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 WinSany's Resolve Webcast Conference for the second quarter of 2022. My name is Joe Chen, the Spokesman and Associate Vice President of Finance in WinSany. Joining me today Today's call is Steve Chen, our General Manager of Corporate Administration. 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 third quarter 2022. 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 input box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the State 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 the forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, General Manager of WeBank.

Thank you, Joe, and welcome everyone. For the second quarter of 2022, Winston's revenue was $5.3 million, a decline of 5% quarter-on-quarter and 14% year-on-year. As our capacity utilization rate further declined to 60% in this quarter, our gross margin was 30.2% and operating margin was 14.1%. with EPS NT 1.52 stars. Looking at the product mix in the second quarter, Wi-Fi, PA, infrastructure, and 3D sensing related optical business all had different level of growth compared to the previous quarter, among which 3D sensing had the highest quarter-on-quarter growth. driven by the seasonal effect as the first quarter was a traditionally slow season. Infrastructure and Wi-Fi PA both delivered quarter-on-quarter growth. However, cyber PA revenue declined significantly as expected due to the ongoing inventory adjustment in China's smartphone market. While China's smartphone market has been undergoing inventory adjustments since the first quarter. The ongoing war between Russia and Ukraine beginning in the first quarter together with the fact that China imported COVID control in the second quarter. Both not only affect local consumer demand in China, but also leads to shortage of raw material and disruption of the global supply chain. These have pushed the Earth already high inflation and further affected demand. As a result, the inventory digestion in the smartphone market has been slow. Currently, the overall demand visibility for smartphone remains at a low level, while the US high-end smartphone customer is still placing orders The high inventory of Android smartphones leads to uncertainty in demand in the second half of this year. In this challenging macroeconomic environment, WinSany continues to invest in R&D capabilities to develop new applications for customers and their required technologies. Because we believe the volatility in macro this year could be short-term, and the long-term growth trend for 5G remains unchanged. As deployment of the related infrastructure and low-orbit satellite is still incomplete, the technology migration to Y56, 6E, and 7 is ongoing. Optical communication and optical sensing related applications are still at an early stage. We continue to be optimistic about the long-term growth trend of the industry. Looking ahead to the third quarter of 2022, due to continued inventory adjustment at the Android smartphone and the uncertainty of the network environment, Our revenue is expected to decline near 20 than the previous quarter and the gross margin will be around the level of low 20. I will turn the call back to Joe.

