Win Semiconductors Corp

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WinSTEMI's Resolved Broadcast Conference for the second quarter of year 2020. My name is Joe Chen, the spokesman and Associate Vice President of Finance of WinSTEMI. Joining me today is Steve Chen, the General Manager of Corporate Administration. And today's call will be organized into three sections. First of all, Steve will comment on the results for the second quarter and provide brief guidance for the third quarter. Secondly, I will go through the financials in detail. And after that, we will open to the floor for Q&A. Please freely submit your questions by clicking the question button on the web page window throughout the conference. Before we begin, I would like to draw your attention to the face cover notice on page 2 of the presentation. Please note that this presentation contains forward-looking statements, and these statements and I hope results may differ materially from our expectations. And the company undertakes no obligation to update this forward-looking statement going forward. Now, let me hand over the call to Mr. Steve Chen, General Manager of Wintani.

Thank you, Joe, and welcome everyone. While the overall demand in the first half of 2020 has faced many uncertainties arising from the COVID-19 pandemic and the U.S.-China trade tensions, we have delivered satisfactory financial results over this period. For the second quarter, our revenue mightily declined by 0.4% quarter-on-quarter, increased by 36% YOY, roughly in line with our previous expectation. Revenue for the third half of this year increased by 50% over the same period last year. Gross margin for the second quarter marked a record high level at 44.8%, driven by better parliament and capacity utilization maintaining at a high level of 90%. As a result, net profit for the second quarter increased by 5% quarter-on-quarter and 113% year-on-year. Earning per share for the second quarter and the first half reached NT$3.94 and NT$7.7, respectively, hitting the new highs for the same period in the company's history. In the second quarter, cellular PAs delivered the highest growth among all product segments. Especially, the percentage of 5G cellular revenue contribution to our total cellular revenue has risen to over 25%. In addition, the first half revenue of Gain on Silicon Carbide waivers, which are mainly being utilized for the 5G, has been close to the full year revenue of last year. This week confirmed that the demand for 5G continues to be strong and the trend of 5G remains unchanged. As the COVID-19 pandemic remains severe globally and US-China trade tensions are still ongoing, we expect short-term impact of our business may be inevitable and the peace and The off-season will be less obvious and more difficult to predict this year. However, we will continue to execute our long-term strategy of diversifying customers, expanding production capacity, and maintaining R&D investments, while preparing for the potential risk of the continued emerges of the great strong event in the global market. Looking ahead to the third quarter of 2020, we expect revenue to grow by mid-single digits, quarter on quarter, and growth margin to be around the level of low 40. I will turn the call back to Joe. Thank you. Okay, thank you.

