This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning and thank you for joining us today to discuss O2 Micro's financial results for the third quarter of fiscal year 2021. If you would like a copy of the press release we issued this morning, please call Daniel Myberg at 408-987-5920 extension 8888 and we will email you a copy immediately. It is also posted on the O2 Micro website at www.o2micro.com under the heading investors. There'll be a replay available through November 14th, 2021 at 9 a.m. Pacific time, or by visiting the O2 Micro website under the heading investors. Following the presentation by management, the conference will be open for question and answers as time permits. Gentlemen, you may begin.
spk14: Thank you. Good morning, everyone, and thank you for joining O2 Micro's financial results conference call for the third quarter of 2021. ending September 30th, 2021. This is Daniel Myberg, Corporate Communications for O2 Micro. I'd like to remind listeners that the discussion of business outlook for O2 Micro contains forward-looking statements. Statements made in this release that are not historical fact are forward-looking statements within the meanings of the federal securities laws. Actual results may differ material due to numerous risk factors. Such risk factors are enumerated in the company's 20F annual filings, our annual reports, and other documents filed with the SEC from time to time. Listeners are referred to the O2 microearnings press release and the documents filed with the SEC to understand these forward-looking statements and associated risk factors. The statements made herein are dated information. The company assumes no responsibility to provide updates to this information. With me today are Perry Kuo, CFO and director, Jim Kime, head of marketing and sales and director, and Sterling Du, O2's founder, CEO, and chairman. After the prepared remarks from these gentlemen, the floor will be open for your questions. At this point, I would like to introduce Perry Kuo, CFO of O2 Micro, for a discussion of the financial highlights of the third quarter of fiscal year 2021, ending September 30th, 2021. Kerry?
spk10: Thank you, Dan. We will now review our financial results for Q3 2021. Please note that financial results will be presented on a GAAP basis unless we designate otherwise. The non-GAAP result is gross stock base compensation expense, one-time charges, non-recurring gains and losses. Our full GAAP results are available in our pre-release This was issued earlier today. GAAP revenue in the third quarter of 2021 was $27.3 million. GAAP net income in the third quarter of 2021 was $3.7 million. If we exclude stock-based compensation of $443,000, the non-GAAP net income will be $4.1 million. GAAP Net income per fully diluted ADS in the third quarter of 2021 was $0.12. Non-GAAP net income per fully diluted ADS was $0.13. Gross margin was 52% in Q3. The gross margin reflects the current revenue level and the product mix. R&D expense was $5. million or 18.4% of revenue. This amount is gross stock base compensation expense of $98,000. SE&A expense was $5.1 million or 18.7% of revenue. This amount is gross stock base compensation expense of $345,000. The non-operating income was $342,000. Income tax was $279,000 in the third quarter, and it is mainly based on the estimated effective tax rate of each taxable location. In Q3 2021, there was no stock repurchase. Q3 2021, revenue by end market breaks down into the flowing percentages. Industrial was 63 to 65% of revenue. Consumer was 32 to 34% of revenue. Computer was 1 to 3% of revenue. Communication was almost zero. At this moment, I would like to provide some additional information. O2 Micro finished the third quarter with $50.7 million in unrestricted cash and short-term investment. This represents cash and the cash equivalent of $1.78 per ADS. In addition, O2 Micro has no debt. Account receivable at the end of Q3 was $16.7 million. Our DSO is 55 days. DSO is less than 60 days mainly from account miss. Inventory was $18 million at the end of the third quarter. This represents 117 days of inventory, and inventory turnover was 3.1 times in Q3. Net cash generated from operating activities in the third quarter was about $4.3 million. Capital expenditure was about $968,000 in the third quarter for R&D and IT equipment. Depreciation and amortization was $1.1 million in Q3. At the end of the third quarter of 2021, O2 Micro had 344 employees, 58% of which are engineers. Based on current market situation and the best updated managerial rolling forecast, the company has the following guidance for Q4 2021. Net revenue are expected to be 25.5 to 26.5 million or down 3% to down 7% as compared to Q3 2021 of 27.3 million. Product gross margin expected to be in the range of 50% to 52%. R&D expenses excluding stock-based compensation are expected to be in the range of 5 to 5.5 million. SG&A expenses excluding stock-based compensation are expected to be in the range of 5 to 5.5 million. Stock-based compensation should be in the range of $550,000 to $650,000. Non-operating income is expected to be in the range of $150,000 to $250,000, excluding foreign exchange gain or loss. Income tax expense is expected to be in the range of $200,000 to $300,000. The goal of our management team and the board of directors is to maximize shareholder value. We have accomplished this by taking the necessary steps, which included managing operating expenses and monetizing assets on the balance sheet. Regarding our share purchase program, we have been active in this program historically. Since 2002, we have repurchased over 20.3 million ADS shares for $101.3 million. As of the end of Q3, we had $7.6 million remaining in our share buyback authorization. There are still many dynamic factors associated in the business development. We will carefully plan and execute to target revenue and maintain gross margin in the Q4 2021, and these efforts will be focused to continue. in 2022. We also monitor the supply chains tightly and have added timely both work-in-process level and inventory to support the dynamic demand from accounts in multiple end markets. In Q3, we added more dive banks to support Q4 2021 and Q1 2022. The wafer capacity remains very tight in the coming quarters. In Q4, We expand the investment in R&D, new ISO training, new tap-out, patent filing, and expanding our supply chain with more complete second-sourcing suppliers, testing capabilities of complex products, and capacity with new purchase testers in 2021. We will always watch the expenses. carefully and continue to manage costs as needed. Although we believe we have a high current cost based on current and anticipated revenue levels, returns to shareholders are very much on our minds and will continue to be a focus in the future. We will provide updates to the additional measures to enhance shareholder value throughout this year. I would like to thank everyone for participating and turn the call over to Jim Kai to talk more about our business. Jim.