Okay, thank you. It's our pleasure to present our financial results for the second quarter of 2022. You can also refer the material for our presentation slides. We're starting from page four, but do remember to read it over the face after notice in page two. The page Page four, we talk about revenue and the margin trend. The second quarter's revenue was 5.3 billion NT dollars, and the CO2 was down around 5%, and the YOR was down around 14%. And these two, the decline in capacity utilization rate, and of course, combined, from a change in the product mix. So therefore, the Q2 growth margin was declined by 0.4 percentage point to around 30.2%. And the operating margin declined by 2.3 percentage point to around 14.1%. And please flip to the next page, page five. and we discussed about the earnings. The Q2 net profit was $544 million NT dollars, which is a Q2 down around 31% and YORI was down around 41%. The EPS came in at $1.52 NT dollars. And compared to last quarter, it was $2.08. And let's go to the next page, which discuss about product mix in page six. The product mix, page six, you can see that it's due to the product mix The cellular business, cellular PA, the percentage significant went down to between 40 and 45% from between 50 and 55% in last quarter. And in Q2, cellular PA was low. The only products went down, I mean declined. and other than that, no matter 3D sensing, Wi-Fi or infrastructure, have a different level of growth. Of course, first of all, the significant growth in 3D sensing, which is the others, going up from 14% last quarter to 20% this quarter. and there is a possibility the customer may pull in earlier of the demand from the new product ramp up in Q3 and it's possible there is a pull in earlier. and another one will be the infrastructure. You can see that infrastructure revenue went up between 25 and 30% from between 20 and 25% in last quarter. Normally infrastructure Revenue is not a month-over-month or quarter-over-quarter. It's not a regular demand, which is unlike the cellular or Wi-Fi. And sometimes it depends on the project base from a different customer, which is related, linked to the... telecom communications company's project or infrastructures or satellite launch they all have different schedules so it's not a regular business month over month or quarter over quarter and obviously in Q2 with the The demand is better than Q1. And the Wi-Fi business, since early of this year, our Wi-Fi business is kind of weaker among most of our programmers. and in this product, we have a slightly growth in Q3. Okay, then in next page, please click to page seven. We talk about the Q3 guidance. I think Steve has mentioned that in his management comment, I just go ahead and read it, repeat again. We expect Q3 2022 the revenues to decline mid-20s QOQ. We also expect that Q3 the gross margin will be around the level of the low 20s. Therefore, now we can quickly Go through the financial statement starting from page 9. This is a consolidated statement for income statement for future. Before I begin, I still have to remind everybody this is an audited basis from the company. and the final result should be based on the auditing report from the CPA and approved by the board meeting. The Q2's revenue was $5,297,000,002 was down around 5% and YY was down 14%. And the gross profit is 1,601 million NT dollars, and the gross margin becomes 30.2%. Compared to 30.6% last quarter, the QOQ was down about 0.4 percentage points. The operating expense in Q2 was $853 million. And so the RPAX ratio equivalent to 16% compared to last quarter is a little bit higher. Well, if we take a look for the The R&D expenses compared to the total revenue is a little bit between 1 and 2 percentage points higher than before. During the utilization going down, PowerFab has more resources to allocate to the R&D activity, no matter the internal new technology project or external customer engineering demand. And therefore, we can see that in the past one or two months, we see the new table is in a higher level from the customers. And the operating income is around 747 million NT dollars. CO2 was down around 18%, and YY was down around 47%. and operating margin has become 14.1%. And the number of items was negative, 79 million NT. The details in page 11, we will discuss it a little bit later. The income before income tax, $669 million NT and the income tax expense was $125 million NT. Therefore, the net income becomes $544 million NT and then the COQ was down around 31% and YOY was down around 41%. And finally, the net margin was 10.3%. and the EPS for this quarter was $1.52 NT. And the ROE return on equity for this quarter is around 8%. And approximately utilization rate in Q2 is 60%, it's going down from 70% last quarter. And the depreciation expense in this quarter is 1051 million. It's pretty close to last quarter's number. And the car parts, is 3136 million, it's much higher than last quarter. And now we can switch to the next page, talk about the first half of 2022's income statement in page 10. The first half total revenue It's 10,894,000,000 NT worldwide was down around 11%. And the growth profit around 3,315,000,000 NT and the growth margin from 30.4%. So operating expense around $1,651 million and the all-pack ratio equivalent to 15%. And the operating income is around $1,563 million and the YOY was down around 36%. And operating margins equivalent to 15.3%. In none of our samples, the first half is negative 4 million NT dollars and again the detail is in page 11. The income before income tax around 1,659 million NT and the income tax expense equal to 329 million NT. and the net margin, I'm sorry, net income was $1,330 million and the YOY was down around 34%. So the net margin become 12.2%. And the EPS for the first half was $3.60 NT. and the accumulated ROE for the first half of 2022 was 9% and approximately utilization rate accumulated first half was 65% and the depreciation expense for the first half in total was 2109 million NT and the CarPax was 4456 million NT and at this moment we just finished the cycle of the first half and I would like to share with you around the overview for the 2022, the total depreciation expense and the car parts for the whole year. First of all, the car parts, The original, originally we, in the earlier of the year, we mentioned that we expect that the whole year's impact is around 12 billion NT plus and minus. And now our view is around 8 billion NT plus and minus, which means around one-third of the original cost will be postponed. And around the depreciation expense for the whole year, our view will be a revised will be also revised and originally we expect the depreciation expense will increase about around between 10 and 20% and now we expect it should be fall into the lower level in this range. Okay, then the next page we're gonna discuss about non-op items in page 11. I think the major one I would like to highlight to the investor is the item of gain of financial assets or liability at fair value through the profit or loss. in the Q2 for this item it's negative 300 million NT and actually the The measure in this one is coming from an evaluation log on the ECB, which we issued early last year. The number was 367 million logs. does the evaluation loss, the $367 million evaluation loss on ECB. Those are the non-cash flow items, so there's no impact for cash flow. This is the number of items I would like to highlight only. And finally, we're gonna discuss our balance sheet in page 12. The data from June 30, 2022, the major items of the balance sheet, like cash in the cash equivalent, we still have $12,960,000,000. And the total assets around $72,765,000,000. and the total liability was around 37,796,000 NT. And the common stock remained the same as before, which is around 4,240,000 NT. So the total equity is around 34,971,000 and the book value per share was increased to $77.67 from $77.22 last quarter. And finally, the key index for the current ratio was 210% the same as last quarter end. And that ratio is 1% lower, it becomes 52% from 53% last quarter end. Okay. Okay, that's my report for financials. Now we can, we're going to begin the Q&A, and please submit your question in the input box on the webcast window now. Thank you. Okay, well, I think we have investors curious about what's happening for the China Small Punks inventory, such high level, and then what happens next. The end of the 2020 Huawei ban No longer can ship any wafer to Huawei in China. And then starting from 2021, the other brand names, Mahong, almost everyone you named it, They all set up a very aggressive target to try to gain shares from existing shares in Huawei. And then, at the same time, our China PA Design House customer ran up and I can say that localization happening and we have or several China PDA maker design house, they also getting here and work together with the brand name smartphone maker and to cooperate with this kind of aggressive Target and the chip accumulated the PA starting from beginning of last year and then you can see when the Q4 the year 2021 when Our wind family's revenue reached record high in Q4. Actually, those PA design houses still place a lot of order to us and still accumulate a lot of PA on hand. Unfortunately, in the end of the last year, those smartphone makers, no matter OPPO, Vivo, Xiaomi, or even Honor, they started to revise down their forecast and then They're talking about their inventory is getting higher and higher. Unfortunately, our customer, while at that time, they actually feel in a very high level. They're still placing orders to us. at that time, and even in this new one, they recognize that they're cutting older, but the older is still there. I think we analyzed it and read a lot of different news and analysis reports and find out that I think not only a small homemaker may have a lot of inventory on hand and maybe part of it in the channel and also our customers also have a lot of PA inventory on their side so it looks like the inventory adjustment period a little bit longer than everybody expects or even longer than the core chip maker like NTK or Qualcomm. That's the reason why. And I think the truth is not only the China Smart Home, but also the whole Enjoy Home. I think later on, one of the Shield One, Enjoy Homemaker, also mentioned that they're going to stop collecting the components. So, yeah, I think the whole thing is just like that. And, yeah, we... That's why the inventory adjustment is keep happening and so far unfortunately the macro environment also changing very fast and it kind of making the demand even weaker. So, yeah, I think part of some of the investors are wondering how about the U.S. Shield 1 smartphone suppression Q3. I can say that... The schedule is on track, everything on track, but the trend of going down from Enjoy actually is still very strong, so that's why we guide the Q3, the revenue is kind of weaker like that, and yeah, that's exactly what happened. Thank you.

