Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the Himex Technologies Incorporation first quarter 2025 earnings conference call. At this time, all participants are in the 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. Now, I would like to turn the conference over to Ms. Karen Tell, head of IR and PR at Himex. Ms. Tell, go ahead, please.

Welcome everyone to HIMAX First Quarter 2025 Earnings Call. My name is Karen Teo, Head of IRPI at HIMAX. 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 section. If you have not yet received a copy of today's results, please email hx__ir at hymex.com.tw or himx at mzgroup.us. Access the press release on financial portals or download a copy from Hymex website at www.hymex.com.tw. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth are forward-looking statements that involve a number of risk and uncertainties that could cause actual events or result to differ materially on those described in this conference call. A list of the risk factors can be found in the company's NCC filing. Form 28 for the year ended December 31, 2024. In the section entitled Risk Factors, as may be amended, Except for the company's four-year 2024 financials, which were provided in the company's 20S and 5 with SEC on April 2, 2025, the financial information included in the 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 independent auditors, to which we subject our annual consolidated financial statements and may vary materially on audited consolidated financial information for the same period. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, I will first review the highest consolidated financial performance for the first quarter of 2025, followed by our second quarter outlook. Jordan will then give an update on the status of our business. After which, we will take questions. You can submit your questions online through the webcast or by phone. We will review our financial on an IFRS basis. Despite the cyclical seasonal slowdown due to Lunar New Year holidays, we are pleased to announce that our QI revenue was at the high end of projected range issued on February 13, 2025. because margins remain in line with the guidance, while profit exceeds the guidance range. First quarter revenue registered $215.1 million, a decrease of 9.3% sequentially, reaching the high end of our guidance range of a decline of 8.5% to 12.5%, but representing a 3.7% increase year-over-year. Growth margin was 30.5%, in line with our guidance of around 30.5%, flat from last quarter and up from 29.3% in the same period last year. The year-over-year increase was driven by available product mix and continued cost optimization. Q1 profit per diluted ADS was 11.4 cents. exceeding the guidance range of 9.0 to 11.0 cents, primarily due to lower operating expenses. Revenue from large district drivers came in at $25.0 million, flat from last quarter despite the seasonal downturn. This was primarily driven by demand spurred by Chinese government subsidies and at the reviving domestic consumption. Nervo and Monitor IC sales recorded solid double-digit growth in Q1. In contrast, TV IC sales declined as expected due to customers rolling forward their inventory purchases in the prior quarter. Sales of large panel driver IC accounted for 11.6% of total revenues for the quarter compared to 10.5% last quarter and 50.1% a year ago. Revenue from the small and medium-sized display driver segment totaled $150.5 million, reflecting a sequential decline of 9.8% amid the typical low season. However, Q1 automotive driver sales, including both traditional DDI-C and T-DDI, outperformed our guidance of a low-teen sequential decline, declining just a single digit from the last quarter. The sequential decline reflected the waning effect of the Chinese government's renewed trading stimulus, announced in mid-August 2024, while demanding other major markets remain stable. Q1 order IC sales rose nearly 20% year-over-year, reflecting ongoing customer reliance on our technology and the strength of our competitive moat. Our automotive business, comprising DDIC, TDDI, QICON, and OLED IT sales remained the largest revenue contributor in the first quarter, representing more than 50% of total sales. Meanwhile, both smartphone and tablet driver sales declined as expected amid