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 WinSemi's Resolve Webcast Conference for third quarter of 2022. My name is Shouzhen, the Spokesman and Associate Vice President of Finance in WinSemi. Joining me today On today's call is Steve Chen, the 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 of 2022. And secondly, we will go through the financial in detail. After that, we will open to the floor for Q&A. Please freely submit your question 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 contains forward-looking statements. These statements are based on our current expectations. The actual result 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, the General Manager of WinSami.

Thank you, Joe, and welcome, everyone. For the third quarter of 2022, We say this consolidated revenue was $3.9 billion in empty dollars and down 26% quarter-on-quarter and 42% year-on-year as previously stated. This was mainly due to the impact of the ongoing industry adjustment in the Android smartphone market, which results in a further decline in our capacity integration rate POSIMA 40%. Our third quarter growth revenue will have a 21.1% excluding an one-off factor, that was we recognized one-off valuation loss on overseas investment targets held by a consolidated subsidiary whose main business purpose The Overseas Investment Target went to IPO this year, but due to significant volatility in the global economy this quarter, we recognize one of valuation loss which impact our growth margin by 5.1%. As a result, our consolidated gross margin was 16% and operating margin was negative 5.1%. Net income for the third quarter was $245 million in NT dollars and EPS was $0.83 NT dollars. Among the achievements of different product category in the third quarter. Consumer-related applications, including direct PA, Wi-Fi PA, still have the largest decline. This not only reflects the high inventory level in the market, but also reflects consumers' concerns about the macroeconomic downturn. Compatibility for the industrial application-focused infrastructure segment. While its performance also declined from the previous quarter, its revenue for the first three quarters of this year maintained positive year-on-year growth, as it was less affected by the macro environment. The optical segment significantly increased quarter-on-quarter, even not It has entered a traditionally strong season. Although the global macroeconomic remains challenging in the near term, our step with declining inflation rate offer our customers excellent opportunities. I've seen that both our microwave communication and the optical customer was becoming more aggressive in a number of the tap out for R&D. Some tap outs are for existing customers to qualify our next generation process for their new product in the next two years. And some are for the new customers who choose us as their partner to enter the new market or the new application for the coming years. The world has entered the post-COVID area that we have received increasing number of customers visit and the new project roll out as we approach at the end of this year. Mainly focusing on some end market trends in addition to continue penetration of the 5G mobile communication and deployment of the 5G infrastructure. The outsourcing trend of optical communication and optical sensing is also emerging. In particular, customers' interest and engagement with us in advanced process technology, such as the third-generation semiconductor materials, including tin, silicon, carbide, and indium phosphide, are higher than ever. During the economic downturn, we slowed down our pace of the capacity expansion but continuing to actively invest in R&D to seize the opportunity when the drone comes. Looking ahead, for the first quarter of 2022, our revenue is expected to decline low things quarter on quarter. and the growth margin will be between the level of high 10 and low 20. I will turn the call back over to Joe. Thank you.

