Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the Himex Technologies Incorporation Third Quarter 2024 Earnings Conference Call. At this time, all participants are in their listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. And now, I would like to turn the conference over to Mr. Eric Lee, Chief IRPR Officer at Himex. Mr. Lee, please begin.

Mr. Welcome, everyone, to the HMAS Third Quarter 2024 on this call. My name is Eric Lee, Chief IRPR Officer at HMAS. Joining me today are Jordan Wu, President and Chief Executive Officer, Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in a Q&A session. If you have not yet received a copy of today's results review, please email HIMX at mzgroup.us or HX underscore IR at imax.com.tw. Access the press review on financial photos or download a copy from IMAX website at www.imax.com.tw. Before we begin the formal remarks, I'd like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and the industrial 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 conference call. A list of risk factors can be found in the company's SEC filing, Form 20-S, for the year ended December 21, 2023, in the session entitled Risk Factors, as may be amended. Except for the company's full year of 2023 financials, which were provided in the company's 20-S and filed with FDC on April 2, 2024. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS 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 audit to which we subject our annual consolidated financial statement 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 statement whether as a result of new information, future events, or otherwise. On today's call, I will first review the HMAC consolidated financial performance for the third quarter 2024, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions. You may submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. We are delighted to announce that Q3 revenues and profits both surpassed guidance, while gross margin was in line with guidance issued on August 8, 2024, despite prevailing economic challenges. The better than expected financial results stand primarily from strong order momentum in automotive, tablet, and TCAM product lines. Third quarter revenues registered $222.4 million, a decrease of 7.2% sequentially, yet significantly exceeded our guidance range of a 12% to 17% decrease. Growth margin came in at 30%, in line with our guidance of around 30%, but down from 30% in the previous quarter and 31.4% in the same period last year. The sequential decline was the result of unfavorable programming. Q3 profit per diluted ADS was 7.4%, considerably above the guidance range of 1.5 cents to 4.5 cents, due to better than expected revenues. Revenues from large district drivers came in at $30.7 million, reflecting a sequential decrease of 21.2%. The decrease was primarily attributed to weaker monitor and TV IC sales due to customers disrupting any challenging market conditions, following substantial Q2 replenishment for shopping festivals. In contrast, local IC sales increased notably, resulting from rush orders for legacy products from leading panel customers. Sales of large panel driver RIC accounted for 13.8% of total revenue for the quarter, compared to 16.3% last quarter and 18.3% a year ago. Revenue from the small and medium-sized display driver segment totaled $155.4 million, a decline of 2.2% sequentially. but significantly faster than our guidance of a low-king decline, thanks to stronger-than-expected sales in the automotive and the tablet market. In Q3, automotive driver sales, which include both traditional DDIC and TDDI, experienced a mid-single-digit decrease, yet largely outperformed our expectation of a high-king decline. This better-than-expected result was primarily fueled by rush orders from our Chinese annual customers shortly after our last earnings call on the backdrop of the Chinese government's renewed trading stimulus announcement made in mid-August as part of their efforts to further boost automobile consumption. Our automotive business, comprising drivers, hiccups, and or late sales, remained the largest revenue contributor in third quarter, representing nearly half of total sales. Meanwhile, Q3 tablet IC sales also exceeded guidance of a sequential decline, with sales slightly up from last quarter, fueled by rush orders from leading end customers. Tier 3 smartphone IT sales increased a decent double-digit sequentially thanks to new product launches of leading phone makers. The small and medium-sized driver IT segment accounted for 69.9% of total sales for the quarter, compared to 66.3% in previous quarter and 67.6% a year ago. Third quarter non-driver sales reached $36.3 million, a decline of 13.1% from the previous quarter. The decrease was primarily driven by a double-digit sequential decline in TECOM sales, particularly for monitor applications, as customers forward their inventory purchases in prior quarters, anticipating strong sales during the shopping festivals. However, automotive Qigong sales saw an impressive sequential increase of over 30%, as our solutions, especially the market-leading local gaming Qigong, continued to be rapidly adopted by