a subdued festival season. The small and medium-sized driver IC segments accounted for 17.0% of total sales for the quarter, compared to 7.3% in the previous quarter and 69.5% a year ago. Q1 driver sales reached $39.6 million, a 12.8% decrease from the previous quarter. The sequential decline was primarily attributable to to a leading projector customer in the prior quarter, coupled with the moderation in automotive tea consumption after several quarters of robust year growth. That being said, our position in the local GMT convenience are rivaled, supported by increasing validation and adoption for lead panel makers, tier one suppliers, and automotive manufacturers around the world. We also have a robust pipeline of over 200 design wind projects that are set to gradually enter mass production in the coming years. Non-driver products accounted for 18.4% of total revenues as compared to 19.2% in the previous quarter and 15.4% a year ago. First quarter operating expenses were $45.7 million. a decrease of 7.0% from the previous quarter and a decline of 9.8% from a year ago. Amid ongoing macroeconomic challenges, we are strictly enforcing budget and expense controls. First quarter operating income was $19.8 million, or 9.2% of sales, compared to 9.7% of sales last quarter and 4.8% of sales for the same period last year. The sequential decrease was mainly a result of lower sales, offset by lower operating expenses. The year-over-year increase resulted primarily from higher sales, improved gross margin, and lower operating expenses. First quarter FTEX profit was $20.0 million, or 11.4 cents, per diluted 80th. compared to $24.6 million of 40 cents per diluted 80s last quarter and up from $12.5 million of 71 cents in the same period last year. Turning to a balance sheet, we had $281 million of cash, cash equivalent and other financial assets as of March 31st, 2025. This compares to $277 million at the same time last year, and at 224.6 million a year ago. We achieved a strong positive operating cash flow of 56.0 million dollars for the first quarter. As of March 31st, 2025, we had 33.0 million dollars in long-term unsecured loans, with 6.0 million being the current position. Our quarter end inventory as of March 31, first 2025, were $129.9 million, lower than $158.7 million last quarter and $201.9 million same period last year. Our inventory level has steadily declined for 10 consecutive quarters since peaking during the COVID-19 pandemic. when the industry was undergoing a supply shortage. As macroeconomic uncertainty impairs the visibility across the ecosystem, we will continue to manage our inventory conservatively. Accounts receivable at the end of March 2025 was $217.5 million, down from $236.8 million last quarter, but slightly up from $212.3 million a year ago. DSO was 29 days at the quarter end as compared to 96 days last quarter and 23 days a year ago. First quarter capital expenditure was $5.2 million versus $3.2 million last quarter and $2.7 million a year ago. First quarter of CapEx was mainly for R&D related equipment for our IT design business. and ongoing construction of new preschool near our timeline headquartered for children of employees. The preschool is scheduled to open in 2026, reinforcing our commitment to a family-friendly workplace. Prior to today's call, we announced an annual cash dividend of 37.0 cents per 80 and payable on July 11, 2025, with a payable ratio of 81.1% of the previous year's profits. Himex will continue to focus on maintaining a healthy balance sheet while driving sustainable long-term growth to deliver value for our shareholders through high dividends and share repurchases. As of March 31, 2025, IMF had a 170.9 million ADS outstanding on challenges from last quarter. On a fully diluted basis, the total number of ADS outstanding for the first quarter was 175.1 million. Now, turning to the second quarter 2025 guidance. We expect second quarter revenues to decrease 5.0% to increase 3.0%. to increase 3.0% sequentially. Course margin is expected to be around 31.0% depending on the product mix. The second quarter profit attributable to shareholders is estimated to be in the range of 8.5 to 11.5 cents per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q22075 outlook. Jordan, the floor is yours. Thank you, Karen.

