Zepp Health Corporation

Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's fourth quarter and full year 2021 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone, and welcome to Zapp Health Corporation's fourth quarter and four-year 2021 earnings conference call. The company's financial and operating results were issued in a press release via Newswire Services earlier today and are posted online. You can also view the earnings press release and the slides which we will refer on this call by visiting the IR section of the company's website at ir.zapp.com. Participating in today's call are Mr. Huang Wang, our Chairman of the Board of Directors and Chief Executive Officer, and Ms. Liang Chen Deng, our Chief Financial Officer. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company's annual report on Form 20-F for the fiscal year ended December 31, 2020, and other filings as filed with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that ZAP's earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial information. ZEPPS press release contains reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I'll now turn the call over to our CEO, Mr. Huang Wang. Please go ahead.

Hello, everyone. Thank you for joining our call. In 2021, we made significant strides Despite the challenging market environment, our full year revenue reached 6.25 billion RMB as we diligently executed our core growth strategies in the smart consumer health and fitness sector. We maintained our profitability and at the same time, grew our self-branded product treatments by 60% during the past year in the face of worldwide chip shortages, as well as the Delta and Omicron COVID variants in the second half of 2021. We are very proud that as of the fourth quarter of 2021, we have cumulatively shipped over 200 million health management devices since our inception. These achievements reflect our increasing global appeal and our dedication to improving our users' lives through technological advancement. Let me expand on our global progress. The momentum of our overseas expansion remains robust, with over 80% of our self-branded products sold internationally. Notably, our self-branded products shipment volume for the North American region increased by approximately 200% year-over-year, as we entered major retail sales channels, including more than 1,000 offline target stores, as well as QVC. As for European markets, our shipments to Italy and France increased by more than 100% in the fourth quarter, thanks to our country-specific strategy. We are now ranked number five in the adult smartwatch market. according to the fourth quarter 2021 IDC market data. We have been among the top five in the global market, top for several quarters, demonstrating our enhanced product capability and flourishing branded recognition in the growing smartwatch industry. As we work to enlarge our global footprint, we remain steadfast in our mission to connect health with technology. To the end, we continue to develop priority technologies, including AI chips, biometric sensors, and data algorithms to improve user experience and create new usage scenarios as we grow our portfolio of smart health devices for consumers. For example, to further optimize user experience, we will soon launch an AI sleep service to help users with sleeping disorders. Based on our powerful AI algorithms, our ZEPP app will compose and recommend high quality music design to enhance sleep quality, improving users' sleep hygiene and overall health and wellness. In addition, these algorithms-based user services are playing an integral role in expanding our smart health ecosystem. as ZEP Health user base continues to grow, surpassing 40 million active users by the end of 2021. We are also exploring opportunities in the industrial health segment, including investments in Promaxil and Neuro42, which has bolstered our foothold In imaging technology, we enter the portable MI business to advance the same mission that drives our smart wearable business, to empower our users to quantify their health data, which can assist them in managing health conditions and potentially to help detect earlier warning signs for certain disease. In the future, we plan to integrate these investments