Himax Technologies, Inc.

to 33.5%, half from .3% of the previous quarter and .7% same period last year. The sequential growth was driven by cost improvements and the favorable product mix, along with increased sales in the automotive IC and TECOM product lines, both of which have higher than corporate average growth margins. The substantial improvement in growth margins from the same period last year was primarily due to one-time early termination expense paid to foundry partners, which elevated minimum fulfillment requirement constraints and high waiver costs set during the severe industrial capacity shortage. Consequently, our new waiver starts are no longer bound by these restrictive terms. Additionally, we can now leverage diverse foundry source for optimal operational efficiency and a significantly improved cost structure, thereby maintaining our product competitiveness. Q2 profit per diluted ADS was .16.9 at the top end of the guidance range of $0.13 to $0.17. Revenue from large district drivers came in at $39 million, reflecting a sequential increase of 24.7%. The increase was predominantly driven by customers restocking in TV and monitor IC after several quarters of muted demand, as well as increased order in preparation for shopping festivals. Both TV and monitor IC sales posted sequential double-digit increases quarter over quarter. In contrast, Q2 noble IC sales declined slightly following strong restocking in the previous quarter. Sales of large panel driver IC accounted for .3% of total revenues of the quarter compared to .1% last quarter and .3% a year ago. Small and medium sized display driver segment revenue reached $158.8 million, marking a sequential increase of .1% and surpassing guidance due to stronger than anticipated sales in the TDDI products for automotive, smartphone, and tablet. In Q2, automotive driver sales, encompassing both traditional DDI and TDDI, increased by a decent high tink sequentially and more than 50% year over year. Despite expectations of weakening electric vehicle demand, both automotive DDI and TDDI sales experienced sequential growth in Q2, thanks to our robust design wings pipeline in TDDI and the customers' continuous restocking momentum in DDI since the end of Q1. Our automotive business comprising driver, TCAM, and OLE sales remained the largest revenue contributor in the second quarter, representing over 47% of total sales. Meanwhile, Q2 tablet IC sales slightly increased sequentially, surpassing guidance of a decline, fueled by leading customers' new model ramp ups. Conversely, smartphone driver sales declined as expected during a subdued surface table season characterized by sluggish demand. The small and medium sized driver IC segment accounted for .3% of total sales for the quarter compared to .5% in the previous quarter and .9% a year ago. Second quarter non-driver sales reached $41.8 million, up .6% from the previous quarter, due to a resurgence in orders for our TCAM products for TV, monitor, automotive, as well as OLE tablets. Our automotive local demand TCAM, where we dominate the market, has been swiftly adopted by major panel makers, tier 1 suppliers, and car manufacturers worldwide. Both things were over 100 design win projects with only a small number of design awards have having commenced mass production. This momentum is further fueled by the rapid expansion of project work across continents, positioning us for strong growth, mirroring the success we have achieved in automotive TDI. TCAM business represented over 10% of our total sales in the second quarter. Non-driver products accounted for .4% of total revenues as compared to .4% in the previous quarter and .8% a year ago. Second quarter operating expenses were $47.3 million, a decrease of .7% in the previous quarter and a decline of .1% from a year ago. The sequential decrease was primarily driven by decreases in tap-down expenses. The -over-year decreases was primarily due to reduced tap-down expenses and a decline in the annual bonuses for the amortized trenches of the previous year's bonuses. Amid ongoing macroeconomic challenges, we are strictly enforcing budget and expense controls to manage these conditions. Second quarter operating income was $29.3 million or .2% of sales compared to minus .9% of sales for the same period last year and .8% of sales last quarter. Both the sequential and -over-year increases were primarily due to higher sales and an improved growth margin. Second