Auo Corp S/Adr New

Welcome to AUO Corporation 2025 Second Quarter Financial Results Conference. Before the meeting starts, all lines are being placed on mute. After the presentations and statements from the management team, there will be a questions and answer session. I would like now to hand over to Jerry Hsu, Senior Art Director of AUO. Ladies and gentlemen, good afternoon. I'm Jerry Hsu from AUO's Art Department. On behalf of the company, I would like to welcome you to participate in our second quarter financial results conference. I'm joined by four executives, Chairman and Group Chief Strategy Officer, Paul Peng, CEO and President, Frank Ke, Senior VP of the Display Strategies Business Group, James Chen, and our CFO, David Zhang. The format of today's meeting follows. First of all, our CFO will go over our second quarter financial results and provide you with the guidance for the third quarter. Then Paul and Frank will provide you with opening remarks and business updates, and we will shift into the Q&A session. We have collected questions from analysts before the meeting. We will address those questions in the first part of the Q&A session. Afterwards, if there are still more questions, we will open a line for you to call and pose questions. Before I turn over to David, please allow me to remind you that all forward-looking statements contain risks and uncertainties. Please also spend some time to read the safe harbor notice on slide number two. David, please. Ladies and gentlemen, good afternoon. I'm David. I would like to go over our Q2 results and our Q3 outlook. Q2 revenue came in at $69.2 billion down by 4% QQ, mainly due to the unbearable impact of the stronger NT dollar against the dollar in Q2, which accounted for about a 4.6% downside. Excluding the impact of exchange rates, our actual revenue showed a slight increase coming in above expectations. In Q2, our display revenue TV shipments slowed as customers had front-loaded orders in Q1, while high-end IT products posted better than expected revenue. Excluding Forex effects, our display revenue in Q2 was roughly in line with Q1 and performed better than anticipated. Mobility solutions revenue was set on QQ due to customers' project timelines and the higher base period. While the revenue declined this quarter, it was in line with expectations when excluding the impact of exchange rates. Our vertical solution segment benefited from continued revenue contributions from smart retail and premium products, as well as early shipments by industrial and commercial customers during this tariff pause period, which helped boost our overall revenue, excluding the impact of exchange rates. Performance actually exceeded expectations. Although the Q2 revenue declined by 4%, gross margin improved to 13.5% thanks to increased shipments of high-end products and cost improvements, which offset the unfavorable forex effect. OPEX remained tightly controlled, though seasonal trade show costs pushed expenses up slightly to 11.4%. OP margin rose to 2.2% with an operating profit of $1.5 billion. Non-NAP income came in at around $600 million, mainly driven by a one-time gain of roughly $900 million after AU secured additional board seats at I-Link in late June, triggering a shift from equity method accounting to full consolidation. However, the appreciation of the NTD led to a forest loss of $400 million 400 million NT dollars this quarter. Net profit reached 1.9 billion NT dollars with an EPS of 0.26 NT dollars. Cumulative EPS for the first half of the year came to 0.69 NT dollars. EBITDA for Q2 was 8.9 billion NT dollars. EBITDA margin was 12.9%. Overall, while revenue dipped slightly due to the unfavorable forest conditions, the company continued to enhance profitability by increasing the proportion of high-value-added products and maintaining strict cost and expense controls. This also marks the third consecutive quarter of profitability for AUO and the second straight quarter of profitability at the operating level. Moving on to a broadsheet, AU again control of Adlink technology in late June. Starting this quarter, Adlink's assets and liabilities will be included in our consolidated statements, while its P&L will begin to be reflected from next quarter onward. As of the end of Q2, the company held $54.4 billion in cash, a healthy level despite a decrease of $13 billion from the previous quarter. I'll go into more detail on the cash flow statements in the next section. Short- and long-term borrowings declined this quarter, totaling $116.1 billion. At the end of Q2, the gearing ratio was 39.4%, up by 4.9% from Q1, mainly due to the NTD's appreciation, which lowered the converted value of our foreign currency cash holdings. Overall, the company's financial structure remains very sound. Inventory levels increase in Q2, with inventory turnover days rising to 53, primarily due to the consolidation of Alex Infantry, excluding Alex the absolute inventory amount remained stable, so the inventory level was still quite healthy. Cash inflow from operating activities in Q2 was $3.4 billion, while depreciation and amortization totaled $7.4 billion. Cash outflow from investing activities reached $2.4 billion, CapEx $4.2 billion, and $1.7 billion for the AdLink acquisition. Financing activities saw a cash outflow of $9.7 billion, mainly driven by a $9.4 billion reduction in bank borrowings. Additionally, the stronger NTD in Q2 resulted in a Forex conversion loss of $4.3 billion on our foreign currency cash positions. The cash info statement this quarter already reflects a shift in our strategic direction under the three