major panel manufacturers. tier 1 suppliers, and automotive manufacturers worldwide. In the third quarter, our TECOM business accounted for over 9% of total sales, with notable contributions from automotive TECOM, representing almost half of TECOM sales, supported by steady growth with well over 100 secure design wing projects. Non-driver products, accounted for 16.3% of total revenues, as compared to 17.4% in the previous quarter and 14.1% a year ago. Third quarter operating expenses were $60.8 million, an increase of 28.4% from the previous quarter and a decline of 4.7% from a year ago. The consequential increase stands primarily from expense for annual bonus compensation, which we award employees at the end of September each year, typically resulting in higher Q3 employee compensation expense compared to other quarters of the year. The year-over-year decrease was mainly due to a decline in employee bonus compensation, but the amortized portion of prior year's bonuses for last year was higher than that for this year. As a reminder, we grant annual bonuses to employees at the end of September each year, including RSU and cash awards based on the expected profits of the four years. Our annual bonus compensation grant for 2024 was $12.5 million, in line with guidance, out of which $11.2 million was immediately adopted and expanded in the third quarter. In comparison, the annual bonuses for 2023 and 2022 were $10.4 million and $39.6 million, respectively. of which $9.7 million and $18.5 million were vested and expensed immediately. To further elaborate, our Q3 bonus expense includes two portions. First, as I just mentioned, $11.2 million was the allocation for the immediately vested and recognized portion of the current year's bonus grant. Second, $2.7 million was spent for the amortized tranches of five-year bonuses, compared to $2.8 million last quarter and $6.2 million a year ago. Amid ongoing macroeconomic challenges, we are strictly enforcing budget and expense controls. With four-year 2024 OPEC, projected to decline mid-single digits compared to last year. Third quarter operating income was $5.9 million, or 2.6% of sales, compared to 12.2% last quarter and 4.6% of sales for the same period last year. The sequential decrease, aside from lower sales and a contraction in gross margin primarily reflected the difference in annual employee bonus compensation as mentioned earlier, totaling $11.2 million or 5.1% of sales that immediately lasted and expanded portion of this year's new grant. The year-over-year decrease in operating margin was mainly driven by a decline in sales and a lower gross margin. Third quarter after-tax profit was $13 million, or $0.074 per diluted ABS, compared to $29.6 million, or $0.169 per diluted ABS last quarter, and $11.2 million, or $0.064 in the same period last year. In calculating the Q3 after-tax profit, we made a favorable income tax adjustment to rectify over-estimated tax expenses for preceding quarters this year. Hence, the sequential increase in after-tax profits. Turning to the balance sheet, we have $206.5 million of cash, cash equivalents, and other financial assets at the end of September 2024 compared to $263.8 million a quarter ago and $155.4 million at the same time last year. The sequential decrease in cash balance was mainly the result of $50.7 million payments of annual dividends. Operating cash outflow for the third quarter was approximately $3.1 million, compared to an inflow of $26.9 million in Q2. The outflow was primarily due to $30.1 million paid to employees for their bonuses, which included $10.8 million for immediately-lasted portion of the year's award and $19.3 million for vested award granted over the past three years. Operating cash flow, including employee bonus, was $27 million in flow during the quarter. We had $36 million of long-term unsecured loans as of the end of third quarter, of which $6 million was the current portion. Our quarter end inventory as of September 30, 2024, was $192.5 million, lower than $203.7 million last quarter and $269.6 million in the same period last year, indicating a well-managed and balanced inventory level from quarter to quarter. Accounts receivable at the end of September 2024 was $224.6 million, down from $242.4 million last quarter and $248.5 million a year ago. BSO was 92 days at the quarter end, but compared to 99 days last quarter and 95 days a year ago. Third quarter capital expenditure was worth $2.6 million last quarter versus $4.6 million last quarter and $2.6 million a year ago. The third quarter cap was mainly for R&D-related equipment for our IT design business. As of September 30, 2024, Timex had 175 million ADS outstanding. Little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 175 million. Now, turning to our fourth quarter 2024 guidance, we expect fourth quarter revenues to be flat to slightly down sequentially. Gross margin is expected to be flat to slightly up sequentially, depending on product name. The first quarter profit attributable to shareholders is estimated to be in the range of 9.3 to 11 cents per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q4 outlook. Jordan, the floor is yours.

