Micro LED, we also are delivering entirely new experience for passengers inside the vehicle. We also leverage the automotive HMI technologies from BHTC, including the mechanical control, the features that come through, and the human-machine interface. Using these experiences, we have not only gotten a very good feedback at the show floor at CES, we are also rolling out this car to have a Road Show, which we call a Tech Day, to European and US automotive OEMs, where we garnered heavy attention from customers and the executives of automobile OEMs. More importantly, this unlocks future discussions on future products and future projects. Secondly, in terms of the display technology, we demonstrated 114-inch Micro LED TV, which we jointly developed with Samsung. In addition, partnering with a branded customer, we showcased ultra-large size TV made of the world-leading 42 single module Micro LED panels manufactured at our Gen 4.5 fab Micro LED line in Longtan, which we constructed last year. The production line is also capable of manufacturing transparent panels. So, in 2023, we incepted our production preparation for Micro LED manufacturing wearable devices. Then we set our footprint in the manufacturing of TV and large size displays using Micro LED. As you have seen at CES, we are demonstrating the applications and products jointly developed with our customers. In terms of the scenarios of Micro LED transparent displays, we demonstrated transparent notebook displays that we jointly developed with our customers and also dual-sided transparent display used inside an airplane. In terms of automotive applications, we are going to shift to Sony Honda Mobility for a media bar on its latest vehicle. Furthermore, we are going to capture new designings and other orders as well. These design wins as well as future opportunities that will involve larger sizes and lower costs, we expect that these things will contribute to more and more help and positive contribution to our operations in the coming years. Besides Micro LED technologies, in the area of LCD, we also demonstrated the world's very first large size, high resolution, and wide color gamut, Field Sequential Color FSC display. This is a 65-inch FSC display. FSC display uses the technique of continuous display with RGB LED backlight and the persistence of vision from the human eye to yield full color images. This kind of technology does not require any color filters, meaning that it will translate to a lower cost of manufacturing and higher efficiency. More importantly, it involves a much bigger increase in the transmittance of the display so as to yield better efficiency of the backlights, further improving the power efficiency of displays, and more importantly, the larger the screen size, the more power efficiency it gets. Besides the commercial products, we are also very optimistic about its application in the industrial and commercial applications, especially for the long-duration signage requirements. The third pillar is the Vertical Solution. We are leveraging our subsidiaries under the AUO Group, and with the leadership of ADP, we are combining the forces of our group partners and our subsidiaries to leverage our advantage in the display technology to provide software and hardware integrated solutions. For example, in the field of healthcare, we are delivering operating room solutions, and we are also having solutions in the retail setting to meet the requirements for the labor and non-contact features. At the same time, we have a super large size LED display and smart retail power efficient signages to deliver smart retail solutions. In the enterprise setting, we are combining interactive whiteboard with large size LED displays to offer smart meeting solutions. We also have an ESG section to demonstrate our innovations for green solutions, where we have carbon neutrality and carbon management as well as renewable energy services and smart building solutions. This is an area where we also demonstrated our own plastic reduction results at AUO. So this is some of the points I would like to share with you at Touch Taiwan. Moreover, I would like to provide an update to you on the business of our three pillars. First of all, in the Display business, in Q1, due to the robust demand in the year-end for TV, inventory level lowered continuously. Suppliers therefore restocked on their inventory at the same time. With the additional support of the trading programs from Mainland China, TV's performance was better than expected in Q1. As for the IT segment, Q1 is the traditional lower season. However, due to the impact of the tariff-related uncertainties, some customers pulled in their inventories ahead of time. Therefore, the reduction in IT demand was better than seasonality. In Q1, IT experienced earlier pull-in due to tariff-related concerns. In early April, right after the tariff policy was announced in the US, IT demand was affected. We also have spotted some adjustments in the US policy and adjustments across the production sites from our customers. And currently, we believe that the impact in Q2 will be much less on AUO. At the same time, some products experienced rush orders. Because of this, given the higher base period in Q1 and our efforts to improve our product line, we believe Q2 display revenue will be down slightly QoQ. Of course, there are still uncertainties for tariffs, and we will be working with our customers to allocate our capacity across our production