spk18: Thank you, Perry. Good morning, everyone. Let me highlight our company's growth over the past two years. Q3 2021 represents 23% growth over Q3 of 2020. Q3 2021 represents 70% growth over Q3 of 2019. Our Q4 projection takes into account multiple factors that include seasonality for battery management based on a traditional slowdown in demand for power tool, garden tool, and e-bike products as we head into the winter for the US, Europe, and China. Growing supply chain issues affecting both our customers' ability to produce systems and meet new product introduction target dates. Causes of these supply chain issues include COVID-19, resulting in lengthy plant closures for customers operating in significantly impacted countries like Malaysia and Vietnam. Power outages in China impacting both our suppliers' production schedules and our customers' ability to build systems. A myriad of ongoing material shortages. preventing customers from maintaining normal production schedules. While supply chain issues have impact on our revenue growth rate, our strong financial position has enabled us to accelerate expansion of our production capability in anticipation of ongoing growth in 2022 and beyond. For wafer fab, this includes expansion into new wafer suppliers, as well as expansion into additional processes and existing suppliers that can enhance our wafer supply. We have also expanded our assembly capability into additional suppliers and have significantly expanded our test capability. We continue to aggressively develop new products for both our intelligent lighting and battery management product lines. As Sterling will mention in his quarterly commentary, many new products are specifically focused on serving rapidly expanding applications for lithium ion battery applications, as well as advanced lighting systems using many LEDs. New products are targeted at more complex consumer, industrial, and automotive markets that will broaden our market focus and expand our customer base while generating higher ASPs. These new products are based on our unique technology backed by a large intellectual property patent portfolio that is significantly larger than most companies our size. We strongly believe that these new products will continue to drive our revenue expansion in 2022 and beyond. While we continue to expand our revenue base, The major customers we already penetrated can carry our company to much higher revenues as we increase our product footprint with them. Major OEMs that already use our products in battery management include Bissell, Black & Decker, Bosch, Dyson, Electrolux, Hitachi, Luxy, LG, Makita, Murata, Panasonic, Philips, Samsung, Shark, TTI, and Toshiba. Major OEMs that use our lighting products include BOE, Dell, HP, Hisense, Honda, Hanhai Foxconn, Lenovo, Panasonic, Samsung, Sharp, Skyworth, TCL, and Toyota. Given our excellent technology and key growth areas and excellent customer positioning, we are confident of our ability to continue to grow long-term revenues within this customer base while also expanding to additional major customers. I will now pass the call over to Sterling Du, our CEO, for closing remarks.
spk02: Thanks, Jim.
spk08: O2 Micro reported the third quarter 2021 revenue of $27.3 million. Revenue was up 4.1% from the previous quarter and up 22.6% from the same quarter last year. The gross margin in third quarter of 2021 was 52%. The gross margin was up from 51.5% of previous quarter in our company's average range. Our revenue is within the guidance publicly released on July 30th, 2021. The price of lithium-ion battery cells declined by 97% in the past three decades. A battery with a capacity of one kilowatt hour cost about $7,500 in 1991, and it was adjusted to $181 in 2018. And the lithium battery pack even dropped to $137 per kilowatt hour in 2020, which is awesome. and are expected to drop further in the coming years. So lithium-ion batteries are one of the most efficient energy storage devices worldwide. The recent report shows that global lithium-ion cell manufacturer capacity, the pipeline could be right fourfold from 2019 to 2030. That is 1.3 terawatt hour. Asian production base come for 80% of worldwide production volume. With a high growth demand of battery industry innovative technology, it continues to improve the energy density and quality continues to expand. For example, the CATL is produced in 2019, 32.5 gigawatt hour, and it will grow five times in the next five years by 2025. Our battery business grew strongly in the older sector, despite the dynamic market and the supply chain situation. We observed the higher number of the sales applications took more market share. It was partly from the cost curve dropped sharply, as well as the battery quality improved, which enhanced the year-rate of the high-sale number battery pack. And one of the growth drivers is Colette's FlowCare product, which comes from the strong household demand as the work-from-home or flexible working-hour-from-home continues. The second growth trend is garden tools and professional tools. We believe a strong growth coming from both consumer and construction industry. On the other hand, we will see the new battery power devices produced from light transportation, innovative household energy storage, and industry-grade interrupt power systems. October 1, 2021, this year, USB 4.0 Power Delivery Type-C announced expanded to a new standard, 240 watts from a 1660 watts standard. This news expanded USB Type-C to the power tool marketplace and will fuel the future growth of the power tool to the next level. Meanwhile, the higher energy dense, higher resolution, and the faster AD converter are needed. Our ASE and a front end, and a BMU were designed with a 14-bit high-accuracy AD converter to meet customer needs. Our high-accuracy AD converter reached 15 millivolts resolution performance, way beyond the customer expectation. We also have arm-based all-in-one BMA solution enable the power tool to be connected as IoT devices. Digi, deployment, that further enhance the power tool connectivity. For our Intelligent Lighting Group, the business continues to win the design wins and spend. We