Thank you, Eric. Looking ahead to Q4, the macro environment remains challenging. Panel customers are reducing production to stabilize panel prices in response to the current market conditions. At the same time, end brands are also taking a cautious approach to panel procurement and maintaining low inventory levels. Taken together, these factors have suppressed IT demand leading to our conservative outlook for the fourth quarter. Against this backdrop, we continue to strictly manage expenses and implement various cost optimization measures, including enhancing manufacturing and operational efficiency, as well as leveraging a diverse range of vendors in foundries and back-end suppliers. Looking ahead, While the global economy still looks uncertain, we are confident in the business outlook of several key areas, namely automotive, AI, WL, and OLED, and expect these product lines to drive significant growth of our business. First, let me elaborate on the automotive sector, our primary revenue contributor. We remain optimistic in our long-term outlook as the automotive display market continues to expand through innovation and technological advancements. Our confidence also stems from our comprehensive offering and leading position in the market, particularly in the areas of the OCDTDI, OLED, and T-COM, all of which are relatively new and cutting-edge technologies. for automotive display. These technologies are expected to see continued adoption, providing us with sustainable long-term growth opportunities. It is worth noting that there have been significant fluctuations in automotive market demands in recent quarters, particularly from the Chinese market, which accounts for over 30% of global vehicle sales. Government policies, subsidies, and aggressive discount campaigns by car manufacturers have made supply and demand less predictable, creating new challenges for automotive IC suppliers. Automotive ICs, like the human electronics products, feature rigorous safety and reliability standards, resulting in longer production lead time, which poses greater challenges in handling customers' rush orders. However, thanks to our dominant market share and substantial shipment volume in the automotive sector, we are well equipped to navigate these market fluctuations. In fact, Our ability to respond to these last-minute demands for automotive ICs was instrumental in our better-than-expected third quarter financial results, with final revenues exceeding the midpoint of our guidance by as much as 7%. The higher revenues were triggered primarily by rush orders that arose after our last earnings call held in the middle of the third quarter. Indeed, being able to quickly respond to changing customer needs has become the crucial competitive advantage in the automotive IT sector for us. In terms of our WO business, we are confident in our collaboration with 4C from the RPO slash CPO business, who are pleased to share that we are making decent progress in the initial small-scale production of the first-generation solution. Demand for high-speed optical communication technology is surging, triggered by advancements in high-performance computing and artificial intelligence. Moreover, high-mesh and faulty along with world-leading AI semiconductor companies and foundry partners, have begun new technology development for future generation products. We believe this will create new revenue streams for Himex and make a significant contribution to our total revenue and profit in the coming years. With that, I will now begin with an update on the large-panel driver IC business. In Q4, we anticipate a double-digit sequential sales decrease for large display driver ICs due to soft holiday shopping demand expectations. Ongoing customer stocking since Q2 has intensified China local competition. As I just mentioned, Panel manufacturers are strategically reducing production to safeguard panel prices, while other brands are enforcing strict procurement control in response to soft demand and maintaining low inventory levels. Looking ahead in the novel sector, the emergence of AITC is prompting display upgrades towards OLED displays, and displays were equipped with touch features. Through strategic collaborations with leading panel makers in Korea and China, HIMAX is well positioned to capitalize on this trend, offering a comprehensive range of notebook IC products, including DDIC, TCAM, and touch controller for OLED displays, and TDCI and TCAM for LCD display. First, on TDDI for LCD, we are pioneering in-cell touch TDDI for notebook LCD display. Our state-of-the-art in-cell touch TDDI solution features the proprietary architecture where the touch controller is embedded inside the TDDI