It's our pleasure to present the financial results for the second quarter of the year 2020. And you can also refer our presentation slides. Okay, remember to refer to the Bay Poplar notice that is in the page two. And then I'm gonna start from page four. Talk about the revenue and the margin trend. The second quarter of 2020 revenue was $1,648 million NT. CO2 is down about from 4%. But the YOY is up 36%. And as a whole, the year 2020, because of COVID-19 pandemic and the U.S.-China trade tension, so the seasonality is not so significant as usual because the seasonal up and down is not that obvious. and then so the quarter over quarter become more and more difficult to predict. But I think we have a better performance in the first half from the top line to the bottom line. The second quarter 2020, because of the utilization rate, maintaining the higher level and also the better product mix. So our growth margin, reaching the regular high, increased by 1.8 percentage points, become 44.8% and operating margin also up 1.7 percentage points to reach the In the second quarter of 2020, our net profit was $1,561 million. and QOQ is up 5% and YOY also up 113%. Then the EPS coming at 3.94 NT dollars compared to last quarter, last quarter was 3.76%. So accumulated, the first half become 7.7 NT dollars. and the pre-purchase, the next page, part of the pre-purchase flow and our financial position. The Q2, because of the higher capacity expansion, So we generate an outflow of free cash flow in this quarter. And also because of that, interest-bearing debt and the yielding ratio also going up. But our financial structure still remains very healthy. And next page, we're gonna talk about the product mix in page seven. In Q2, the problem is obviously if you compare to last quarter, the major difference will be cellular. You see that cellular has become between 45% and 60%. and also something exciting is the 5G cellular become higher than 25% among the overall cellular business. And also, Steve mentioned it, inside the infrastructure, silicon carbide accumulates the first half. It's almost reaching the whole year's revenue level. So that's why and next page in transcript to page 8 the Q3 guidance I think Steve has already mentioned it I'm going to read it over again we expect Q3 year 2020 revenue to grow by at least single digit CO2 and we expect Q3 year 2020 growth margin to be around the level of $40. So now we can quickly flip over to the financial statement starting from the income statement in page 10. The page 10 talks about QQ's income statement Before I start, I have to remind everybody that this is under the unaudited basis. The final results have to be based on the CPA report. The net revenue for QQ was $6,000. 6048 mmHg compared to last quarter, last quarter was 1671 million actually it's down about 0.4% CO2 gross profit becomes $27.7 million. Gross profit QOQ is up 4% and YOY also up 79%. And because as we mentioned it, the better part of this, the gross margin reaching the regular high of 44.8%. compared to 43% last quarter, it's improved about 1.8 percentage points. Upgrading expense become 674 million NT. And so the operating expense ratio was 11%, which is in line with the last quarter. Operating income becomes only 133 million NT. The CO2 is up 5% and YY is up 122%. And the operating margin becomes 36.6% compared to 31.9% last quarter, which improved 1.7 percentage points. and the none of items I'm going to leave you guys to read it by yourself in page 12. And you can refer to page 12. And the major ISM will be foreign exchange. But the number of ISM was negative. An income before income tax was 20, 130 million NT, and the income tax expense has become 380 million NT, so therefore net income becomes 1,651 million NT, so Q2 is up 5%. And YOY is also up 113%. So therefore net margin become a 27.3% QOQ is including about 1.4 percentage points. And finally the EPS was 3.94 NT dollars and last quarter was 3.76. And so the ROE Equivalent ROE for the QQ was 23% in line with last quarter. And also, something also in line with last quarter is utilization rate 90%. and that decrease up to a depreciation 868 million NP and car park 1938 million NP is all increasing compared to last autumn okay and then we can flip to the next page in page 11 Page 11 talked about the income statement for the period of the first half, accumulated Q1 and Q2. The next revenue was 12,119,000,000 NT and then the YOY is up 50%. Growth profits 5,318 million NC, YOY is up 120%. And the growth margin, I'm sorry, the growth margin is 43.9%. The YOY is also improving 14 percentage points. Operating expense becomes $1,347 million and operating expense ratio is 11%, also improving. And operating income becomes $3,971 million and the YOY is up and operating margin become 32.8% while YOY improving 17.7 percentage points. The number of IPOs is positive. It's again for 23 million NT and the details you can refer to page 12 by yourself. Income before income tax was $3,995 million NT and the income tax expense is $769 million NT so therefore the net income becomes $3,226 million and YOY is up almost 250%. So the net margin was 26.6%. It's improving, YOY is improving 15.1 percentage points. So accumulated EPS for the first half becomes $7.70. And so the ROE, equivalent ROE for the first half was 21%, and then again, The utilization for the first half is again 90%. And you can see the depreciation is also higher than the year before. And the cost is also significantly increasing to $3,216 million. Okay, then we finish this page and then we're going to skip the page 12 for your own reference. And please refer to the page 13 for balances. As to the year 2020, June 30th, The total assets was 47,169,000,000 NT and the total liability is 15,629,000,000 NT. The common stock remained the same. The total equity became 31,540,000 NT. The put value per share became 72,015 NT. The current ratio is improving to 172%. And that ratio, similar level, is around 33%. And for you guys' information, the June 22nd... distributed the dividend payout on June 22, and so that will make the current liabilities, I mean the dividend payable and also the cash on hand will be both reducing That's my presentation. Now we can go to the Q&A. Please submit your questions in the input box on the webcast window now.

Ok, right now I will answer the question about the 3Q with the latest events especially for the smartphone owners I think this year is more special because until right now what we see the seasonality is not so obvious with the up and down for example I think from Q1, Q2 and even to Q4 you can see our guidance is always up and down in a very narrow range so it's really hard to say which season is the strongest New Model Demand for Q3 Okay, that's the other question, one to ask to explain more about the programming for the Q2. Yeah, the programming for the Q2, I think the revenue is a little declined by very few points. But we have a better product margin. It's better mainly due to the better product mix, especially like we say that the 5G cellular PA takes in the revenue of the whole cellular PA more than 25%. This is definitely will contribute to the beta margin because we, for most of the 5G PA, they will use our most advanced was a positive technology compared to the 4G cellular PA. Yeah, so that's why for this quarter, even though the product is certain, if you check with the application percentage, maybe have a very big difference for infrastructure, but we have a better plastic portion in the same portion that also help us for our growth margin. Okay, it's a question want to know the product name and find help of the margin and how about Q3? Yeah, because look like compared to Q3, In Q2, we got just low 40 for Q3 and we have 44% in Q2. Yeah, I think when Yi Zhou's introduction, you maybe already know that we ate 5K capacity this year and most of these 5K capacity will ramp up stock on the end of Q2 and that will be finished at the end of Q3 so that means we don't increase much depreciation expense in Q2 but for Q3 it's supposed that depreciation expense will rising up because of this new capacity. So that's why even though we have no, sorry, a single digit revenue growth guidance, but we have lowered a little down about our growth margin. I think mainly because we think the depreciation will be higher than Q2 and that certainly will impact the margins and the new capacity that's the other question we want to know The new capacity will impact our future margin. I think if you check with the WINSAM, it's a historical margin trend. I think the new capacity only will impact the margin if we cannot use it. So if we can keep the retirement rate above 80% and even higher, I think the new capacity should not be a problem for our gross margin.