sites. And we will also continue with our policy to make products based on demand to provide to our customers. But most important of all, we have to pay close attention to tariff policies and the impact on global consumption. As for the Mobility Solution, Q1 demand improved steadily. The share of high value-added projects continue to improve. At the same time, the China market benefitting from the trading program and policy and the expansion in its overseas car sales, helping our Mobility Solution to post revenue that is better than expected. We didn't see significant impact from tariffs on our Mobility shipments in Q1. In Q2, as Paul mentioned, with our acquisition of BHTC, we now have production sites not only in Mainland China and Taiwan but also in other major markets in the world. That allows us to utilize more resources to support our customers in how they deal with the impact of tariffs. Currently, our automotive products are mostly exported out of Mexico. Under USMCA, Mexico enjoys a more favorable tariff, and our automotive products would likely enjoy zero tariff advantage because of that. Thus, the impact on our Q2 shipment from tariff is negligible. Further down the road, we hope that we will be able to capitalize on our front-end and back-end production diversity as well as the manufacturing footprint around the world to secure more mid- to long-term orders. Under such a capricious environment, more and more automotive customers and OEMs pay more attention to improving the resilience of their supply chain. In Q2, Mobility Solutions revenue will likely be down by low single-digit QoQ. This is owing to the higher base period in Q1 and the project timeline of some of our customers. Now, today marks just a little bit more than a year post our BHTC acquisition. The synergies across the two companies have been materializing through our efforts. I'm very happy to share with you that we have been able to achieve a new order from a global large automotive OEM on display HMI. The reason that we are so happy is that this kind of order is the kind that both of us, both AU and BHTC, had hoped to secure in the past, but we haven't been able to due to some limitations with our resources or capabilities in software and hardware integration. However, with the combination of the two companies, we finally landed this new order from this very important large automotive OEM. Further down the road, we will work harder to secure larger orders from other customers as well, so as to achieve our target of achieving double-digit CAGR growth for our Mobility Solution. In terms of Vertical Solution, in Q1, we are experiencing a recovery in demand for industrial and commercial displays and smart verticals, so the performance was in line with expectations. In Q2, a small portion of customers were affected by tariffs. However, based on our assessment, Vertical Solution’s revenue was affected by an impact of low single-digit percentage. Overall, in Q2, Vertical Solutions should be able to enjoy mid- to high single-digit percentage growth. Now, about the Vertical Solution customers that were affected by the tariffs, this is because they mainly manufacture products or assemble products in Mainland China. And currently, we are working very actively with our supply chain partners and to accommodate our customers' production strategy to help them relocate their production and shipment destination to lower cost or lower tariff regions. So this is a very important advantage of AUO in terms of Vertical Solutions. In early April, ADP signed a term sheet with E Ink to establish a joint venture company with paid in capital of NT$390 million. ADP and E Ink will each own 51% and 49% of the JV company. And the two companies will jointly establish large size EPD module production line. This will enable the two companies to combine their forces together and their resources in technology market and ecosystem partnerships. E Ink offers the key materials in e-paper and the latest technologies, while AUO has the capabilities to enable large size modules and panel designs. At the same time, ADP comes with the rich resources in terms of industrial and commercial applications as well as smart retail solutions. When the two companies work together, they will be able to join forces in the market. And both sides are very positive about the JV's capabilities in helping to advance development in large size full-color e-paper modules as well as market presence expansion. Our goal is to also leverage this large size e-paper EPD module production line to advance our market expansion and to capture opportunities in the area of ESG. We expect that this company will be able to start production in Q4 this year. In coming years, it will also contribute to the revenue of our Vertical business so as to enable double-digit growth CAGR in the coming years. I would like to sum up on the business outlook for the three pillars in Q2. The Display segment is affected by the possible impact of tariffs and the higher base period. Thus, it is anticipated to see revenue slightly down QoQ. As for the Mobility Solution, which is affected by the higher base period in Q1 and the project timeline of some customers, the revenue is expected to be down by low single-digit percentage point QoQ. Vertical Solution, given the recovery in the demand and the value increases from new projects, its revenue is anticipated to experience mid to high single digit percentage growth. Thank you.