chip with the display portion of the TDDI taking advantage of the conventional display driver configuration to convey TCAN data to drive the panel. This allows customers to maintain the existing TCAN adoption, substantially reducing their product development effort and enhancing production flexibility. Additionally, the TDI features high integration multi-chip cascade and increased channel output, enabling higher resolution of up to 4K, a larger screen of up to 16 inches, with complex PCD and narrow bezel designs, making it suitable for both mainstream and high-end LCD laptops. In the third quarter, Our newly introduced in-sale touch display successfully entered mass production for a prominent brand for the AIPC. Several projects are also in progress with other brands for the upcoming notebook models. The second area of focus is OLED, which is seeing increasing adoption in premium laptops. In addition to our OLED DDI-C and T-Con solutions, we are also pioneering all-cell touch control technology on local OLED display. Multiple projects with top panel and laptop leaders are underway. Finally, we are developing the next generation BDP 1.5 display interface for T-Con, applicable to both LCD and OLED panels, supporting high frame rates, low power panel replay, adaptive sync, and high resolution. We aim to launch our EDC 1.5 T-Con in the second quarter of 2025. We are confident that with these new initiatives, Kinect will be the frontrunner of next-gen AI PCs and premium notebooks. With several projects slated for mass production, Starting in 2025, we believe our OCD and all the novel solutions will act as a growth catalyst for our novel IC business for the coming years. Turning to the small and medium-sized dispatcher of IC business, we anticipate fourth quarter revenue to be flat sequentially. Automotive IC revenue in Q4 is expected to resume growth and increase single-digit sequentially, mainly supported by ongoing China market promotional events and the Chinese government's renewed trading stimulus policies, as earlier mentioned. Notably, automotive driver IC sales for the full year 2024 are projected to grow high teams year-over-year, significantly outperforming global automotive growth, primarily driven by continued expansion of TDDR adoption among all major end customers forward. In the automotive TDDR sector, we continue to strengthen our market dominance with cumulative shipments already exceeding 70 million units, far surpassing most of our competitors. With nearly 500 designing projects secured and only about 30% currently in mass production, we continue to see substantial growth potential ahead. Remarkably, our Q4 automotive TDCS sales are set to surpass TDIC sales for the first time. Highlighting the widespread adoption of our solutions forward, along with growing demand for more intuitive, interactive, and cost-competitive task panel features enabled by TDDI solutions. Prior our full-year 2024 traditional automotive DDIC sales are expected to decline as they are partially replaced by TDDI. Our shape and quality for DDIC is set to see a modest increase. This is indicative of the product's long life cycle as many of our customers' legacy models will not be retired for years. and many displays, such as cluster display, SUV, or rear and side view mirrors, do not require touch feature. We remain the leader of the automotive DDIC market with approximately 40% global market share. Meanwhile, an emerging market trend shows more customers are opting for time access, TDDI or LTDI, coupled with our local gaming T-Con as their standard development platform for newer automotive displays across various sizes and applications. This growing platform adoption of more of our automotive IC offerings not only reflects strong customer loyalty to our technologies and services, but also signifies the increase in content value for HIMAT on a per-panel basis. HIMAT is widely recognized as the leader in the automotive display IT market, offering the industry's broadest range of products with leading market share in each of the product areas. The diverse range of offerings allows us to address different customer needs and adapt to changing market trends, thereby strengthening our market presence and boosting potential revenue. Our newly introduced TED or TCAM embedded driverless solution, which combines QEDI with the whole team in TCAM into a single chip, exemplifies our commitment to providing customers with more competitive, flexible, and broader options. This solution is ideal for smaller panels that typically require only one to two ICs for cost consideration, while still offering advanced touch and level dimensions. Production is set to begin in early 