Okay. Okay, it's our pleasure to present our financial results for the third quarter of 2022. You can refer the presentation slides and material and We're going to start from page 4. Before that, I still want to remind you guys to read the state power notice in page 2. Page 4 talks about revenue and margin. 2022 revenue was 3.9 billion NT, QOQ was down 26% and the YOY was down 42% as instructed earlier. And due to a further decline in the capacity duration rate from 60% last quarter to 40% this quarter, I mean Q3, So the growth margin declined by 14.2 percentage points, sequentially to 16%, and operating margin declined by 19.2 percentage points to negative 5.1%. The growth margin is different from our expectations earlier, mainly because of who suffered a one-off valuation loss on the 100% owned subsidiary investment company whose main business purpose is for investment. And so we will have explanation for next page, in page five. In page five, about our growth margin. Our third quarter growth margin would have been 21.1% if we extrude a one-off factor, because we recognize that one-off valuation loss on an overseas investment target And as I mentioned earlier, our subsidiary, Hunter St. Holmes subsidiary, who is an investment company, is holding an overseas investment target. The company just went IPO this year. And due to the significant volatility in the global equity market in Q3, So therefore, we recognize that one-off valuation loss. And also, when it's consolidated into our income statement, it impacts our gross margin by around 5.1 percentage points. Therefore, the consolidated gross margin become 15%. in Q3. If we take that into consideration for the accumulator Q1 to Q3, totally, the one-off factor impact of Q1 to Q3's income statement is 1%. 1.1 percentage point of the gross margin. Next page, page six, talk about earnings. The net profit for Q3 was 245 million NT dollars. QOQ was down 55% and YOY down 84%. The EPS coming at 0.83 NT dollars. And last quarter was $1.62 NT. And please look to next page for patient standards. We talked about program mix for this quarter. As we mentioned earlier, Steve mentioned it in the management comments, for the consumer products, including like cellular PA and Wi-Fi PA, it's a consumer product which is, the deterrent is more significant. The cellular PA, the percentage, from 40 to 45 percent last quarter to this quarter is between 30 and 35 percent. And the Wi-Fi remained the same between 5 and 10 percent. And the relatively, it's more stable, it's an industrial product, which is infrastructure. Although there's still For the dollar values, you have a decline from Q2 to Q3, but the percentage is going up from 25 to 30% to the range of 30 to 35%. And that's telling Telling everybody that the industrial product is more stable, which is we still maintain YOY for the first three quarters stable, even growth, a little bit growth. And the last one would be the others. including the 3D sensing, optical sensing, and other auxiliary income. The total is 26% going up from 20% of last quarter. Okay, this is what the program looks like. And the next page, it says, Page 8 is talking about Q4 guidance. I think Steve has mentioned it. I'll just read it over again. We expect Q4 2022 the revenue to decline low-teens QOQ, and we also expect Q4 growth margin will be between the level of high-teens and the low-20s. Okay, then we can quickly, we can quickly go through the income statement for Q3 and the first, the accumulator, Q1 to Q3. The net revenue for Q3, 22, is 3,909,000,000 MP. I'm sorry, I still want to remind everybody that the financial report, the figure is based on an audited basis. The final result should be based on the CPH report. Okay, so the net revenue, $3,909 million NT, CO2 was down 26%, and YOR down 42%. The gross profit becomes $624 million NT, and in consideration of the one-off factor, about 5.1 percentage points, then the consolidated gross margin will be 6%. Operating expense is 822,000 NT, so the old tax ratio is 21% this time. The utilization rate is going down significantly to 40%. Normally, we will treat it, the all-pass ratio should be in the range of maybe 12%, 14%, 15%, this kind of range. If the utilization can maintain 70% or 80%, this kind of level or high, The operating income becomes negative. It's an operating loss for 200 million NT. The operating margin is negative 5.1%. And the non-off income was 500 million NT. The detail is page 12. Income before income tax was $299 million. The income tax expense was $55 million. So the net income becomes $245 million. The net margin was 6.3%. So the EPS for Q3 was .83 NT dollars. The return on equity for this quarter was 4% and utilization rate, the approximate utilization rate was 40%, which is going down from 60% last quarter. The depreciation expense is a little bit lower than last quarter, which is around 10%. 138 million NT. The car parts for Q3 was 1,908 million NT. It's lower than last quarter. So this is the Q3 result and the accumulated Q1 to Q3. The next revenue was 14,803,000,000 and the YOY was down 22% and the gross profit was 3,939,000,000 NT so the gross margin becomes 26.6%. The operating expense was 2,476,000,000 and so therefore the operating expense ratio was 17%. The operating income was $1,463 million and the operating margin was 9.9% for accumulated 3 quarters. income was $496 million so the income before income tax become $1,959 million and the income tax expenses was $384 million MT so the next income for the first three quarters was $1,575 million MT therefore the net margin becomes 10.6%. The EPS for Q1 to Q3 accumulated, Q1 to Q3 2022 was $4.43 NT. The return on equity for the first three quarter was 7%. and approximately utilization rate accumulated has become 35%. The depreciation expense for the first three quarter was 3147 million NT. We believe that the whole year's depreciation expense will be, YOY will be less than 10% compared to last year. And the top part for the first three quarters of humans was 6,208 million NT, which is, we already, in Q2's NLE score, we already performed around 1 third and also from around $12 billion reduced to $8 billion plus and minus for the whole year of 2022. We're going to maintain the same view as before. That's a huge, huge, huge earnings cost. and what we, the major about our Kaohsiung fab, a new fab, we still maintain the same schedule which is we complete the Kaohsiung fab until the first main building finish and then we go for the industry. Page Charles is a non-op person. I think I highlighted two major items for Q3, which is the first one will be the The gain on the ECB buyback, which we did in Q3, is $350 million NT of the gain. And another one will be the foreign exchange gain. Okay, then finally, we're going to talk about I think the cash and the cash equivalent is around $10,880,000 NT. So our total assets will become $70,398,000 NT. And our total liability was $35,091,000 NT. And the total equity was $35,376,000,000 NT. So the book value per share becomes $78.8 NT, which is going up from $77.67 NT in June 30th. And the Q-Index, including the current ratio, becomes $338 million since we paid out the dividend in this quarter. So the current ratio went up from 220%. And finally, the debt ratio was 50%. Okay, this is what I have. So now we begin the Q&A. So please just submit your question in the input box on the webcast window now. Thank you.