A - Jerry Su: Thank you, Paul, and thank you, Frank, for your sharing. Now, we would like to address the questions from analysts. The first question is related to financial performance. Considering the current economic conditions, could you please provide an update on the depreciation and CapEx for 2025? Also, any guidance on the future trends of depreciation and your CapEx? David, please.

David Chang: Currently, regarding our depreciation, we maintain our original forecast of NT$30 billion for 2025, and CapEx is anticipated to be no more than NT$30 billion for this year. However, given the uncertainties revolving around tariffs, which caused some uncertainties on the macro conditions in the market, we will continue to observe the market conditions and dynamically adjust our CapEx as needed. Moreover, under AUO's transformation strategy, we will continue to advance our developments in the Mobility Solution and Vertical Solution segments. As we lean in toward asset light from heavy capital investment, our CapEx and depreciation should go down sequentially.

Jerry Su: Thank you. The next group of questions are Display-related. Could you please provide color on the global TV and IT set sell-through and overall channel inventory for the first quarter? Secondly, in the Display sector, what are the impacts of tariffs on clients and the industry, and how are they addressing the impact? James, would you please?

James Chen: Ladies and gentlemen, good afternoon. Paul and Frank have elaborated on the Displays and the Vertical business and Mobility Solution business. I would like to provide more updates on the TV and IT segment. Q1 is the traditional low season for TV and IT. However, benefiting from the trading program in China and earlier pull-in ahead of tariffs, TV and IT segments enjoyed robust performance YoY. In terms of TV, Q1 TV demand grew by 2% to 3% YoY, mainly because in China the TV’s sell-through lowered by only 2% and area shipment expanded by 5% because of size migration. 85-inch and above TV sets grew by 35% YoY, accounting for 13% of the shipment. Average size also grew by 2.2 inches YoY to reach 65.2 inch. In the US market, Q1's sell-through was rather steady, up by 1.4% YoY, boosted by tax return demand and early consumption. So currently, US consumption seems quite steady at the moment. Average size also grew by 0.8 inch. So the size migration has been quite strong. In Q2, with the trading policies in China continuing and the upcoming May 1st and June 18th promotions, demand will likely be boosted. Therefore, we are optimistic about TV set sell-through in Q2. However, it will still depend on the impact on tariffs. Moreover, about the IT segment set sell-through. In terms of monitor, Q1 saw a 2% growth around the world, posting positive growth for five quarters in a row. However, with tariffs and the possible impact, early pull-in and early consumption occurred. In China, the government is implementing a plans trading program to boost sales. Monitor set sell-through improved by 27% through online channels and gaming monitors also improved by 40% YOY. As for notebook computers, set sell-through grew by 6% YoY around the world due to early pull-in by companies helping to boost the demand for Q1. In Q2, with the anticipated launches of CPUs and GPUs aided by Computex, we expect the industry to advance toward low power consumption products. As for channel inventories, in Q1, the inventory levels are relatively healthy as the high season sell-through was quite robust in Q4 last year. Currently, because of the appliance trading policies in China and the upcoming inventory build-up ahead of May 1 and June 18, inventory levels went up slightly. However, these were because of early inventory preparation schemes. So the current inventory levels are still quite healthy.

Jerry Su: The next question is relating to tariffs and especially the impact on customers and the supply chain.

James Chen: Currently, TV customers shipping to the US primarily deliver from Mexico to meet the requirements of the USMCA. Mexico shipping to the US will be imposed with zero tariff. Therefore, the impact from tariffs is quite limited. As for monitors and notebooks, it has been observed that most of the companies are still manufacturing in China and 20% of customers, however, have shifted production to Southeast Asia and Mexico. Since the two products are included in the exemption list announced on April 11, there are no tariff impact at the moment. However, some customers may not have their production sites in Southeast Asia. And so customers and branded customers are actively dealing with the impact from tariffs. We are waiting for new developments post May, as new policies will be announced for semiconductor and panel in terms of tariff rates. And some customers may be shifting their production sites after May and also in June. So we will watch the developments very closely.

Jerry Su: Thank you, James. Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] Thank you. Now we'll have our first question. Randy Abrams, UBS. Go ahead, please.

Randy Abrams: Okay. Yes, thank you. Two questions. First question, I wanted to follow up on the behavior you're seeing from customers on inventory build and pull-in and more specifically after the delay of the reciprocal tariff on April 2. If you're seeing any net pull-ins continue for second quarter versus a conservative tone from customers? And then if you could give a signal how that may impact your outlook into second half. So that's the first question. Second question on the auto market, if you could give your latest thoughts on the auto market and looking forward with some of the opportunities and design wins you mentioned after you showed Micro LED, Smart Cockpit at the CES and Touch Taiwan, how do you see auto and contribution from these new design wins? Thank you.

Paul Peng: Okay. Randy, thank you for your question. I’m Paul. To answer your question, the pull-in demand from Q4 ’24, we have seen some, and then also continue to Q1 in order to reduce, to ease out the impact from the tariff. So that's why Display have a better than expectations revenue in Q1. And we’ve also seen that customers adjust their inventory level in the production site because of this tariff impact. But the problem that because of the risk levels and tariffs has been changed, the policy has been changed all the time. So from the announcement on the 2nd of April until now is many changes. So we will very cautiously watch the changes impact in our customer site and dynamic adjust our materials preparation and the production plan. So recently we will see that not much, but that we have a large orders for customers so that we are trying to fulfill that demand. The problem that the AI necessities in the US maybe have this crowding out effect to further softening demand of the consumer market. So we are also watching this change. So at the beginning of the year, we expect this year's Display supply and demand maybe a balance or bottom up quarterly. But recently we are not sure because of this very uncertain tariff impact and then probably it will change the seasonality in this year. So I think it will be very hard to forecast the second half now, but we will closely watch the changes from US government. And then we will be very dynamic and take the necessary actions to cope with all the changes and also work very closely with our customers to work together to cope with this tariff.