quarter after-tax profit was $29.6 million or 16.9 cents per diluted ADS compared to $12.5 million or 7.1 cents per diluted ADS last quarter and $0.9 million or 0.5 cents in the same period last year. The asset tax profit for the first half was $42.1 million or $24.1 cents per diluted ADS, a significant increase from $15.8 million or 9.1 cents for the same period last year. Turning to the balance sheet, we had $253.8 million of cash, cash equivalents, and other financial assets at the end of June 2024 compared to $277.4 million a quarter ago and $219.5 million at the same time last year. The sequential decrease in cash balance was primarily due to customers' refunds for their deposits made during the industry-wide capacity shortage along with a strategic investment of approximately $16 million in FOCI through private placement. The cash balance reduction was partially offset by an operating cash inflow of $26.9 million during the quarter. Compared to the operating cash inflow of $56.7 million in Q1, the sequential decrease was mainly attributable to reduced sales over the preceding two quarters, leading to lower receivables. Additionally, the increase in accounts payable in Q2 was a result of higher Q1 wafer stocks as we anticipated larger shipment volumes in Q2. Other significant operating cash outflows in Q2 included annual income tax payments. Looking ahead to Q3, we anticipate a decline in cash equivalents and other financial assets, primarily due to a payment of $50.7 million for annual dividends to shareholders. We also expect to distribute a total of approximately $30.7 million for employee bonus at the end of this quarter, which includes around $11.3 million for the immediately vested portion of this year's award, with the actual amount subject to the final board decision, and $19.4 million for vested awards granted over the past three years. Our quarter-end inventories of June 30, 2024, were $203.7 million, similar to $201.9 million last quarter, indicating a well-managed and balanced inventory level. Accounts receivable at the end of June 2024 was $242.4 million, half from $212.3 million last quarter and $239 million a year ago. DSO was 99 days at the quarter-end, as compared to 93 days last quarter and 90 days a year ago. The second quarter capital expenditure were $4.6 million versus $2.7 million last quarter and $2.9 million a year ago. The second quarter cap apps was mainly for &D-related equipment and in-house for our IC design business. As of June 30, 2024, Hi-Mats had $174.7 million ADS outstanding unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the second quarter was 175.1 million. Now, turning to our third quarter 2024 guidance, we expect third quarter revenue to decrease 12% to 17% sequentially. Growth margin is expected to be around 30% depending on product mix. The third quarter profit attributable to shareholders is estimated to be in the range of $1.5 to $4.5 per fully diluted ADS. As we've done historically, we will grant employees annual bonus including RSUs and cash awards on or around September 30 this year. The third quarter guidance for profit per diluted ADS has taken into account the expected 2024 annual bonus which, subject to board approval, is now assumed to be around $12.5 million, out of which $11.3 million will be dusted and expensed immediately on the grand day. As a reminder, the total annual bonus amount and the immediately dusted portion are our current best estimates. Only, and the actual amount could vary materially depending on, among other things, our Q4 profit and final board decision for the total bonus amount and expanding scheme. As is the case for previous year, we expect the annual bonus grant in 2024 to lead to higher third quarter operating expenses compared to other quarters of the year. In comparison, the annual bonus for 2023 and 2022 were $10.4 million and $39.6 million respectively, of which $9.7 million and $18.5 million lasted immediately. In providing our Q3 financial guidance, the Q3 expense related to employee bonus is estimated to be $14.2 million. Compared of $11.3 million, the immediately dusted portion of this year's bonus as stated above and the $2.9 million, the amortized portion of the previous year's unvaunted bonuses. For the sake of completeness, employee bonus expense in each of the last three quarters was also around $2.9 million. I will now turn the call over to Jordan to discuss our Q3 outlook. Jordan, the floor is yours.

