Win Semiconductors Corp

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to Winn-Sammy's Result Webcast Conference for the second quarter of the year 2021. My name is Zhou Fen, the spokesman and the Associate Vice President of Finance in Winn-Sammy. Joining me on today's call is Steve Chen, General Manager of Corporate Administration in Woonstown. Today's call is to organize into three sections. First of all, Steve will comment on the company's results and provide brief guidance for the third quarter for 2021. Secondly, I will go through the financials in details. After that, we will open to the floor for Q&A. Please freely submit your questions in the info box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the safe harbor notice on page one of the presentation slides. Please note that this presentation contains forward-looking statements. These statements are based on our current expectations. Actual results may differ materially from our expectations, and the company undertakes no obligation to update these forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, the general manager of WinSemi.

Thank you, Bill, and welcome everyone. After a traditionally slow season in the first quarter, we have seen a gradual pickup of customer demand, and our revenue in the second quarter reached $6.2 billion, an increase of 3% quarter-on-quarter and 2% year-on-year. This was roughly in line with our previous expectations. Given the changes in the pandemic, our growth margin in the second quarter increased by 2.2 percentage points from the previous quarter, recovering to 35.7%. This also gives a sequential increase of our operating margin by 2.8 percentage points, returning to the level of 22.7%. EDS in the second quarter was 2.32 in 2020, and EDS for the first half of 2021 was 5.04 in NT dollars. Looking at the product mix in the second quarter, apart from infrastructure revenue being maintained at the level of the first quarter, the double-digit sequential growth in federal TA revenue was the most pronounced, especially the contribution of 5G TA revenue of the total federal TA revenue recovered to over 20% again. And the significant increase in the momentum of Chinese fabulous customers was also one of the drivers. After the third quarter of 2020, we could not no longer supply to our largest Chinese customers in that time due to the U.S.-China trade conflict. However, as we had previously stated, after the reshuffle of the smartphone-owned market, our strategy of diversifying customers has been served us well again. Many Chinese customers who have worked with us for many years seized this opportunity to gain market share. They choose to work closely with us, given our strong support in R&D and production capacity. This was a win-win for our customers and us, strengthened our confidence in delivering continuous revenue growth in 2021. In response to our customers' further future growth and the long-term demand for the production capacity, We will adhere to our strategy of inventively R&D resources to participate for the next-generation product development of our customers and expanding production capacity. We believe our customers' market share and hearing will further reinforce our leading position in the compound-sending semiconductor industry. Looking ahead to the third quarter of 2021, we expect revenue to grow by high single digits quarter-on-quarter and growth margin to be around the level of mid-30s. I will turn the call back to Joe. Thank you.