pillars transformation. with capital investment trending downward. As a result, the company no longer requires excessive cash reserves and has been proactively repaying bank loans. This was a key reason for the intentional reduction in cash reserves during Q2. Moving on to our revenue breakdown by pillar. Given the steeper drop in revenue, the display segment saw a 1 percentage point loss in its revenue share to 53%. Vertical Solutions gained 2 percentage points to 15% on the back of its higher revenue, QOQ. Mobility Solutions stayed at 28%. Now about our third quarter business outlook. Mobility solution is expected to be down by missing a digital percentage point, QOQ, in its revenue. Vertical solutions, despite the Forex conditions, it is expected to post a low to mid-20s growth in its revenue QOQ due to the consolidation of ad link. is expected to see modest decline in QOQ given the forex fluctuations and tariffs and macro conditions related to uncertainty. This concludes my presentation. Thank you, David. Now we would like to turn it over to Paul for an opening remark. Ladies and gentlemen, good afternoon. Welcome to AUO's financial results conference. Looking back at the second quarter display and mobility solutions, have experienced strong demand in Q1, so they had a higher base period. In addition, because of the NTD appreciation in May, these two pillars experienced lower revenue QQ. As for the virtual solution, it benefited from stronger industrial and commercial application demand and project volume ramp in application fields. It caused the revenue growth despite the forest conditions. Our overall revenue was 69.2 billion, down by 4% QOQ and down by 6.8% Y01. NTD saw a sharp rise against USD in the beginning of May. So our, we actually saw a 5% impact from the NTD appreciation compared with the previous quarter. 90% of AUO's revenue is denominated in the USD, so the full risk conditions had a bigger impact on our revenue in the second half of the second quarter, including the impact of the Forex. We actually saw a flattish revenue in Q2 from Q1, which was actually better than our anticipation. So in the face of the headwinds, we continue to work on improving our product mix and controlling our OPEX. We posted sound profitability with our gross margin at 13.5%. OP profit margin was 2.2% which were both better than the performance in Q1. Inventory turnover was 53 days up by five days. Gearing ratio was 39.4% up by five percentage points to a Q due to the acquisition of AdLink and the fact that our AR is denominated in the USD. If we exclude the impact from the ad link recognition and exchange rate, our view ratio and inventory turnover days would have been up slightly, but would still be relatively healthy. Now about the tariff impact and tariff issue. I would like to assure you that panels are a component and most of our shipments are delivered on FOB terms. Therefore, tariffs had limited direct impact on our revenue. Most of the products of our customers are on the exemption list or are under the USMC framework with limited impact from tariffs. In addition, we have been making preparations for our global operation for years. We have now built up our manufacturing operations in both Taiwan and mainland China as well manufacturing sites in Southeast Asia, India, Europe, Mexico, and North America. So we get to adapt to the changing tariffs conditions and to work with our customers to allocate our capacity flexibly. We also are not discounting possibilities of choosing the most appropriate production methods with our supply chain partner to manufacture at slightly tariff regions. However, tariffs would pass on the higher prices to U.S. consumers ultimately, which would have a negative impact on the U.S. market and global economic growth. Now I'd like to provide an overview on our display segment performance. Our display revenue was down by 5% UOQ in Q2, excluding the impact of the Forex. The performance was on a par with that of Q1. In the TV segment, Q2 porting demand went following inventory stocking post the year-end high season in 2024 and the trading program-related momentum in China. In the IT segment, customers continued to front load their inventory ahead of tariffs We continue to focus on high value-added products including gaming, high-resolution touch and privacy models. As a result, we saw shipment growth. In Q3, given the terror of uncertainty and unseverable forest conditions, currently our customers seem to be more conservative with restocking demand. However, Brands have been controlling their inventory levels very prudently leading to healthy inventory levels at channels. With more clarity from the tariff front, it is likely that year-end restocking demand will rise. However, some customers have front-loaded their inventories and promotion activities have been distributed. Seasonality may not be as strong as before. during the high season. For the display sector, NTD denominated revenue may be down in Q3, Q2 moderately. However, with excluding the impact of Forex, the performance would be similar with previous quarters. We will continue to strive for more orders and to tighten our inventory management. For the full year, we will focus on pursuing profitability for our display segment. Last year in July, we talked to you for the first time of our three main business pillars and our strategy under the three business pillars. Our midterm goal is for our mobility solutions and vertical solutions to have their revenue combined to account for more than half of our total revenue in 2027. Today, we are a year from last year's, from