Okay, I think this time, yeah, the revenue is still going down and it's a very long correlation, correction period since Wednesday we listed. Our revenue is going down more than like three quarter and I think everybody was really concerned about how the button will be I think what we see right now we think the correlation should be become very it should be only like at the end of the period I think right now what we see the bottom of this correlation Correction should be in next year Q1 I think that should be the bottom and also the reason is because usually the Q1 is the lowest season of the year and after the Q1 I think the demand should be little went up from Q2 next year and so right now what we see the pattern of this correction that will be the next year Q1 and then there will be a little recovery quarter by quarter. Thank you.

Okay. There are a couple questions regarding the Q3 utilization rate and maybe further Q4 and also asking about operating expand some kind of question. We mentioned that Q3 Q3 utilization rate become 40% it went down from 60% from Q2 and if to make for preliminary estimation for Q4, we just can say that it should be maybe a little bit lower than 40% currently. But what exactly is the number still need some time. And for operating expense, Yeah, I think as I just talked a little bit about normally in the growing pattern or at least we maintain about 70% to 8% or above that kind of utilization, then it's easier to make the judgment that Oax ratio can maintain in the range of around 12% to 14%, not even higher than 15%. But this time, because the UT is dropping sequentially, and so this kind of rule is being is not applicable. We do whatever we can to to keep the operating expense as low as possible and to see that from Q2 to Q3 the OTAX went down around 30 million NT and of course we hope for example, we encourage the employee to take a vacation, this kind of lower utility, and also Corp Corp Corp Corp Corp Corp Corp and it's not very easy to control it and make the operating expense very significant. We will do whatever we can to keep the low level of doctoring expense. That's about the OPEX and OPEX ratio. Thank you.

Okay, I think there is no further question. I think I will more or less discuss about the trend of the Q4 and how our capacity allocation. I think, as I just mentioned earlier, the revenue from Q3 to Q4 are some Loading percentage and at least at least decline I think what we see is is a very most of the applications is facing a little decline no matter it's Deliver PA, Wi-Fi PA or even 3D sensing or infrastructure I think move to Q4 is the demand is all a little weaker than Q3. Yeah, and so for the application percentage, the kind of percentage for Q4 I think is quite average. Yeah, I think each segment maybe will drop around like 10% in kind of range. And the other Question we want to know about because of this kind of low utilization rate, how's our capacity expansion plan in the future? As we mentioned before, right now, our capacity is 41K wafer per month, and at the end of this year, Pepsi will increasing around like 2 to 3K capacity. Yeah, and I think right now we will only finish the shell of the building and for the equipment, I think we will watch the market demand very carefully, yeah. Before we really see a ramp up of the demand and the EOT were rising up back to like 80% I think we will sell down all the new equipment expansion for the Bluetooth FAB Okay, thank you

Okay, I think there's an investor asking about we suffered a one-off valuation loss in one of our subsidiaries. and who are holding the overseas investment target, who they are and what happened. I think first of all, there is a China customer who are just IPO in the market Equity Market and before the IPO we acquire part of the share, become the shareholder and of course this is a strategic investment to maintain the relationship with the customer and also I think this is the biggest is a major PI design house in China, so we are kind of expecting the financial process for the long term future. and because of that, so we recognize that the one-off valuation loss for our subsidiary and he impacted growth margin of five points, one percentage point. Okay, that's the one. And another A question from the investor, including like, there's a, recently there's a lot of talking about Winfany kind of facing the price competition and also the market share, those kind of issues. First of all, I think what we want to say is that except that the annual agreement or annual contract we may negotiate with the customer. Otherwise, we don't have any kind of pricing down or any in this moment, or any kind of pricing competition. And about the market share, from one lose to our competitors, is one of our major customers. I think, first of all, I think customers are pursuing the market for stores using the different country companies is quite normal, which means even in Silicon Valley, they also are using multiple foundry companies. But I can assure you that they has been working with WinSemi since day one and we have very solid relationships and even at this moment they still have a lot of New tip out for new products of technology for the next maybe one or two years products. So we don't see for Q3 or even Q4, the downturn is nothing to do with their outsourced, their multiple sourcing policy. It's nothing to do with that. I mean, or even because of price competition. It's purely the... inventory correction and macro environment making the demand weaker in Q3 or even Q4. I think our relationship with our customers is still very solid and they are still using our advanced technology for the future products and so we believe the recent downturn has something to do with that. Thank you.

Okay, there is a question related to the cabinet plan. I think right now we, like you were just saying, we still cooperate with our customer very closely right now and discuss next year business. So about the cabinet plan of Next year I think we still need some time to collect more customer information and data and we will give you more detail on Q1 conference call. Thank you.