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spk00: Greetings, and welcome to the Chip Mo's fourth quarter and full year 2023 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. I would now like to turn the conference over to Dr. G.S. Shen, of Chip Mo's Technologies Strategy and Investor Relations team to introduce the management team of the company in conference. Dr. Shen, you may begin. Thank you, operator. Welcome everyone to Chip Mo's fourth quarter and full year 2023 results conference call. Joining us today from the company are Mr. S.J. Cheng, chairman and president, and Ms. Sylvia Su, vice president of Finance and Accounting Management Center. We are also joined on the call today by Mr. Jesse Huang, spokesperson and senior vice president of Strategy and Investor Relations. S.J. will chair the meeting and review business highlights and provide color on the operating environment. After Sylvia's review of the company's key financial results, S.J. will provide our current business outlook. All company executives will then participate in an open Q&A session. Please note, we have posted a presentation on the MOPS and also on the Chip Mo's website at .chipmoes.com to accompany today's conference call. Before we begin the prepared comments, we remind you to review our forward-looking statements disclaimer, which is noted as the Safe Harbor Notice on the second page of today's presentation and in the results press release we issued. As a reminder, today's conference call is being recorded and a replay will be made available later today on the company's website. At this time, I'd like to now turn the call over to our company's chairman and president, Mr. S.J. Chen. Please go ahead, sir. Yes, thank you, G.S. We appreciate everyone joining our call today. We are very pleased with our strong results in the face of broader industry headwinds and market challenges. We continue to carefully add capacity, expand our leadership, and build value for shareholders. In terms of Q4 and full-year highlights, our Q4 revenue increased .2% compared to Q4 2022, and was up .6% from Q3 2023. Full-year 2023 revenue declined .2% compared to 2022 reflecting industry headwinds and inventory corrections. Q4 gross margin increased 560 basis points to .1% from .5% in Q4 2022, and increased 420 basis points compared to Q3 2023. Overall gross margin decreased 430 basis points for 2023 to .6% compared to 2022. Net earnings tripled to $0.66 in Q4 2023 from $0.22 in Q4 2022 but decreased $0.14 compared to $0.8 of Q3 2023. Overall 2023 is $2.60. Our overall utilization rate was 62% in Q4 2023. Assembly utilization increased to 57% and testing average was 61%. DDIC was at 71% and bumping UT level decreased to 53%. Regarding our manufacturing business, our assembly represented .2% of Q4 revenue. Mixed signal and memory testing represented around .9% and wafer bumping represented around .4% of Q4 revenue. On a product basis, our DDIC product represented around 37.1%, with gold bumping representing about 18.9%. Revenue from DRAM and SRAM represented around .2% of Q4 revenue. Our mixed signal products represented about 7.8%. As additional color on our business, our memory products represented about .2% of total Q4 revenue. Memory product revenue was up about .5% compared to Q3 2023, and increased .9% on a -over-year basis. This is in line with broader industry trends as customers adjust inventory levels. DRAM revenue increased up .4% compared to Q3 and represented about .9% of total Q4 revenue. The significant growth came from domestic customers restocking and increasing DRAM rush assembly orders in Q4 to meet demand. Flash revenue represented about 19% of Q4 revenue, which down just slightly .2% compared to Q3. NAND flash also benefited significantly from customers restocking and increased about .4% compared to Q3, and represented about .8% of Q4 total flash revenue. Moving on to driver IC and gold bump revenue, this represented about 56% of total Q4 2023 revenue and was up significantly around .5% on a -over-year basis but decreased .6% compared to Q3 2023. Strong growth offset some pockets of softness. Of note, gold bump revenue was down 9% compared to Q3 2023 and DDIC revenue was little up about .9% compared to Q3 2023. In line with what we have said on prior calls, automotive has been a strong market for us over the past year. This continued in Q4 with revenue from auto panels increasing about .8% from Q3 and accounting for more than 25% of our Q4 DDIC revenue, and more than 23% of 2023 full-year DDIC revenue. We continue to