believe the supply chain reveals the early signs of normalization, though delivery remains critical. We see flexible working hours, work from home, continue to accelerate the high-end TV market share. So we are confident in our post-COVID-19 business The global 4K TV market size expects to reach the US $280 billion by 2025 at a compound annual growth rate at 21.2%, according to some reports from Greenlee Research. We foresee the two-day AKM will become the mainstream product in the coming years. Now the full array local dimming, which we call local dimming, have till now dominated TV and the digital monitor. For the TV high-end, 4K and 8K local dimming Baylac products, the demand continues to be very strong. Our latest IC we rolled out has the ability to control the dimming through either analog function or PWM, which is a pathway function. For two-in-one mode control, further simplify the TV system design architect if our customers desire to support different type panel dimming solution with only one IC. However, one of the full array local dimming issue is by placing the LED on the back of the display facing the viewer. The thickness of the device increases. Not only the LED package itself relatively thick, but also some sufficient distance between required for the light on the individual chips to spread evenly throughout the display. That is an intimate hotspot. So the mini-LED, on the other hand, solved this issue by multiplying the number of LED chips and mounting the LED dot on the subject, therefore reducing the spacing between each light source and also the thickness of the big light. More important, they also can significantly increase the number of zones, which will reduce the blooming, which is like a halo effect, which is the small area bright but it is smaller than the dimming zone, and thus you have created a halo. Also, the mini-LED daylight has enhanced LCD contrast performance level to close to the OLED LED, while maintaining LCD high brightness characteristics and long lifetime. They can also reduce the power consumption, as more zones will be off in a dark image, or the brightness will be dimmed. So since the mini-LED technology offers a much smaller size compared to conventional package LED size, it also gives the TV system designer great space to design the dimming layout, while others offer the multi-scan technology. With the multi-scan mini-LED to easily compose many predefined smaller local areas due to its smaller size, the technology presents crystal-clear picture even with a fast-moving object in a display. Last is another list. Both our LED backlighting and the battery technology group continue to receive the patent grant in the last quarter. We continue to grow the business despite the dynamic market situation and supply chain management. We are optimistic for the fundamental of business and focus on high-margin and high-performance business. We started several expansion projects, which incur additional expense for new quotas, including implement automotive grade ISO 26264 SGS. Second source foundry qualification tape out, expand the packaging and the fitting facility supply chain to ensure delivery on time. We always want to expand carefully while good space to drive the future momentum. We always keep shareholder base interest especially in the current dynamic situation. At this moment, thank you for listening to our conference call. Let's turn back to Dan. Dan, please.
spk14: Thank you, Sterling. Operator, at this point, we'd like to open the call up to questions.
spk01: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. Our first question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
spk13: Thank you and congratulations on the good quarter. My question is about capital expenditures. So, since there seems to be a global mandate to move to everything electric, and your quarterly revenue has almost doubled in the last 15 months, are you seeing any constraints to continued growth? And could you sort of talk about, at least in general terms, what CapEx might look like to keep up with this kind of growth?
spk02: This is Perry.
spk10: Let me answer to the CAPEX. Regarding the CAPEX, this is more related to the testing capacity. Due to the IEC development, our testing time for the new IEC, the testing time is much longer than the original IEC, which means the complexity and also higher entrance barrier to other competitors, and also we may sell it at higher ASP. This will continue. And the testing time, this is much more time than the ASP goes, so we need to invest in the testing. Currently, the testing capacity is still very tight in Taiwan and also in China, so our testing capacity for the CAPEX in 2021 will enable us to launch more new ICs, and this certainly will continue to give the momentum to grow in the cells for the future in the battery area and also some complex LED products.
spk13: So you're comfortable that you can get the equipment that you need to keep this growth going?
spk10: We already get 90% of the tester already in-house, and we are running, and we are doing the, I think 90% of the test already in-house, and 70% to 80% already have the first run, first trial, and already we enhance our testing capacity.
spk02: Okay. Thank you very much.
spk01: Our next question comes from Tori Sandberg with Stifel. Please go ahead.
spk11: Yes. Hi, everyone. A few questions. First of all, Jim, in regards to the guidance for Q4, had it not been for the supply constraints, do you think it would grow sequentially, or does the seasonality in Power Tool kind of still take the revenues down sequentially?
spk18: We think wheat has actually grown, Tori, and, you know, what I did not mention, we actually have some major customers that are shut down. For instance, we have one very major shutdown in Malaysia, several are in Vietnam, and they have plants totally shut down. So some of the supply chain issues have really interrupted some of the growth capabilities simply due to production capability of our customers.
spk11: Understood. And just a clarification question for Perry. Perry, when you gave the SG&A guidance, was it 5 to 5.5 million, similar to RMB?