2025, with several projects and engagements currently underway with major customers. Meanwhile, we are actively collaborating with automotive TOA partners to develop more advanced, innovative, and or cost-optimized solutions tailored to various market needs. These are not only underscores of customers' confidence in our technology leadership, but also reflects their commitment to engaging with us in future roadmap collaborations. Moving to smart board IT sales, we anticipate Q4 to slightly decline sequentially with ongoing shipment to key customers. Q4 tech lead IT sales are projected to decline are low-teens sequentially, as land customers are extending their replacement cycles due to challenging economic conditions. Next, for an update on our OLED business. In the automotive OLED market, we have formed strategic partnerships with leading panel manufacturers in Korea, China, and Japan. as OLED technology gains traction beyond premium car models. HIMAX is well positioned as the preferred partner thanks to our strong presence and proven track records in the LCD automotive display sector. Leveraging our first mobile advantage, we look to capitalize on the growing adoption of OLED in automotive displays by offering a comprehensive range of OLED solutions, including DDIC, TCAM, and on-sale touch controller. We believe this positions us as the primary beneficiary of the growing adoption of OLED display in automotive. For instance, our advanced OLED on-sale touch controllers are setting new industry standards with an impressive task signal-to-noise ratio of over 45 dB, ensuring reliable performance under challenging conditions such as glove-wearing and white-finger operations. Along with on-sail touch controller for automotive applications and their production, last quarter, an adoption is expanded across the board. With additional projects starting mass production next year. We expect this segment's contribution to our revenues to increase starting in 2025. Beyond the automotive sector, we have made notable advances in the tech and novel sectors with top OLED panel manufacturers in Korea and China. Our comprehensive OLED product offerings encompassing DDIC, GCAM, and touch controllers have led to several new projects that are on track to enter mass production during Q4 and as we move into 2025. Regarding smartphone OLED, we expect mass production to commence next year. Currently, we are making good progress in collaborations with customers in Korea and China. on several verification and partnership projects. Additionally, we are building strong long-term partnerships with these audit players to enhance our market position. I would like to now turn to our non-driver IT business update, where we expect the fourth quarter revenue to increase mid-teens sequentially. First, for an update on our TCAM business. We anticipate Q4 TCAM sales to increase mid-teens sequentially, triggered by automotive and a one-time ASIC TCAM product shipment to a leading projector customer. Automotive TCAM business is expected to achieve high-teens growth sequentially driven by the shipment of secure design wings. For the full year, our automotive teacup business is projected to grow over 80% compared to last year, contributing to nearly 4% of our total sales. Moving forward, we are confident in the strong growth trajectory in the automotive teacup business. Backed by our dominant local demand teacup, multi-position, with over 109 wind projects, of which only a small portion are currently multi-production, and new design needs continue to expand. Many panel houses, TO1s, and OEMs worldwide have now expanded the adoption of our leading-edge low-emission T-con solutions, from premium to miniature car models. We are well positioned for decent growth in automated TCAM over the next few years. Despite subdued ad market demand, we are actively developing next-generation automated TCAM ICs for tablets, notebooks, and automotive applications. This proactive approach now needs broadens and diversifies our product offerings, but also helps us navigate through industry shifts towards wider adoption of OLED displays across applications. Some of our newly developed TCAN ICs for OLED tablets and notebooks are already showing promising results. For automotive OLED TCAN, an area which with exciting growth potential. We began production in 2021 and anticipate new product launches with advanced feature enhancements in 2025. Switching gears to Wi-Fi Ultra-Low Power AI sensing solution, the cutting-edge endpoint AI integration featuring industry-leading Ultra-Low Power AI processor always-on 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, characterized by remarkably low power consumption