To start off, I'd like to quickly comment on the recent abrupt and significant anti-dollar appreciation against the US dollar, its impact on our Q2 financial results, the financial guidance for the quarter. All of Himex's revenues and nearly all of our cost of sales are US dollar denominated, providing a natural hedge for buying and selling activities. In addition, the bulk of our R&D expenses, save for employee salaries, are also US dollar based. For employee compensation, a major item of our opening expenses. While our employees are paid in the local currency of their location for their salaries, their bonuses are all US dollar based. Other major non-US dollar expenses, mostly anti-dollar denominated, include utilities and income tax expenses. While we don't hedge for currency risk of our non-US dollar-based operating expenses, as the cost of such hedging would usually outweigh the benefit, we do purchase any dollar in advance to cover the income tax payable, thereby minimizing the currency risk of a major expense item. Now, I would like to comment on the recently announced US tariff measures, which have intensified global trade tensions, triggered volatility in capital markets, and heightened macroeconomic and market demand uncertainty. Currently, tariffs have not had a significant direct impact on Timex's business, as all IT products are not directly exported to the U.S. Instead, they are assembled into panels or modules by customers outside the United States, and they sold into global market, including the United States. Just a negligible portion, about 2% of HIMAX's products are shipped directly to the United States. Only customers for these products are subject to U.S. tariffs. Almost all of these products are manufactured in Taiwan. For some customers have requested early shipment to avoid tariff duties. Many others have opted to deter their orders amid ongoing tariff-related uncertainties. Our conservative Q2 revenue guidance reflects the highly cautious stance of our customers in general toward the global economic outlook and end-market demand amid ongoing tariff development. Looking into the second half of the year, Overall market visibility remains low, with the world continuing to closely monitor the development of tariff negotiations. As the tariff-driven supply chain restructuring gains momentum, HIMAX is deepening its well-established supply chain in Taiwan, while further strengthening its supply chain presence in China, Korea, Singapore, and other regions to ensure production flexibility and cost competitiveness, and to better mitigate geopolitical risks. Amid the volatile macro environment, most panel customers have adopted a make-to-order model and are keeping inventories clean. In response, we are carefully monitoring where it starts, maintaining low inventory levels, and rigorously controlling operating expenses. Currently, we are further optimizing costs by diversifying both foundry and backend package testing, while mitigating risks and enhancing manufacturing flexibility. This approach is exemplified by the major milestone recently achieved in our automotive display IT collaboration with Netship in China, with products now in mass production and adopted by leading automakers. This not only validates our diversified supply chain strategy, but also underscores our steadfast commitment to scaling capacity and cost optimization. Turning to the automotive market. Automotive IT business currently accounts for a hash of high-axis revenue. Having served the automotive display market for almost two decades, HIMAX has maintained a balanced global market share across major regions, while demonstrating technological leadership and offering the industry's most comprehensive suite of panel ICs, spanning LCD to OLED. Combined with over a decade of lower relationships with global TAY suppliers and automotive brands, these trends help mitigate potential risk from tariffs and reinforce the long-term stability of our automotive business. In addition, HIMAX remains committed to a number of innovative fields, namely ultra-low-power AI, AR glasses, and co-packaged optics of CPL. Technologies in these areas are approaching maturity and offer substantial growth potential. As a pioneer and leader in key technologies enabling these novel areas, Himex is working closely with supply chain partners from technology development through to mass production to actively expand new business opportunities. These innovative fields are relatively less affected by macroeconomic fluctuations and customer development efforts have not slowed due to tariff uncertainties. We expect these businesses market in the years ahead. Despite the volatile geopolitical environment, Hymex continues to actively explore high-growth markets, establish close partnerships with industry-leading companies, and continue to expand our global footprint while developing long-term competitive advantages. In our latest cross-border cooperation. We established a three-party strategic alliance with Powerchip and Tata Electronics, a subsidiary of Tata Group, India's largest and most influential conglomerate. This collaboration combines Tata Electronics' deep manufacturing and local supply chain integration strengths. Powerchip's mature web and manufacturing capabilities and HIMAX's leading display IC and wide-side actual power AI sensing technologies to jointly create a powerful ecosystem. The collaboration echoes the Made in India strategy of the Indian