view automotive as an important mid- and long-term growth market for us. For example, we benefited from automotive panels and OLED, which led to a .7% increase in our cog revenue compared to Q3, and represented about 64% of Q4 DDIC revenue. Regarding TDDI, it represented around .1% of Q4 DDIC revenue, with OLED and about .2% of Q4 DDIC revenue, which is significantly up .5% compared to Q3 OLED revenue. On an end-market basis, total revenue from automotive and industrial was up .9% compared to Q3 and represented about .2% of Q4 revenue. Smartphones represented about .2% of Q4 revenue, and increased .3% compared to Q3. Consumer represented 24% of Q4 revenue, and increased to .3% compared to Q3. Lastly, TVs and computing as an end-market, accounted about .7% and 4.9%, respectively. Now let me turn the call to Ms Sylvia Su, to review the fourth quarter and full-year 2023 financial results. Sylvia, please go ahead. Thank you S.J. All dollar amounts cited in our presentation are in ante dollars. The following numbers are based on the exchange rates of ante dollar 30.62 against 1 US dollar as of December 29, 2023. All the figures were prepared in accordance with Taiwan International Financial Reporting Standards. Referencing presentation page 12 Consolidated Operating Results Summary. For the fourth quarter of 2023, total revenue was ante dollar 5725 million. Net profit attributable to the company was ante dollar 482 million in Q4. Net earnings for the fourth quarter of 2023 were ante dollar 0.66 per basic common share or 0.43 US dollars per basic ads. EBITDA for Q4 was ante dollar 1872 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q4 was 7.8%. Referencing presentation page 13 Consolidated Statements of Comprehensive Income. Compared to 3Q23. Total 4Q23 revenue increased .6% compared to 3Q23. 4Q23 gross profit was ante dollar 1150 million, with gross margin at .1% compared to .9% in 3Q23. This represents an increase of 4.2ppts. Our operating expenses in 4Q23 were ante dollar 445 million, or .8% of total revenue, which increased .3% compared to 3Q23. Operating profit for 4Q23 was ante dollar 715 million, with operating profit margin at 12.5%, which is about a 3.8ppts increase compared to 3Q23. Net non-operating expenses in 4Q23 were ante dollar 137 million compared to net non-operating income of ante dollar 231 million in 3Q23. The difference is mainly due to the increase of the foreign exchange losses of ante dollar 362 million to the foreign exchange losses of ante dollar 195 million in 4Q23 from the Foreign exchange gains of ante dollar 167 million in 3Q23 and the decrease of rental income of ante dollar 9 million. Profit attributable to the company in 4Q23 decreased 17% compared to 3Q23. This primarily reflects an increase of net non-operating expenses of ante dollar 368 million and partially offset by the increase of operating profit of ante dollar 227 million and the decrease of income tax expense of ante dollar 42 million. Basic weighted average outstanding shares were 727 million shares compared to 4Q22. Total revenue for 4Q23 increased .2% compared to 4Q22. Gross margin at .1% increased 5.6ppts compared to 4Q22. Operating expenses increased .7% compared to 4Q22, still well below the revenue growth rate. Operating profit margin at .5% increased 5.9ppts compared to 4Q22. Net non-operating expenses increased ante dollar 7 million compared to 4Q22. Profit attributable to the company increased .2% compared to 4Q22. The difference is mainly due to an increase of operating profit of ante dollar 404 million and partially offset by the increase of income tax expense of ante dollar 70 million and net non-operating expenses of ante dollar 7 million. Referencing presentation page 14 Consolidated statements of comprehensive income Compared to last year. Total revenue for 2023 was ante dollar 21356 million, which decreased .2% compared to 2022. Gross margin at .6% decreased 4.3ppts compared to 2022. Our operating expenses in 2023 were ante dollar 1727 million, which decreased .4% compared to 2022. Operating profit margin in 2023 was 8.9%, a decrease of 4.8ppts compared to 2022. Net non-operating income in 2023 was ante dollar 360 million. The difference was mainly due to a decrease of the foreign exchange gains of ante dollar 370 million, share of profit of associates accounted for using equity method of ante dollar 234 million and partially offset by an increase of interest income of ante dollar 136 million. Net profit in 2023 was ante dollar 1893 million, which decreased .8% compared to 2022. The