Thank you, Eric. Given the prevailing macroeconomic uncertainty and customers remain conservative, causing panel makers to take a cautious stance and strictly control production to maintain low inventory levels. This is adversely impacting IT demand, leading to our conservative third quarter forecast. During the second quarter in the automotive market, car makers initially anticipated a sales boost due to promotional activities and government subsidies, especially in China. Consequently, we saw a major uptick in the second quarter IT sales, along with the aggressive discount campaigns of car makers. However, these intense campaigns did not generate the anticipated sales growth and may have even triggered consumers to hesitate in purchasing new cars, leading to disappointing car sales in China for the second quarter and resulting in excessive inventories throughout the supply chain. As a result, our panel customers have begun to scale back their IT procurement in Q3 to manage inventory levels. In comparison, the automotive makers in Europe and the US have remained relatively stable since last year without experiencing the dramatic fluctuations seen in China. As the leader of the automotive display ICs, we serve a diverse range of brands worldwide, with sales evenly distributed across all major markets. However, since China is the world's largest automotive market, commanding over 30 percent of global sales, fluctuations in China do have a substantial impact on our business. Moving forward, we will navigate the current challenging business environment through close collaborations with panel makers and T1 suppliers, meticulously managing our waiver staff and closely monitoring customer demands. The automotive IT business is Himex's largest revenue contributor, accounting for over 47 percent of our total sales in Q2, significantly higher than our peers. Despite the recent challenges, we remain optimistic about our automotive IT business and are committed to the long-term innovation and development of our automotive products. The automotive display market remains on solid footing with a positive growth trajectory driven by versatile innovations and technology advancements. Advanced and fancier displays are increasingly becoming a major setting point for car makers, driving the automotive display market towards the mega trend of expanding quantities, sizes, and sophistication. As the leading player in the automotive IC market, Himex is well positioned to be the key beneficiary of the trend. We command a 40 percent growth market share in traditional automotive TDIC and hold an even larger share in both the automotive TDDI and the Houdini TECOM markets. In addition to offering the most comprehensive range of automotive IC products for LCD panels, we are actively expanding into the automotive OLED panel market, forming strategic partnerships with major leading panel makers in Korea, China, and Japan to develop comprehensive solutions encompassing DDIC, TECOM, and touch control ICs. This proactive approach positions us to navigate industry shifts and capitalize on the anticipated widespread adoption of all the displays in the IM vehicles, further solidifying our market leadership. During the quarter, we announced two substantial strategic investments. First, in an effort to strengthen the long-term partnership with 4C, we as a strategic investor acquired a 5.3 percent equity stake through private placement. The partnership integrates Himex's wave level optics or WLO expertise and forces optical fiber know-how to create innovative world-leading linear drive plug-up optical or LPO and co-packaged optics or CPL solutions. For advanced mothership modules, required for the fast-growing cloud AI and high-speed computing markets. This collaboration not only highlights the application versatility of the WLO technology and Himex's market leadership, but also underscores the potential of our WLO in the advanced LPO and CPL technology, which is vital for the advancement of cloud AI and high-speed computing. Separately, we invested in the US-based obsidian sensors, whose revolutionary high-resolution thermal imaging sensors meet the growing demand of thermal imaging across various industries, including automotive, security, surveillance, drones, and military. This investment broadens our portfolio of imaging sensors, which, when matched with our -low-power Wi-Fi AI, enable enhanced sensor fusion possibilities for endpoint AI applications. The obsidian investment positions us at the forefront of machine vision AI applications, delivering high effectiveness, particularly in harsh environments and completely dark scenarios. As we look ahead, our focus remains on enhancing