Randy Abrams: Okay, thank you.

Frank Ko: Hi Randy, this is Frank. Let me answer your second question. So about the automotive market, our view for 2025 and 2026, we continually see the expansion of the Smart Cockpit demand. And we believe this will be one of the important areas that OEMs are putting more resources into the differentiation. And also consumer are also looking for more entertainment and the service offerings in the car. So we also observe screen size within the vehicle continue to getting bigger and bigger. And also the Display application in the cockpit moving from car care, CID, and now we see more RQ in the passenger information display, so-called PID, or even the RT versus entertainment distance. Yeah, so which means also the not only the price getting bigger, but also the number of the display also is getting increased. So after we acquired BHTC last year, our overall automotive revenue has exceeded NT$70 billion. So when we see the trend of this and then even size bigger and also the higher adoption rate of our value-added things, such as the refrigerant line and also the Mini LED, and including the future Micro LED. So we still retain our double-digit CAGR revenue target for our Mobility Solution. And then for the future opportunity we mentioned about CES and Touch Taiwan, we do observe very good feedback and also not only from the original key customers, we also got very positive feedback from the new region, including like Japan, India, and also the new OEM with the new project. So AUO has been deeply involved in this automotive market for several years, and we actually rank as a top three automotive display panel provider and also leading position in CID. So our key technology from original Mini LED, now add-on Micro LED automotive application, we continually to demonstrate the new business opportunity and also the new market from the angle of the solution. So acquisition of the BHTC will help us to -- actually help us to capture the market in different regions and also different countries, and also help us to provide more flexibility in production side for our customers. So we see the value proposition and we see together with our Micro LED new technology. So we believe we will provide the technology leading, market leading, and also the cost-efficient benefit to our OEM customers. So this is the, we see our strength at the current hour.

Randy Abrams: Okay. Thank you.

Jerry Su: The next caller is Derrick Yang from Morgan Stanley. Please go ahead.

Derrick Yang: Good afternoon. Could you hear me?

Jerry Su: Yes.

Derrick Yang: Thank you. I have two questions. First, about Micro LED and its developments. Of course, this technology has been recognized a very good technology. However, due to its cost, the applications have been limited. At Touch Taiwan, AUO and your peers in Taiwan demonstrated many Micro LED products. I wonder if there has been any breakthroughs in terms of cost, so that the industry is betting on some more drastic reduction in cost and betting on more applications in the coming years. I wonder if you can provide more color on the cost differences between Micro LED products versus OLED products, and more color on the revenue contribution and your goal in the next five years? My second question is related to tariffs. Of course, there are still uncertainties ahead. You also mentioned that in May, there are more enforcement rules relating to semiconductors, which may also include panels. The largest semiconductor maker in Taiwan has set up facilities in the US. In extreme scenarios, would you consider setting up front-end capacity or production lines in the US?

Unidentified Company Representative: At CES and in Touch Taiwan, we demonstrated our Micro LED technologies in terms of the early developments, innovations, and our path into mass production and market expansion. Currently, according to our plan, in addition to our existing G1 production line for wearable devices and large-size TV sets production, we are also implementing mass production capacities at the Gen 4.5 fab as we move toward large-size migration. We have achieved two major breakthroughs. First of all, 42-inch single-module production line, which will help our customers to reduce their assembly cost. At the same time, it will help us to optimize our manufacturing cost. In addition, Micro LED has a material cost advantage, which is enabled through cost reduction every two years. This will also translate to a more stronger and more robust mass production capacity for us. At the same time, we are also extending Micro LED to newer and other applications, including large-size TVs, wearables, and commercial industrial applications, as well as transparent and automotive applications. In the second half of 2026, with the launch of Sony Honda Mobility's Afeela, media bar will be released onto the market. We also expect Micro LED revenue to increase YoY.