government for high-tech areas while exploring the huge potential demand of the Indian market. With that, I will now begin with an update on the large-panel travel IT business. In Q2, large-display travel IT sales are expected to decline by a single digit sequentially, driven by customers' pull-forward orders placed in parent quarters against the backdrop of Chinese government subsidies boosting domestic consumption. Monitor and notebook IT sales are expected to decrease in Q2, whereas TV IT sales are set to increase sequentially, driven by higher shipments to key end customers. Looking ahead in the notebook sector, we are observing a growing trend for premium notebooks to adopt OLED displays and advanced touch features. partially fueled by the rise of AIPC. Hymex is well positioned to capitalize on this trend, offering a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, T-card, touch controllers, and TDDI. In addition, we are expanding our high-speed interface product portfolio to support faster data transfer rates, lower latency, and improved power efficiency, features that are critical for next-generation displays. We have made progress on the next-generation EDP 1.5 display interface for T-Con for both LCD and OLED panels. This high-speed interface supports high frame rates, low power consumption, adaptive sync, and high resolution. Key features essential for next-generation AIPCs. Through ongoing portfolio expansion and continuous technology innovation, Himex is well-positioned to lead in the rapidly evolving landscape of AIPCs and premium notebooks. Turning to the small and medium-sized display IC business, in Q2, small and medium-sized display driver IC business is expected to decline single digit from last quarter. We expect Q2 automotive driver IC sales, including both TDDI and traditional DDIC, to decline meetings sequentially, reflecting the combined impact of tariffs and the waning effect of China's automotive subsidy program. Despite these near-term headwinds, automotive CADR adoption continues to expand across the globe, driven by growing demand for more intuitive, interactive, and cost-effective touch panel features essential in modern vehicles. High masses of cumulative shipments of automotive TDTI have outpaced competitors, with nearly 500 design projects unsecured to date, majority of which have yet to enter mass production. On top of a continuous influx of new pipelines and design wins across the board, we are well positioned for continuous growth further reinforcing our leadership in this space. For automotive DDIC, we continue to see solid shipments for automotive DDIC for non-touch applications, including cluster displays, HUDs, and rear and side view mirrors. Our confidence is further strengthened by the growing proliferation of advanced technologies such as LTDI or large touch and display driver integration in large display car models. HIMAX is a pioneer in LTDI technology which supports seamless integrated large touch display panel typically larger than 30 inches or spanning pillar to pillar across the entire width of the cockpit. The OTDI also features high-tech touch functionality for responsive performance, making it ideal for next-generation smart cabinet designs that emphasize large displays and intuitive touch interaction. Additionally, we have seen an increasing number of customers choosing to adopt our integrated LTDI and TCAN solution as the standard platform for their ultra-large automotive display development. Such panels typically require four or more LTDI chips and at least one of the DIMM-TCAN per panel. This growing platform adoption of more of Himex's automotive IC offerings not only reflects strong customer loyalty to our technologies, but also signifies an increase in content value for us on a per-panel basis. Multiple projects with global leading car brands are set to begin mass production starting the end of 2025. HIMAX continues to lead the global automotive display market, holding a 40% share in DVIC, over 50% in DDI, and an even higher share in cutting-edge double-dimming keycard technologies. Moving to smartphone and tablet IT sales. We expect Q2 Smartphone IT's revenues to decline mid-teens from last quarter. Oil tablet IT sales are poised to grow by high teens sequentially, driven by renewed demand from leading customers following several quiet quarters. Next, for an update on our OLED business. In the automotive OLED market, leading panel makers in Korea, China, and Japan. As OLED technology expands beyond premium car models, HIMAX is well positioned to become the partner of choice and accelerate OLED adoption in vehicles by capitalizing on our strong presence and proven track record in automotive LCD displays. Leveraging our first-mover advantage we offer a comprehensive suite of solutions, including DDIC, TCAN, and on-sale touch controllers. It's worth noting that our advanced OLED on-sale touch control technology boasts an industry-leading signal-to-noise ratio exceeding 45 dB, delivering reliable performance conditions such as glove wearing or wet finger. The solution entered mass production in 2024 and an increasing number of leading global brands are rapidly adopting it for their premium car models. We expect to be a key beneficiary of the shift to OLED displays for the automotive industry over the next few years, unlocking a new growth driver for us that further reinforces our market leadership. In addition, we have expanded our comprehensive