profitability, strengthening operational resilience, and improving adaptability to the evolving market. We continue to optimize our cost structure and reinforce our supplier diversification strategies for boundaries, as well as begin packaging and testing. At the same time, we remain committed to stringent expense control, set to further reduce operating expenses compared to last year. For reference, we achieved a 4% -over-year reduction in operating expenses in total industry. With that, I will now begin with an update on the large panel driver IC business. In Q3, we anticipate a double-digit sequential revenue decrease for large display driver ICs, primarily due to subdued monetary and TVIC sales, set to decline double-digit and single-digit respectivity, following substantial order replenishment in preparation for shopping festivals in the previous quarter. Procurements from our leading panel customers have become more conservative due to sluggish market conditions, driven by worse than expected shopping festival sales. However, local IP sales are poised for a decent increase, bolstered by robust order replenishment from our leading panel customers. Looking ahead in the noble sector, we have made a strategic effort to position ourselves to capitalize on the anticipated rising demand for two new market areas, namely LCD displays, equipped with touch features and OLED displays. Both expect it to enjoy decent penetration in premium notebook and the upcoming AIPC markets. Leveraging our industry leadership in TDDi solutions for tablet market, we are working closely with LCD panel customers in the development of Intel TDDi and new generation T-Con solutions. For LCD displays, concurrently, we have made significant strides in all the technology for notebooks in strategic partnerships with TDDi panel makers in Korea and China, developing -the-art touch controllers, TDDiC and T-Con solutions. Some of the projects above, including Intel TDDi for mainstream LCD notebooks and T-Con and TDDiC for OLED notebooks, are slated for mass production in the second half of this year with leading panel makers. We are optimistic that the notebook segment will act as a strong growth catalyst for HIMACS as we hope in 2035. Turning to the small and medium-sized display drive IC pieces, we anticipate third quarter revenue to decline low teens sequentially. Impacted by our customers' destructive measures, especially for the Chinese market, as I just mentioned, automotive revenue in Q3 is expected to decrease high teens sequentially. Following high teens are growth of both TDDiC and TDDi in Q2. That being said, through the first nine months of the year, our automotive drive IC sales are still set to grow meetings year over year, driven by continued expansion of TDDi adoption across all major end customers. We have secured over 450 TDDi design-win projects with only approximately 30% currently in mass production, indicating significant growth potential going forward. Meanwhile, a trend is emerging where more customers are opting for HIMACS' TDDi or LTDI along with our logo team in DCOT as their standard development platform for creating new automotive displays of various sizes. This growing adoption of more of our automotive drive IC offerings also signifies an increase in content value for HIMACS on a per-panel basis. HIMACS is widely recognized as the leader in the automotive display IC market, offering the industry's broadest range of products, from traditional TDDiC and TDDi to advanced technologies such as logo teaming T-com, LTDI and OLED. We are committed to continuously enhancing our product portfolio to meet customers' diverse and evolving needs. Our newly introduced TDDi incorporating logo teaming T-com in one chip exemplifies this commitment to providing customers with more options as the new solution is ideal for smaller panels that require only one to two ICs for cost considerations while still equipped with advanced TDDiC and logo teaming features. Turning to smartphone IC sales, we expect a decent double digit increase sequentially thanks to new product launches by key customers during the quarter. In contrast to the positive outlook in smartphone business, Q3 tablet sales are projected to decline sequentially as end customers prolong their replacement cycles in response to challenging economic conditions. Next, for an update on our OLED business, for the automotive OLED market, we have formed strategic alliances with leading panel manufacturers in Korea, China and Japan. Neveraging our leadership in automotive LCD technology and OLED design expertise, these partnerships further strengthen our presence in the market. We offer a comprehensive suite of OLED solutions for automotive