Okay, there are several, I should say, many questions about asking about Huawei and High Silicon, those questions, and how it's going to impact the wind semi. First of all, I have to say that Winsami is the largest foundry company in the world and we fully diversify our customer base. For the longer term, we will not worry about the U.S.-China trade tension because we have a diversified customer base and no matter how it changes in the end market, the demand will rebalance again and Corp The smartphone and the RS demand and the 5G, the trend still maintaining strong and for longer term, there's nothing to worry about that and we can rebalance. The market will rebalance. The market share also rebalance again and we feel the market leader in the J.D. Martin and I found a market in the world Okay, there's a question asking about 3D sensing, especially TOS, the trend and the future, etc. I think we certainly participate into and city-sensing on smartphones since 2017 and it's the first of three years and then this will be the fourth generation. I think we're supporting our customer and end customer and our direct customer still the major, having the major market share and so because of the Based on the experience for the past 3-4 years, we also accumulate a lot of experience and also attracting many potential customers to have many projects with us. And just like more than 10 years ago, or even longer, when we first stepped into the 3G market with major customers and then later on also step into the U.S. human smartphones, the supply chain, and having a track record for many years. And also, at the same time, also attracting many, many of our design house, you know, IBM to work with AMI. So we become this kind of Market position as a leader right now. And so I should say that for 3D sensing or optical, it's just exactly like more than 10 years ago. The stage is just like that because of the success for three, four years ago. And having the trade record, we have many projects and many potential customers right now. So we're expecting 3D sensing to be the next growth momentum for WeSemi. And no matter on the front side or the back side, is bringing everybody a new user experience that will be followed by Android Cam also. And so, while WinSemi has the and also have the customer base. We believe that's another growth momentum for WinSemi and up to We work with our customers for more than one year and have been qualified more than one year ago and we don't see any significant obstacles for for technology-wise. It's not that easy. Technically, it's not easy, but I think we have a mature technology. or even in the future. That's my comment. Thank you.

I think that's a lot of questions really interesting about the China smartphone situation especially our design house customers such as HiSilicon and other design house How's everyone's situation and how's their demand from everyone? How's the adoption from Huawei? I think, first of all, we don't really direct Supply to Huawei and our direct customer is HiCitizen so it's really hard for us and we don't have the position to making any comment about after the Huawei ban how the Huawei will be. I think it's only Huawei known, so I have no comment about that. But like Joe just explained to you that we cover almost all the PA design houses in Asia, not only in China. If the smartphone demand in China keep the same and no matter who got the market share I think because we are well diversified to all the share design houses I think we still can get the order from them so that's why we say the single customer up and down Because of our well-diversified and our global market share, we don't think we're being a very big impact because just one customer up and down. Thank you. Okay, there is a new question I want to know if we have some opportunity to get more outsourcing orders from US customers or other companies? I think, yeah, we definitely have that kind of opportunity because like we're just saying right now, WinSan is a big foundry, getting outside foundry in the world and adding up on the extra 5K of this year, we already have 41k monthly 6-inch wafer capacity in the world I think we definitely can provide more capacity to those IBM companies once they have any kind of issue that you say in the question If they really need a demand, we are definitely with them. It's their choice, and I think we have that kind of capability to fulfill their suddenly demand in the future. Thank you.

Okay, I think there are some investors concerned, I mean, they asking about Q3, The Q3 forecast is just based on estimation and of course we have some visibility but not 100% has not seen any difference or any segment significant stronger than the other and so we probably have to give it some time and we can finalize it, but so far we do not see any significant up and down in this different segment or any segment that is significantly stronger than the other. So pretty much the momentum is still quite even for most of them. Yeah, okay. We do not see any more questions on the question window. So, yeah, hopefully we're going to finish the conference. Today is the conference right now. So, yeah, thank you for your participation on Wednesday's conference. And there will be a webcast replay within hours. Please visit www.windfoundry.com under the investor relations section. And thank you so much for everyone. And you may now disconnect and go back.