spk02: Perry, are you there?
spk08: Yeah, totally, yeah, it is 5 million to 5.5 million, yeah. Sorry, yeah, yeah, 5 to 5.5, yeah.
spk11: Okay, perfect, just wanted to clarify that. Lastly, to you, Sterling, could you talk a little bit about some of the new applications and new products that are going to be ramping next year? It sounds like, you know, 2021 was a bit of an investment period for the company. So just trying to get some insights into, you know, new product ramps in 2022.
spk09: Yes, we are excited by our mini-LED.
spk08: We have a total of nine different solutions to address this market. And each solution has a different – but some of them already in sampling and close to pre-production. And we also see these mini-LED will become sort of a trend for the notebook and also go to certain high-end desktop monitors. And we probably see the new mini-LED has been fueled by the interest the new Apple introduced their notebook, although they are not belong to our custom, I can say that. However, the mini-LED will, one, increase our ASP. Second, the mini-LED will enable the regular LCD panel to reach the performance like OLED LED. As we know, OLED still have been cost, still feel costly due to the production, the difficulty and the challenge. And also, number three, we have several patterns to cover, as I just mentioned, the multi-scan. The way of the multi-scan in a mini-LED is much superior to the local dimming. It is because the LED is easy to divide into more smaller zones. And you have more number of the small zones and easier to do. And that will increase the contrast brightness and also reduce the burden of moving objects. So for our batteries, we have a long talk to discuss our ARM-based, the BMU, and we'll be excited to see several ARM-based, the BMU, rolling to the market and close to the PP. And the next year, those ARM-based CPU, the BMU, will be taken to a major account, and that will enable the new way for the PowerTool to be connected. In the meanwhile, We also do the code sound for those ARM-based CPU, BMU, and also add more functionality to it. In the meanwhile, both European and Japan-based customer, they all require certain functionality to add our Z-SYNC product, and they all already be other tape out or already in a sampling stage. So we believe the next year, 2022, of a battery product portfolio, will continue to be more bright, more spread, and also together with the support, the battery capacity production has been going to grow every year. Compound growth rate, I think in China, certain base will be 70%, and those will be the major momentum for growth driver for the battery.
spk11: All very helpful. Thank you very much.
spk01: Our next question comes from Lisa Thompson with Zacks Investment Research. Please go ahead.
spk03: Good morning.
spk05: So I would like to ask a little bit about the revenue breakdown this quarter. It looks like TV sales were flat to down versus last year. Is that the industry that those Malaysian and Vietnamese customers are shut down in?
spk02: No.
spk18: Malaysia and Vietnam are in the battery management area. The TV business, as you mentioned, has been somewhat down, particularly we've noticed out of China suppliers. However, the monitor business continues to be quite strong.
spk05: Is that because they have
spk04: critical path constraints, or is it just demand is down?
spk18: In TV, what we see is some market shifts going on and basic overall demand has gone down in TV, but not monitor.
spk05: Okay, so that's not the issue. All right. As far as the battery products, You keep mentioning automotive, yet are you selling anything to that market now? And if not, when does that happen?
spk19: I'm sorry. So, Jim, go ahead.
spk18: Well, first of all, let me just say, and I'll just briefly indicate, In automotive, we do have penetration in the automotive market and have had for some time in the intelligent lighting area. For battery management, I think Sterling indicated that we are going through a lot of ISO activity to prepare to supply into that market, so I'll let Sterling cover that for you.
spk08: The ISO 26262 will be expanded about more than almost two years. And we, so that's reasonable to expect that even though we have some sampling probably to 2022, but meaningful will be 2023, yeah.
spk05: And can you just describe a little bit about kind of what volumes ASPs that business will have? Is it significantly different?
spk08: These are probably I need to do more research because the battery pack for each automotive, we are not directly talk to the automotive guys. We talk to the battery pack manufacturer and the The ASP is high, but the number of the chip utilized, the battery pack, that depends on the topology and the architect each automobile is going to use. And we are currently still early stage before that. Right now, we are doing the IC alone. And that IC can control the certain cluster and then the one battery pack, including many clusters. So that probably needs more time. We do the customer investigation where we have a more clear idea.
spk05: Okay, good. Interesting. Going back to the TV market and the shutdowns in Malaysia and Vietnam, do you think that it's possible then that Q1 will be sequentially up quarter if they open back up? How do you think that's going to work out?
spk18: Yes, that's certainly possible. It's very, very hard to project, Lisa, given the current situations in the market. Issues are very dynamic. We have some customers who actually aren't even projecting what they can deliver in Q4 because of various part shortages and material problems. So we're not going to project Q1 at this point, but that is possible, yes.
spk05: Okay, interesting. All right. Thank you. I think that's all my questions.
spk01: Thank you. At this time, I would like to turn the call back over to Dan for any closing remarks.
spk14: Thank you. Thank you all for your time and attention this morning. Please feel free to contact me at 408-987-5920, extension 8888, or at irat02micro.com with any follow-up questions. I'd like to wish everyone a wonderful day, and thank you again for your time and attention. Goodbye.
spk01: This concludes today's conference. All participants may now disconnect. Thank you. Thank you. Thank you. you Thank you. So,
spk12: Thank you.