along with our data analytics and smart wearable business into our extensive healthcare services, fulfilling a critical need and creating value for our users. Now, turning to our smart wearable business, our newly launched GT3 series smartwatches which are our first products incorporating blood pressure measuring functionality, which is currently under review by the NMPA, National Medical Products Administration of China, and we already achieved initial results in this process. They have exceeded our expectation in terms of market recognition and product reviews and have sold exceptionally well. Ranking number one in both JD and Tmall smartwatch category immediately after we commenced sales. In addition, the GT3 was named Editor's Recommended Smartwatch by Germany's Bridget magazine. Not only are our smart watches attracting some consumer attention and acclaim, our other products are also rapidly gaining popularity and industry recognition. For example, our wireless active noise cancellation headset, Amazfit PowerBuds Pro, received an honorary award in the health and wellness category at the CES 2022 Innovation Awards. Our progress in 2021 went far beyond our hardware products. In terms of technology achievements, we unveiled our WangSan 2S chip in July, the first wearable artificial intelligence processor. with dual core RISC-V architecture. Its super power core computing performance can support high load calculations such as graphics and UI operations with low power consumption. We also released our ZAP OS in the fourth quarter, one of the industry's most compact and energy efficient smartwatch operating system. at 55 megabytes, about 1 28th the size of Apple's watch OS 8. Furthermore, ZapOS serves as the foundation for our open mini program framework, which we envision will comprise thousands of developers and countless mini smartwatch applications. Our goal is to form a comprehensive ZapOS ecosystem that will empower our users to manage their health more efficiently and enjoy their lives to the fullest. Our strategic partnership with Xiaomi has been fruitful. achieving many impressive milestones over the years. As you may have seen, rename the Mi Fit app to Zap Live to optimize the user experience. The Zap Live app will inherit tens of millions of the Mi Band users, and often more comprehensive services, such as the sleep service we mentioned earlier. Going forward, the Zap Live app and CellMe Health and Sports app will both serve Mi Band users. Moreover, the Mi Band 7 will be launched this year as expected. And we will further expand our cooperation with CellMe from smart band and smart scale products to future chips and sensors. Together with Xiaomi, we look forward to bringing more innovation to all of our users. I would like to conclude by saying that I am incredibly proud of our team, which has persevered and excelled against the backdrop of a very challenging two-year period. This obstacle, however, has made us stronger. Today, our brand recognition along with our sales and distribution outreach has expanded considerably compared with two years ago. In 2022, we will continue to build our own brands and enhance our product experience as we pursue a path of vertical integration. relentlessly working to strengthen our capabilities in chips, cloud services, algorithms, operating systems, and products. In the meantime, we also extend our reach to other health and medical-related hardware and introduce our brand new health subscription service, which altogether will let us to a new stage as a company offering comprehensive healthcare solutions and services. I remain confident in ZEV's future as we continue to lead the industry in technology and product innovation and bring better health through technology to all of our users. Lastly, we are pleased to announce a special cash dividends of USD 0.025 per ordinary share or USD 0.1 per ADS to thank our shareholders for their ongoing support as well as the continuation of our share buyback program. We are convinced that as we strive to execute our strategy, we will maximize our shareholders' value in the long term. Thank you all. With that, I will now turn the call over to Leon, who will reveal the highlights of our fourth quarter financial results.