including TDDiC, T-com and on-sale touch controllers, ensuring complete coverage of customer requirements. Notably, our meticulously engineered OLED on-sale touch controllers set a new standard, boosting an industry-leading touch -to-noise ratio of over 45 dB, greatly enhancing sensitivity. This allows automotive displays to maintain proper functionality under challenging conditions, such as glove wearing and webbing operations. We are pleased to share that our OLED on-sale touch controller for automotive has entered mass production this quarter. With additional projects set for mass production soon, we anticipate sales of our OLED on-sale touch controller to further bolster our revenues starting 2035. Beyond the automotive sector, we have made notable advances in the tablet and notebook sectors with top OLED panel manufacturers in Korea and China. Our comprehensive OLED product offerings, encompassing TDDiC, T-com and touch controllers, have led to several new projects that are on track to enter mass production later in the year. Regarding smartphone OLED, the current market drawdown of our customers has prompted us to revise our production timeline to next year. Despite these challenges, we are actively collaborating with customers in Korea and China and have several verification and partnership projects currently in progress. I would like to now turn to our long-drive IC business update. First, for an update on our T-com business, we anticipate a double digit sequential decline in Q3 T-com sales as customers pull forward their inventory purchases during the prior quarter, particularly for monetary application. However, our automotive T-com business is expected to achieve a decent double digit growth in Q3, despite the current headwinds in the automotive market fueled by the shipment of new projects from previously secured design wins. Since only a small portion of the secured design wins are currently in mass production, we anticipate significant growth potential for our automotive T-com business in the coming years. While ongoing weak macroeconomic conditions continue to subdue demand in consumer electronics, some of our newly developed T-com ICs for all the tablets and e-paper displays are starting to show promising results. In the tablet segment, we are expanding our product lineup and strengthening our position in the high-value added outlet market, building on our early success in the tablet outlet market. For the rapidly growing e-paper market, we recently made a joint announcement with e-ink, the global leader in e-paper market, to unveil T2000, a -the-art next generation color e-paper T-com. E-paper stands out for its energy efficiency, consuming power only during screen updates, leveraging high max decades of expertise in image display processing and T-com design. The T2000 T-com accelerates screen updates for a better viewing experience, while greatly reducing power consumption of the e-paper display. Additionally, the T2000 features an exclusive handwriting processing accelerator, enabling seamless, nearly lag-free handwriting, while boosting prompt display responsiveness on e-paper displays without requiring an SOC. It also enables richer and more vibrant colors, enhancing the display's visual appeal across a broad spectrum of e-ink's color e-paper platforms. The collaboration opens new possibilities for color e-paper applications in e-readers, e-paper, digital signages, and more. Switching gears to the Wi-Fi -low-power AI sensing solution, a cutting-edge endpoint AI integration featuring industry-leading -low-power AI processor, always-long CMOS image sensor, and advanced CNN-based AI algorithm. In the fast-changing AI landscape, Wi-Fi AI technology stands out for its expertise in on-device tiny ML microcontroller solutions, categorized by remarkably low power consumption, operating at just single-digit mini-watts, making it possible to add AI functionalities to battery-powered endpoint devices. Our Wi-Fi technology is creating new opportunities for companies such as Desmond, China's leading high-end smart door lock vendor, who introduced the world's first smart door locks with 24-7 century monitoring and real-time event recording, with the fancy AI features achieved while still maintaining over six months of power or battery operation. Our collaboration with Desmond has sparked increased interest from other door lock vendors across various continents to develop innovative value-added AI features, such as parcel recognition, smart anti-pinch protection, and biometric access. Notably, some of our customers are currently evaluating our newly introduced Wi-Fi PowerMirror solution, which offers effortless, keyless, and highly secure biometric access