spk01: Good morning, and thank you for joining us today to discuss O2 Micro's financial results for the third quarter of fiscal year 2021. If you would like a copy of the press release we issued this morning, please call Daniel Myberg at 408-987-5920, extension 8888, and we will email you a copy immediately. It is also posted on the O2 Micro website at www.o2micro.com. under the heading investors. There'll be a replay available through November 14th, 2021 at 9 a.m. Pacific time, or by visiting the O2 Micro website under the heading investors. Following the presentation by management, the conference will be open for question and answers as time permits. Gentlemen, you may begin.
spk14: Thank you. Good morning, everyone, and thank you for joining O2 Micro's financial results conference call for the third quarter of 2021. ending September 30th, 2021. This is Daniel Myberg, Corporate Communications for O2 Micro. I'd like to remind listeners that the discussion of business outlook for O2 Micro contains forward-looking statements. Statements made in this release that are not historical fact are forward-looking statements within the meanings of the federal securities laws. Actual results may differ material due to numerous risk factors. Such risk factors are enumerated in the company's 20F annual filings, our annual reports, and other documents filed with the SEC from time to time. Listeners are referred to the O2 microearnings press release and the documents filed with the SEC to understand these forward-looking statements and associated risk factors. The statements made herein are dated information. The company assumes no responsibility to provide updates to this information. With me today are Perry Kuo, CFO and Director, Jim Kime, Head of Marketing and Sales and Director, and Sterling Du, O2's Founder, CEO, and Chairman. After the prepared remarks from these gentlemen, the floor will be open for your questions. At this point, I would like to introduce Perry Kuo, CFO of O2 Micro, for a discussion of the financial highlights of the third quarter of fiscal year 2021, ending September 30th, 2021. Perry?
spk10: Thank you, Dan. We will now review our financial results for Q3 2021. Please note that financial results will be presented on a GAAP basis unless we designate otherwise. The non-GAAP result is gross stock base compensation expense, one-time charges, non-recurring gains and losses. Our full GAAP results are available in our pre-release This was issued earlier today. GAAP revenue in the third quarter of 2021 was $27.3 million. GAAP net income in the third quarter of 2021 was $3.7 million. If we exclude stock-based compensation of $443,000, the non-GAAP net income will be $4.1 million. Net income per fully diluted ADS in the third quarter of 2021 was $0.12. Non-GAAP net income per fully diluted ADS was $0.13. Gross margin was 52% in Q3. The gross margin reflects the current revenue level and the product mix. R&D expense was $5. or 18.4% of revenue. This amount is gross stock-based compensation expense of $98,000. SE&A expense was $5.1 million or 18.7% of revenue. This amount is gross stock-based compensation expense of $345,000. The non-operating income was $342,000. Income tax was $279,000 in the third quarter, and it is mainly based on the estimated effective tax rate of each taxable location. In Q3 2021, there was no stock repurchase. Q3 2021, revenue by end market breaks down into the flowing percentages. Industrial was 63% to 65% of revenue. Consumer was 32% to 34% of revenue. Computer was 1% to 3% of revenue. Communication was almost zero. At this moment, I would like to provide some additional information. O2 Micro finished the third quarter with $50.7 million in unrestricted cash and short-term investment. This represents cash and the cash equivalent of $1.78 per ADS. In addition, O2 Micro has no debt. Account receivable at the end of Q3 was $16.7 million. Our DSO is 55 days. DSO is less than 60 days mainly from account miss. Inventory was $18 million at the end of the third quarter. This represents 117 days of inventory, and inventory turnover was 3.1 times in Q3. Net cash generated from operating activities in the third quarter was about $4.3 million. Capital expenditure was about $968,000 in the third quarter for R&D and IT equipment. Depreciation and amortization was $1.1 million in Q3. At the end of the third quarter of 2021, O2 Micro had 344 employees, 58% of which are engineers. Based on current market situation and the best updated managerial rolling forecast, the company has the following guidance for Q4 2021. Net revenue are expected to be 25.5 to 26.5 million or down 3% to down 7% as compared to Q3 2021 of 27.3 million. Product gross margin expected to be in the range of 50% to 52%. R&D expenses excluding stock-based compensation are expected to be in the range of 5 to 5.5 million. SG&A expenses excluding stock-based compensation are expected to be in the range of 5 to 5.5 million. Stock-based compensation should be in the range of $550,000 to $650,000. Non-operating income is expected to be in the range of $150,000 to $250,000, excluding foreign exchange gain or loss. Income tax expense is expected to be in the range of $200,000 to $300,000. The goal of our management team and the board of directors is to maximize shareholder value. We have accomplished this by taking the necessary steps, which included managing operating expenses and monetizing assets on the balance sheet. Regarding our share purchase program, we have been active in this program historically. Since 2002, we have repurchased over 20.3 million ADS shares for $101.3 million. As of the end of Q3, we had $7.6 million remaining in our share buyback authorization. There are still many dynamic factors associated in the business development. We will carefully plan and execute to target revenue and maintain gross margin in the Q4 2021, and these efforts will be focused to continue in 2022. We also monitor the supply chains tightly and have added timely both work-in-process level and the inventory to support the dynamic demand from accounts in multiple end markets. In Q3, we added more dive banks to support Q4 2021 and Q1 2022. The wafer capacity remains very tight in the coming quarters. In Q4, we expand the investment in R&D, new ISO training, new tap-out, patent filing, and expanding our supply chain with more complete second-sourcing suppliers, testing capabilities of complex products, and capacity with new purchase testers in 2021. We will always watch the expenses. carefully and continue to manage costs as needed. Although we believe we have aligned current costs based on current and anticipated revenue levels, returns to shareholders are very much on our minds and will continue to be a focus in the future. We will provide updates to the additional measures to enhance shareholder value throughout this year. I would like to thank everyone for participating and turn the call over to Jim Kai to talk more about our business. Jim.