operating at just single digits. making it possible to add AI functionalities to battery-powered endpoint devices. Our Wi-Fi technology is unlocking new opportunities across various applications, particularly in endpoint devices for everyday life. A prime example is the smart door lock. stemming from our collaboration with Desmond, the leading vendor in China's high-end smart door lock market. We are expanding use cases with other world-leading door lock makers across continents by integrating innovative AI features such as puzzle recognition, smart anti-pinch protection, and palm vent biometric access. This approach targets diverse home security markets that value one-size household power consumption and on-device AI capabilities, which are crucial for battery-powered endpoint AI devices. Next, for an update on our one-size module business. We continue to offer a diverse range of plug-and-play modules, collaborating with ecosystem partners and third-party system integrators to develop pre-trained low-code and low-code AI solutions with the goal of lowering barriers and timelines for developers entering the AI space. Progress is being made across various domains, including smart parking, access control, power bank authentication, smart offices, smart homes, and more. Among these, HiMET's Parkway solution, which is part of our YSI AI module business, has garnered significant attention and positive feedback from customers since its launch 30 this year. It has already been adopted by a U.S. customer for smart access control systems and is on track to begin mass production by the end of the year. Extensive engineering activities of Wi-Fi pump van are ongoing with world leading players across various industries, including smart door locks, access control, notebooks and locomotives, among others. The Wi-Fi pump van solution integrates the HMS Wi-Fi 2 AI processor and AOS CMOS dimming sensor, and a proven palm band authentication algorithm. It features an actual low-power, compact module capable of authenticating an individual's identity in under 100 milliseconds while consuming only a few milliwatts of power. ideal for battery charge on device AI end-point applications. PumpVAN authentication utilizes unique internal VAN patterns that are difficult to replicate or spoof. In addition to exceptional low power consumption, Wi-Fi PumpVAN provides robust security and reliability with industry-leading low rates of force acceptance and rejection. making it nearly impossible to bypass or misidentify. Equally important, Wi-Fi Parliament processes identification locally, eliminating privacy risk associated with cloud access required for solutions that perform authentication remotely. We anticipate increasing sales contribution from our Wi-Fi department across a diverse array of applications starting next year, and are excited about the strong customer interest and opportunity for rapid growth in our Wi-Fi module business. Now switching to a quick update on W0. In June of this year, Himex joined forces with Fossey, a global leader in silicon photonics connectors, to announce the launch of an industry-leading optical communication solution designed for the most advanced multi-chip modules. Himex and Fossey are currently progressing through the small-scale production phase of our first-generation solution designed for the LPO architecture. In addition, HIMAX, in collaboration with 4C, along with leading global AI IT design companies and foundry partners, has commenced development for next generation technologies with the objective of incorporating these advancements into more sophisticated CTO architectures. Leveraging our years of W.O. engineering expertise, HIMAX has meticulously designed and developed nanoscale precision optical systems for LTO-CTO. In the LTO-CTO optical solution, our precision-engineered optical design and manufacturing technologies ensure that the optical signals in each fiber with the silicon photonic integrated circuit or PIC in the LPO-CTO optical components. This achieves high precision, low loss, and high speed transmission to meet the demands of silicon photonic transmission in high speed computing. In addition to the progress made in the LPO-CTO, We have seen an increase in engineer collaborations with global technology leaders who are leveraging our WO expertise for AR, VR, and a range of other applications, underscoring the widespread recognition of our technology. We believe that WO will make a significant contribution to all of our revenue and projects in the coming years. That concludes my report for the quarter. Thank you for your interest in HIMAT. We appreciate your joining today's call and are now ready to take questions.