OLED portfolio into the tablet and notebook markets. covering DDIC, T-Con, and touch controllers through partnerships with leading OLED panel makers in Korea and China. Several new projects are slated to enter mass production with top-tier brands later this year. Meanwhile, we are developing value-added features such as active stylus and gaming models to further enhance our product differentiation and competitive edge. In the smartphone and OLED market, we are making solid progress in our collaborations with customers in Korea and China and expect mass production to start later this year. I would like to now turn to our non-driver IC business update. where we expect the second quarter revenue to increase low-teens sequentially. First, for an update on our TCAM business, we anticipate Q2 TCAM sales to increase high-teens sequentially, primarily due to increased shipments of TCAM for notebook and automotive products. Automotive T-car sales are set to increase by double digits in Q2, fueled by a strong pipeline of over 200 design wing projects gradually entering mass production. With a steady influx of new projects coupled with growing validation and widespread adoption of a new T-car in both premium and mainstream car models worldwide, Hymex continues to maintain an unchallenged leadership position with a dominant market share. In the second quarter, we expect TCAN business to account for over 12% of total sales with notable contributions from automotive TCAN. Meanwhile, head-up display or HUD is emerging as a major growth area within automotive displays, where local dimming T-card adoption is accelerated. Our industry-leading local dimming T-card eliminates the postcard effect often seen in SUVs caused by backlight leakage typical of conventional TSA LCD panels delivering crisp, high-fidelity images on the windshield. Additionally, it features advanced transparency detection to prevent the display from obstructing the driver's view, thereby ensuring driver safety. With several SUV projects already underway and increasing inquiries, we are excited about the potential opportunity ahead. Our automotive pickup business is well positioned for growth over the next few years. Switching gears to the wide-eye ultra-low-power AI-saving solution, a cutting-edge endpoint AI integration featuring industry-leading ultra-low-power AI processor, OSL SIMO-SIMI sensor, and CNN-based AI algorithm. In a rapidly evolving AI landscape, Widesight AI technology stands out for its expertise in on-device AI, categorized by remarkably low power consumption, operating at a single-digit minimum, enabling AI functionality in battery-powered endpoint devices. Additionally, Wi-Fi AI significantly extends battery life and improves overall data processing efficiency by uploading tasks from the main processor. These attributes unlock new opportunities across a wide range of everyday battery power endpoint applications, evidenced by broad adoption of Wi-Fi AI across diverse applications, including notebooks, tablet, smart door lock, surveillance system, access control, smart retail, and many others. On notebook, building on the success of their notebooks, Wi-Fi AI is expanding into additional use cases across other leading novel brands, with some entering production later this year and expanding further into 2026. The current adoption is further fueled by the rise of AI-PC, as Wi-Fi's ultra-low power of device inference capabilities align seamlessly with the industry's shift towards more intelligent, context-aware, and energy-efficient computing. Wireside Advanced Local Inferencing Technology enables real-time, high-precision user engagement detection by analyzing presence and motion, supporting a broad set of intelligent features such as head pose estimation, gaze tracking, facial expression recognition, voice command, adaptive screen dimming, secure identity authentication, and many others. These features enhance interactivity and user comfort without compromising battery life or system performance. making it fit for the demands of high-performance and energy-efficient next-generation AI PCs. YSI also continues to achieve significant market success across various sectors, such as smart door lock, where we introduced the world's first smart door lock with 24-7 century monitoring and real-time event recording. We are now expanding globally by collaborating with a number of leading door-lock makers worldwide to integrate a suite of innovative AI features, including part-band biometric access, parcel recognition, and anti-pinch protection. Several of these value-added solutions are selected for mass production later this year. Wi-Fi also powers smart retail, exemplified by our collaboration with e-ink on e-signage. It's always-on AI detects viewers' attributes such as gender, appearance, and age, followed by real-time personalized ads and nearby product recommendations, creating immersive engagement that activates the in-store shopping experience. Next, for an update on our Wi-Fi module business. Equipped with pre-trained low-code or low-code AI, our Wi-Fi modules simplify AI integration and support diverse use cases, including human presence detection, gender and age recognition, gesture recognition, face, mesh, voice commands, thermal image sensing, palm band authentication, and people flow management. Among them, the HIMAX palm band module has generated strong engagement across several industries. Multiple design wings have been secured with