spk18: Thank you, Perry. Good morning, everyone. Let me highlight our company's growth over the past two years. Q3 2021 represents 23% growth over Q3 of 2020. Q3 2021 represents 70% growth over Q3 of 2019. Our Q4 projection takes into account multiple factors that include seasonality for battery management based on a traditional slowdown in demand for power tool, garden tool, and e-bike products as we head into the winter for the US, Europe, and China. Growing supply chain issues affecting both our customers' ability to produce systems and meet new product introduction target dates. Causes of these supply chain issues include COVID-19, resulting in lengthy plant closures for customers operating in significantly impacted countries like Malaysia and Vietnam. Power outages in China impacting both our suppliers' production schedules and our customers' ability to build systems. A myriad of ongoing material shortages. preventing customers from maintaining normal production schedules. While supply chain issues have impact on our revenue growth rate, our strong financial position has enabled us to accelerate expansion of our production capability in anticipation of ongoing growth in 2022 and beyond. For wafer fab, this includes expansion into new wafer suppliers, as well as expansion into additional processes and existing suppliers that can enhance our wafer supply. We have also expanded our assembly capability into additional suppliers and have significantly expanded our test capability. We continue to aggressively develop new products for both our intelligent lighting and battery management product lines. As Sterling will mention in his quarterly commentary, many new products are specifically focused on serving rapidly expanding applications for lithium ion battery applications, as well as advanced lighting systems using many LEDs. New products are targeted at more complex consumer, industrial, and automotive markets that will broaden our market focus and expand our customer base while generating higher ASPs. These new products are based on our unique technology backed by a large intellectual property patent portfolio that is significantly larger than most companies our size. We strongly believe that these new products will continue to drive our revenue expansion in 2022 and beyond. While we continue to expand our revenue base, The major customers we already penetrated can carry our company to much higher revenues as we increase our product footprint with them. Major OEMs that already use our products in battery management include Bissell, Black & Decker, Bosch, Dyson, Electrolux, Hitachi, Luxy, LG, Akita, Murata, Panasonic, Philips, Samsung, Shark, TTI, and Toshiba. Major OEMs that use our lighting products include BOE, Dell, HP, Hisense, Honda, Hanhai Foxconn, Lenovo, Panasonic, Samsung, Sharp, Skyworth, TCL, and Toyota. Given our excellent technology and key growth areas and excellent customer positioning, we are confident of our ability to continue to grow long-term revenues within this customer base while also expanding to additional major customers. I will now pass the call over to Sterling Du, our CEO, for closing remarks.
spk02: Thanks, Jim.
spk08: O2 Micro reported the third quarter 2021 revenue of $27.3 million. Revenue was up 4.1% from the previous quarter and up 22.6% from the same quarter last year. The gross margin in third quarter of 2021 was 52%. The gross margin was up from 51.5% of previous quarter in our company's average range. Our revenue is within the guidance publicly released on July 30th, 2021. The price of lithium-ion battery cells declined by 97% in the past three decades. A battery with a capacity of one kilowatt hour cost about $7,500 in 1991, and it was adjusted to $181 in 2018. And the lithium battery pack even dropped to $137 per kilowatt hour in 2020, which is awesome. and are expected to drop further in the coming years. So lithium-ion batteries are one of the most efficient energy storage devices worldwide. The recent report shows that global lithium-ion cell manufacturer capacity, the pipeline could be right fourfold from 2019 to 2030. That is 1.3 terawatt hour. Asian production base come for 80% of worldwide production volume. With a high growth demand of battery industry innovative technology, it continues to improve the energy density and quality continues to expand. For example, the CATL is produced in 2019, 32.5 gigawatt hour, and it will grow five times in the next five years by 2025. Our battery business grew strongly in the older sector despite the dynamic market and the supply chain situation. We observed the higher number of sales applications took more market share. It was partly from the cost curve dropped sharply, as well as the battery quality improved, which enhanced the yield rate of the high sales number battery pack. And one of the growth drivers is Colette FlowCare product, which comes from the strong household demand as the work-from-home or flexible working-hour-from-home continues. The second growth trend is garden tools and professional tools. We believe a strong growth coming from both consumer and construction industry. On the other hand, we will see the new battery power devices produced from light transportation, innovative household energy storage, and industry-grade uninterrupt power systems. October 1, 2021, this year, USB 4.0 power delivery Type-C announced expanded to a new standard, 240 watts from a 1660 watts standard. This news expands the USB Type-C to the power tool marketplace and will fuel the future growth of the power tool to the next level. Meanwhile, the higher energy dense, higher resolution, and the faster AD converter are needed. Our ASE and a front end, and a BMU were designed with a 14-bit high-accuracy AD converter to meet customer needs. Our high-accuracy AD converter reached 15 millivolts resolution performance, which is way beyond the customer expectation. We also have arm-based all-in-one BMA solution enabled the power tool to be connected as IoT devices. Digi, deployment, that further enhance the power to our connectivity. For our Intelligent Lighting Group, the business continues to win the design