Thank you, Wong. I would like to start by highlighting some of the key metrics driving that development. As Wong mentioned, our full-year 2021 revenue was 6.25 billion RMB, representing 1% in comparable revenue growth. Our self-branded products played an important role in our 2021 results, as our full-year shipments increased by 60% despite the challenges of surging COVID-19 outbreaks and the chip shortage, which impacted shipments of both our self-branded wearables and Xiaomi wearable products. Although we cannot fully predict how the supply chain issues will evolve, we're hopeful that we'll start seeing improvements in the second half of 2022. While we see an increase in unit shipments of our brands, this growth was offset by a decrease in unit shipments of Xiaomi wearable products. Xiaomi remains as our valued partner, and our Mi Band still ranked number one in market share with 35.6% of the total global smart band market. At the same time, we're also excited to expand and diversify our business and build our own brand with the goal of achieving sustainable long-term growth. Total revenue in Q4 was RMB 1.7 billion, representing a nominal year-over-year decrease of 15.8%. Again, this decrease was mostly driven by the decrease in bad sales. In the meantime, COVID-19 and ship shortages also constrained the growth of our self-branded products. Like many other companies, we have been facing ongoing external challenges since the second half of 2021, many of which still persist today. COVID-19 not only impacted ourselves, due to widespread offline store closures, especially during the holiday seasons, but also dampened our courier services. For example, the January 2022 lockdown of China's Tianjin and Shenzhen ports, which are critical to our global supply chain and product availability, disrupted deliveries and sales worldwide. Moreover, the global semiconductor shortage constrained our supply chain. particularly because many big semiconductor producers are prioritizing the auto industry EV customers and the manufacturers. All of these factors negatively influenced our Q4 and full year 2021 performance, and some continues into 2022. I have to say that we're very proud of our self-branded products growth, especially in light of all these headwinds. Our self-branded products contributed over 47% of total revenue compared to 31% in 2020, as well as over half of our gross profit in fiscal year 2021. We believe our self-branded products will continue to gain momentum as we further develop our product capabilities and enhance our brand's market recognition globally. Now let's look at gross margin, which can be affected by product mix, product launch timing, and product life cycles, including model upgrades. Our fourth quarter 2021 gross margin was 19.3%, a slight improvement of 30 basis points compared with the same period of 2020. This improvement was supported by refinements of our product mix, including that increasing proportion of self-branded products, which contributed over 60% of total gross profit in Q4. Turning now to costs. Operating expenses have been a key focus of mine since joining the company in the third quarter of 2020, both in terms of absolute numbers as well as percentage of sales. A portion of operating expenses are fixed, So it takes time and creativity to gradually reduce these expenses. While we'll have to carefully balance cost controls with expenditures to fuel growth, I'm pleased to report that we have already seen a decreasing trend in total operating expenses since Q3 2020. That will continue to be my focus. Going forward, we'll continue to maintain operating expenses at approximately their current cost level in order to drive profitability. Fourth quarter 2021 operating expenses decreased slightly in absolute terms compared with the same period in 2020. However, at 18.7% of sales, they represented a percentage increase when compared with the fourth quarter of 2020, during which operating expenses were 15.8% of sales. This was mostly driven by the growth in our sales and marketing expenses in the first quarter of 2021, which increased by 30.2% year-over-year, representing 9.2% of sales, compared with 5.9% of sales for the same period in 2020. This relative increase reflects our efforts to fuel growth, including brand-building initiatives such as Up Your Game campaign, designed to drive the global growth of our self-branded Amazfit and Zap wearables, as well as the launch of our GT3 series of smartwatches. Furthermore, we carefully manage our research and development costs, as well as G&A expenses in the fourth quarter. We're still investing in R&D, sales and marketing, and G&A to support growth, but we have taken a more balanced approach to these expenses. To that end, R&D expenses were down 27.6% year over year, representing 5.6% of sales for the fourth quarter of 2021, compared with 6.6% for the same period last year. This reflects effective expense control in the company's R&D activities, as well as the recognition of certain government subsidies. Our G&A expenses year on year is flat, attribute to our effective cost control of operating activities. We'll continue to refine this balanced strategy of supporting our brand building efforts and growth while controlling cost as we progress through 2022. Next, let's look at net profit, which was lower than last year as a result of higher relative expenses as a percentage of sales. as well as lower other business income due to our RMB 56.5 million partial sell-down of equity stake in , a leading electric toothbrush company in 2020. Consequently, net income attributed to that house for the fourth quarter of 2021 was RMB 36 million compared with RMB 115 million in the fourth quarter of 2020. Thanks to our implementation of more exacting working capital management practices, our balance of cash and cash equivalents remained strong, improving to RMB 1.47 billion as of December 31st, 2021. Our working capital ratio also continued to strengthen. In 2021, the Board approved the deployment of up to USD 20 million as part of a share repurchase program. So far, we have repurchased $6 million worth of shares. Given our confidence in our growth strategy and financial trajectory, we'll continue with this program. As Juan mentioned earlier, we also announced a one-off dividend program of approximately RMB $40 million, equivalent to 29% of our full-year 2021 net income, which we'll fund with our current cash on hand. I would like to finish by addressing some key considerations reflected in our guidance for the first quarter of 2022. The supply chain challenges resulting from chip shortages and delivery uncertainties from the fresh Q1 China's COVID lockdowns caused us to continue to guide conservatively. In addition, from a seasonality perspective, the first quarter typically generates the lowest level of revenue for the company after the strong holiday season. And consumer anticipation of Xiaomi's new wearable products in the second quarter may negatively impact our Q1 sales. Given the seasonality and supply chain issues I already mentioned, as well as the uncertainties surrounding the conflict between Russia and Ukraine, For the first quarter of 22, we currently expect net revenues to be between RMB 0.75 billion and RMB 1 billion, compared with RMB 1.15 billion for the first quarter of 2021. Given this outlook, we'll continue to apply 2021's strict cost control measures into 2022. That outlook is based on our current market conditions and reflects the company's management's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to the company's management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question is from of TNN Security. Please go ahead.