mass production underway by global customers for smart access. workforce management and smart door lock as we continue to explore additional application opportunities. Meanwhile, to meet growing demand for flexible access control in various settings, the upgraded Wi-Fi pump van suite now combines pump van recognition and facial recognition with P-hole camera input, underpinned by an advanced lightness check for high-precision multi-modal authentication. This upgraded PowerVAN module not only enhances security by offering multiple layers of biometric verification, but also ensures adaptability across a wide range of environments. These attributes make it particularly appealing to global brands looking to differentiate their products with enhanced security, greater use, convenience, and flexible customization. We anticipate increasing sales contribution from WhiteSide, PalmVent, across a diverse array of applications starting next year and are excited about its long-term growth potential. Looking ahead, WhiteSide is poised to scale rapidly across the broader AIoT market and emerge as a key growth driver for Himex in the years ahead. Separately, we are bringing intelligent actual power always on AI sensing to AI glasses. Powered by real-time context-aware AI running at single-digit milliwatts, YSI uniquely delivers the two essentials for AI devices, instant responsiveness and all-day battery life. These advantages have already led to Wi-Fi AI being adopted by a leading AR glasses platform with ongoing engineering engagements involving several other prominent global AR tech names for their upcoming AR glasses. Wi-Fi supports always-on AR sensing, enabling AR glasses to detect and analyze the environment in real time. This empowers instant response and key functionality such as object recognition, navigation assistance, sensation, and environmental mapping, greatly enhancing the overall AR experience. Wi-Fi also enables precise in-world sensing detecting subtle eye movements, gait direction, pupil size, and blinking, providing critical data for more intuitive and natural user interactions in AR applications. Next for an update on WHO. As you may recall, in June 2024, HIMAX in partnership with 4C, the world leader in silicon photonics connectors, unveiled a state-of-the-art silicon photonics packaging technology, a critical technology to enable co-packaged optics or CPO technology. This innovation of CPO integrates silicon photonics chips and optical connectors within multi-chip modules. replacing traditional metal wire transmission with high-speed optical communication. The technology significantly enhances bandwidth, boosts data transmission rates, reduces signal loss and latency, lowers power consumption, and significantly minimizes the size and cost of MCM. Currently, several shipments of our first-generation silicon photonics packaging solution for engineering validation and trial production are proceeding as planned, with volumes set to increase in the coming quarters. In addition, HIMAX continues to advance its technology roadmap in close collaboration with 4C, top-tier AI companies, and foundry partners. through the joint development of future generation CPU solutions to meet the escalating bandwidth requirements driven by AI and HPC applications. We are pleased to see our partner, 4C, achieving significant advancements in silicon photonics packaging with notable improvements in automated production, and testing. Together, we are actively progressing in process validation and yield optimization to enable full-scale production for leading AI customers. Himex is exceptionally positioned to capitalize on future growth opportunities in high performance computing, AI inference, and data center Alongside the CPO progress, certain global technology leaders are now engaging our WLO expertise to develop next-generation waveguides for AR glasses, a testament to the market's growing confidence in HIMAX WLO technology. With strong growth opportunities from CPO and AR glasses in the making, We are as optimistic as ever that our WOO business can emerge as a significant revenue and profit engine for us in the years ahead. Moving on to our latest advancement in AOCOS micro-display technology. At Display Week 2025 next week in San Jose, we will diffuse our ultra-luminous miniature dual edge from the Learcoast micro-display. This industry-leading solution integrates both the illumination optics and the Learcoast panel into an exceptionally compact form factor as small as 0.09 cc and weighing only 0.02 grams. While targeting up to 350,000 nits brightness and 1 lumen output at just 250 mW maximum total power consumption, demonstrating unparalleled optical efficiency. The luminous breakthrough ensures excellent eye-level visibility even in bright ambient conditions. while its compact form factor enables the development of sleek, everyday AR glasses. With industry-leading compact form factor, superior brightness, and power efficiency, it is ideally suited for next-generation AR glasses, and head-mounted displays, wear space, weight, and thermal constraints are critical. Growing collaborations with leading global tech companies are underway. We are confident that our technological advancements will help revitalize the air galactic market, drive its expansion, and unlock new opportunities for immersed visual experiences. That concludes my report for this quarter. Thank you for your interest. and are now ready to take questions.