wins and spend. We believe the supply chain reveals the early signs of normalization, though delivery remains critical. We see flexible working hours both from home continue to accelerate the high-end TV market share. So we are confident in our post-COVID-19 business The global 4K TV market size expect to reach the U.S. $280 billion by 2025 at a compound annual growth rate at 21.2%, according to some reports from Greenlee Research. We foresee the two-day AKM will become the mainstream product in the coming years. Now, the full-array local dimming, which we call local dimming, have till now dominated TV and the digital monitors. For the TV high-end, 4K and 8K local TV bedlock product, the demand continues to be very strong. Our latest IC we rolled out has the ability to control the dimming through either analog function or PWM, which is a puff wave function. For two-in-one mode control, further simplify the TV system design architect if our customers desire to support different type panel dimming solution with only one IC. However, one of the full array local dimming issues is by placing the LED on the back of the display facing the viewer. The thickness of the device increases. Not only the LED package itself is relatively thick, but also some sufficient distance is required for the light on the individual chips to spread evenly throughout the display. That is an intimate hotspot. So the mini-LED, on the other hand, solved this issue by multiplying the number of LED chips and mounting the LED dot on the subject, therefore reducing the spacing between each light source and also the thickness of the big light. More important, they also can significantly increase the number of zones, which will reduce the blooming, which is like the halo effect, which is the small area bright but it is smaller than the dimming zone, and thus you have created a halo. Also, the mini-LED daylight has enhanced LCD contrast performance level to close to the OLED LED, while maintaining LCD high brightness characteristics and long lifetime. They can also reduce the power consumption, as more zones will be off in a dark image, or the brightness will be dim. So since the mini-LED technology offers a much smaller size compared to conventional package LED size, it also gives the TV system designer great space to design a dimming layout, while others offer the multi-scan technology. With the multi-scan mini-LED to easily compose many predefined smaller local areas due to its smaller size, the technology presents crystal-clear picture even with a fast-moving object in a display. Last is another list. Both our LED backlighting and the battery technology group continue to receive the patent grant in the last quarter. We continue to grow the business despite the dynamic market situation and supply chain management. We are optimistic for the fundamental of business and focus on high-margin and high-performance business. We started several expansion projects, which incur additional expense for new quotas, including implement automotive grade ISO 26264 SGS. Second source foundry qualification tape out, expand the packaging and the testing facilities supply chain to ensure delivery on time. We always want to expand carefully while good space to drive the future momentum. We always keep shareholder base interest especially in the current dynamic situation. At this moment, thank you for listening to our conference call. Let's turn back to Dan, please.
spk14: Thank you, Sterling. Operator, at this point, we'd like to open the call up to questions.
spk01: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. Our first question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
spk13: Thank you and congratulations on the good quarter. My question is about capital expenditures. So since there seems to be a global mandate to move to everything electric and your quarterly revenue is almost doubled in the last 15 months, are you seeing any constraints to continued growth? And could you sort of talk about, at least in general terms, what CapEx might look like to keep up with this kind of growth?
spk02: This is Perry.
spk10: Let me answer to the CAPEX. Regarding the CAPEX, this is more related to the testing capacity. Due to the IEC development, our testing time for the new IEC, the testing time is much longer than the original IEC, which means the complexity and also higher entry barrier to other competitors, and also we may sell it at higher ASP. This will continue. And the testing time, this is much more time than the ASP goes, so we need to invest in the testing. Currently, the testing capacity is still very tight in Taiwan and also in China, so our testing capacity for the CAPEX in 2021 will enable us to launch more new ICs, and this certainly will continue to give the momentum to grow in the cells for the future in the battery area and also some complex LED products.
spk13: So you're comfortable that you can get the equipment that you need to keep this growth going?
spk10: We already get 90% of the tester already in-house, and we are running, and we are doing the, I think 90% of the test already in-house, and 70% to 80% already have the first run, first trial, and already we enhance our testing capacity.
spk02: Okay. Thank you very much.
spk01: Our next question comes from Tori Sandberg with Stifel. Please go ahead.
spk11: Yes. Hi, everyone. A few questions. First of all, Jim, in regards to the guidance for Q4, had it not been for the supply constraints, do you think it would grow sequentially, or does the seasonality in PowerTool kind of still take the revenues down sequentially?
spk18: We think wheat has actually grown, Tori. And, you know, what I did not mention, we actually have some major customers that are shut down. For instance, we have one very major shutdown in Malaysia. Several are in Vietnam. And they have plants totally shut down. So some of the supply chain issues have really interrupted some of the growth capabilities simply due to production capability of our customers.
spk11: Understood. And just a clarification question for Perry. Perry, when you gave the SG&A guidance, was it 5 to 5.5 million, similar to RMB?