difference due to a decrease of the operating profit of ante dollar 1308 million and net non-operating income of ante dollar 451 million and partially offset by the decrease of income tax expense of ante dollar 281 million. Net earnings for the full year 2023 were ante dollar 2.60 per basic common share compared to ante dollar 4.64 per basic common share for the full year 2022. Referencing presentation page 15 Consolidated statements of financial position and key indices. Total assets at the end of 4Q23 were ante dollar 46161 million. Total liabilities at the end of 4Q23 were ante dollar 21307 million. Total equity at the end of 4Q23 was ante dollar 24854 million. Accounts receivable turnover days in 4Q23 were 86 days. Inventory turnover days was 53 days in 4Q23. Referencing presentation page 16 Consolidated statements of cash flows. As of December 31, 2023, our balance of cash and cash equivalence was ante dollar 12354 million, which represents an increase of ante dollar 2457 million compared to the beginning of the year. Net free cash inflow for the full year 2023 was ante dollar 1339 million compared to net free cash outflow of ante dollar 818 million for the full year 2022. The increase was mainly due to the decrease of operating profit of ante dollar 1308 million and partially offset by the decrease of cap ex of ante dollar 1690 million, cash dividend paid ante dollar 1454 million and income tax expense of ante dollar 281 million. Free cash flow was calculated by adding depreciation, amortization, interest income together with operating profit and then subtracting cap ex, interest expense, income tax expense and dividend from the sum. Referencing presentation page 17 Capital expenditures and depreciation. We invested ante dollar 1499 million in cap ex in Q4 and ante dollar 3228 million in cap ex in 2023. The breakdown of cap ex in Q4 was 4% for bumping, .6% for LCD driver, .5% for assembly and .9% for testing. Depreciation expenses were ante dollar 1158 million in Q4. Depreciation expenses were ante dollar 4779 million in 2023. As of January 31, 2024 the company's outstanding ads number was approximately 4.2 million units, which represents around .5% of the company's outstanding common shares. That concludes the financial review. I will now turn the call back to our chairman Mr. S.J. Chang for our outlook. Please go ahead, sir. Thank you, Sylvia. As we come off a strong Q4, we expect the normal Q1 seasonality from fewer working days and the Lunar New Year. We are also seeing signs that inventory adjustments from Q4 will continue into Q1. We are very confident in our long-term business and any fluctuations would be more short-term in nature. We expect Q1 to be the trough quarter for 2024, which is in line with normal seasonal patterns. We expect our operating momentum will improve as we move through the year with the second half of 2024 coming in better than the first half. This is also in line with what we have heard from some of the largest semiconductor companies. In our memory product, despite assembly and test UT are impacted by the continued desk docking and softer demand at certain customers. However, we are still benefiting from rebounding NAND flash demand. Therefore, we think memory will outgrow DDIC product momentum in Q1. In our DDIC product, the UT level of TV and smartphone products is impacted by softness in NAND product demand. That said, we expect automotive panel and OLED demand to remain stable compared to other products. Part of this is underlying industry demand. The other important driver continues to be new customer programs ChipMOS has been ramping. This leads to the high UT level of high-end DDIC test platforms. In the meantime, we also remain positive on automotive and OLED panels, which are the majority of our customers' new DDIC projects. We are taking a conservative approach with our CAPEX budget in 2024, similar to 2023. We plan to carefully invest in green energy, automation, robotics and AI. Regarding to the new added capacity, including the DDIC high-end test platform will be based on further customer demand and UT level in support of our customers as we drive strong cash flow and maintain our competitive advantage and strength. Finally, in terms of our capital allocation, our board approved another dividend. This reflects our balance sheet strength, strong market position and our focus on building shareholder value. We prioritize returning capital to shareholders as part of our overall shareholder-friendly capital allocation plan. Pending shareholder approval at our