for entry control.

Wi-Fi

PowerMirror

is part of our Wi-Fi AI module business, integrated in HiMAC's Wi-Fi 2 AI processor, AOS CMOS EMU sensor, and our proprietary PowerMirror authentication algorithm. We see growing traction and extensive engineering activities for this contactless biometric authentication solution that can authenticate an individual's identity in under 100 ms. While consuming just a few milliwatts of power. This represents a significant breakthrough in security technology by enabling biometric authentication in battery-powered devices. With outstanding accuracy and robust lightness check capabilities, power van authentication significantly reduces the risk of depletion or spoofing compared to conventional fingerprint or face recognition, making it an ideal choice for indoor security, login authentication, and other access control applications. Wi-Fi PowerVan upholds robust security standards while offering -in-class power efficiency, making it the only solution suitable for battery-powered devices. We are collaborating with vendors across various sectors globally, including door lock, access control, notebook, and automotive. While just launched at the beginning of the year, Wi-Fi PowerVan has already been successfully adopted by a U.S. customer for smart security, and is set to commence mass production starting the end of this year. We believe Wi-Fi PowerVan will profoundly impact the security industry and unlock new opportunities for battery-powered devices across various use cases. To broaden Wi-Fi AI's market reach and shorten customer development cycles, we also provide seamlessly integrated -and-play Wi-Fi modules and low-code AI development platforms, featuring diverse context-aware AI algorithms that customers can reprogram or fine-tune with minimal effort for real-world use cases. Our recent announcement with NVIDIA Power exemplifies this approach whereby our Wi-Fi module customers targeting AI deployment on resource-constrained endpoint devices can easily optimize and quantize deep learning models with pre-trained enterprise-ready AI models and tools offered by NVIDIA. This facilitates rapid democratization of endpoint AI applications using cost-effective production-ready AI modules for various use cases. Additionally, in response to growing AI-driven demands towards machine vision across various environments, we recently made a strategic investment in Obsidian sensors, a San Diego-based company renowned for its revolutionary high-reducian low-cost thermal sensors, offering unmatched versatility by detecting heat differences even in complete darkness, measuring temperature, and identifying distant objects. This investment extends our image sensor portfolio beyond optical sensors to include thermal sensors, a valuable complement to our product suite, which is now widened to cover harsh sensing conditions such as heavy fog or complete darkness. Moreover, this strategic investment promises synergy of the two companies with our Wi-Fi AI aggregating data from both optical and thermal imaging sensors for a truly holistic view of the environment beyond human vision. In addition, we are engaged in ongoing engineering collaborations that leverage HIMAC's IT design resources and know-how. We believe by integrating the strengths of HIMAC and Obsidian, we can seize new opportunities in the expanding sensor and AI markets across industrial, defense, security, consumer electronics, and automotive sectors. As an illustration, the US National Highway Traffic Safety Administration issued a new rule in April 2024 mandating that automatic emergency braking or AED, including pedestrian AED or PAAED, be implemented starting in 2029. This regulation aims to significantly reduce rear-end and pedestrian crashes. Similar rules are increasingly being mandated by regulatory authorities worldwide. The novel AEDS and AED systems integrated with Obsidian's thermal sensors provides clear vision in low light and adverse weather conditions such as fog, smoke, rain, and snow. This ensures better driving safety and security, underscoring the trend and significant potential demand for thermal imaging sensors. Last, from WOL. During the second quarter, we made a strategic investment in 4C, a Taiwan-based global leader for silicon photonics connectors through a $16 million private placement, resulting in a .3% equity state. This collaboration highlights the immense potential of our WOL technology for LPO slash CPO, which are crucial for further advancing high-speed AI and HPC technologies. Our partnership integrates 4C's proprietary LPO slash CPO connector technology with HiMax's nanoscale weather-level optics know-how to create an industry-leading optical transmission solution catered for the most advanced mothership modules, which demand enhanced bandwidth, improved data rate, minimized signal loss, reduced latency, and lower energy consumption, all for accommodating future generation needs of generative AI and HPC. Currently, in close collaboration with world-leading AI semiconductor players and boundary partners, we are working closely with 4C on LPO slash CPO development for products that meet customers' near-term production goals. LPO CPO technology is crucial for furthering generative AI and HPC and will continue to evolve rapidly to meet the explosive demand in these areas. We are committed to advancing the technology with 4C, ensuring our solutions stay at the cutting edge and align with the multi-year roadmaps of our AI chips and boundary partners slash customers. We believe this will generate new, long-lasting revenue streams for HiMax. We will provide further updates as they become available. As 4C is a company listed on the Taipei Exchange, the stock price and resulting quote-unquote fair value reflected on our books change each day. These fluctuations have been and will continue to be recognized by way of changes in our equity as a balance sheet item, not affecting our profit and loss. As an illustration, based on the close of 4C stock price as of the end of June 2024, we met a quote-unquote gain of $9.6 million on our $16 million 4C investment. However, the said quote-unquote gain was not recorded as an investment profit in our Q2 financial statements and instead was booked as an increase in owner's equity. Likewise, upon disposal, the resulting investment gain or loss will also be recognized as a change of equity through retained earnings, not affecting our profit or loss at the time of the disposal either. The accounting method we chose reflects our long-term commitment to the 4C investment. With over a decade of experience in WLO, Timex has developed diverse designs across a broad spectrum, including 3D sensors, ARVR devices, biomedical inspection, and optical communication, just to name a few. These technologies have been widely adopted by some of the world's most prominent tech companies, with cumulative shipments reaching more than 600 million units. We anticipate WLO playing an even more decisive role in the next-generation optical technology landscape, thanks to its versatile, high-precision, lightweight, and small-form factor characteristics that are not feasible with alternative technologies. In addition to the progress made in LPL, CTO, we are seeing an increase in engineering projects with globally recognized leaders who are leveraging our WLO expertise for their upcoming ARVR devices, underscoring the widespread recognition of our technology. For non-drive IC businesses, we expect revenue to decline heighting sequentially in the third quarter. That concludes my report for this quarter. Thank you for your interest in Timex. We appreciate your joining today's call and are now ready to take questions.