spk02: Perry, are you there?
spk09: Yeah, totally, yeah, it is $5 million to $5.5 million.
spk08: Sorry, yeah, yeah, $5 to $5.5, yeah.
spk11: Okay, perfect. Just wanted to clarify that. Lastly, to you, Sterling, could you talk a little bit about some of the new applications and new products that are going to be ramping next year? It sounds like, you know, 2021 was a bit of an investment period for the company. So just trying to get some insights into, you know, new product ramps in 2022.
spk09: Yes, we are excited by our mini-LED.
spk08: We have a total of nine different solutions to address this market. And each solution has a different – but some of them already in sampling and close to pre-production. And we also see these mini-LED will become sort of a trend for the notebook and also go to certain high-end desktop monitors. And we probably see the new mini-LED has been fueled by the interest the new Apple introduced their notebook, although they are not belong to our customer, I can say that. However, the mini-LED will, one, increase our ASP. Second, the mini-LED will enable the regular LCD panel to reach the performance like OLED LED. As we know, OLED still have been cost, still feel costly due to the production, the difficulty and the challenge. And also, number three, we have several patterns to cover, as I just mentioned, the multi-scan. The way of the multi-scan in a mini-LED is much superior to the local dimming. It is because the LED is easy to divide into more smaller zones. And you have more number of the small zones and easier to do. And that will increase the contrast brightness and also reduce the burden of moving objects. So for our batteries, we have a long talk to discuss our ARM-based, the BMU, and we'll be excited to see several ARM-based, the BMU, rolling to the market and close to the PP. And the next year, those ARM-based CPU, the BMU, will be taken to a major account, and that will enable the new way for the PowerTool to be connected. In the meanwhile, We also do the close-down for those ARM-based CPU, BMU, and also add more functionality to it. In the meanwhile, both European and Japan-based customers, they all require certain functionality to add our Z-SYNC product, and they all already be other tables or already in a sampling stage. So we believe that next year, 2022, our battery product portfolio will continue to be more bright, more spread, and also together with the support, the battery capacity production has been going to grow every year. Compound growth rate, I think in China, certain base will be 70%, and those will be the major momentum for growth driver for the battery.
spk11: All very helpful. Thank you very much.
spk01: Our next question comes from Lisa Thompson with Zacks Investment Research. Please go ahead.
spk03: Good morning.
spk05: So I would like to ask a little bit about the revenue breakdown this quarter. It looks like TV sales were flat to down versus last year. Is that the industry that those Malaysian and Vietnamese customers are shut down in?
spk02: No.
spk18: Malaysia and Vietnam are in the battery management area. The TV business, as you mentioned, has been somewhat down, particularly we've noticed out of China suppliers. However, the monitor business continues to be quite strong.
spk05: Is that because they have
spk04: critical path constraints or is it just demand is down?
spk18: In TV, what we see is some market shifts going on and basic overall demand has gone down in TV, but not monitor.
spk05: Okay, so that's not the issue. All right. As far as the battery products, You keep mentioning automotive, yet are you selling anything to that market now? And if not, when does that happen?
spk19: I'm sorry. So, Jim, go ahead.
spk18: Well, first of all, let me just say, and I'll just briefly indicate, In automotive, we do have penetration in the automotive market and have had for some time in the intelligent lighting area. For battery management, I think Sterling indicated that we are going through a lot of ISO activity to prepare to supply into that market, so I'll let Sterling cover that for you.
spk08: The ISO 26262 will be expanded about more than almost two years. And we, so that's reasonable to expect that even though we have some sampling probably to 2022, but meaningful will be 2023, yeah.
spk05: And can you just describe a little bit about kind of what volumes ASPs that business will have? Is it significantly different?
spk08: These are probably I need to do more research because the battery pack for each automotive, we are not directly talk to the automotive guys. We talk to the battery pack manufacturer and the The ASP is high, but the number of the chip utilized, the battery pack, that depends on the topology and the architect each automobile is going to use. And we are currently still early stage before that. Right now, we are doing the IC alone, and that IC can control the certain cluster and then the one battery pack, including many clusters. So that probably needs more time. We do the customer investigation where we have a more clear idea.
spk05: Okay, good. Interesting. Going back to the TV market and the shutdowns in Malaysia and Vietnam, do you think that it's possible then that Q1 will be sequentially up quarter if they open back up? How do you think that's going to work out?
spk18: Yes, that's certainly possible. It's very, very hard to project, Lisa, given the current situations in the market. Issues are very dynamic. We have some customers who actually aren't even projecting what they can deliver in Q4 because of various part shortages and material problems. So we're not going to project Q1 at this point, but that is possible, yes.
spk05: Okay, interesting. All right. Thank you. I think that's all my questions.
spk01: Thank you. At this time, I would like to turn the call back over to Dan for any closing remarks.
spk14: Thank you. Thank you all for your time and attention this morning. Please feel free to contact me at 408-987-5920, extension 8888, or at irat02micro.com with any follow-up questions. I'd like to wish everyone a wonderful day, and thank you again for your time and attention. Goodbye.
spk01: This concludes today's conference. All participants may now disconnect.
Disclaimer