last July, so I would like to share with you some progress on our transformation so far. First, in terms of the display segment, This segment is underpinned by AUO's expertise. It is mission to select the right products and pursue profitability to generate cash and to focus on LCD and microLED technology advancements so as to support the growth of mobility solutions and vertical solutions. Over the past few quarters, we have been adjusting our product lines and our customer structures. we continue to focus on churning out stable profits instead of pursuing capacity growth or revenue growth alone. And the results in our efforts have already been reflected in our first half operating performance. In terms of our mobility solution pillar, last November, we announced the institution of AMSC, And this new entity will be set up officially on January 1st, 2026, which will combine AUO's mobility solution business with BHTC. The set up of the new entity is underway as planned. Going forward, AMAC will cover the following businesses, including Tier 2 Automotive Panels, Tier 1 Display Interface, that is Display HMI, and Smart Cockpit. So this new entity will be missioned to serve the global automotive market as an international business. As for the vertical solutions, it is divided into two parts, Smart Verticals and Green Solutions. Smart Verticals are centering around display-centered solutions underpinned by our advantages in our technologies and with ADP as the main engine of growth. Green solutions are not a display-centered business. Instead, it provides digital transformation and green sustainability solutions. our expertise in the solar PV business and Envirotech and AUO Digitech. Green Solutions is focused on providing carbon management and digital transformation solutions. In Q2, mobility solutions and vertical solutions together accounted for 43% of our total revenue, up by 2 percentage points YOY, so we are quite near to our mid-term transformation goal. In light of the economic and trade upheaval around the world, in light of the increased complexity in around the world, today our board directors have decided to set up a new group CEO role who will be responsible for guiding the group's operating performance and the strategic directions and overseeing the business units and groups under the group. This role will be held by myself. In addition, we also set up another role, which is group COO, which will be held by Dr. Frank Ke, who will be responsible for advancing the collaboration between the three major businesses under AUO. Through the organization transformation, both Frank and I will be together responsible for guiding our company through the changing landscape externally and driving development across AUO group so as to accelerate the development of the three pillars. Next I will hand over to Frank who will be talking about the other two pillars, smart mobility and vertical solutions. Thank you. Ladies and gentlemen, good afternoon. Paul just spoke on AUO's operating strategy and the impact from the forest conditions and tariffs. On the second half, I will speak on the other two pillars, mobility solutions and vertical solutions. Mobility's revenue was down by 5% slightly in Q2 from Q1. It was actually up by 4% YOY, excluding the impact of the Forex conditions. Our revenue in Q2 was on par with that of Q1, and it was actually better than expected. As we talked to you in the first quarter, tariff impact on our shipments, auto product shipments, was not very big. Most of our auto products shipping to the U.S. are exported through Mexico, and the country is under the USMCM framework, which gives it a zero-tariff treatment. At the same time, we are talking actively with our customers on the future capacity allocation, hoping to leverage our diverse distribution in terms of our front-end and back-end capacity in panel manufacturing in Taiwan and mainland China, as well as aided by our assembly capacity in Mexico, Europe, and India, so as to strive for more middle- and long-term orders. Also, yesterday, BACC Bulgaria plant just unveiled its third phase production as a new fab. And this fab is mainly intended for manufacturing display HMI for European customers. Based on our customer orders over the past few years, we decided to expand the capacity as we plant With the new production capacity online, we expect that new revenue contribution will be made in the following quarters, hoping that our alternative revenue growth will be able to fulfill our customers' requirement for new production for a new product production for our customers. as for our new orders go. Last quarter, I have already told you that we collectively garnered a whole new order from a new customer, which is a large global automotive OEM, and that order was for DisplayHMI. This quarter, I'm also very happy to report to you that with the hard work of our team, we once again gained another order for DisplayHMI for a commercial vehicle. as well as for climate control. In the past one year or so, since the acquisition and merger with BHTC, aided by the outstanding tier one design and mechanical expertise from BHTC and underpinned by the display technology advancements of AUO, we have gained new orders from international auto OEMs. We have also gained very good and very strong growth for new generation vehicles among our key customers. This has built a very strong groundwork for the AMSC's operations starting from January 1st next year. the confidence that we will be able to achieve our goal for double digit taker growth in the following years looking ahead at the third quarter due to