Okay, it's my turn. It's our pleasure to present our financial results for the second quarter of year 2021. You can also refer to our presentation slides, starting from page four. Page four talks about revenue and the margin. With the continued gaining share on China's market through China's fabulous customers, and our Q2 revenue was of 6.2 billion NT. CO2 was up 3% and the YOY up 2%. And with the utilization, 90% of the utilization rate as we expected, the Q2 revenue Given by some changes in product mix, our growth margin improved by 2.2 percentage points to 35.7%, which is better than our original low service expectations. And therefore, the operating margin improved about 2.8 percentage points to 22.7%. We will discuss about product mix changes in page seven later. And next page, please switch to the page five. I'll talk about image. The second quarter net profit was 930 million NT. QOQ was down 15%. That's mainly because of the impact from one outpouring exchange loss due to the appreciation of New Taiwan Dollar against US Dollar in QQ. So therefore the EPS coming at $2.32 NT and compared to Q1, Q1 was $2.72. And please look to the next page in page six. Page six talk about free test floor and the building. As a Q2 of a net outflow for our free cash flow, that's because we continue increasing in car tax. And the Q2 interest-bearing debt and the billing ratio maintain at a similar level of the last quarter. So, please switch to the page seven. We may discuss more about our product mix. In case you, the product mix value was between the 50 and 55%, which is higher from 45 to 50% last quarter. and the silo revenue for Q2 actually QOQ a couple pieces up. And especially 5G, for 5G silo was higher than 20% of the total silo of PDA. And another one is infrastructure. Infrastructure, Actually, infrastructure remains in the same range between 13% and 20%, which is the similar level as Q1, but it's better than our expectations. and the 3D sensing in this quarter down to 14% from 19% last quarter and which is as we expected when last earnings call we did mention that the 3D sensing business will will be experiencing production system period. And Wi-Fi business also went down a little bit. Become between 10 and 15% for the total revenue. That's the product mix in this page. And then the next page, is going to talk about the Q3 guidance. I think Steve has mentioned it on his management comment, but I just repeat again. We expect Q3 21 revenue to grow by high single-digit QOQ. and we expect Q3 growth margin to be around the level of mid-30s. Okay, then we can quickly go through the financial statements. We started from income statement for Q2 in page 10. I have to remind you guys that all of the figures below is based on an audited basis. The actual results should wait until the CTA's report. The Q2 Net revenue was $6,195 million, up 3% and YOY up 2%. The gross profit was $2,212 million, which is up about 10% CO2. The gross margin becomes 35.7%, which is, in truth, about 2.2 percentage points. The operating expense becomes 803 million NT dollars and the OPAX ratio was 13% The operating income was 1409 million NT dollars which is up 18% CO2 The operating margin becomes 22.7% which is improved about 2.8 percentage points. The non-upgrading income and expense was the $283 million loss, which is the detail in page 12, and the majority was the foreign exchange loss. The income before income tax was $1126 million, and the income tax expense was $197 million NT, so the tax rate equivalent to 17.5%. The net income was 930 million NT, so the net margin becomes 15%. So EPS come out at $2.32 NT. And the ROE for Q2 was 12%. And the utilization rate, as I mentioned earlier, in this quarter was 90%, which is increased from 80% last quarter. The depreciation expense was 1028 million NT. a little bit higher than last quarter. The car park become 2,702 million NT, which is higher than last quarter. Okay, then please trip to the page 11 for the income statement for the first half in 2021. The net revenue, was 12,204,000,000 NT. YOY was up 1%. The gross profit was 4,224,000,000 NT. The gross margin becomes 34.6%. And the operating expense become 1,619 million NT. So the operating ratio becomes 13% for the first half. The operating income was 2,605 million NT. The operating margin becomes 21.3%. The non-op item was 92 million NT loss. So the income before income tax was 2,513 million NT. and the income tax expense is about $488 million. The net income becomes $2,025 million, so therefore the net margin becomes 16.6%. So the EPS for the accumulated first half becomes $5.04. The ROE for the first half accumulated become 13% and approximately utilization rate was 85%. The depreciation for the first half was 2,227 million NT. The chow part for the first half was 4,536 million NT. Okay, that's the first half for income statement. The next page will be a number of items. For your own reference, I just let you know that the major item is the foreign exchange loss. And the page 13 is the balance sheet. The balance sheet Okay, think that the June 30th, 2021, the cash and the credit equivalent was $19,899,000,000 NT. The total assets was $32,576,000,000. and the total liability was 37,634,000 NT. So the debt ratio equivalent to 52%. And the total equity was almost 35 billion NT. And the full value per share is about 77.183 million NT. NT Dollar. And finally, the current ratio was 263% for the first half. Okay. So this is my presentation. Thank you. Now, we now begin the Q&A. And please submit your question in the info box on the web search window now. Thank you.