Hi. Hi, management. Thank you for taking my question. And congratulations for the first quarter. I have two questions. Firstly, about your growth margin. We know since the beginning of the last year, we see semiconductor shortage, as you mentioned. Our coverage, some product companies' growth margin decreased affected by the chip shortage in this quarter, but we see ZipHouse growth margin increase year over year. I think this is beyond my expectation. Can you share some view about the chip shortage impact on your growth margin and any progress about your function chip? Thank you.

Thank you for the question. On the gross margin, I think the answer is twofold. Number one, we actually proactively change our mix towards proportionally focused on the self-branded products, which carries on average twice the gross margin if we sell a Xiaomi branded product. So if you look at 2020, we have the mix, which is more skewed towards 70% of Xiaomi products and 30% of self-branded products. And when we end the year of 2021, we're actually hovering around half-half. And then the self-branded products trend will also continue to grow into 2022. So because of that change, then you get a mixed improvement on the overall gross margins. Coming back to your question on the chip shortage, we have announced in the previous quarters that we did certain risk buys ahead of this situation materialized, which also has an impact on our inventory level. But in mid to short term, we didn't see too much of a material impact on the gross margin because of the risk buy we did. On the Huangshan 2 chip, the progress is progressing very well according to our schedule. So in this year, you will see later this year that there are certain flagship products which we're going to launch as a new product introduction, which will carry the Huangshan 2 chip. And then at the same time, we're also going to license a variant of the Huangshan 2 chip to a bigger variety of Chinese watchmakers through our ETO investment because we license this also to them. And we're also going to get certain profit out of that licensing deal as well.

Okay. A follow-up question about your gross margin. your both Xiaomi product and self-run product gross margin is decreased, but mixes better in this quarter?

No, so I think Xiaomi gross margin has been on a decreasing trend for the company for a few years, right? You probably also read the news that Xiaomi is actually targeting a cost plus 5%, something like that. So Xiaomi's gross margin is actually in the low teens, that type of number. And that has decreased quarter over quarter by one percentage point, something like that. But our Self-rendered gross margin has been quite strong and hold up over the year.

Okay. And my second question about your marketing strategy. You know, the global environment is more uncertain this year. So would your marketing strategy change in this year? to in this global environment? No.

Yeah. So I think the short answer to it is no. But we do see the risk of Russia and Ukraine situation, which we also mentioned in our earnings call. We have a strong market share in Russia and Ukraine and all those neighborhood countries. And to be honest, Russia and Ukraine's revenue, if I take 2021 full year, as the basis, they stand for around 4% of our total revenue, right? So that risk we need to manage. In short to midterms, we think we can still manage that risk, but if this war continues into or drags on for a year or two, that definitely will have an impact on our revenue per se, right? We're slightly different than the other China tech company because majority of our self-branded products are overseas sales. So China actually stands for only a small portion of our overall mix. So to that end, apart from Russia and Ukraine, Our marketing strategy in Western Europe, which is actually a strong foothold of our revenue, and also in United States, didn't change. And that will continue to grow.

Thank you.

Thank you. Okay, and if you have a question, please press star, then 1. The next question is from Kevin Chen of China Run. Please go ahead.

Thank you, management, for taking my question. I have two questions. Number one will be regarding our newly launched GT3 series. I was just wondering how the sales condition and general feedback so far is tracking. And how is it matching up to our expectation? Is it better than expected or slightly lagging behind?

Kevin, thank you for your question. Now, on GT3, as Wang mentioned earlier, it's actually a very successful product. And we received a lot of good reviews in China and the overseas market for this product. If you compare the GT3 against our own expectation, I think you probably also heard that we are a little bit dampened by the chip shortage and logistics challenges in Q4. I think we're not in a demand problem. We're more having a supply problem for GT3. So compared with our own internal expectation, we think we can still do much, much more. But we are actually hurt a little bit by the COVID logistic disruptions in Q4. And that also continues a little bit into Q1. But if you ask me if the product is a big success, I think the product is really a big success. And through the launch of the GT3, we also see that we have the room to improve our ASP further, not only in China, but also in the overseas market. And that will also, in the long run, help us to lift our gross margin of the company.

Great. Thank you. Just a quick follow-up on that. I think previously the chairman just mentioned that the GT3 series is being under review for China's NMTA just for, I guess, for qualification for more medical application kind of use. I was just wondering, do we have an expectation of a proximate timeline of how this review might turn out? And once we obtain this kind of approval, would this enable a new business opportunity in the GT series?

Yes, for sure. I think what we also mentioned that we're not only doing it for the Chinese market, we're also doing it for the European market and also for US, right? So we're actually doing the the certification at multiple geographies at the same time. It's related to the blood pressure movement, which you can measure using our GT3 watch, your blood pressure, which we think is actually a very unique and elegant solution compared with our competitors. So, yes, the Chinese review, I think, is going to be a much shorter timeline because there's going to, for example, it's going to be a software and algorithm certification. So we expect that approval should be able to obtain by somewhere in the course of this year. And then the CE and FDA review might take a little bit longer, but should not be too much longer. And then once we get those certifications, for sure that will give us an edge on offering new services and also a new unique selling point versus the peers.