the forest conditions we announced that that mobility solutions revenue will be down by the single digit percentage qoq however excluding the impact of the forex we believe that we should be able to achieve moderate growth, flat growth for Q2, for Q3 versus Q2. And for the full year, we anticipate that the mobility solution segment will experience high single-digit percentage growth, Y01. The difference from the low to mid-single-digit percentage projection that we guided previously is attributable to the impact from the unfavorable forest condition. If the impact of the forex conditions is excluded, the performance would be in line with our previous predictions. Now I would like to talk about our vertical solution. Our Q2 revenue grew by 6.5% QOQ up by 5% QIOY, which is in line with our anticipation. In April, our subsidiary ADP signed a term sheet with ING Inc. to establish a joint venture company. to set up large-size EPD module production lines at AU's Longke site. The buildup of this new line is going as planned, and it has been going through ongoing development and verification slated for shipment in the following month. In June, ADP also exhibited in EvoCom in the U.S. by joining hands with Nanolumens, ADP also demonstrated many new display solutions, including FineGuard high-fidelity display and 60-inch transparent micro-LED displays, garnering very positive feedback. What's worth noting is that this transparent micro-LED display was showcased at our customer's booth. It has a very special meaning. signaling our joint collaboration with our customers in the commercial landscape. It also proves that we have garnered the recognition of customers in our capability to provide innovative applications utilizing transparent AR solution and our micro LED products. Moving forward, we will continue to join hands with our customers to expand micro LED transparent display solutions and to secure more customers' orders across different application fields. Over the past half years or so, our micro LED business has spanned across wearables, large size tiling modules, automotive, industrial, and commercial interactive displays. We also anticipate that in the following quarters, we will be able to launch more micro-LED products into markets. Now, let's talk about AdLink. In the end of June, we held 32.8% of AdLink. And at the latest election at the Board of Directors at AdLink, AUO garnered the majority of general directorate seats. Therefore, we will be able to recognize and consolidate the P&L of AdLink into our financial statements, which will mark a very special step in our strategic deployments. We have been gaining a stake in AdLink since 2020, so we have built a very strong groundwork for collaboration across both of the companies, including in the vertical fields from commercial industrial applications. Allen has been very strong in leading technology such as edge computing and developing relevant solutions. In the past two years, AU has been very focused on developing vertical solutions, hoping to build a more comprehensive roadmap including smart healthcare, smart retail, mobility, and factory automation, as well as entertainment. We also are building upon the collaboration across the two companies to build more commercial applications that will benefit both of us. Going forward, we will tighten our collaboration with AdLink in our business models, sales channels, and customer portfolios. The goal is to leverage the advantages of both companies and our expertise in smart mobility and vertical solutions to tighten our ecosystem collaboration so as to capture new opportunity and to elevate the value for both companies. In different vertical fields, we have been deploying AI training and AI-enabled product solutions very actively. Going forward, we will be able to harness the expertise of AdLink in edge computing and also leverage the ecosystem energy of the AUO group to capture new business opportunities under the edge AI trend. Looking back at the past few years, we have been, integrating the vertical specific subsidiaries under the AEO group into ADP. These subsidiaries included Rice Vision, Comkey, Avacor, Jephtar, and other companies. This has allowed us to be more focused on the development of smart retail, healthcare, smart enterprises, education, and gaming, as well as transportation development. This year, we are driving the One America program under ADP to enhance ADP's footprint and sales capabilities and sales enablement in the U.S. Going forward, we hope that with the consolidation of AdLink and the sales capabilities of AdLink across the world, we will be able to tighten our performance and enhance the vertical solutions revenue to allow it to account for a bigger share of our total revenue, so as to lower AUO's dependence on consumer electronics. As for the third quarter, first of solutions is expected to see its revenue growing by low to mid-20th percentage points, QOQ, despite the forex conditions, while benefiting from the consolidation of adding into the financial statements. As for the full year, with the consolidation of AdLink, we are expecting Vertical Solutions Revenue to post high change percentage growth for this year versus last year. So these are my statements for the other two pillars. Thank you. Thank you, Paul and Frank. Now we would like to proceed with AdLink. Questions and answers and we will begin by answering the questions that we collected previously. The first questions are related to financial performance. First up, in view of the economic conditions, could you update us on your 2025 DNA plan and you will continue