Okay, I think here first I will answer some questions around the Q3 product trend. Because Q3 is the traditional peak season for the smartphone, so definitely most of the smartphone-related products that will be stronger than Q2 in this quarter such as CAs, even Wi-Fi optical. Yeah, and infrastructure should be keep the same level of Q2. Yeah, I think that would be the most likely trend for Q3 product. Okay, for the next some question was I want to know how's the margin because I think we feel guidance the margin will be around mid 30s level yeah but yeah definitely I think yeah it's Although it's in the same kind of margin level compared to Q2, but because of the revenue growth and the better UT, so yeah, definitely even in the same kind of mid-30s level, but compared to Q3 to Q4, the margin is still being increased from credit. Q2 and Q3, Q3 margin that will be still a little better than Q2. And next section is about a capacity plan. I think we have discussed that in previous conference. Also that for 2021, our capacity will maintain at Corp Corp Corp Corp Okay, there's a question, want to know how's the status right now after we lose benefit customers in China since last year, September, due to the trade war conflict. Yeah, I think it's already almost one year. After the event, you can see actually our value is still in a very stable situation and at the same time most of our Chinese customers actually they can hear from this situation. I think right now no matter which new smartphone maker model actually right now Chinese customers actually they all gain the shares in there Okay, just some question want to know how about some news in the market saying that the 3D sensing digital chip size will become smaller. How's the impact about WinSemi? I think WinSemi is developing the 3D sensing technology since day one. that product launched to the market. So every year, we're making the progress and the generation change of our technology process. So definitely, at the same time, we will bring the basic performance and also the smaller size of the chip every year. Yeah, so the size change, definitely that will happen along with the technology roadmap. keep change so but at the same time for the size change even the die size is keeping smaller but at the same time that will bring the technology barrier become higher because if you want to size down the chip definitely you need to based on the previous technology and making some new progress of that. Yeah, so, and at the same time, because of the technology process was become better and become a new journey, actually we can leverage those technology accessibility to diversify our optical business, not only the 3D things, but other related Fencing or Articulate are in there. So I think for a single product, yeah, the site think maybe will bring the revenue become a little lower, but compared to the technology progress, actually we can gain more business from and other optical projects. So I think for a whole year to see, I don't think the optical revenue will be going down year by year because of the size change. Thank you.

Okay, there are a couple questions regarding the depreciation expense for this year and we'd like to know that we will remain the same view as the depreciation expense guidance and Yes, actually we did provide that in early this year. We mentioned it. This year, we roughly, we thought probably our depreciation expense probably will increase about between 20 and 30% in this kind of range. And actually, from the results, we see that the first half, YOY basis increased very close to the lower level in this range. So we believe that even including the second half probably won't be over this range. So the whole year, the depreciation expense guidance we probably will keep the same as before. Thank you. There is another question asking about our Q2 OPEX ratio, which is 13% of OPEX ratio actually was lower than Q1, but still a little bit higher than the normal OPEX ratio. We checked into the details. The administration and the sales expense are pretty in line with before. But in Q2, the R&D expense looks higher than normal. We go to that, it should be the second quarter, we do more R&D activities with the customers, no matter the new profile, or the development project for the second half or even the next year's project, it happened on the same time, so making the R&D expense a little bit higher as normal. But normally, for certain quarters, experiencing higher R&D expense is not abnormal. Especially if we still have the capacity to support the R&D project, then we definitely will do that. And I think Q2 with although higher utilization, but we still not 100% yet. So I believe that that was the reason. Thank you.

Okay, there is a question to talk about AST. I want to know whether WinSemi is raising our AST at this moment or in the future. But I think first, WinSemi has a very long relationship with our customers or most of the customers. So in most of the case, which discuss the AST year by year. Yeah, so before the agreement duration is coming, actually, and agreement period, actually, we will not write up the AST without no reason. Yeah, so, and and also for AST I think for WinSemi compared to other competitors it's more complicated situation for WinSemi because we are not only providing technology for single product or single PA and actually in WinSemi we produce all the tailor-made PA by different customer with different end and hence the maintenance. So actually, the AST was totally different customer by customer and also product by product. But if you check, we think it's average AST for the past few years. Actually, I think it's kept in a very good health level and even we, because of the, every time when we have a new technology launch, actually the AST were going up. Yeah, so for wind sampling the AST is not just compared to the same technology because wind sampling technology is keeping developing the new generation year by year. The ASC for WinSemi, evidently the new technology ASC is better than the old one.