MAGM, we will distribute $1.8 per common share. Operator, that concludes our formal remarks, we can now take questions. Operator, thank you. At this time, we will be conducting a question and answer session. Our first question comes from Angela Dai from UBS. You may begin. Angela Dai, UBS. Why did gross margin go up so much in Q4? SJ Chen. Margin is a constant focus for us. In Q4, several factors impacted gross margin, including mix and variable costs. We saw much lower electricity charges in Q4-23, including a lower rate charged and consumption decreased NT$86 million compared to 3Q-23, and lower gold material charges by about NT$45 million compared to 3Q-23. Meanwhile, the depreciation in Q4-23 decreased around NT$53 million compared to Q3-23. Angela Dai, UBS. Could you provide a more detailed outlook about 1Q-24 for revenue and gross margin? SJ Chen. We expect Q1-24 to be the normal trough quarter for 2024, which is in line with typical seasonal patterns. We expect our operating momentum will improve as we move through the year with the second half of 2024 coming in better than the first half. Overall, we are targeting positive annual revenue growth in 2024. Operator. Our second question comes from Stanley Wong from SinoPOC. Stanley Wong, SinoPOC. What is your CAPEX, depreciation and effective income tax rate for 2024? Sylvia Su. According to our budget, we are taking a conservative approach with our CAPEX in 2024 expected to be similar to 2023 or around 15% of annual revenue. On the basis of 4Q-23, the depreciation rate would increase around 1% to 3% quarterly. The effective tax rate will be around 17% to 19% in 2024. Stanley Wong, SinoPOC. Please give me more color on the CAPEX increase QOQ from DDIC. Jesse Wong. The CAPEX was used mainly for high-end testers in Q4-23. Stanley Wong, SinoPOC. What is the DDIC high-end tester utilization rate after Lunar New Year holiday? SJ Chan. The high-end tester utilization rate still maintains at a high level. However, the mid- to low-end tester utilization rate declined. Stanley Wong, SinoPOC. Please give us more color about revenue for the first half and second half of 2024? Sylvia Sook. A rough estimation for the first half would be around -47% and the second half would be around 53-54%. Stanley Wong, SinoPOC. Comparing revenue and gross margin for the growth momentum of 2024, which one could perform better? SJ Chan. We see positive revenue growth. However, we would also be impacted by cost increases of green energy requirements and electricity charges. Stanley Wong, SinoPOC. Please give me more color about wafer bank digestion by product line? Jesse Wong. We think memory will outgrow DDIC product momentum in Q124. The level of memory, NAND flash demand from module customers appears to be better than the others. Stanley Wong, SinoPOC. The company benefited from automotive market demand in 2023, however, the end demand seems to be slowing down. What can you comment on this segment in 2024? Jesse Wong. We think it would be flatish yoy in 2024. Stanley Wong, SinoPOC. We see more of your customers placing orders at foundries in China. What is the competition from China OSATs? SJ Chan. We remain committed to investing in R&D and developing core technologies to meet customers' evolving requirements while enhancing our competitiveness and business strength. And we will continue to improve our quality, operational competitiveness and expand the penetration rate of high-end products such as OLED, automotive panels, and high-end TVs to maintain our company's competitive advantage. We also expect to benefit from a higher quality level requirement for European and American end brands. Stanley Wong, SinoPOC. Is there any plan for high-end tester capacity expansion in 2024? SJ Chan. Regarding to the new DDIC high-end tester capacity, it will be based on further customer demand and UT level in support of our customers as we drive strong free cash flow and maintain our competitive advantage and strength. Operator. Thank you. And I am not showing any further questions in the queue. I would like to turn the call back over to G S Shen. G S Shen. That concludes our question and answer session. Thank you for participating. I'll turn the floor back to Mr. SJ Chan for any closing comments. SJ Chan. Thank you everyone for joining our conference call. Please email our IR team if you have any more questions. We appreciate your support. Goodbye. Operator. Ladies and gentlemen, this concludes today's conference call. Thank you for
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