Okay, let's have the other question. I want to know better details about the Q3 application situation. As I just mentioned at early, for Q3 the revenue will going down around more than 20% and it's mainly due to Smartphone market So I think right now what we see the cellular PA will decline the highest percentage is for the cellular PA and at the same time Wi-Fi and the infrastructure still facing some slightly decline in third quarter and but at the same time I think optical because of the seasonality is the shipping peak season so compared from Q2 I think optical still has a positive growth in Q3 yeah that's the four different application situation in Q4 thank you sorry in Q3 Okay, the other question I want to know what's the biggest factor about the margin decline from Q2 to Q3 I think it's mainly because of the iteration-based decline because the revenue was declined more than 20% So, at the same time, I think the UTW will decline double digits in here. So, as a boundary, because once the iteration rate is lower than 50%, I think it definitely will impact margin a lot because you don't got enough economic scale to cover all the depreciation and save costs in there. Thank you. Okay, because Joe just say actually our campus that will has some postpone or delay shift to next year. So this year TAPS now will be only around eight billion plus and minus compared original TAPS half billion at the beginning of this year we forecast. Yeah, so a lot of investors want to know how's our capacity trend right now. So right now, our capacity is 41,000 wafers per month in six inch right now. And at the end of this year, I think we will likely run up around 2,000 wafers per month in here. At the end of this year, we will have around 43,000 6-inch wafers per month. That's right now the new capacity plan right now. Thank you.

