Win Semiconductors Corp

The investor conference is about to begin. Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to INSTEMI's Resolve Wirecast Conference for the third quarter of 2021. My name is Joe Zhen, the spokesman and the Associate Vice President of Finance in INSTEMI. Joining me today, On today's call is Steve Chen, General Manager of Corporate Administration of WinSemi. Today's call is organized into three sections. First of all, Steve will comment on the company's results and provide brief guidance for the fourth quarter of 2021. And secondly, I will go through the financials in detail. After that, we will open to the floor for Q&A. Please freely submit your questions in the input 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 slide. Please note that this presentation content forward-looking statement and these statements are based on our current expectations. Actual 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 Winstain.

Thank you Joe and welcome everyone. In the third quarter of 2021, driven by the robust customer demand, our consolidated revenue was $6.76 billion in NT dollars, an increase of 9% quarter on quarter, which was roughly in line with our previous expectations. Even better product and higher capacity utilization rate, our growth margin was better than our previous expectation. It's a sequential increase of 3.1% to 38.8%, which was the highest level this year. Our operating margin also increased by 4.1 percentage point sequentially to the level of 26.8%. EPS in the third quarter was $20.367 and EPS for the first three quarter of 2021 was $20.871. Third quarter is the traditionally high season for the smartphone. Taking a close look at the individual performance of each product segment, thanks to the debut of the high-end smartphone, our optical revenue, which was the primary for 3D sensing, delivered the highest quarter-on-quarter growth. Although the die-side screen the new generation 3D sensing chip may affect the overall demand for the wafer. It will also increase the difficulty of the wafer production and the entry barriers for the peers at the same time. This is evidenced by our customer demand for the optical wafer in the third quarter which was as strong as the previous year and was not affected by small die size. In addition, 5G cellular PA and infrastructure related revenue both increased single digit quarter on quarter. Overall, the growth from the cellular PA customer remains the most prominent among all product segments here. Specifically, The contribution of the 5G PA revenue to the total sales value of PA revenue came at over 20% in the third quarter, which was similar to the previous quarter. This reaffirms that the momentum of the 5G smartphone has sustained, although we were not at new production capacity this year. We have adopted a strategy of maximizing existing production capacity through improving efficiency to fulfill customer demand. While our integration rate in the third quarter has reached 95%, we continue execute our scheduled capacity expansion plan. Preparing for the new capacity next year, as well as the new facility for long-term expansion. Looking ahead to the fourth quarter of 2021, we expect revenue to grow by near single digit quarter on quarter and growth margin to be around the level of high 30. I will turn the call back to Joe. Thank you.