Okay, there's another question still. Investors still want to know about the 5G TA in WinSemi and the percentage of the revenue, the ASP compared to the 5G to 4G subscription. Okay, I think We started shipping the 5G PA since the second half of 2019 and starting from about 10% and gradually up and the highest level in the year 2020 I think maybe Q Q1 or Q3 I can remember and the highest level is about 25% and the average is about between 20 and 25% this kind of level for the whole year 2020 and the recent Q1 below the 20% and come back to about 20%, 20-something in the future. So you see that we fairly, we develop a 5G TA Many years ago and some mass production for our important customer since two years ago and even long before our competitors not even have the 5G PA recently. The price for 5G is better than 4G is kind of a legacy product and experiencing kind of price erosion year over year and there was almost no new band almost no new design but the 5G is the is still an early stage for 5G PA. So theoretically, the new product, new application, the pricing is better than the old one. So that's why the 5G generation is very important for a PA maker. I think especially 5G, the frequency band, so far it's still limited to specific gigahertz like N41, N77, N79, and we expect there will be more frequency bands coming out, maybe even coming from 4G bands responding to 5G, For those, it's all new to the 5G TA in the future. So we're working on several important customers globally and Of course, different customers have different pricing, which is probably not discussed, but definitely we enjoy the better pricing and better margins from 5GPA over 4GPA. Yes, exactly. Thank you. It looks like there is no further questions, but we will still keep online for a few minutes and if still the same, then we're going to finish the conference. So if you have any questions, please do it as soon as possible. Okay, there's one question come out asking about, want us to do some kind of comparison between WinSandy and our competitor. And this is really, It's difficult for us to do such comments because our major competitor also in Taiwan, they also listed in Taiwan, they are listed company in Taiwan. Something will impact the stock price, which we are not willing to see that. Of course, I can comment on something about ourselves, including the technology. I think we, first of all, When I mention our technology, it means maybe they are different, but you have to find out how different it is. And we develop our own technology since day one, and we don't do technology reporting from our customers and we keep migrating from 2G, 3G, 4G and 5G now. Our customers keep using our technology to penetrate into their market day one and also expanding their market share, which is quite different from our competitors. And also, the timing, as I mentioned, we're developing 5G PA technologies several years ago and smart production since two years ago and I think we exceed our competitors for a long time for this kind of record and also because we input a lot of resources in R&D and capacity So our customer, we hired a lot of T1 customers, our players, to work with Swing Semi. We created a lot of number one in the record, including the 3D sensing and also when the When the most important moment happens, then we're always the first choice to our customers. So that's why making us, no matter the capacity, several times compared to our competitors, our revenue also several times higher than our competitors, and our customer size is also several times compared to our customers. That's exactly what I can say right now. So I think even the market share, based on strategy analysis, we already have approaching 80%, 70-something of market share. So compared to our competitors, they still is still very low anyway. So you guys can check that. So that's pretty much I can describe about how different between WinSemi and our competitors. Thank you. Okay, looks like today's investor here is very shy and I'm going to answer one last question and then close the meeting. The last question was asking about the relationship between WinSemi and our U.S. customer, and for 3D sensing anyway. Okay, I think Archive talking about WinSemi input a lot of resources for R&D and the capacity, I think that's a approved in 2017 when USG1 smartphone would like to have the first 3D sensing phone and our US customer choose outgoing instead of in-house to produce that visual chip leverage our 6-Inch Serum Arginine and Compound Semiconductor Production Experience with the third party helping our customer become the an important supplier to the U.S. Q1 model maker and we continually work together for the sequential few years Although, in between, every year has a little bit change on design and the process. And, well, we certainly always support them and do our best to, no matter the process or the capacity, support. and even last year, in year 2020, other than the structure light on the front side, the best side, COF, is the first time launched in the in the last year's model and we also successfully suppose our customers become probably the only supplier to that model. And even this year, there is a design change is still working and supporting our customers and tripping the major source, major market share for this year's 3D printing for the front side face ID. So we're tripping the Shipping the resources to work together with our customers, U.S. customers. We're working very close. And I think what we, just like our customers also mentioned that on their earnings call, they like to... met their customer to remember when even the next generation or even the next and the next generation when they need and make sure they stay there and then we keep the same Same thought, we also work together with every single customer and make sure that we are there when customers need us. So we become the best partner to all of our customers, no matter 3D sensing or the RS or anything else. Okay, this is our last question to answer. So, since I have no further questions, thank you for your participation in this conference today, and there will be a webcast replay within hours. Please visit www.windfactory.com under the Investor Relations section. Thank you very much and you may now disconnect and goodbye.