Okay, got it. That's good to hear. My second question is regarding the European market as well, because I think previously you mentioned the situation in Russia and Ukraine right now. I was just wondering, what about for the rest of Europe? Do you see any changes in consumer demand or just right now we're facing more of logistical issues for these markets?

um yeah no so i think for apart from russia and ukraine we're actually seeing a very healthy growth uh for the western european uh markets um so so i need to need this to say that we are already market leader in countries like italy and spain and we're actually expanding very fast in countries like eastern europe for example poland czech republic as well as in the very strong foothold of Western Europe, like Germany, UK, Thailand, and Nordics. So we still think that there's going to be a lot of potential in Europe for us to grow. because we have different product offerings and we have many exciting product offerings which are targeting more at sports and outdoor activities, which we're going to launch very soon. So hopefully with this new mix of new product introductions, we're able to grow our European market even bigger than what it is now.

All right. Thank you. Very clear. Thank you.

The next question is from Clive Chung of Credit Suisse. Please go ahead.

Hi. Thank you, management, for taking my question. My first question is on Xiaomi. Obviously, we continue to see the downtrend there in terms of Xiaomi product shipments. I'm trying to get a sense of, you know, management view on specifically on kind of the risk bearing products. Do you see it as the end of the cycle or do you think it's just an extension of the replacement cycle that is driving the slowdown of this shipment? And the second part to that question is with our discussion with Xiaomi on the new Could we get a sense, is that going to be a volume driver that could, you know, bring us back to, you know, previous shipment levels of previous years, or is just a variation of kind of current product types and kind of extending the product type a little bit longer? Thank you. That's my first question.

Okay, guys, let me just comment on the Xiaomi relationship. You know that we actually sign the Xiaomi contract every three years. And then last year, we just renewed the new three-year period. So the relationship with Xiaomi is very strong. And we actually also have different cooperations with Xiaomi beyond the band and the different algorithms which were working with them, right? So, Xiaomi stays as a big shareholder of us and we have a lot of co-operations with Xiaomi. So, that's the first thing I can guarantee you, right? And on the Xiaomi new products since I touched this point, If you read the announcements, which Xiaomi also published yesterday on the change of the name change for that life. We also mentioned that we're going to explore more into the chips for the wearables, as well as the use of different algorithms and as well as the new form factor of product. And here, forgive me, I cannot say too much, but definitely we want to actually drive the Xiaomi sales and continue with this relationship much further than what it is now. That's on Xiaomi. And coming back on the Mi Band and the overall band market decline, I think Yeah, I have mentioned that a few quarters already. We see overall band market as a form factor. The market has been in decline for a few quarters already. And then, yes, maybe it's coming to an end and it's going to be plateau a little bit. That's what we hope for. But I think you are more looking at a flattened out or slightly declined type of situation for the band market. But at the same time, as we mentioned in the earnings release as well, on the specific band market, the market share for Xiaomi band, we stay still at 35%. which is by far crashing every other competitor. So I hope this would give you a feeling for what it is.

Yeah, it does. Thank you very much. And my second question is on the R&D. Obviously, we've toned it down a little bit as a percentage of revenue. And I would just like to ask is... Do you think the kind of toning down was because it was elevated in prior years? And, in fact, does that, you know, obviously are one of our key advantages or key competitive advantages is, you know, in our research in developing those kind of healthcare kind of chipsets? And does this impact going forward our kind of research levels? Thank you.

No, I think, yes, R&D is very much linked to the new product introduction as well. In different years, we have different cadence. when we released our new product. So, for example, Q3 2020 was a very new product introduction rich type of quarter, then our R&D expenses in that quarter was extremely high, right? But since we didn't have too much of new product launch in Q4, in essence, GT3 was the only one which we pushed out in Q4 2021. So that's why also R&D expenses by nature is also relatively lower compared with the same period last year. But on the other hand, we also asked the team to do and look at the return on investment on R&D development. So instead of doing everything and then in the end it's become a waste, We're more prioritizing our R&D activities and using modularization, the Lego block type of approach to do the R&D activities more effectively. So that's also is one of the main lever whereby we can actually keep our competitive advantage while at the same time keeping the cost under control, right? But then if you actually pull a line on R&D expenses as a percentage of sales for the overall company, I think we stay as a R&D driven company because the R&D expenses as a percentage of sales for the whole year, if you divided that by our sales, it's actually by far the highest among the selling expenses and GLA expenses. So we're still spending roughly around 8% to 9% of the sales on R&D activities, although it's going to be up and down in different quarters. But if you pull it a line, I think we still have that edge versus the other company.

Okay, thank you very much. I actually just have one question on the COVID impact. I was wondering if there has been more forward-looking or fourth quarter related in the first quarter or in the recent weeks, has there been any impact to our manufacturing capacity given that?