Yes, thank you, Jordan. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press star 1 on your telephone keypad and you will enter the queue. And after you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press star 2 to cancel the question. Thank you. In addition to submitting questions via phone, you are also welcome to submit questions through the webcast, where the chat box is available on the right-hand side of the screen. Thank you. Now, please press start key and number one on your keypad to ask the question or submit your questions through the webcast. Thank you. Now, we'll have our first question. Donnie Tan, Nomura. Go ahead, please.

Thank you Jordan and Eric for taking my question. My first question is regarding to your automotive business. So based on your guidance, automotive driver IC sales in fourth quarter will be growing like single digits sequentially. But when we look at some of peers announcement is like, for example, like Novartek, like Radian, they all mentioned about that automotive driver IC sales in fourth quarter may uh, decline a little bit sequentially. Um, and also, uh, I remember that back in past few, uh, past few months, it seems like the automotive business was pretty volatile, you know, customers adding orders and cut orders within couple of months. So, um, what makes this kind of volatility that big and, and how come with them? how confident we are to outperform our peers in terms of automotive business into fourth quarter. Thank you.

Thank you for the question. I mean, as you know, we are always very confident, and actually we are always on somehow conservative side when we provide our guidance. So when we say the... Q4 automotive overall business is likely to, is projected to grow. I mean, we certainly, we mean business. And similar to the last quarter, we are seeing a lot of rush orders, which, you know, fortunately, we are able to fulfill because of the reasons I mentioned earlier in my prepared remarks. And I think the customers appreciate that, the fact that Himex is you know, has the leading market position and also is fulfilling our responsibility by, you know, fulfilling Sachua's orders for being the leading market share player. And I think that the main reason for the Q4 is really a continuation of the last minute Q3 Russia orders. China is renewing its stimulus plan and that is rushing the car makers and to a great extent consumers to make their purchase before the incentive plan expires. And I think that is what we are seeing. Having said that though, so again, we are very confident about our projection for Q4. We are, however, less confident on the prospect of Q1. So perhaps, you know, a more important question is what is our prospect for 2025? I know you didn't ask that question, but I think it's probably a good opportunity for me to elaborate a little bit on our prospect here. So again, we are very confident about our continued market share leadership and close engagement with our customers across the global automotive supply chain. However, we don't have good visibility, to be quite honest, for our automotive business for 2025. And this is mainly because of the uncertainty relating to the macro environment, both politically and economically. I think I don't need to elaborate further on that. We all know what I'm talking about, about the uncertainty. Nevertheless, regardless of the macro environment, we are quite comfortable about further growing our automotive TDI business next year. which surpassing DDIC is already our largest source of revenue right now, as you know. Our confidence stems from our large number of designing projects which are yet to enter mass production, and the penetration of incendiary DF automotive, which is still projected to somehow grow further. although certainly not at the same kind of high growth rate that we got to enjoy over the last few years. Our confidence level is even higher for growing our local gaming T-Con as well as LTDF business in 2025 for very similar reasons, i.e. large number of design wing projects already in hand and dominant market position. We are actually now projecting for the TCAN to grow a rather decent double digit next year. And for LTDI, starting from a relatively low base, to grow triple digit actually next year. Again, we are fairly confident about this prospect. However, I can't say the same for traditional DDIC for next year. As you know, the overall DDIC volume of the market is projected to decline somehow. It is being partially replaced by TDDI. But it still has solid demands for applications that do not require touch features. So the business next year for our automotive DDIC will depend largely on the overall automotive shipment. We don't really expect our market share to decline, but we can't really, with our 40% market share, which is already quite high, we can't really project our market share to grow much further either. If I try to complete the story, let me also look further ahead into 2026 and 2027. We are lucky to see our OLED business taking off for automotive. We are already collaborating very closely with leading customers in Korea, China, and Japan on new generation projects that are already in design stage with TA1s and ODMs, involving all of our DDIC TCAN on-sale touch solutions for OLED. with our touch solution already in early stage of mass production, as we just mentioned. So while the automotive OLED will be the story of 2026 and beyond, we believe it will represent a major growth engine for Himex when it happens, because what we are seeing right now, what we are experiencing right now is very, very busy design activities with not just panel makers and also tier ones and OEMs. for their high-end models. So I hope that addresses your question.