Okay. Okay, now it's our pleasure to present our financial results for the third quarter of 2021. Please refer the presentation slides starting from the page four. Before that, please read it over for our safe harbor notice first. Starting from the page four, I'll talk about revenue and the margin. Our Q3 revenue for this year was $6.76 billion. QOQ was up 9% and YOY was up 3%. Because of the better product mix and the higher utilization rate, the growth margin increased by 3.1 percentage points to 38.8%, which is the highest level in this year. and the capacity, the higher utilization rate, as high as 95% this quarter, is one of the reason and almost the most of the reason. Other than that, the beta problem is, we can discuss it later in page seven. and also another one of the reasons is probably the depreciation expense not as high as we expected in the very beginning. And operating margin therefore also increased about 4.1 percentage points to 26.8%. The Q3 net profit was $1.5 billion NT. QOQ was up 61% and YOY down 24%. And the DEGS therefore become $3.67 NT and compared to last quarter, last quarter was $2.32. Accumulated Q1 to Q3 becomes $8.71 until. And next page, page six, we can discuss about free cash flow and the dueling. Decagas in Q3 was a little bit lower than last quarter, so we have net inflow for free cash flow. And also, because the Q3 is the season for dividend payout, so the interest balance and the gilding ratio was higher than last quarter. Okay, then we're going to discuss the product mix now for PAY-to-Sellers. The Q3 product mix, our seller business was between 45% to 50%, and infrastructure was between 15% and 20%, and Wi-Fi is between 10% and 15%. and the others, the majority was the 3D sensing and optical product was 19% and compared to the last quarter and the before, you can see that, remember the total revenue for this quarter was up for 9%. Although the start of the percentage was down about 5 percentage points, but the dollar value probably is still a little bit higher, still grows for single digits. and the 5G revenue was over 20% of the total cellular, which is in line with the Q2's level. And the infrastructure also, the percentage was in line with the last quarter, but still have the single digit of the growth, which is the This is the most reach for the growth margin factor. And Wi-Fi business actually, it's not, it's still in the same range of last quarter. The Wi-Fi business is kind of, I think it's the weakest business in the product mix for overall this year. Most of the reasons still, I think the For Wi-Fi 6, the majority without the content increased per bus. And then recently, the market talked about Wi-Fi SoC shortage might impact some of the customers' demand. And finally, the 3D sensing business I think is the most significant growth quarter on quarter from 14% to 19% this quarter. And you can see that it's even a little bit higher than a year ago. You can see that Although there is some design change for diatoms in this generation, but it didn't really impact our business for this year. The next page, page eight, is talking about 4Q's guidance. I think Steve has talked about that. I'm going to repeat again. We expect Q421 revenue to grow by mid-single-digit QOQ, and we also expect the growth margin to be around the level of high 30. Okay, we can quickly go through the income statement and the balance sheet. Okay, before I begin, I have to remind everybody this is an unordinated basis. The final results have to be based on the CTA's report. For Q3 2021, the net revenue was $6,761 million until QOQ up 9% and YOY up 3%. And the gross profit was $2,623 million until QOQ was up 19%. and the growth margin becomes 38.8% and it's improving 3.1 percentage point compared to last quarter. And operating expense 814 million NT and operating expense ratio was 12%. So therefore the operating income was 1,810 million NT and QOQ was up 28%. And OP margins improved 4.1 percentage points to 26.8% in this quarter. And so the non-op item was a positive 28% 28 million NT dollars and the detail is in page 12 for your own reference. And the income before income tax was 1,838 million NT and the income tax expense was 342 million equivalent to the tax rate about 18.6%. And the income tax expense I'm sorry. So therefore, the net income was $1,496 million. The QOQ was up 61%. And so therefore, the net margin becomes 21.1%, improving 7.1 percentage points compared to the last quarter. And EPS for this quarter is $3.67 QOQ is up 58% And the ROE for this quarter is equivalent to 19% improved from 12% last quarter And approximately utilization rate 95% is up from 90% last quarter Depreciation expense was $990 million and the car tax for this quarter was $1289 million NT. And this is the Q3 and the next page, in page 11, we can talk about the accumulated Q1, Q3 income statement and the total revenue accumulated Q1 to Q3 was 18,965,000 NT and worldwide up 1% and gross profit was 6,847,000 NT so the gross margin accumulated the first three quarters was 36.1% and operating expense ratio was 13% and operating income become 4,414 million NT. And operating margin becomes 23.3% in this quarter, I'm sorry, in the first three quarters. The non-up item for the first three quarters was negative 63%. the detail again in page 12 for your own reference and the income before income tax was 4,351 million NT and the net income becomes 3,521 million NT so the net margin becomes 18.6% and therefore the EPS for the first three quarters was $8.71 NT. So the ROE equivalent to 15% for the first three quarters and the approximately accumulated utilization rate was 90% for the first three quarters. depreciation expense accumulated become 3,017,000,000 NT and the car parts it was 5,825,000,000 NT So we conclude that the total 2021, the depreciation expense approximately compared to last year probably increased about between 10 and 20%. And the capex for the whole year probably will be around 8 billion NT plus or minus. Okay, then the page 12 is a non-op item. It's here for your own reference. And finally, the page 13 is the balance sheet up to the date of September 30th, 2021. Cache and cache equivalent was $62,482,000 NT The total assets was almost $72 billion NT And the total liability was 37,021,000,000 NT And the common stock remained the same 4,240,000,000 NT And so the total equity becomes $34,978,000,000 So the equity per share, the full value per share was $77.33 NT and some of the index like the current ratio was 21, I'm sorry, 218% and the debt ratio was 51% for the date of the September 30th. Okay, this is, The financial results for the Q3 and up to the September 30th and now we can begin the Q&A and please submit your questions in the info box on the webcast window now. Okay, there's a question asking about, well, we certainly consider to raising the product price. Okay, we know that price hike was the popular term for this year. Most of the semiconductor industry was having the price tag and including our competitor in Taiwan also raising the price for their product. And I think first of all, I have to say that for the compound semiconductors I think Silicon Semi has some kind of shortage in demand and of course There is a lot of demand coming from PC tablets and even the automotive. And there is a reason to do the price hike. But for compound spamming, actually I think we have a sufficient capacity and to supply the customer without a proper reason and without any warning that will ruin the trust between Winfrey and our customer. We don't think there's really a shortage for PA. I think, yes, we're running a very high utilization is our competitor, but it's not an easy thing just go ahead to raise the price and then forget about any concept. We want to keep the trust and the relationship between us and our customer. We do have a very good relationship and long term agreement with the customer. We have no plan for to raise the price at least in the timeframe for the contract and agreement with the customer. Thank you. Okay, some investors are concerned about the infrastructure business. I think this year, I think in the supply chain, there is a There is an inventory issue for infrastructure industry. I think no matter the upstream F.E. House or the downstream IBM company all mentioned that in their earnings call before. And I think for WinSemi, most of the, of course the most of the reason As everybody knows, we have a big China customer last year. I mean, even in the past two years. And as everybody knows, since September 15, nobody can... can do business with them and the business stopped at that time. And before that, the infrastructure agency that our infrastructure business was Corp Corp inventory on hand in the past one year and therefore starting from this year everybody you can see that the infrastructure business go back to the percentage before which is like between 15 and 20 percent this kind of percentage and the whole industry also suffering the inventory correction not only with them. I know that there is some noises for this year not only the infrastructure but also some 5G smartphones. For us, the smartphone business, even the 5G smartphone business is still doing okay, and even the federal business is doing well. Infrastructure, I think we're still waiting for some signal for recovery, and actually for the The recent quarter like Q3 is ramping up better than Q2 and maybe if the product mix remain similar for Q4 and probably also a little bit better. We believe that the 5G generation is just the early stage and see if all that the 4G goes for 10 years and 5G is only for three years now. It's still the early stage. It's no reason that the momentum is just finished. No, I don't think so. So it's just a temporary inventory issue and need to take time to digest it. Thank you. Okay, it looks like there's no further questions. We're going to spend some time to explain our current progress in the recent plan for the capacity expansion. As everybody knows that we don't have new capacity coming up for this year. And what we're doing this year is we spend a lot of resources to expand the cleaning space, the final cleaning space in our set C. and without the cleanroom space we cannot have a new capacity. And so the new cleanroom is gonna finish about the first half next year. And therefore the equipment moving and we can have the new capacity come out in the second half for the year 2022. And so far, the early trend probably probably is about 3 to 5K wafer per month for this kind of size. Normally, for every year, we expand for about 10%. Still early to make the final decision, but roughly it's about this kind of range. This is the recent compact for our 5C and new capacity. And if there are still no questions, then maybe we can have Steve to talk about our Southern Taiwan Power Extension.