Paul Peng: Hi, this is Paul. On your question regarding setting up fabs in the US, currently, we are looking for the most appropriate global footprint. Currently, we are not considering setting up front-end capacity in the US, so if we want to produce panels in the US, however, most of the assembly lines are not in the US at the moment. If we want to manufacture and then we will have to ship the panels out of the US for the final assembly, so it really won't be that reasonable for us, unless there are major changes with the supply chain that translate to new requirements or needs. Otherwise, we will not consider setting up front-end capacity in the US. However, setting up back-end module or set product assembly line is being considered, is part of our considerations.

Derrick Yang: Thank you.

Jerry Su: The next caller is Karen Huang from Citigroup. Please go ahead.

Karen Huang: Management team, good afternoon. Thank you for taking my questions. I have two questions. First, you guided your Display segment to experience revenue decline QoQ. In Mainland China, some panel makers are halting their production during the May 1st week for their TV panel production line. I wonder if you have similar programs for suspension of your production line for your TV lines? The second question is relating to tariffs. Could you provide a quantifiable assessment of the tariff's impact on your financial performance? Moreover, with the rush orders, would that constitute some additional cost as you have to allocate across your production capacity? Additionally, when the tariff schemes come into effect, the additional costs will be transferred to consumers. Will that ultimately lead to some price reduction requirements for you? Thank you.

James Chen: I'm James. About the May 1st production plan, basically, we have been producing based on our customers' needs. We don't have any practices on advanced production. Instead, we dynamically adjust our utilization rate. Therefore, we are not halting our production during the May 1st week. And our customer demand has been quite steady recently. Thus there's no major plan on adjusting our production plan. In terms of the tariff's impact on AUO's financial performance, James and Frank have mentioned that the impact on our order momentum is lower than the industry average. In terms of cost, as what we have with our customers in terms of our shipments are FOB-based, so the impact on the shipping costs or impact from tariffs is relatively small.

Jerry Su: Ladies and gentlemen, in the interest of time, we will take one last question. Thank you. The last caller is Lisa Chen from Yuanta Securities. Please go ahead.

Lisa Chen: Management team, good afternoon. I have two questions. First of all, the first question, well does not have a big impact on your operations however, I am quite interested in the establishment of the EPD module line. Would that require additional CapEx? What kind of benefits do you expect from the mass production? Could you provide your expectations on the contribution from this line, especially with regard to the benefits to the ESG initiatives of your customers? Second question that I have is relating to BHTC. This company has many manufacturing sites around the world. Are they large capacity or small capacity sites? What kind of capacity of those fabs are you having? What kind of products do the fabs manufacture? Back-end modules perhaps? Could you utilize their lines to also manufacture your other products and enjoy benefits? Thank you.

Frank Ko: Lisa, I’m Frank, first of all, about your question on the large-size EPD module production capacity. Since it is a module production capacity build-up, our planned paid-in capital is set at NT$390 million. A part of it is CapEx-related. Initially, the production capacity will be built based on market conditions and requirements, and the capacity requirements and CapEx will not be significant. However, we are very optimistic about the global demand for Smart Displays and all kinds of applications indoors and outdoors, such as retail, net zero, smart buildings, e-paper-based posters that were originally printed out on papers. So these applications offer opportunities for turning paper-based applications into digital displays. They also offer the advantages that are characterized by light and slim and cordless. So we hope that we can provide one-stop services for all kinds of display technologies based on our group's resources. Moreover, the EPD module capacity is actually mutually complementary with our LCD and LED capacities and capabilities. They will constitute two major contributions. First of all, growth in module revenue and revenue growth spurred by our various display technologies and solutions through ADP. Long-term wise, we are positive about the growth spurred by ESG-related demands so as to boost our contribution to the revenue. As for the second question, thank you very much for the question. These fabs of BHTC are for producing automotive HMI solutions, so they are automotive grade lines. So the very first advantage is that they have been certified by automakers or automotive OEMS as we hope to meet the requirements for OEMs or customers to manufacture products across the manufacturing footprint that we have, we will get to shorten the cycle between fab construction to certification so as to meet their demands quickly. Moreover, these sites offer assembly and S&T allowing us to fulfill the demands to Vertical Solutions for market proximity, this will translate to strong advantage for AUO under the new tariff scheme, especially given the COO requirements under the new tariff scheme. Going forward, we will leverage our group resources bases on the -- towards the expertise of AUO entity and seeking to meet the requirements of customers to enable more flexible and nimble strategic implementations. Thank you.

Lisa Chen: Thank you for giving me this very clear explanation. Thank you.

Jerry Su: Thank you. Thank you for your participation in this quarter’s financial results conference. This concludes today’s meeting. If you have any other questions, please feel free to contact us at the IR department at AUO. Thank you, you may now disconnect now. We will see you next quarter.