Thank you, Jordan. Another follow-up on this is, as I mentioned, some of the peers mentioned about fourth quarter may sequentially decline a little bit. So other than the overall customer situation seems like getting better towards the end of this year, is there any specific company reason to drive our automotive sales to be outperforming our peers.

I certainly don't know what is happening with our peers, but we are seeing these rush orders actually coming from not just one or two single customers. It's actually rather widespread from almost across the board, various panel makers. And covering both DDIC and TDD and TECAN actually. And I recall very vividly with our automotive T-car, which has actually very, very low production lead time. And we are scrambling to meet the customer's demand, which luckily we are able to achieve. However, in the meantime, we are complaining to the customer that this should not happen anymore because, you know, you know, partially by luck, we are able to make the delivery for T-Con. And with this long production lead time, if it happens next time, we can't really guarantee it. But anyway, what I'm trying to say is the rush orders actually came from not just Chinese, also other countries, panel makers, V1s, and automotives.

Understood. And my second question is regarding to the CPO progress. I'm wondering if you, okay, firstly, it looks like non-driver IC sales growth in fourth quarter primarily driven by T-Con. So is CPO playing any role there in fourth quarter yet? Or how should we look at the update progress there for CPO? Thank you.

The answer is no, not in Q4. In Q4, we do see some small amount of revenue from this, starting from Q4. early, very early, very small quantity shipments for customers' engineering, verification, and trial production purposes. So, our, so, so, WLO for CPO doesn't really contribute to our, our non-driver growth for Q4.

I see. Do you have any update on the future progress? I mean, when exactly we will see more meaningful progress or sales contribution from CPO? Is there any update on the schedule and, you know, the industry dynamics as well?

Okay, okay. Good question. Let me probably elaborate a little bit on in our prepared remarks, right, we talk about working on next-generation technologies and products, right? And so you may wonder, you know, exactly what those are and its timeline, and therefore your question about contribution potentially for next year or the year after. So the short answer is we are trying to squeeze more and more optical fiber lines into a very, very limited space, right? And that is a very tremendous engineering challenge. Now, as we all know, one of the main purposes of using OPL slash CPU technology is to substantially raise the data transmission rate, or what we call bandwidth, of the advanced multi-chip module, which, as you know, is essentially the bundling of multiple chiplets into a single module through so-called advanced packaging, right? the module, after such, quote-unquote, bundling, can therefore process a very large amount of data. But to make the module useful, the module also needs to have sufficient bandwidth to transmit that data with the outside in both ways. And we all know optical fiber is being used to replace the traditional metal wire for such high bandwidth data transmission. However, the bandwidth of each optical fiber line is still fixed, is still limited, right? And therefore, to up the overall bandwidth of the whole multi-chip module. The simple idea is to have multiple optical fiber lines working in parallel. And that is exactly what we're working on when we talk about technology roadmap. We are trying to squeeze more and more optical fiber lines into a very limited space. We are targeting some phenomenal increases over the next few years to cope with the projected increase of data amount that need to be transmitted by the advanced multiple multi-chip module. So to achieve that, among other things, we need to push the boundary of optical design and manufacturing for example, for better waveform integrity after transmission. Another example would be for more precise coupling of the optical fiber with the photonic IC that our device is connected to. In terms of timeline, I can't really speak on behalf of my customers, so all I can say is that we are being requested to accelerate the timeline from something already quite challenging for the migration from first-generation LPO to more advanced CPO, as well as for the readiness of our next-generation products, enabling plus increasing number of optical fiber lines. We also mentioned, it's part of our Q&A last quarter as well, some people wonder about whether we have the capacity to meet such demands when it really happens. And we certainly, we have run the mess internally several times, right? And we are certainly very excited about the prospect because, you know, if we look at our partners or customers projected capacity expansion as well as their projected growth of such high-end 2.5D modules or XPUs. Even if we are to fully utilize our existing capacity, we can only meet a small fraction of their projected demand. Now, to be honest, we still don't have their long-term forecast, long-term projection for their demand. for covering, you know, next few years yet, but we feel we are very prepared because all these generation of products I just mentioned, whether this generation or future generation of our products will be manufactured in our existing, you know, with existing was built for the purpose of some earlier projects that we worked on several years back for consumer electronics products. Now, without specifics, we believe the same existing capacity will generate substantially more revenue and profit for us as the products for LPO, CPO, demand much more sophisticated optical design and manufacturing compared to those used for our earlier products, which, as I mentioned, is for consumer electronics. So I hope that addresses all your questions regarding this WO business.

Okay. Thank you, Jordan. It's helpful. I'll go back to Q.

Thank you. If you would like to ask a question, please press star 1 on your keypad. Thank you. You may also submit your questions through the webcast. Thank you. Ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Thank you. As a reminder, please press star 1 on your keypad. Thank you. Okay, there are no further questions at this moment. Thank you.

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

Thank you, Jordan. Ladies and gentlemen, this concludes third quarter 2024 earnings conference. You may now disconnect. Thank you and goodbye.