Okay. Thanks Joe. I think right now I will update some status of our new site in Kaohsiung. Right now it's already under construction and we will spend around two years to finish all the shell and then start to moving the equipment and making the qualification schedule so until right now according to the schedule I think the new Kaohsiung site maybe will have the mass production contribution and maybe around at the end of 2024 to 2025 around this preview and because right now is still in the very initial stage of our construction so right now not so much status update and we will update this status in the next conference call thank you

Hi, everyone. We apologize that we're kind of experiencing a technical difficulty in the past about five minutes. And if you're still there, then we're going to continue our conference.

Okay, there's a question about optical products possible improvement in the future Yeah, I think right now the optical product, I think for the VIXTO for the city sensing, we already use 6-inch to produce the wafer but for the other traditional optical wafer some of that we still using the 4-inch to produce so yeah in the future they still have the chance to make an improvement about the design and the process to move all the applications to the future yeah that's the Impossible direction of the optical, yes. Thank you.

Okay, there are investors concerned about the Chinese customer this year. to discuss that, but I have to say sorry about probably we cannot describe any details for individual customer one by one, but overall I think the status is the things that the largest China customer last year We cannot do business with them, but the market share is kind of rearranged in the China market for smartphones. Our Chinese customer sees many, many PA design houses in the market gaming here one by one. from a brand new smartphone, a China brand new smartphone beginning here benefit our customer. And I think almost, All of the design houses have a business with them, with us. And of course, one of the major ones also in our top five customers is Ventship, which is familiar to us. Semiconductors Corp in this market this year. So that's why what we expect, that we have mentioned that for a standard of 3A customers, the most strong product group for this year, I think we see the very strong growth in this market. and not only the Q3, I think even continue in the Q4. So, yeah, I think WSAM is a diversified strategy. It works to to support all of the customers no matter the market up and down and we don't bet on one single customer but of course we won't miss any opportunity to gain the market share I think this year we do gain share on China TA smartphone market Thank you Okay, so there are no further questions. We're going to finish this conference call. Thank you for your participation. And we apologize for the interruptions for the telephone line and the technical difficulties. www.winfundry.com Relationship section and thank you very much and goodbye. You can disconnect it now. Thank you. Bye bye.