Yes. Thank you, President Wu. And ladies and gentlemen, we are now in question and answer session. If you would like to ask the question, please press star key and number one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, you may press star 2 to cancel the question. Thank you. And in addition to submitting questions via phone, you may also submit questions through the webcast, where the checkbox is available on the right-hand side of the screen. Thank you. Now, please press star key and number 1 on your keypad if you would like to ask a question, or you may submit your questions through the webcast system. Thank you. Ladies and gentlemen, we are now in question and answer session. You may press star key and number one on your keypad if you would like to ask the question. Thank you. And in addition to submitting questions via your phone, you may also submit your questions through the webcast system. Thank you.

We do have a couple of questions from the online. The first question is, could you explain the validation process for CPL? The validation process is now being conducted by our leading customer and our foundry partner. It is a work in progress at the moment. The process involves primarily the validation of our current generation of products as well as the newly developed equipment including manufacturing assembly and testing equipment involved for the production of the product. And the equipment also includes the manufacturing equipment for the FAU as well as the equipment for the founding of FAU together with the cohorts. So it's going to be a challenge because not just the products but also the manufacturing process are brand new and it's primarily in-house development on the side of Himex as well as 4C. However, we are We believe the process is going well and we have good confidence of the successful validation of our technology. I don't want to comment exactly when, although certainly there is a timetable, all I can say is not very distant in the future. And once the validation process is concluded, then 4C in particular will embark on immediate expansion of their capacity, which will not take a long time. And that's how we will get ourselves ready for the mass production scheduled for next year. And in our prepared remarks, we mentioned that the sample shipment from Himex to Fossey is slated to increase quarter by quarter this year, and by Q4 it will reach in the amount of millions of dollars for Himex. And these sample shipments are actually is done and we will certainly start the next phase which is trial production, try to make sure nothing is going to go wrong and also for yearly improvement and optimization. So that's my answer to the first question.

There's another question.