Yeah, no, Clive, you're very sharp on this. Now, so COVID actually posed a lot of uncertainties and negatively impacted on our results, right? In Q4, the sudden lockdown in a lot of European countries around the holiday seasons actually dampened ourselves in the offline channel, right? So that also plays into why our numbers in Q4 was weaker than what we originally anticipated, right? And on the other hand, COVID also creates a lot of logistic nightmares for our supply chain. For example, especially, and that's also one of the reasons why we guide the Q1 sales number in a very conservative way, right? As all the other Chinese companies, our export route is actually through Shenzhen into Hong Kong, and then from Hong Kong goes to everywhere in the world. And then with the sudden lockdown in Shenzhen and all the logistics flow also stopped, that actually posed a lot of logistic challenge and supply chain nightmares to our team. So that's why we kind of guided a relatively lower number on our guidance for Q1. So, yes, COVID definitely has an impact. In the past, it was more on the overseas market. And now if I look at Q1, Q2, the zero COVID policy in China definitely actually disrupted the supply chain and the manufacturing a little bit for us. But then, as I said, also our supply chain team is looking for other different ways to resolve this situation. But that obviously takes time and then would have played into some more conservativeness in our guidance going forward. But we think this situation should be much better as we enter the second half of this year.

Okay. Thank you very much. Very great. Thanks again.

The next question is from Andre Lin of Citi. Please go ahead.

Thank you for taking my question. And I have a follow-up question on the previous supply chain related questions. And you mentioned there is a semiconductor supply chain. So can you give us a color on how the situation is going and when do you expect the semiconductor supply chain and flow be resolved this year and next year?

So, Andre, I think I have mentioned it in the script earlier. We think going into the second half of 2022, the situation should be resolved or much better than what it is right now. Q4 was very serious and then we did certain risk buys and we did certain commitments. We're putting a lot of chips and that's after a month or two, I think Q1 on certain product types, we don't have a shortage issue. But then on the other hand, you will see that also more semiconductor companies are prioritizing their chips towards the EV players. So that will have certain impact into Q2 as well. So we're more constrained by the supply rather than by the demand situation. But based on the current information I have on hand, It looks like by end of Q2, so from May onwards, this situation should be resolved to a large extent.

Thank you. That's very clear. And I have a follow-up question regarding the first quarter guidance. Can you give us a bit more color on the shipment or revenue guidance for the self-brand product? on top of the guidance you gave.

We are hurt by a lot of uncertainties in Q1, so it's really a difficult quarter. That's why we guided in a very conservative way. I think you also see a lot of companies because of this, They even stopped giving the guidance. But okay, we're still trying to give a range, although this range is a much wider range. There are a few issues. Number one is what I mentioned before on the lockdown of Shenzhen for the upcoming seven days, right? And if that seven days is going to continue into 14 or 21 days, right? um nobody knows but uh because of that lockdown manufacturing is stopped logistics is stopped you cannot even export the products into hong kong we're looking at other ways for example going through kianjin to export the products out of china etc etc right but that would not will definitely have a negative impact in the initial outlook we have on Q1. And actually the last two weeks in the quarter has always been one of the biggest moments of shipping for us because Q1 has been always a slow quarter, but then towards the end of Q1, the production and shipments start to pick up, right? So that actually plays into the relatively conservative outlook for which we issued. Number two is the Ukraine and Russia situation. As I mentioned that Ukraine and Russia placed around 4% of our overall sales. So if you average it out, I think every quarter, depends on the quarter, is talking about 80 to 100 million of sales, right? Luckily, we have the first month out and the second, the February sales was kind of somewhere cutting to the half. So we actually lost one and a half months because of ruble depreciation and everything else. So you need to actually, on an apple to apple comparison, strip out the impact on the southern Russia and Ukraine situation. Although at the same moment, we're trying to look into different ways in whether or not we can continue south into Russia. I think the third one is the chip shortage, as I just mentioned and explained many times. So these three factors kind of played into the number which we put up here. If the Shenzhen lockdown will be only seven days or even within the seven days, we can continue to manage to export and the shipment, I think we'll probably end up more towards the high end of the guidance range. But if not, I think we're probably just in the middle. And that's so much color I can give you.

Thank you. That's very clear. Thank you very much. I have no more questions.

As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact ZAP Investor Relations Department through the contact information provided on our website or the Pearson group, the company's Investor Relations Consult. This concludes this conference call. You may now disconnect your line. Thank you.