Thanks very much, Jordan. And ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press star key and 1 on your telephone keypad. After your name is announced, please ask your questions. To cancel your questions, just press star key and number 2. Thank you. Now please press star key and 1 if you would like to ask questions. Thank you. The first one to ask questions, Donnie Tang Nomura. Go ahead, please.

Thank you, Jordan, for taking my question. My first question is regarding the automotive business. I think we have started to see some positive signs back in April. I remember we were pretty positive back in June and even entering into July. But guidance looks like to be a little bit disappointed. You just mentioned about customers digesting the inventories quickly. I was wondering when exactly you are seeing this kind of weakness from the customers. Also, because in mid-July, there has been the news in China that the Chinese government is asking EV companies to check their localization rate in terms of the component and IC procurement. I wonder if there is any issue there, whether we will be allowed to do that. Thank you.

Thank you, Donnie. You are right in that we were more positive last quarter when we had our conference call than the present moment. I think the reason behind it I have already explained in rather detail in my previous remarks, i.e. the fluctuation in the Chinese market is the main factor causing the difference in our view. As it turns out, customers were overly optimistic for their second half outlook entering into Q2. They were apparently sourcing too much IC inventory. Now they are going through the discharging process. We also mentioned in our previous remarks that the US and European markets are relatively stable compared to China. If you look at the Q3 prospect and also if we look further into Q4, the over-procurement in Q2 and the start in Q3 explains our changing position in our outlook. Now the real question is how it is going to go forward. I think for the longer term, next year, we remain still pretty positive about the outlook, which I will probably cover in a few minutes. Now more importantly, what is the near-term in Q4? I will tell you the truth. Our internal forecast, which were the result of our collective forecast coming from various customers globally, including panel makers and TA1s. Q4 as of today, the projection remains pretty positive with actually a decent double digit growth compared to Q3. However, we are Q4 automotive prospect right now, given the very recent, I'm talking about last week also, the global turmoil in financial markets, which might impact consumer confidence in their major big-ticket spending, such as buying new cars. We are uncertain and we are given a short period of time because the major financial turmoil across the global financial market really occurred only last week. There's no time for us to get feedback from our customers. I suspect there's no time for customers to get good feedback either from the market. So we are taking a wait and see attitude. But in fact, as of today, our outlook for Q4 based on our forecast book is still pretty positive. When the sentiment turned, I would say probably beginning of this quarter, only very recently, but we did see a steady, slight pullback of customers' forecasts almost week by week, slightly steadily. That is certainly another very promising sign. Now, on your concern of China localization, yes, indeed, they've made announcements and set targets to further localize their IT supply for China's automotive sectors. But as far as we are concerned, in our automotive IC, which is display ICs, I wouldn't say that would not be a threat because any competition is a threat. But I think our leading edge is now so significant that I can't see any impact of Chinese competition in the future. And compared to country electronics, as we all are very aware of, automotive ICs are much harder to replace. And you have to go through much lengthier ecosystem and let alone the various requirements, higher standards of safety and other requirements. So Chinese localization certainly does not play any role in our more conservative outlook for Q3 or going further into Q4. In fact, next year, if anything, we believe our market share, especially for those new technologies such as TVDI, the world team in TECAN, or all that actually starting next year, we're likely to see some early ramping. I think if anything, we believe quite confidently our market share of automotive display ICs will further rise from this year's level. And there's no reason for us to believe next year's automotive market will continue to be very bearish. I mean, I think it's due for next year, but there's no indication of signs that people's spending on cars will necessarily decrease given the fact that the economy is going through some troubles. But I think governments, authorities, the feds of different countries, will likely to take measures to to encourage consumption and boost their GDP. Car spending happens to be a major item if the government wants to boost their GDP. So I think, again, I'm not providing a solid outlook for next year, but I just want to say there's no reason for us to believe next year will be a bad for the automotive market. I hope that addresses your question.