to shift toward a light asset operating model. Any guidance on future plans please? David, please. In terms of CapEx in view of the market conditions and macro conditions, we have re-evaluated our CapEx for 2025. We now anticipate our CapEx to be no more than 28 billion NT dollars, which will include the delayed amount from last year and the expansion spending for BHTC in Bulgaria. For depreciation amortization, we maintain our budget at $30 billion NT dollars. As for 2026 CapEx, in light of our strategic transformation, we will gear more resources toward mobility and vertical solutions and advancing our technologies. We will continue to drive toward the asset-light business model. Currently, we do not have plans to expand our front-end panel production capacity. Therefore, we expect our 2026 to be lower significantly from this year. Next question, another panel maker in Taiwan recently announced plans to shut down older generation production lines. Could you provide more cover on how you are handling the idle facilities in Singapore, and whether there are any plans to close other production lines? Please. As we shared with you previously, we are selling our Singaporean production lines, and the process is still ongoing. As a revitalization has been a very important part of our transformation strategy in recent years, we continue to evaluate the operating performance of our different generation lines. We also would decide on producing products at the most appropriate production lines. At the same time, we will seek opportunities to replace the old with new ones to optimize our facility use. and in circumstances that is appropriate, we will also sell off our assets that do no longer offer any potential application value so as to secure more capital to replenish our capital reserve to support our further operations. as well as expand our development in these three major pillars to ensure stable investor return. The next questions are related to our display business. What are the sales through and channel inventory levels for TV and IT products in Q2 worldwide? What are your sales through predictions for set product sales through in Q3 and the second half? Will panel shipments continue to benefit from pulling demand ahead of the peak season? James, would you please? Ladies and gentlemen, good afternoon. I would like to address this question. In Q2, on the back of appliance trading program in China and the polling demand due to the tariff concerns, TV and IT demanding was relatively steady. In the IT segment, while Q2 is a slower season for TV, demand was only down by three percent while wine and each region posted different performances in mainland china on the back of june 6 18th promotion and the trading program growth was quite robust the u.s posted a steady and flattish performance however there was a weaker performance from Europe and Asia Pacific markets. TV as a whole lowered by 3% YOY, which was better than expected. In China, during the June 18th promotions, the training program really helped to boost the unit sales by 10%. 85-inch and above TV segments improved by 36% in sales through. This is a very positive sign for the industry's supply and demand. In the U.S. market, while the performance was flattish, in the 85-inch and above segment, growth was in the 40% range. Also a very positive sign for the long-term panel industry supply and demand. Looking ahead at the third quarter, with the prime day in July and Black Friday in July, Channels started their promotions ahead of time. We are also anticipating channel inventories to be lowered to reasonable levels. As for the IT segment, laptops enjoyed 6% growth while wine in Q2 amid tariff concerns. and the front-loading and earlier purchases by customers. In North America and in China, sales was rather strong, helping the laptop through to improve in Q2. Looking ahead at the third quarter with the Black Friday in July and further promotions, we are expecting that gaming products and our integrated and touch privacy products to enjoy stronger sales. As for the monitor segment, set sales through was down slightly, down by 2% YOY, given the slower seasonality in Q2. However, in mainland China, during June 18th sales promotion period of the trading program, gaming segment enjoyed 36% growth YOY, and the sales through during June 18th period was even up by 16% YOY. With Q3 entering a high season for gaming products, helped by the back to school demand, we are expecting stronger sales. In terms of the China inventories, with the continuous of the trading program in China, that has helped the June 18th sales move to be quite strong. About inventory levels at China. In China, due to the strong sales in June 18th sales period and the help of the trading programs, China inventory levels have been quite healthy. In North America, due to the front loading demand and material uncertainty, inventory levels are slightly higher than normal. However, it is still within a predictable and manageable range. Looking ahead at the second half of this year, our customers and brands as well as channels have been preparing for earlier promotions. Many brands are promoting for their products ahead of time amid tariff uncertainty. And people are saying that the higher seasonality of this year will be more dispersed. Our customers are also telling us that when there's more clarity around tariffs after August, they will consider whether or not to launch promotional programs for the end of this year. And we also believe that after August, there will be more likelihood for year-end promotions to be set in. Thank you, James.