Do you have a guidance for 2025? How do we see the demand into second half? As you know, we, since our IPO, we never provide a full year guidance. And we do comment on the trend we are seeing, but we never really, like, you know, the immediate quarter guidance, we never provide that. So we are certainly not doing it. at this moment, especially when the macro uncertainty is so high. And I would, however, again, make a certain qualitative comment on the visibility of the second half, and in short, this year is of particularly low visibility, as we all know, especially with tariffs, uncertainties, is we are seeing our customers are indeed, especially for the auto demand in China and you appreciate auto accounts for now about half of our total sales. In China, after quite a few rounds of government stimulus programs, our customers are worried that further new government program targeted to stimulus double-dip consumption may not be as effective as before because consumers have been through quite a few of such things and now everybody is aware of the global uncertainty in macroeconomy. So that is a major, that is a concern area for our customers and that is reflected in our Q2 rather conservative guidance. Because our customers are saying, see, you know, for the tariff, you know, how the tariff negotiation is going to unfold, nobody knows. And then another thing is, sure, Chinese government is in all likelihood is going to launch new programs to boost the local economy. However, whether that program will be as effective like the one program that was launched exactly about a year ago, that was quite effective. Whether this year's program will be as effective is a major unknown. So we were actually able to grow our automotive business by 20% last year, which was quite good considering the global auto sales was only about flat at best. But it is actually harder to predict how the auto sales will grow this year, although internally, our target is still to at least enjoy, achieve some growth this year. And for us to achieve the growth, I think we are fairly confident in achieving growth in new technology areas, i.e. TDI, T-Con, and LPDI. Because our pioneering position and the strong design we privatize, in these areas. And I would just point out again that our market shares in these new technology areas are always above 50% globally. And we are still seeing aggressive adoption of such new technologies. So in this area, we are fairly confident. However, depending on the global automotive shipment, the overall automotive shipment, we may see some decline in the traditional DDIC area as it will continue to be partially replaced by TDDI. However, I would also like to point out the traditional DDIC will never be totally replaced by TDDI as we witness in the smartphone market because some types of automotive displays such as dashboard, side mirror, rear mirror, and HUD will never need touch functionality. So as a reminder, we also enjoy about 40% gold market share and data leader in the traditional DDIC market. Would you comment on the obsidian investment? That's another question. Obsidian Investment is a Sydney, Australia-based company specialized in a very unique proprietary thermal imaging sensing technology. And we love the company because our technology is a perfect fit because in their very unique and proprietary design, their thermal sensor needs our CMOS image sensor inside and our optical solution can also be very effective to improve their optical design and in addition our actual power AI is a perfect fit for their thermal image sensing solution because the benefit of thermal imaging compared to visual imaging such as CMOS image sensor is quite clear. Thermal imaging has the major benefit of keeping privacy concerns away and also it works well in total darkness in the evening. And that is certainly, those are the witnesses of CMOS image sensor or RGB sensor. So we love the investment because one obsidian thermal imaging is a very good supplement to our RGB sensor imaging. And also there are key components actually be something we can supply, provide very good support for them. And also our wide-side special technology, Azure Low Power is a perfect fit. Similar imaging together with Azure Low Power AI can create very good, very convincing applications for our joint customers. So we are together working on new generation of design and we are proactively promoting the technology together, whether it will for trade shows or customer visits. And we believe Obsidian's thermal image, when it's successful, and hopefully we are seeing next year, hopefully we'll start to see meaningful value. is a very unique proprietary technology to offer thermal imaging together with AI with reasonable cost, reasonable low cost while offering reasonable resolution and one of their strengths is very, very uniquely low signal noise. So their application can be You know, we have seen many, many application areas, especially in those areas, as I mentioned, where privacy is a major concern, or in the evening you need to continue to detect objects. So we are quite excited about this, and so we are going to work very closely.

And what else?

When shall we see meaningful revenue contribution from CPO related products? We mentioned in the last earnings call, this year will only be sample contributions, so they are They are meaningful, but they are still negligible compared to our total sales. We also indicated next year, year 2036, will be the first year of mass production. But we don't know, and we're not going to comment exactly when. So I would say, you know, by the time it starts official mass production, the contribution will be meaningful. So hopefully that will be somewhere next year. Exactly when next year, again, we are not prepared to comment at this moment.

I think that some questions are rather repetitive from the ones I just mentioned.

The key bottleneck for the CPO project right now, again, we need to get the product and the process validated. And I think that's the key, the bottleneck. And certainly our customers will have their own technical challenges to deal with. But again, I think it is everybody's objective that we are going to produce too much production next year. And I think we are all quite confident and excited about this joint objective. I think that's about it for all the questions we received so far. Okay, also as a final note, Karen Teo, Our head of IRPR 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, President Wu. And ladies and gentlemen, this concludes first quarter 2025 earnings conference. You may now disconnect. Thank you and goodbye.