Okay, well, there is a question asking about several different perspectives. Well, of course, the cover around our maybe U.S. deal on smartphones, and also would like to know what's the difference between this year and the 2018 cycle. First of all, as I did mention earlier, I think the U.S. human smartphone supply chain is the most, I can say that relatively stable than the Android. And the schedule is pretty on track. And, of course, I think maybe there's some difference from several years ago Corp Corp Corp Corp Corp uh, earlier, uh, before, uh, Wi-Fi customers kind of, uh, uh, losing share. Um, um, but, uh, in this year, I think, uh, uh, for the standard, uh, for the 3D sensing, um, they're all on track. Uh, so, uh, uh, the, the, uh, uh, and, uh, the schedule is, uh, still pretty, pretty on time. And, uh, uh, the, uh, For the 2018 compared this year in the 2018 cycle, it looks pretty similar, the trend, which is from The quarter by quarter actually, the first half looks still maybe still okay, although it's already weaker than a year before. But the second half is even weaker. It looks like now Q3 looks like pretty good. The reason is quite different. 2018 is after the fifth season of the 3D printing of 2017, which is, we just, we, They remember the first 3D sensing phone ran out in the Q4 2017 and at that time, I think in the supply chain, the yield rate is not that good, but gradually, quarter over quarter, year over year, and the yield is kind of improved. And so it's the demand, I mean, for we don't, In the beginning, we already have a very good yield, but in the supply chain, actually, we still have some problems. When the yield improves, the wafer consumption becomes are not that strong later on. And also in the second half, there is a, I think we have, in 2018 we have a cellular and a Wi-Fi customer also lose part of the share in that year. But for this year, 2020, I think it's all because of the macro environment and also the market inventory. I mean the PA inventory or the Android inventory was too high and it kind of impacted demand for this Q3. For the forum, It's an environment, I mean, it's a macro environment issue rather than the single customer's issue. So, yeah, that's pretty much it.

Thank you.

Okay, there is some investment. Want to, want us to update some our LiDAR status. Okay, I think as we discussed before, actually LiDAR I think is more related to the autopilot level, which that will adapt in the market. So, and definitely, from level 2 to level 4 level 5 that will increase tremendous LiDAR demand at that time but I think until right now what we see in most of the car in the market right now is all just apply the level to level autopilot devices which means the demand for LiDAR at this moment is still I think we still have a very good confidence about a lie-down contribution in the future once the market adapts the autopilot level from level 2 right now to level 3 or level 4. But I think again right now we still are cooking this technology and keeping A lot of high-run projects with different customers to make sure we can provide most of the advanced technology here. But the revenue contribution still needs to wait a few years. Thank you. Okay, I think still a lot of investment was very concerned how the production will be end, when that will be end. But I think until right now, like we just saying that the visibility is pretty low. Right now, we only can say that the Q3 demand is very weak and for the Q4 because every year most of the smartphones will launch their premium model flagship model in Q3 or in early of the Q4 so I think the demand for the Q4 or the inventory congestion will last to Q4 or even longer I think we need to wait to see how those new flagship products launch the market reaction because I think for the market right now it's quite slow but we need to watch those new flagship models launch at the end of Q4 sorry, at the end of Q3 or around September or October, can they bring the new demand in the market? Otherwise, if they can bring the demand to the market, maybe the correction can be shorter. But if demand is still flat at that time, then this correction may be less stronger. Thank you.

Looks like there's no further questions. We're going to wait another one minute. Otherwise, we will end the meeting. Thanks.

Okay, I think there's a new question. Want to know about the Feng Shui competition service for getting out right now. Yeah, I think for the past few years, I think most of the new competitors was coming from China. Yeah, everybody knows about that. But compared to WinSemi Technology and those China competitors can provide, I think it still has a lot of gaps in layers especially for the 5G here I think it needs a very new advanced technology from wind-saming in layers so I think for wind-saming point of view it's always a competition in the market but wind-saming a lot of time to developing the new advanced technology. So definitely we are more targeting for the customer and demand for those new advanced technology such as the 5G or even the new Wi-Fi 6 in those high frequency and high performance PA. Because for those kind of application and technology, We certainly still have a very good advantage compared to those other competitors because of the unique technology that we certainly provide to the customer. Thank you.

Okay, there are no further questions. And we want to thank you for your participation in the WinSemi conference today. And there will be a webcast we play within hours. And so please visit www.winfoundry.com under the Investor Relations section. Thank you very much again, and you may now disconnect. Thank you, and goodbye.