Ladies and gentlemen, we will now begin the Q&A session. Please remember to limit your number of questions to three per call, and please say them all in one go. Thank you.

Now, first question will be coming from Randy Abrams, UBS. Go ahead, please. Yes, thank you. I wanted to ask the first question to follow up on your remarks on the If you could run through the full-on effects, how you believe that affected your first half panel citizens, perhaps sounds like on notebook and IT, and how that may affect the second half outlook. And second part of that question is we may get some of the tariffs coming back on, reciprocal or section 232 tariffs. So, how do you view customers and panel prepared for expecting any sort of slowdown in those tariffs? That's the first two-part question. And then, I'll just ask the other question. On the vertical business, if you could clarify in the guidance, including and excluding the ad-link consolidation for that vertical segment, how do you see the strength continuing?

ongoing uh this factoring we still have some macro and character certainly irene uh i think uh that already if you uh i think it's uh things of our customers here uh you know give them uh this so for uh for it products all in uh exam exam the base so so far they still uh quite confident this will continue. And for the TV panel, all the brand customers, they have their production site in Mexico. So they all can meet the USMCA requirement. So, so far, if the product meet the USMCA requirement, still can zero tax. So they are quite optimistic about this policy will remain. So as I just mentioned, a lot of customers are waiting for the final result in August, and then they can train more abrasive or clear promotion program in the second half. So before we know the final target result, our customer already pulling their demand and the production plan in the first half. So I believe in the second half, the demand will be optimistic, but will not like traditional

So that is my answer. So that is about the vertical section. And then we are talking about the include ADD, right?

So if we exclude the ADD consolidation and we foresee the coming Q3, the vertical solution revenue will be declined low to mid-single digits because of also impact by the exchange rate. However, if we reverse to the original exchange rate, we still see the threshold solution can keep the increase in those single digits. And for four years, yeah, it proved ADLINK. We see the vertical solution that four-year revenue compared to 2024 will include low single digits.

Okay. Okay.

And maybe just to follow up, the low single digits, it's a little bit below maybe the target to expand that more aggressively. If you could recap a bit of the drag on the business here.

Yeah.

Okay.

Thank you, Randy. I think the, yes, originally in February, our target is the 10% YOY revenue growth. And then because of the exchange rate, so that's the reason why we now foresee bulk as low single digit. So if we use the original currency exchange rate, that still follows the original guidance.

Okay, great. Yeah, thanks for clarifying. Thanks for letting me.