Great. Thank you, Jordan. And my second question is regarding to CPO. So could you maybe elaborate more on what's the timeline of the CPO product? When should we have to see some small falling contributions? And how confident you are to ramp up this business in the mid to long term?

Thank you.

The precise timeline I'm found by the NDA of my partners and so I'm afraid I cannot give you a very, very specific date or timetable. But I can tell you what we are working on right now, the design is targeted for mass production. It is certainly not an R&D concept. An R&D project is not. Actually, we are way past that stage. I mean, certainly we have seen that before, years before, but we're way past that stage. And we are now pushed towards mass production, ASAP, that's what I can tell you. And in fact, we expect to see some small but very early results, hopefully by the end of this year. But that's minimal. But next year, you know, if everything goes as planned, they will be steady ramping. And the confidence level mid to long term, I would say very confident. I think we all know about this hunger for more processing power because of generative AI, right? And we are all very aware of the issues there. You know, the challenge is to further increase your bandwidth, your processing power, your processing speed. But there are all kinds of issues including power consumption, heat dissipation, and all that, right? And I would say CPO is a relatively low cost and relatively easy, I'm not saying it's easy, but it's relatively easy to fix to all these issues. And also cost wise as well. Because right now, if you analyze the most advanced HPC ICs or GPU ICs, they have very big processing power. But their bottleneck right now is actually the transmission with the outside, the transmission of the IC. The IC can process a lot of power data, you know, high bandwidth, super high bandwidth, very fast. And the bandwidth is expected to expand exponentially over the next few years. Now with advanced packaging, the expansion is going to be faster. However, the real bottleneck right now is their transmission capability, their transmission bandwidth, which is limited because now they are relying on metal wire to do the transmission. And we all know there's no secret to really improve that. You just need to replace your metal wire with fiber optics. And that's exactly what we're trying to achieve, right? That we're trying to help to resolve. And so if you can successfully replace your metal wire with fiber optics, right away you boost your bandwidth by hugely. And thereby also as a major side benefit, you also reduce your power consumption. Because the thermal loss will become much less. And you increase your data accuracy, etc., etc. So I would say everybody in the ecosystem is very keen to making sure that this happens, ASAP. And when it happens, because as I mentioned, it's a relatively cheap and easy fix to their solutions. So I don't see any reason why this should not be adopted across the board to cover as many of the ICs as possible. Now I'm only talking about ICs which demand very high bandwidth, right? Which demand very high bandwidth. And our goal, our role is to build on the foundation of today to continue to help expand the transmission bandwidth, right? And we have a role to get with partners, our customers, to really pretty dramatically expand the transmission bandwidth very substantially. I'm talking about many, by multiple times over the next few years. And some of these projects are already in experimental stage, in the earliest experimental stage or more mature experimental stage. But what I'm trying to tell you is that the first generation upon mass production were greatly expand the transmission bandwidth of those ICs already with further solutions expected to be available in rather short time span, with multiple times improvement in the transmission bandwidth. So I think this is really an exciting opportunity for us, for WRO. I mean, it was a surprise when we realized a long time ago that our WRO can actually be utilized to tackle this issue. But as we did further and further, we realized this is actually a very, very perfect solution, a very perfect fix for the data transmission bandwidth issue that is now faced by

this AI technology advancement. Any further questions from Johnny or others?

Thank you, Jordan, very helpful.

Thank you.

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As a final note, Eric Lee, our chief IRP officer, will maintain the marketing activities and continue to attend investor conferences. We will allow for details as they come about. Thank you.