Our next caller is Karen from Citigroup. Please go ahead. Thank you for taking my questions. I have two questions. First, the impact on your profits and your revenue. Have you done any sensitivity analysis? That is, how much will your revenue and margin be affected by a certain range of movement NTD versus USD rate. That was my first question. Also would like to know more about your Q3 guidance. What was the premise? For that outlook, what was the premise for your exchange rate? Another question that I have is about area of shipment. Could you provide more color on the area of shipment growth for the display market for this year and also your view on the next two to three years' growth? Are you also sticking with the general view of the industry that the panel size is about to grow by one inch per year? Thank you. Hi, Karen. I'm David. On your questions, for exchange rate in Q2, as mentioned, we had a 4.6% impact from the forest conditions. Of our three pillars, as we said, 90% of revenue is denominated in USD. So if the impact of the 4.6 forest impact is excluded, our displaced revenue is on the par with the previous quarter and vertical solutions will be up. Mobility solution is also on the par with the previous quarter. So that was my answer on the Q2 Forex impact. For the guidance, our premise is that the exchange rate of USD versus NTD is 1 versus 29. Also for the question on area shipment, currently in the current quarter, Q3, our customers are still waiting on tariffs announcement. Some customers have front-loaded their inventories in Q2 or even in Q1. We are estimating that Q3's area shipment to be down by low single-digit percentage points slightly, depending on the tariffs situation. And also, it will be depending on whether our customers will resume their pooling ahead of the year-end high season. Thank you. The next caller is Lisa Chen from Yantar Securities. Please go ahead. Thank you for giving me, giving us a very clear description and explanation. I have several questions. First, on your e-paper strategy, you talked about your joint venture with E-Ink. Could you provide us with more color on your progress for the second half of this year and also next year? Also, I have another question on, your collaboration with the German Railway Company, which uses ADP technology to provide HIRASO display. HIRASO is also a form of e-ink, and it seems to be in a competitive position against e-paper. So you have both strategies deployment in these two kind of technologies. What is the technical barrier in terms of entry into either of the, display segments, and how do you foresee the collaboration to benefit your display deployment in the long run? Thank you. I'm Frank. All your questions, first up about our joint venture with the Inc. The production line is already entering sampling stage, and it is slated for mass production in the following months. The line will be specifically focused on signage production. We are focusing on smart display applications and ESG requirements around the world. The priority will be placed on retail settings and the public places at enterprises. We will harness the mid and large size e-paper modules which can be operating at nearly zero power for a very long time to capture opportunities in the smart buildings and retail settings. From the perspective of AUO, ADP is not only intended for providing hardware solutions. More importantly, we want to place more focuses on building up the entire ecosystem and to harness our energy saving solutions to provide comprehensive solutions that incorporate advertising content, enterprise information, campus information to provide eco-post solutions. We will also be using ADP's LCD and LED expertise to provide one-stop shopping experiences for our customers. This will be the positioning that we are aiming for SmartBrowse vertical solutions so as to form a collaboration mechanism across the entire ecosystem because of that we want to work with e-ink to really form very close relationships with customers and also e-ink to build an entire ecosystem on your question on the concept trend that we built with the german railway company we demonstrated the hirafo display technology it is a LCD-based technology that offers reflective and low-power features. It also offers wide temperature range, allowing it to be really unique and enjoy strong advantages in outdoor environment. So we will aim for providing the most appropriate solutions at specific application fields. AUO is not only about building up our competitive but also we want to provide more diverse display technologies and ecosystem partnerships to provide the most appropriate applications by joining hands with our partners and customers. Thank you, Frank. Ladies and gentlemen, we will now take one last question. Thank you. The last caller is Vivi Huang from Morgan Stanley. Please go ahead. Thank you for giving me this chance to pose questions. I have two questions. First off, could you provide the outlook for display supply and demand? Second question is on China's trading program. In the first half of this year, the market was basically propped up by the appliance trading program. I wonder if you could provide some color around your view into the second half and the demand outlook in mainland China. I will address the first question relating to the trading program. In Q2, the trading program was suspended. helping to boost demand for the TV sector in China. This year, the program expands its scope to monitors, smartphones, tablets, and laptops. As a result, the June 18th sell-through was benefiting quite nicely. It also provides some sort of support to the global demand. We have also observed that in the second half, China's government has already set aside 130 billion plus for the trading program, which will likely help prop up the high season demand in the second half. For the supply and demand in the displaced segment, currently, LCD makers, are producing products based on demand and industry players are adjusting their supply and demand quite nimbly. Therefore, we believe supply and demand situation will be more stable with more certainty setting in around tariffs. Aided by the high season promotions, improvements to the supply and demand situation will be expected. That said, the industry has been adjusting loading rates quite flexibly and dynamically. So the supply and demand is relatively steady. Thank you. Thank you for your participation. This concludes our Q2 results conference. If you have any other questions, please feel free to contact us at the IR department at AUO. Thank you. You may disconnect now. We'll see you next quarter.